MULTIPLE CHOICE QUESTIONS

Law of Demand and Elasticity of Demand

1. Demand in economic sense means-
(a) mere desire for a commodity
(b) mere ability to pay price of the commodity
(c) mere wiling to pay the price of the commodity
(d) desire backed by ability and willingness to pay for the commodity desired

2. In economics, demand refers to-
(a) quantity demanded at a particular time
(b) quantity demanded backed by ability to pay
(c) quantity demanded of all goods
(d) quantity demanded at a particular price in a given period of time

3. The concept of demand demonstrates that-
(a) demand is always with reference to price
(b) demand is referred to in a given period of time
(c) buyer’s ability and willingness to pay
(d) all the above

4. Demand is a
(a) flow concept Le. quantity per unit of time
(b) stock concept
(c) wealth concept
(d) none of the above

5. Demand concept explains the ________ behaviour in response to change in price of a good.
(a) producer’s
(b) seller’s
(c) consumer’s
(d) none of the above

6. Individual Demand is also called-
(a) industrial demand
(b) market demand
(c) household’s demand
(d) all the above

7. ________ means quantity demanded of a good by a single consumer at various prices per unit of time.
(a) Market Demand
(b) Individual Demand
(c) Industrial Demand
(d) None of the above

8. _______ means the aggregates of the quantities
demanded by all consumers in the market at different prices per unit of time.
(a) Market Demand
(b) Individual Demand
(c) Industrial Demand
(d) Household Demand

9. All but one are the factors which affect individual demand. Find the odd one out.
(a) Price of related good
(b) Income of the consumer
(c) Tastes and preferences of consumer
(d) Number of consumers in the market

10. _________ is a tabular presentation showing different quantities demanded by buyers at different levels of prices in a given period.
(a) Supply Schedule
(b) Demand Schedule
(c) Production Schedule
(d) Cost Schedule

11. A demand schedule is shown as-
(a) a result of increase in the size of the family
(b) a result of change in tastes and preferences
(c) a function of price
(d) all the above

12. Market Demand is the sum total of-
(a) all quantities that producer’s can produce
(b) all quantities actually sold in the market
(c) all quantities demanded by individual households and consumers
(d) all the above

13. Demand of a good of several consumers when added together is called _______ demand.
(a) individual
(b) market
(c) joint
(d) independent

14. When a good can be used to satisfy two or more wants, it is said to have _______ demand.
(a) composite
(b) competitive
(c) joint
(d) market

15. Indirect demand of a good is also known as _______ demand.
(a) direct
(b) derived
(c) joint
(d) competitive

16. Which of the following is a determinant of Individual Demand?
(a) Cost of production
(b) Nature of commodity
(c) Economic Policies of the Government
(d) Tastes and Preferences of consumers

17. Which of the following is NOT the determinant of demand?
(a) Price of the commodity
(b) Price of related commodities
(c) Income of consumer
(d) None of the above

18. How are APPLES and ORANGES related when as a result of rise in price of Apples, demand for Oranges increases?
(a) Substitute goods
(b) Complementary goods
(c) Normal goods
(d) Inferior goods

19. If two goods are complementary then rise in the price of one results in-
(a) rise in demand for the other
(b) fall in demand for the other
(c) rise in demand for both
(d) none of these

20. If the demand for CNG increases as price of petrol increases, the two goods are-
(a) Normal goods
(b) Complementary goods
(c) Substitute goods
(d) Superior goods

21. Comforts lies between-
(a) inferior goods and necessaries
(b) luxuries and inferior goods
(c) necessaries and luxuries
(d) none of the above

22. When price of commodity rises, the demand for it _______ .
(a) rises
(b) contracts
(c) remain constant
(d) becomes negative

23. When the price of petrol goes up, demand for two-wheelers will-
(a) rise
(b) fall
(c) remain same
(d) none of these

24. An increase in the income of a consumer has effect on demand in general.
(a) no
(b) negative
(c) opposite
(d) positive

25. The demand for Scooter and petrol is an example of _______ demand.
(a) joint
(b) composite
(c) competitive
(d) market

26. _______ goods are those goods which are used for the production of other goods.
(a) Durable
(b) Producer’s
(c) Non-Durable
(d) Consumer’s

27. _______ goods are those which are used for final consumption.
(a) Durable
(b) Producer’s
(c) Non-Durable
(d) Consumer’s

28. Bread, Milk, Readymade clothes, T.V., etc. are examples of _______ goods
(a) perishable
(b) producer’s
(c) consumer’s
(d) inferior

29. The goods which cannot be consumed more than once, like milk are known as _______ goods.
(a) non-durable consumer goods
(b) producer’s
(c) inferior
(d) durable consumer goods

30. _______ goods meets only our current demand.
(a) producers
(b) durable consumer goods
(c) non-durable consumer goods
(d) inferior

