1-If income elasticity of demand of a commodity is

less than 1(negative), it is a necessity good or an

inferior good.
If the elasticity of demand is greater than
1(positive), it is a luxury good or a superior
good.

Income elasticity of demand

Description
In economics, the income elasticity of demand is
the responsiveness of the quantity demanded for a
good to a change in consumer income. It is
measured as the ratio of the percentage change in
quantity demanded to the percentage change in
income. 

2-. Adam Smith is known as father of economics

& “An Enquiry into the Nature and Cause of Wealth
of Nation” was written by him.
3- What effect is working when the price of a good
falls and consumers tend to buy it instead of other
goods: Substitution Effect
4-Incremental Principle is closely related to the
marginal costs and marginal revenue of economic
theory32
5-If the income and substitution effect of a price
increase works in the same direction the good
whose price has changed is a normal goods.
6-An isoquant is a firm's counterpart of the
consumer's indifference curve. An isoquant is a
curve that shows all the combinations of inputs
that yield the same level of output. 'Iso' means
equal and 'quant' means quantity. Therefore, an
isoquant represents a constant quantity of
output.
7-In Linear homogeneous production
function ,the degree of homogeneity is always one.
The Linear Homogeneous Production Function
implies that with the proportionate change in all
the factors of production, the output also
increases in the same proportion. Such as, if the
input factors are doubled the output also gets
doubled. This is also known as constant returns to
a scale.
8-Short Run Law- Law of Diminishing Returns
9- Fixed cost per unit increases when volume of
production decreases.
10- Variable cost per unit varies with the volume of
production.
11-Firms in an oligopoly can each influence the
market price.
12-Product differentiation is an important feature of
monopolistic competition.
Selling Cost is the feature of monopolistic
competition.
The product under monopolistic competition is
differentiated with close substitute

A monopoly is the type of imperfect competition

where a seller or producer captures most of the
market share due to the lack of substitutes or
competitors. A monopolistic competition is a
type of imperfect competition where many
sellers try to capture the market share by
differentiating their products.

13-Supply refers to the quantity of a good or service

that producers are willing and able to sell during a
certain period under a given set of conditions.
14- Market supply function for a product is a
statement of the relation between the quantity supplied
and all factors affecting that quantity.
Cost of Production is the determinant of Supply.
15-Supply schedule a statement in the form of a table
that shows the different quantities of a commodity that
a firm or a producer offers for sale in the market at
different prices.
16- An input should be so allocated that the value
added by the last unit is the same in all cases : equi-
marginal principle
17-Managerial utility function is expressed as:  u = f
(s, m, i)
18- Explicit cost ( out of pocket expenses)are
recorded in Books of Accounts.
Implicit cost - The value of an entrepreneur’s
resources (assets) that she uses in production.

The main difference between the two types of costs

is that implicit costs are opportunity costs, while
explicit costs are expenses paid with a company's
own tangible assets. This makes implicit costs
synonymous with imputed costs, while explicit
costs are considered out-of-pocket expenses.
19- Utility is want satisfying power of Commodity.
( How much useful the commodity is
The utility of a commodity is its relative scarcity.

20-Demand: Desire backed by purchasing power.

21-The demand has three essentials ‐ Desire, purchasing
power and willingness to pay.
“Demand means effective desire or want for a
commodity, which is backed by the ability (i.e.,
money or purchasing power) and willingness to
pay for it.
22- Law of demand shows the functional relationship
between Price and quantity demanded.
23- Higher the price of certain luxurious articles, higher
will be the demand, this concept is called Veblen Effect.
A Veblen good is a type of luxury good for which the
demand for a good increase as the price increases,
in apparent contradiction of the law of demand,
resulting in an upward-sloping demand curve.
24- Demand for milk, sugar, tea for making tea, is an
example of Joint Demand.
25-Perfect elasticity is known as Infinite Elastic.
Perfect elasticity, the demand curve is Horizontal.
The horizontal demand curve for a commodity
shows that its demand is Perfectly Elastic.
A demand curve which takes the form of horizontal
line parallel to quantity axis illustrates elasticity which is
less than one.
26- Perfect competition is characterized by
A. large number of buyers and sellers
B. homogeneous product
C. free entry and exit of firms
D. all the above

27-In economics equilibrium means ‘a state of rest ‘or

‘stability’.
28-Selling at a lower price in export market and at a
higher price at home market is called Dumping.
29-An exceptional demand curve is one that slopes
upward to the right.
30-A fall in the price of a commodity whose demand
curve is a rectangular hyperbola causes total
expenditure on the commodity to remain unchanged.
When the demand curve is a rectangular hyperbola, it
represents unitary elastic demand.
81. Consider a demand curve which takes the form of a
straight line cutting both axes.Elasticity at the mid-point
of the line would be:
A. zero
B. one infinite
C. infinite
D. cannot be calculated
Discussion
B. one infinite

