Name:________________________ Sec:____ Date:__________ Subject: Business Economics Test : 40 % of Syllabus

Time Allowed: 50 minutes Total Marks: 50

• Multiple-Choice Questions (Circle your Answer)

1. In Deductive method of reasoning :

a) General conclusions are drawn from general facts
b) General conclusions are drawn from specific facts
c) Specific conclusions are drawn from specific facts
d) Specific conclusions are drawn from general facts
2. Q + P = 5 , 2P – Q = 5.5, Find Equilibrium Price and Quantity
a) P = 6 , Eq QTY= 0.5 b) P = 10 , Eq QTY = 4.5 c) P = 3.5 , Eq QTY = 1.5

d) P = 14, Eq QTY= 8.5

3. “Economics is a science which studies human behavior as a relationship between ends and
scarce means which have alternative uses”:
a) Definition by Prof. Paul Samuelson b) Definition by Lionel Robbins
c) Definition by Alfred Marshall e) None of the above
4. Dependency Ratio is:
a) The ration of working population for non-working population
b) The Ratio of male population to female population
c) The ratio of literate population to illiterate population
d) Any of the above e)None of the above
5. In case of a right angled Indifference curve the goods are :
a) Prefect complements b) Prefect Substitutes c) Inferior / Giffen Goods
d) None of them
6. The budget line of a consumer explains various combinations of two commodities that:
a) Are actually purchased at market prices
b) Can be purchased at market prices
c) Equate consumers expenditure to his money income
d) B and C above e) A and C
7. An decrease in the price of commodity Y only, will do with of the following:
a) Rotate the budget line clock wise b) Rotate the budget line anti – clock – wise
c) Shift the budget line upwards d) Shift the budget line downwards
8. The law of diminishing returns states that:
a) As a firm uses more of a variable resource, given the quantity of fixed resources, the
average product of the firm will increase
b) As a firm uses more of a variable resource, given the quantity of fixed resources,
marginal product of the firm will eventually decrease
c) In the short run, the average total costs of the firm will eventually diminish
Name:________________________ Sec:____ Date:__________ Subject: Business Economics Test : 40 % of Syllabus
Time Allowed: 50 minutes Total Marks: 50
d) in the long run, the average total costs of the firm will eventually diminish
9. The change in the quantity demanded of a good resulting from a change in relative price with
the level of satisfaction held constant is called the ____________ effect.

a) Price b) Income c) Substitution d) None of them

10. A shift of the supply curve of oil raises the price from $10 a barrel to $30 a barrel and reduces
the quantity demanded from 40 million to 23 million barrels a day. You can conclude that the
a) Supply of oil is elastic. b) supply of oil is inelastic
c) Demand for oil is inelastic d) Demand for oil is elastic.
11. If money income of the consumer and price of both the commodities decrease by 25 percent,
the budget line will:
a) Shift upwards b) Shift downwards c) Stay the same
d) Any of the above is possible e) None of the above is possible
12. According to ordinal utility approach, a consumer will be in equilibrium when:
a) Ratio of marginal utilizes is equal to price ratio
b) Budget line is tangent to an indifferent cure
c) Marginal rate of substitution is equal to price ratio
d) Any of the above holds
e) None of the above holds
13. A fall in the price of X or Y will do which of the following:
a) Push the consumer to a higher indifference curve
b) Push the consumer to a lower indifference curve
c) Will keep the consumer on the same indifference curve
d) All of the above are possible
e) None of the above is possible

14. If X and Y both are complementary commodities, price consumption curve will:
a) Be a horizontal straight line b) Be a vertical straight line
c) Slopes upward to the right d) All of the Above e) None of the Above
15. If income consumption curve incline to Y-axis we can conclude that:
a) X is an inferior good b) X is a Giffen good c) X and Y both are inferior goods
d) Y is Normal good d) X and Y both are normal goods e) A, B and D
16. A curve joining various points of consumer equilibrium resulting from changes in price
of either good is known as:
a) Price consumption curve b) Income consumption curve
c) Demand curve of the consumer d) Engle curve e) None of the above
Name:________________________ Sec:____ Date:__________ Subject: Business Economics Test : 40 % of Syllabus
Time Allowed: 50 minutes Total Marks: 50
17. If price consumption curve resulting from a decrease in price of X has negative slope it means
that X is:
a) An inferior commodity b) A Giffen commodity
c) A superior commodity d) Normal commodity e) None of the above
18. The substitution effect occurs because of the two reason:
a) Change in relative prices of commodities, One is cheaper and the other costlier

b) Change in the Income and price of other commodity

c) Income of the consumer does not change d) A and C e) B and C

19. Which of the following equations corresponds to an optimal choice point?

i) MRS = PX/PY ii) MUX/MUY = PX/PY iii) MUX/PX = MUY/PY iv) MUX/PY = MUY/PX

a) (i) only b) (i), (ii), and (iii) only c) (ii) and (iv) only
d) (Iii) and (iv) only e) (iii) and (iv) only
20. An increase in income, holding prices constant, can be represented as:

a) A change in the slope of the budget line.

b) A parallel outward shift in the budget line.
c) An outward shift in the budget line with its slope becoming flatter.
d) A parallel inward shift in the budget line.