31. The goods which can be consumed more than once over a period of time are known as _______ goods.
(a) non-durable consumer goods
(b) producer’s
(c) durable consumer goods
(d) inferior

32. When demand of any good depends upon the demand of another good, it is said to have _______ demand.
(a) joint
(b) derived
(c) competitive
(d) direct

33. The total demand for steel in the country denotes _______ demand.
(a) industry
(b) company
(c) both ‘a’ and ‘b’
(d) autonomous

34. If the demand for a product is independent of the demand for other goods, it is called as _______ demand.
(a) company
(b) industry
(c) autonomous
(d) derived

35. If the construction activity in housing sector, infrastructure, etc. rises, the demand for cement will _______ as it has _______ demand.
(a) rise ; autonomous
(b) fall; autonomous
(c) rise ; derived
(d) none of these

36. Demand for steel produced by Tata Iron and Steel Company is an example of _______ demand.
(a) industry
(b) company
(c) autonomous
(d) joint

37. When demand of any good reacts immediately to price changes, income changes, etc. it is said to have _______ demand.
(a) short-run
(b) long-run
(c) very short run
(d) very long run

38. A relative price is-
(a) price expressed in terms of money
(b) what you get paid for babysitting your cousin
(c) the ratio of one price to another
(d) equal to a money price

39. The quantity demanded of a good or service is the amount that-
(a) consumer plan to buy during a given period at a given price.
(b) firms are willing to sell during a given time period at a given price.
(c) a consumer would like to buy but may not be able to afford.
(d) is actually bought during a given period at a given price.

40. Coca-Cola and Thumbs-Up are substitutes. A rise in the price of Coca-Cola will _______ the demand of Thumbs-Up and the quantity demanded of Thumbs-Up will _______ .
(a) increase ; increase
(b) increase;decrease
(c) decrease ; decrease
(d) decrease;increase

41. If the price of Orange Juice falls, the demand for Apple Juice will _______ .
(a) increase
(b) decrease
(c) remain the same
(d) become negative

42. The demand for consumer goods is a _______ demand.
(a) direct
(b) indirect
(c) constant
(d) company

43. If the price of inferior goods fall, the demand for them will _______.
(a) rise
(b) fall
(c) remain constant
(d) become zero

44. The Law of Demand states _______ relation between demand and price of a commodity.
(a) a direct
(b) positive
(c) an indirect
(d) no

45. When total demand for a commodity whose price has fallen increases, it is due to
(a) income effect
(b) substitution effect
(c) complementary effect
(d) price effect

46. With a fall in the price of a commodity
(a) Consumer’s real income increases
(b) Consumer’s money income increases
(c) Consumer’s real income falls
(d) Consumer’s money income falls

47. When we draw a market demand curve, we _______.
(a) do not consider tastes, incomes and all prices
(b) assume that tastes, incomes and all other prices change in the same way price changes
(c) assume that tastes, incomes and all other prices are irrelevant
(d) assume that tastes, incomes and all other prices remain the same

48. All but one of the following are assumed to remain the same while drawing individual’s demand curve for a commodity. Which are is it?
(a) The tastes and preferences of the consumer
(b) Income of consumer
(c) The price of the commodity
(d) The prices of related commodities

49. A fall in price of a commodity leads to _______.
(a) a shift in demand curve
(b) a rise in consumer’s real income
(c) a fall in demand
(d) none of the above

50. If a fall in price of ‘y’ results in a decrease in the sale of ‘x’, the two good appear to be-
(a) substitute goods
(b) complementary goods
(c) inferior goods
(d) neutral goods

51. Which of the following is not a complementary good for pen?
(a) refills
(b) paper
(c) notebook
(d) rice

52. _______ goods are the goods which can be used with equal case in place of each other.
(a) Neutral
(b) Normal
(c) Complementary
(d) Substitute

53. Which of the following pairs of goods are an example of substitutes?
(a) Tea and Sugar
(b) Tea and Coffee
(c) Pen and Ink
(d) Shirt and Trouser

54. When the price of a substitute of good ‘X’ falls, the demand for good ‘X’
(a) rises
(b) falls
(c) remains unchanged
(d) None of these

55. If the demand rises with the rise in consumer’s real income, such a good is called _______.
(a) Normal goods
(b) Neutral goods
(c) Inferior goods
(d) Luxury goods

56. Giffen goods are-
(a) Normal goods
(b) Inferior goods
(c) Luxury goods
(d) Neutral goods

57. As the consumer’s income increases, the demand for necessaries of life will increase _______ to the increase in income.
(a) Less than proportionate
(b) More than proportionate
(c) Proportionate
(d) Nothing can be said

58. As the consumer’s income increases, the demand for comforts and luxuries will increase _______ to the increase in income.
(a) Less than proportionate
(b) More than proportionate
(c) Proportionate
(d) Nothing can be said

59. During boom period in economy, the demand for goods in general _______.
(a) rises
(b) falls
(c) remains same
(d) none of these