82. The elasticity of demand for a product will be higher:

A. the more available are substitutes for that product
B. the more its buyers demand loyalty
C. the more the product is considered a necessity by its buyers
D. all of the above
Discussion
A. the more available are substitutes for that product

83. In case of Giffen goods, demand curve will slope:

A. vertical
B. horizontal
C. upward
D. downward
Discussion
C. upward

84. Cross elasticity of demand between tea and sugar is:

A. positive
B. zero
C. infinity
D. negative
Discussion
D. negative

85. If the percentage increase in quantity of a commodity

demanded is its price, thecoefficient of price elasticity of
demand is:
A. greater than 1
B. equal to 1
C. less than 1
D. zero
Discussion
C. less than 1

86. If the quantity of a commodity demanded remains

unchanged as its price changes, thecoefficient of price
elasticity of demand is
A. greater than 1
B. equal to 1
C. less than 1
D. zero
Discussion
D. zero

87. Unitary elasticity of demand is:

A. zero
B. equal to one
C. greater than 1
D. less than 1
Discussion
B. equal to one

88. The real business cycle theory is most closely related

to
A. keynesian theory
B. monetarist theory
C. the classical theory
D. the new keynesian theory
Discussion
C. the classical theory

89. In the real business cycle model, business cycles are

A. efficient and do not represent lost output
B. driven by technology shocks
C. occur when markets clear
D. all of the above
Discussion
D. all of the above

90. Real business cycle proponents argue that

A. recessions are caused by movements of output away from the natural rate
of output
B. prices and wages are sticky
C. macroeconomics should be based on the same assumptions as
microeconomics
D. monetary policy is important in determining recessions
Discussion
C. macroeconomics should be based on the same assumptions as microeconomics

91. Implicit costs are:

A. equal to total fixed costs.
B. comprised entirely of variable costs.
C. "payments" for self-employed resources.
D. always greater in the short run than in the long run.
Discussion
C. "payments" for self-employed resources.

92. The law of diminishing returns only applies in cases

where:
A. there is increasing scarcity of factors of production.
B. the price of extra units of a factor is increasing.
C. there is at least one fixed factor of production.
D. capital is a variable input.
Discussion
C. there is at least one fixed factor of production.

93. When the total product curve is falling, the:

A. marginal product of labour is zero.
B. marginal product of labour is negative.
C. average product of labour is increasing.
D. average product of labour must be negative.
Discussion
B. marginal product of labour is negative.

94. When marginal product reaches its maximum, what

can be said of total product?
A. total product must be at its maximum
B. total product starts to decline even if marginal product is positive
C. total product is increasing if marginal product is still positive
D. total product levels off
Discussion
C. total product is increasing if marginal product is still positive

95. Variable costs are:

A. sunk costs.
B. multiplied by fixed costs.
C. costs that change with the level of production.
D. defined as the change in total cost resulting from the production of an
additional
Discussion
C. costs that change with the level of production.

96. The reason the marginal cost curve eventually

increases as output increases for thetypical firm is
because:
A. of diseconomies of scale.
B. of minimum efficient scale.
C. of the law of diminishing returns.
D. normal profit exceeds economic profit.
Discussion
C. of the law of diminishing returns.

97. If the short-run average variable costs of production

for a firm are rising, then thisindicates that:
A. average total costs are at a maximum.
B. average fixed costs are constant.
C. marginal costs are above average variable costs.
D. average variable costs are below average fixed costs.
Discussion
C. marginal costs are above average variable costs.

98. If a more efficient technology was discovered by a

firm, there would be:
A. an upward shift in the avc curve.
B. an upward shift in the afc curve.
C. a downward shift in the afc curve.
D. a downward shift in the mc curve.
Discussion
D. a downward shift in the mc curve.

99. The firm's short-run marginal-cost curve is increasing

when:
A. marginal product is increasing.
B. marginal product is decreasing.
C. total fixed cost is increasing.
D. average fixed cost is decreasing.
Discussion
B. marginal product is decreasing.

100. A firm encountering economies of scale over some

range of output will have a:
A. rising long-run average cost curve.
B. falling long-run average cost curve.
C. constant long-run average cost curve.
D. rising, then falling, then rising long-run average cost curve.
Discussion
B. falling long-run average cost curve.