21. Sales of Good X have fallen from 120,000 per year to 108,000 per year following an increase
in the price of Good Y from $1 to $2
Which of the following statements most accurately describes the relationship between Goods
X and Y?
a) They are complements, and the relationship between them is very strong
b) They are substitutes, and the relationship between them is very strong
c) They are complements, but the relationship between them is relatively weak
d) They are substitutes, but the relationship between them is relatively weak
22. Which of the following statements is always true if an indirect tax is imposed on a good or
service:
e) The price will rise by an amount equal to the tax.
f) The producer will bear more of the tax than the consumer.
g) The price rise will be smaller the greater the price elasticity of demand is.
h) The price rise will be greater the greater the price elasticity of demand is.
23. If a more efficient technology was discovered by a firm, there would be:
a) An upward shift in the AVC curve. b) A downward shift in the AFC curve.
Name:________________________ Sec:____ Date:__________ Subject: Business Economics Test : 40 % of Syllabus
Time Allowed: 50 minutes Total Marks: 50
c) An upward shift in the AFC curve. d) A downward shift in the MC curve.
24. Economies and diseconomies of scale explain why the:
a) Short-run average fixed cost curve declines so long as output increases.
b) Marginal cost curve must intersect the minimum point of the firm's average total cost
curve.
c) Long-run average total cost curve is typically U-shaped.
d) Short-run average variable cost curve is U-shaped

25. With fixed costs of $400, a firm has total costs of $3 and variable costs of $2.50 per unit of
output. Its output is:
a) 200 units. b) 400 units. c) 800 units. d) 1,600 units.

26. 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

27. Suppose a firm sells its product at a price lower than the opportunity cost of the inputs used to
produce it. Which is true?
a) The firm will earn accounting and economic profits.
b) The firm will face accounting and economic losses.
c) The firm will face an accounting loss, but earn economic profits.
d) The firm may earn accounting profits, but will face economic losses.

28. A price ceiling set above the equilibrium market price will result in:

a) Market failure
b) Excess supply over demand
c) Market equilibrium
d) Excess demand over supply
29. Which one of the following would normally cause a rightward shift in the demand curve for a
product?
a) A fall in the price of a substitute product
b) A reduction in direct taxation on incomes
c) A reduction in price of the product
d) An increase in the price of a complementary product

30. In traditional theory, which of the following best describes a firm's short run supply curve:

a) Its marginal cost curve where price is less than average variable costs
b) Its marginal cost curve where price is greater than average variable costs
Name:________________________ Sec:____ Date:__________ Subject: Business Economics Test : 40 % of Syllabus
Time Allowed: 50 minutes Total Marks: 50
c) Its average cost curve where price is less than marginal cost
d) Its average cost curve where price is greater than marginal cost
31. If the price per unit of x rises from $1.20 to $1.30, it is expected that monthly demand will fall
from 800,000 units to 730,000 units. What is the arc elasticity of demand when the price is
$1.20?
a) 1.05 b) 1.14 c) 0.64 d) 0.86

32. Which combination of demand and supply curves would be appropriate for a firm attempting to
increase its profits by increasing its market share?

a) Inelastic demand, inelastic supply

b) Elastic demand, elastic supply
c) Inelastic demand, elastic supply
d) Elastic demand, inelastic supply
33. Muddy Waters Co is an industrial company which has altered its production methods so that it
has reduced the amount of waste discharged from its factory into the local river. Which of the
following is most likely to be reduced?

a) Total private costs

b) Social costs
c) External benefit
d) Variable costs
34. Which of the following would cause the production possibility frontier for an economy to shift
outwards?
(i) A reduction in the level of unemployment
(ii) A rise in the rate of investment
(iii) A fall in the price of one factor of production
(iv) A rise in output per worker
a) (i) and (ii) only b)(i), (ii) and (iii) only c) (i), (iii) and (iv) only d) (ii) and (iv) only

35. The price elasticity of demand (PED) of good A is negative, its income elasticity of demand
(IED) is positive and its cross elasticity of demand (XED) with respect to good X is negative.
What is the nature of good A?

a) A good bought for purposes of ostentation, complementary to X

b) An inferior good, substitute for X
c) A normal good, complementary to X
d) A Giffen good, substitute for X

36. 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.
Name:________________________ Sec:____ Date:__________ Subject: Business Economics Test : 40 % of Syllabus
Time Allowed: 50 minutes Total Marks: 50

True-False Questions —
1. The change in consumption or spending that results when a price change moves the
consumer to a higher or lower indifference curve (is called Price effect). (T/F) __________

2. Economies of scale not act as barriers to entry to potential new entrants into an industry. (T/F)
_____

3. Economies of scale mean that the long run average costs of production will continue will rise
as the volume of output rises. (T/F) ________

4. When the additional units of variable factors of production are applied on the fixed factor of
production, there arises a proportionate increase in total output is called the law of constant
returns. (T/F) ________

5. The law of diminishing returns shows long run average costs tend to rise if too many units of
variable resource are added to a fixed factor of production. (T/F) _______

6. Externalities are the comparison between the private and social costs or benefits of a
transaction (T/F) ________

7. An increase in supply causes an excess demand at the original price, and competition
between sellers Leads to a lower equilibrium price. (T/F) ________

8. When a complement and a substitute go a good become cheaper and expensive respectively,
the Demand for the goods will decrease. (T/F) ________

9. Long Term period is a sufficient time period when only the variable Factor of production can be
changed. (T/F) ______

10. When marginal product reaches its maximum, total product is increasing if marginal product is
still positive (T/F) _________

11. Law of Constant Returns or Constant on applies when the supply of Factor of Production
(FOP) is perfectly inelastic (T/F) _________

12. Production function is a mathematical representation that shows the maximum quantity of
output a firm should be produce at given the quantities of inputs that it might employ.(T/F)
_______

13. Cardinal Approach does not segregates price effect into income effect and substitution effect
(T/F) ____________