60. Larger the size of population of a country _______ is the demand for goods and services in general.
(a) lower
(b) ineffective
(c) neutral
(d) higher

61. In case the consumer expects a steep rise in price of Potatoes in future, his current demand for it will _______.
(a) remain same
(b) fall
(c) rise
(d) none of the above

62. All but one of the good’s demand is not affected by changes in weather conditions-
(a) Ice-cream
(b) Woollen clothes
(c) Cold drinks
(d) Wheat

63. If the government increase the rate of indirect taxes on goods and services, the demand for then will _______ in general.
(a) rise
(b) fall
(c) remain neutral
(d) be ineffective

64. If the government reduces the tax on any pro-duct, the demand for the product _______ in the short run.
(a) rises
(b) falls
(c) remain unchanged
(d) tax has nothing to do with the demand of any product

65. If the demand for petrol remains unchanged with rise in its price, it means petrol is a _______
(a) Normal good
(b) Necessity
(c) Luxury good
(d) Inferior good

66. If quantity demanded of good ‘X’ is plotted against the price of its substitute good ‘Y’, the demand curve will be-
(a) Vertical Straight line
(b) Positively sloped
(c) Horizontal Straight line
(d) Negatively sloped

67. Consider the following figure:

In the above figure, RS part of the demand curve represents-
(a) Superior good
(b) Inferior good
(c) Normal good
(d) Giffen’s good

68. In case of normal goods the income effect is _______
(a) zero
(b) negative
(c) positive
(d) constant

69. Income effect on demand of a good is _______.
(a) positive for normal goods
(b) always positive
(c) negative for normal goods
(d) always negative

70. The Law of Demand is explained by-
(a) Cardinal approach
(b) Ordinal approach
(c) Both ‘a’ and ‘b’
(d) Neither ‘a’ nor ‘b’

71. The Law of Demand refers to functional relation between-
(a) Price & Supply
(b) Price & Cost
(c) Price & Income
(d) Price & Demand

72. The term “Ceteris Paribus” in the Law of Demand means-
(a) All factors except one remain constant
(b) All factors remain constant
(c) All factors are variable
(d) None of the above

73. Which of the following is a variable and influencing factor in the Law of Demand?
(a) Consumer’s Income
(b) Consumer’s Tastes and Preferences
(c) Price of related goods
(d) Price of the good

74. The phrase “Other things being equal” in the Law of Demand means-
(a) Income of the consumer remain unchanged
(b) Price of related goods remain unchanged
(c) Tastes and Preferences of consumer remain unchanged
(d) All the above

75. The total effect of price change of a good is-
(a) Substitution Effect + Income Effect
(b) Substitution Effect + Price Effect
(c) Substitution Effect + Demonstration Effect
(d) Demonstration Effect + Veblen Effect

76. Substitution Effect subscribe to the inverse relation between P_x and Q_x in case of-
(a) normal goods only
(b) inferior goods only
(c) normal and inferior goods both
(d) none of the above

77. Income Effect does not subscribe to the inverse relation between P_x and Q_x in case of-
(a) both normal and inferior goods
(b) inferior goods
(c) normal goods
(d) none of the above

78. The Law of Demand will fail in case of inferior goods only if-
(a) Substitution Effect is greater than Income Effect
(b) Income Effect is greater than’Substitution Effect
(c) Both ‘a’ and ‘b’
(d) Neither ‘a’ nor ‘b’

79. The Law of Demand is a _______ statement.
(a) Positive
(b) Normative
(c) Descriptive
(d) Both ‘a’ and ‘c’

80. _______ refers to the effect of change in the price of a product on the consumer’s purchasing power.
(a) Real Income Effect
(b) Substitution Effect
(c) Consumer’s Surplus
(d) None of the above

81. When the price of Thumbs-up falls, other things being constant, buyers substitute Thumbs-up for Coca-Cola. This is called-
(a) Price Effect
(b) Substitution Effect
(c) Income Effect
(d) Veblen Effect

82. _______ refers to the buyer’s reaction to a change in the relative prices of two products, keeping the total utility constant.
(a) Consumer’s Surplus
(b) Income Effect
(c) Substitution Effect
(d) None of the above

83. The Law of Demand can be explained by-
(a) The Law of Diminishing Marginal Utility
(b) Indifference Curves
(c) Both ‘a’ and ‘b’
(d) Neither ‘a’ nor ‘b’

84. Consumers buy a good till P_x = MU_x. If the price falls, the consumer will reach equilibrium-
(a) at a lower quantity
(b) at a higher quantity
(c) at zero quantity level
(d) all the above

85. “Petrol is becoming cheaper, yet the demand for cars is not rising”. This statement indicates that-
(a) The Law of Demand is not operative for cars
(b) The Law of Demand is operative for petrol
(c) The Demand Curve for cars will shift
(d) All the above