1. Which of the following is a variable cost?

The correct answer was: b. Raw materials costs.
2. Incorrect. You answered: a. The salary earned by a corporate executive.
Which of the following is an implicit cost?
The correct answer was: b. Depreciation in the value of a company-owned car as it
wears out.
3. Incorrect. You did not provide an answer.
If the output levels at which short-run marginal and average cost curves reach a
minimum are listed in order from smallest to greatest, then the order would be
The correct answer was: c. MC, AVC, ATC.
4. Incorrect. You did not provide an answer.
Learning curves represent the relationship between
The correct answer was: b. average variable cost and the cumulative number of
units produced..
5. Incorrect. You did not provide an answer.
If an input is owned and used by a firm, then its
The correct answer was: a. explicit cost is zero..
6. Incorrect. You did not provide an answer.
Short-run marginal cost is equal to
The correct answer was: d. all of the above..
7. Incorrect. You did not provide an answer.
Short-run average variable cost is equal to
The correct answer was: d. all of the above..
8. Incorrect. You did not provide an answer.
Which of the following short-run cost curves declines continuously?
The correct answer was: c. Average fixed cost.
9. Incorrect. You did not provide an answer.
The law of diminishing returns begins at the level of output where
The correct answer was: a. marginal cost is at a minimum..
10. Incorrect. You did not provide an answer.
The long-run average cost curve is at a minimum at a level of output where
The correct answer was: d. all of the above occur..
11. Incorrect. You did not provide an answer.
If a firm has a downward sloping long-run average cost curve, then
The correct answer was: c. it is a natural monopoly..
12. Incorrect. You did not provide an answer.
One reason that a firm may experience increasing returns to scale is that greater
levels of output make it possible for the firm to
The correct answer was: d. All of the above are correct..
13. Incorrect. You did not provide an answer.
One reason that a firm may experience decreasing returns to scale is that greater
levels of output can result in
The correct answer was: b. an increase in meetings and paperwork..
14. Incorrect. You did not provide an answer.
Economies of scope refers to the decrease in average total cost that can occur
when a firm
The correct answer was: a. produces more than one product..
15. Incorrect. You did not provide an answer.
Breakeven analysis identifies the
The correct answer was: b. level of output where economic profit is equal to zero..
 16. Incorrect. You did not provide an answer.
Which of the following is an assumption of linear breakeven analysis?
The correct answer was: c. Average fixed cost is constant.
17. Incorrect. You did not provide an answer.
The responsiveness or sensitivity of a firm's profits to changes in output is
measured by a firm's
The correct answer was: c. degree of operating leverage..
18. Incorrect. You did not provide an answer.
Which of the following values cannot be calculated at the firm's breakeven level of
output?
The correct answer was: c. degree of operating leverage..
19-If a linear short-run variable cost function is estimated using cross-sectional
data, then the corresponding marginal cost function will be
The correct answer was: d. horizontal..
20-The survival technique

 a. can be used to estimate short-run total variable cost functions.

 b. is based on a technical knowledge of a firm's production function.
 c. uses regression analysis in combination with time-series or cross-
sectional data.
 d. None of the above is correct.

The correct answer was: d. None of the above is correct..

21-The process whereby firms reduce their production costs by taking
advantage of international differences in the prices of inputs and
international similarities in preferences is referred to as the
The correct answer was: b. new international economies of scale.
22-Which of the following would be referred to as "outsourcing?"
The correct answer was: c. Subcontracting production to firms in other countries.
23- When a firm designs a core product for the entire world that can be
adapted in a number of ways to accommodate different types of markets,
it is taking advantage of the
The correct answer was: b. new international economies of scale.
24-The Japanese cost-management system involves
The correct answer was: c. determining how much a product should cost and then
determining how it should be produced.
25-The contribution margin per unit is equal to the
The correct answer was: d. difference between price and average variable cost.

32-The law of demand implies that : Demand Curve

Slope Down.
33-AFC Curve is Convex & Downward Sloping,
Output increases – AFC starts falling. & AFC Curve
is never U shaped,
34-U-shaped average cost curve is based on:
Law of Variable Proportion
35- When shape of average cost curve is
upwards, marginal cost must be rising.
36- Economic cost excludes: Accounting cost +
explicit cost
37- Necessary condition for firm to be in Equilibrium
The necessary condition for equilibrium position of a firm is MC=MR. A firm is in
equilibrium when it has no tendency to change its level of output. It needs neither
expansion nor contraction. It wants to earn maximum profits in by equating its
marginal cost with its marginal revenue, i.e. MC = MR.
38- A factor of production, whose supply is fixed in the short run, may get
additional earnings. These earnings are generally referred to as Quasi-rent. The
earnings from machines and instruments are termed as quasi-rent. The quasi-rent
refers to the income produced when the demand for products increases suddenly.
39- In May 2013, firm was supplying 500kg of sugar at market price of Rs.30/- per
kg. During June 2013, firm's supply of sugar had decreased to 450kg at price of
Rs.20/- per kg. These changes show that supply of sugar is less elastic.