86. Downward slope of the demand curve shows-
(a) positive relationship between price and quantity demanded
(b) inverse relationship between price and quantity demanded
(c) no relationship between price and quantity demanded
(d) none of the above

87. In case of NORMAL GOODS, demand curve shows:
(a) a negative slope
(b) a positive slope
(c) zero slope
(d) none of these

88. Law of Demand fails in case of –
(a) normal goods
(b) Giffen goods
(c) inferior goods
(d) both ‘b’ and ‘c’

89. In case of Giffen’s Paradox, the slope of the demand curve is-
(a) parallel to X-axis
(b) positive
(c) negative
(d) parallel to Y-axis

90. A Giffen good is one for which a small change in price results in-
(a) zero income effect out weighted by a positive substitution effect
(b) zero income effect being equal to zero substitution effect
(c) negative income effect out weighed by a positive substitution effect
(d) none of these

91. The Law of Demand indicates the
(a) direction of change in demand of a commodity
(b) magnitude/amount of change in demand of a commodity
(c) both ‘a’ and ‘b’
(d) elasticity of demand

92. In case of Giffen goods, demand varies _______ with the price.
(a) inversely
(b) directly
(c) proportionately
(d) none of these

93. Analysis of the relationship between demand of a commodity and prices of related commodities is-
(a) Price Demand analysis
(b) Income Demand analysis
(c) Cross Demand analysis
(d) Market Demand analysis

94. _______ observed that when the price of inferior goods fall, the demand for such goods also fall.
(a) Adam Smith
(b) Dr. Alfred Marshall
(c) Ragnar Frisch
(d) Sir Robert Giffens

95. The Law of Demand was propounded by _______ in his book ‘Principles of Economics’.
(a) Lord Keyens
(b) Adam Smith
(c) Dr. Alfred Marshall
(d) Ragnar

96. The tendency of low income group to imitate the consumption pattern of high income group is known as _______ effect.
(a) Demonstration
(b) Copy
(c) Prestige
(d) Veblen

97. The Law of Demand is applicable for _______.
(a) Giffen’s Goods
(b) Prestige Goods
(c) Necessary Goods
(d) Normal Goods

98. When price changes and proportionate change in market demand is more than proportionate change in individual demand implies that the market demand curve is _______ than the individual demand curves.
(a) Steeper
(b) Flatter
(c) Vertical
(d) None of the above

99. A positively sloped demand curve implies
(a) Violation of the law of demand
(b) Giffen good
(c) Income effect is negative and greater than substitution effect
(d) All the above

100. An increase in consumer’s income will increase demand for a _______ but decrease demand for a _______.
(a) substitute good; inferior good
(b) normal good ; inferior good
(c) substitute good ; complementary good
(d) inferior good ; normal good

101. When the quantity of a good that a buyer demands rises when there is growth of purchases by other individuals, such an effect is called _______
(a) Bandwagon Effect
(b) Snob Effect
(c) Veblen Effect
(d) None of the above

102. When the quantity of a commodity that an individual buyer demand falls in response to the growth of purchases by other buyers, such an effect is called _______
(a) Bandwagon Effect
(b) Snob Effect
(c) Veblen Effect
(d) None of the above

103. Some buyer’s demand more of certain commodities at a higher price, such an effect is called _______.
(a) Bandwagon Effect
(b) Snob Effect
(c) Veblen Effect
(d) None of the above

104. The market demand curve in case of Veblen Effect is _______.
(a) steeper
(b) flatter
(c) vertical
(d) horizontal

105. The market demand curve in case of Bandwagon Effect is _______.
(a) less elastic
(b) steeper
(c) flatter
(d) horizontal

106. The market demand curve in case of Snob Effect is _______.
(a) flatter
(b) steeper
(c) less elastic
(d) both ‘b’ and ‘c’

107. A downward sloping Engel Curve shows –
(a) Normal goods
(b) Inferior goods
(c) Substitute goods
(d) Complementary goods

108. Assume that the market demand curve for Dinshaw Ice cream is known and given to us. With summer setting in, price remaining the same the consumers would –
(a) shift to a lower demand curve leftward
(b) move upward along the same demand curve
(c) shift to a higher demand curve rightward
(d) move downward along the same demand curve

109. An exceptional demand curve is one that slopes-
(a) upward to the right
(b) downward to the right
(c) upward to the left
(d) horizontal

110. What will be the impact on the demand curve of CARS when the price of petrol rises?
(a) There will be downward movement on demand curve
(b) Demand curve will shift to left
(c) There will be an upward movement on demand curve
(d) Demand curve will shift to right

111. What will be the impact on the demand curve of DESKTOP COMPUTERS when the price of LAPTOPS increase?
(a) There will be downward movement on demand curve
(b) Demand curve will shift to left
(c) There will be an upward movement on demand curve
(d) Demand curve will shift to right

112. What will be the impact on the demand curve of SUGAR with increase in its price?
(a) Downward movement along the demand curve
(b) Leftward shift of the demand curve
(c) An upward movement along the demand curve
(d) Rightward shift of the demand curve

113. The demand for TROUSERS will lead to _______ due to change in the preference in favour of JEANS.
(a) Extension in Demand of trousers
(b) Increase in Demand of trousers
(c) Contraction in Demand of trousers
(d) Decrease in Demand in trousers

114. The demand curve for BAJRA will when a poor person’s income rises.
(a) shift to the right
(b) shift to the left
(c) be downward sloping
(d) none of the above

115. Match the following—

116. If more is demanded at the same price or the same quantity is demanded at a higher price, it is known as-
(a) Extension of Demand
(b) Contraction of Demand
(c) Increase in Demand
(d) Decrease in Demand

117. A downward movement along the same demand curve means –
(a) more is demanded when the price of good falls
(b) more is demanded at the same price
(c) less is demanded at the same price
(d) less is demanded when the price of good rises

118. A leftward shift of the demand curve shows-
(a) more is demanded at the same price
(b) less is demanded when the price of good rises
(c) less is demanded at the same price
(d) more is demanded when the price of good falls

119. When same quantity of a good is demanded at a lower price, it is known as-
(a) Extension of Demand
(b) Increase in Demand
(c) Contraction of Demand
(d) Decrease in Demand

120. When less quantity is demanded as the price of good rises, there is ________.
(a) Downward movement along the demand curve
(b) Leftward shift of the demand curve
(c) An upward movement along the demand curve
(d) Rightward shift of the demand curve

For Q. Nos. 121 to 124 refer the following demand equation Q = 180 – 6p

121. At what price no one would be willing to buy the commodity?
(a) Rs. 20
(b) Rs. 30
(c) Rs. 40
(d) Rs. 15

122. If the commodity is given free Le. if the demand is autonomous, what is the quantity demanded?
(a) 180
(b) 160
(c) 140
(d) 120

123. If the price of the commodity falls down to Rs. 1, by how much will the quantity demanded change?
(a) 6
(b) 5
(c) 12
(d) 10

124. The total quantity demanded when the price is Rs. 1 p.u. is-
(a) 180
(b) 174
(c) 190
(d) 186

For Q. Nos. 125 to 127 refer the following demand equation
Q_x = 12 – 2 P_x

125. What would be the quantity demanded at a price of Rs. 3?
(a) 4 units
(b) 5 units
(c) 6 units
(d) 8 units

126. What would be the price when quantity demanded is zero?
(a) Rs. 8
(b) Rs. 4
(c) Rs. 5
(d) Rs. 6

127. What would be the quantity demanded when the price is zero?
(a) 12 units
(b) 10 units
(c) 22 units
(d) 20 units

128. The demand function of a commodity ‘X’ is given by Q_x = 20 – 3 P_x. What would be he value of P_x when the corresponding value of Q_x = 14.
(a) Rs. 5
(b) Rs. 4
(c) Rs. 3
(d) Rs. 2

129. At a price of Rs. 10 p.u. the market demand of a commodity is 58 units, out of which consumer ‘A’ has purchased 20 units and consumer ‘B’ has purchased 10 units. How much quantity consumer ‘C’ has purchased?
(a) 28 units
(b) 26 units
(c) 24 units
(d) 22 units

130. The linear demand function is given as- Q = 80 – 20 P. Derive the market demand function when there are 100 consumers in the market.
(a) Q = 8000 – 20 P
(b) Q = 80 – 2000 P
(c) Q = 8000 – 2000 P
(d) None of the above

131. All but one can be referred as Variations in Demand. Which one is not variation in demand?
(a) Movement along the same demand curve
(b) Shifting of demand curve
(c) Changes in the Quantity Demanded
(d) Expansion and Contraction of Demand

132. In case of Expansion and Contraction of Demand, the demand curve-
(a) shifts to the right
(b) shifts to the left
(c) remains the same
(d) none of the above

133. A movement along the demand curve means-
(a) expansion of demand
(b) contraction of demand
(c) changes in the quantity demanded
(d) all the above

134. Change in the demand of a commodity due to the factors other than price is known as-
(a) Increase and Decrease in Demand
(b) Changes in Demand
(c) Shift in Demand
(d) All the above

135. Increase in demand leads to-
(a) Leftward shift of the demand curve
(b) Rightward shift of the demand curve
(c) Upward movement on the same demand curve
(d) Downward movement on the same demand curve

136. Which of the following would result in the shifting of the demand curve?
(a) Increase in the tax on shoes
(b) Growth in the size of population
(c) Changes in weather conditions
(d) All the above

137. Shift in demand does not take place due to-
(a) Change in consumer’s tastes and preferences
(b) Advertisement
(c) Trade conditions
(d) Change in the price of the commodity

138. A rightward shift in the demand curve for Bread would be predicted from-
(a) A decrease in the number of breakfast eaters
(b) A change in tastes
(c) A fall in the price of Bread
(d) A rise in the price of Corn Flakes

139. Consider the following demand curve-

State whether-
(a) The two goods are complementary
(b) The two goods are substitutes
(c) The two goods are not related
(d) None of the above

140. Consider the following figure-

It shows-
(a) Inferior goods
(b) Giffen goods
(c) Normal or Superior goods
(d) All the above

141. Consider the following figure-

Demand
It shows demand curve for-
(a) Necessities
(b) Comforts and Luxuries
(c) Inferior Goods
(d) None of the above

142. Consider the following figure-

It shows demand curve for-
(a) Necessities
(b) Comforts and Luxuries
(c) Inferior Goods
(d) None of the above

143. Consider the following figure-

It shows demand curve for-
(a) Necessities
(b) Comforts and Luxuries
(c) Inferior Goods
(d) None of the above

144. Which of the following is shown in the figure?

(a) An increase in demand
(b) Indifference Curve
(c) Supply Curve
(d) None of the above

145. Other things being equal a decrease in demand can be caused by-
(a) A rise in the price of the commodity
(b) A rise in the income of the commodity
(c) A fall in the price of the commodity
(d) A fall in the income of the consumer

146. A rational consumer is a person who
(a) behaves judiciously all the time
(b) is not influenced by the advertisement
(c) knows the prices of goods in different markets and buy the cheapest
(d) has perfect knowledge of the market

147. A normal demand curve of a commodity-
(a) is vertical straight line curve
(b) has a negative slope
(c) is horizontal straight line curve
(d) has a positive slope

148. If the quantity demanded of a commodity is plotted against the price of a substitute goods ceteris paribus the curve is expected to be-
(a) Vertical
(b) Negatively sloped
(c) Horizontal
(d) Positively sloped

149. Income effect operates when there is an-
(a) increase in real income due to fall in price of the commodity
(b) increase in real income due to rise in price of the commodity
(c) increase in real income due to rise in demand of the commodity
(d) increase in money income due to fall in the price of the commodity

150. Who explained the abnormal shape of demand curve for diamonds through the doctrine of conspicuous consumption?
(a) Thorstein Veblen
(b) Robert Giffen
(c) David Ricardo
(d) Alfred Marshall

151. Conspicuous good are also known as-
(a) prestige goods
(b) snob goods
(c) Veblen goods
(d) all the above

152. Elasticity of demand is defined as the responsiveness of the quantity demanded of a good to changes in
(a) price of the commodity
(b) price of related goods
(c) income of the consumer
(d) all the above

153. ________ was the economist to formulate the concept of price elasticity of demand.
(a) Alfred Marshall
(b) Adam Smith
(c) Paul Samuelson
(d) Edwin Cannon

154. The concept of Elasticity of Demand whenever referred unless otherwise specified always means-
(a) Price Elasticity of Demand
(b) Income Elasticity of Demand
(c) Cross Elasticity of Demand
(d) All the above

155. The concept of price elasticity of demand analyses-
(a) direction of change in response to change in price of the commodity
(b) degree of change in response to change in price of the commodity
(c) absolute change in response to change in price of the commodity
(d) none of these

156. When there is no change in quantity demanded in response to any change in price, it is a situation of-
(a) infinite price elasticity
(b) unitary price elasticity
(c) zero price elasticity
(d) high price elasticity

157. Price Elasticity of Demand is defined as-
(a) Change in quantity demanded ÷ Change in Price
(b) % Change in quantity demanded ÷ % Change in Price
(c) Change in quantity demanded ÷ % Change in Price
(d) % Change in quantity demanded ÷ Change in Price

158. Price Elasticity of Demand is given by-

159. When percentage change demand is less than percentage change in price, demand is-
(a) perfectly elastic
(b) perfectly inelastic
(c) less than unitary elastic
(d) more than unitary elastic

160. When percentage change in demand is equal to percentage change in price, demand is-
(a) perfectly elastic
(b) unitary elastic
(c) perfectly inelastic
(d) more elastic

161. Price Elasticity of demand is always because of relationship between price and quantity demanded
(a) negative ; inverse
(b) positive ; direct
(c) negative ; positive
(d) positive ; inverse

162. Coefficient of price elasticity of demand ranges from to
(a) one ; infinity
(b) zero ; infinity
(c) zero ; one
(d) none of the above

163. When there is an infinite demand at a particular price and demand becomes zero with a slight rise in the price then
(a) demand by commodity is perfectly elastic
(b) E_d = ∞
(c) demand curve is horizontal straight line parallel to X-axis
(d) all the above

164. When percentage in quantity demanded is more than percentage change in price then
(a) demand of commodity is highly elastic
(b) E_d > 1 and demand curve is flatter
(c) E_d < 1 and demand curve is steeper
(d) Only ‘a’ and ‘b’ 1

165. When demand curve is parallel to X-axis, elasticity of demand is-
(a) unity
(b) zero
(c) greater than unity
(d) infinity

166. Which curve is called rectangular hyperbola?
(a) Highly Elastic Demand Curve
(b) Less Elastic Demand Curve
(c) Unitary Elastic Demand Curve
(d) None of the above

167. When demand curve is parallel to Y-axis, elasticity of demand is-
(a) unity
(b) zero
(c) less than unity
(d) more than unity

168. As the demand curve becomes flatter and flatter, the elasticity of demand becomes-
(a) higher
(b) lower
(c) equal to infinity
(d) equal to zero

169. When the demand for a commodity does not change with the increase in its price from Rs. 2 to Rs. 5, then elasticity of demand is
(a) E = ∞
(b) Ed = 0
(c) E_d < 1
(d) E_d > 1

170. Slope of perfectly elastic demand curve is equal to ________
(a) 0
(b) 1
(c) 2
(d) 3

171. On all points of a rectangular hyperbola demand curve, elasticity of demand is –
(a) equal to one
(b) zero
(c) more than one
(d) less than one

172. When slope of demand curve = 0, the elasticity of demand is-
(a) 0
(b) 1
(c) oo
(d) none of the above

173. To say that the demand for a commodity is elastic means-
(a) That the demand curve slopes downward to the right
(b) That more is sold at a lower price
(c) That a rise in price will increase total revenue
(d) That the change in quantity sold is proportionately greater than the change in price

174. A demand curve is perfectly inelastic if-
(a) a rise in price causes a fall in quantity demanded
(b) a fall in price causes rise in sellers total receipts
(c) the commodity in question is very perishable
(d) a change in price does not change quantity demanded

175. When the demand curve is vertical straight line, demapd is-
(a) perfectly elastic
(b) perfectly inelastic
(c) relatively elastic
(d) relatively inelastic

176. For goods with perfectly inelastic demand-
(a) ∆q = 0
(b) ∆q < ∆p
(c) ∆q = ∆p
(d) ∆p = 0

177. For goods with less elastic demand-
(a) ∆q > ∆p
( b) ∆q = ∆p
(c) ∆q < ∆p
(d) none of the above

178. If the demand of a commodity is less elastic the demand curve will be-
(a) Horizontal line
(b) Vertical line
(c) Downward sloping to the right, flatter
(d) Downward sloping to the right, steeper

179. Rectangular hyperbola is also called-
(a) Equilateral Hyperbola
(b) Vertical Line
(c) Square
(d) Horizontal Line

180. The factor which generally keeps the price elasticity of demand for a good low is-
(a) Variety of uses of that good
(b) Its low price
(c) Close – substitutes for that good
(d) High proportion of the consumer’s income spent on it

181. If you spend more on rent than on soap, your price elasticity of demand for housing is likely to be-
(a) greater than your price elasticity of demand for soap
(b) less than your price elasticity of demand for soap
(c) equal to your price elasticity of demand for soap
(d) none of the above

182. The demand for common salt has low price elasticity because-
(a) it has no close substitute
(b) it is necessity
(c) it constitutes only a small proportion of consumer’s expenditure
(d) all the above

183. The devaluation of currency would increase the export earnings only when demand for the nation’s exports in foreign market is-
(a) Elastic
(b) Inelastic
(c) Perfectly Inelastic
(d) Unitary Elastic

184. The demand for sugar and tea is usually:
(a) Elastic
(b) Inelastic
(c) Perfectly elastic
(d) Perfectly inelastic

185. Availability of close substitutes makes the demand-
(a) Less elastic
(b) More elastic
(c) Perfectly elastic
(d) Perfectly inelastic

186. Elasticity is greater than unity for-
(a) necessaries
(b) luxuries
(c) complementary goods
(d) inferior goods

187. Complementary goods exhibit ________ elasticity of demand.
(a) low
(b) high
(c) unitary
(d) none of the above

188. All but one of the following commodities has elastic demand. Which one has inelastic demand?
(a) Coca-Cola
(b) Butter for poor person
(c) Cigarettes
(d) Electricity

189. Demand is ________ in the long period than in the short period.
(a) less elastic
(b) perfectly elastic
(c) perfectly inelastic
(d) more elastic

190. The demand for necessities is ________
(a) Highly elastic
(b) Highly inelastic
(c) Slightly elastic
(d) Slightly inelastic

191. If the demand for a commodity is ________, the entire burden of indirect tax will fall on the consumer.
(a) Relatively inelastic
(b) Perfectly inelastic
(c) Relatively elastic
(d) Perfectly elastic

192. Which of the following helps the manager to estimate the demand of a commodity?
(a) Price of the commodity
(b) Price of the substitute commodities
(c) Elasticity of the commodity
(d) All the above

193. The price elasticity of demand for a face cream is estimated to be ONE, no matter what the price or quantity demanded. In this case-
(a) a 1096 increase in price will result in 1096 increase in quantity demanded
(b) a 1096 increase in price will result in 1096 fall in quantity demanded
(c) an increase in price will increase the seller’s revenue
(d) none of the above

194. If demand is ________ then price cuts will ________ spending.
(a) perfectly inelastic ; increase
(b) elastic; increase
(c) elastic; decrease
(d) none of the above

195. Suppose the demand for Dosa at Dosa Plaza is elastic. If the owner of the restaurant is consid¬ering raising the price, it can expect relatively-
(a) large fall in quantity demanded
(b) large fall in demand
(c) small fall in quantity demanded
(d) small fall in demand

196. If a 1096 rise in the price of a commodity causes the demand to fall by 2096
(a) demand was inelastic
(b) demand was infinitely elastic
(c) demand was elastic
(d) none of the above

197. On typical straight line demand curve, the elasticity of demand at a point where it meets the price axis is-
(a) 2
(b) 0.75
(c) 1
(d) infinite

198. On a straight line demand curve the elasticity of demand at the mid-point of the curve is-
(a) 1/2
(b) 2
(c) 0
(d) 1

199. To measure price elasticity over large changes in price we use ________
(a) point elasticity method
(b) arc elasticity method
(c) income elasticity method
(d) none of the above

200. If the demand for a good is elastic, an increase in its price will cause the total expenditure of the consumers of the good to
(a) Remain the same
(b) Increase
(c) Decrease
(d) None of these

201. When the price of Good ‘X’ goes up by 1096 its demand falls from 800 units to 600 units. What is the price elasticity of Good ‘X?
(a) – 2.5 with flatter demand curve
(b) 2.5 with flatter demand curve
(c) – 1.5 with steeper demand curve
(d) 1.5 with steeper demand curve

202. The demand by a consumer for a commodity falls by 1096 when its price increases from ₹ 5 to ₹ 6 per unit. What is the price elasticity of demand?
(a) unitary elastic
(b) 0.5
(c) .8
(d) 1.5

203. 30 units of a commodity is purchased by a consumer at the price of ₹ 46 per unit. When the price rises to ₹ 50 per unit, he buy 15 units only. The co-efficient of elasticity do demand is –
(a) 4.75
(b) 5
(c) 5.75
(d) 6

204. A consumer spends ₹ 40 on a good at a price of ₹ 1 per unit and ₹ 60 at a price of ₹ 2 per unit. The elasticity of demand is-
(a) 0.25
(b) 2.5
(c) .35
(d) 3.5

205. A consumer buy 20 units of a good at ? ₹ 10 p.u. The price elasticity of demand of this good is -1. How much quantity would be demanded by the consumer when the PRICE FALLS to ₹8 p.u.?
(a) 21 units
(b) 22 units
(c) 23 units
(d) 24 units

206. A consumer buy 40 units of a commodity at ₹ 5 per unit. Its Ed = -3. How much demand of quantity he will buy at ₹ 6 per unit?
(a) 15 units
(b) 16 units
(c) 17 units
(d) 18 units

207. The market demand of a commodity at ₹ 4 per unit is 100 units. The price RISES and as a result its market demand falls to 75 units. If E_d = -1, find out its new price.
(a) ₹ 5
(b) ₹ 6
(c) ₹ 7
(d) ₹ 8

208. A consumer buy 80 units of a commodity at ₹ 4 per unit. When the price FALLS, he buy 100 units. If E_d = -1, the new price will be-
(a) ₹ 3.5
(b) ₹ 3
(c) ₹ 2.5
(d) ₹ 2

209. Demand for good ‘X’ is perfectly inelastic. What will be the change in demand if price falls from ₹ 10 per unit to ₹ 5 per unit?
(a) No change in demand
(b) Large change in demand
(c) Medium change in demand
(d) None of the above

210. What happens to total expenditure on a commodity when its price falls and its demand is price elastic?
(a) Total expenditure will remain constant
(b) Total expenditure will fall
(c) Total expenditure will increase
(d) None of the above

211. As the price of a product falls by 7%, the total expenditure on it has gone up by 3.5%. The elasticity of demand of this product is-
(a) E_d = 0
(b) E_d > l
(c) E_d < 1
(d) E_d = 1

212. Let Q_x = 1400/p Find, total expenditure on good ‘X’ when P_x falls from ₹ 6 to ₹ 1 ; derive the value of E_d and what shape the demand curve will take?
(a) ₹ 1400 ; E_d = 1 and rectangular hyperbola
(b) ₹ 1400 ; E_d < 1 and steep demand curve
(c) ₹ 1400 ; E_d > 1 and flatter demand curve
(d) ₹ 2800 ; E_d = 1 and rectangular hyperbola

213. The demand of a commodity was 100 units initially. With the rise in price by ₹ 5, the quantity demanded falls by 5 units. Elasticity of demand is 1.2. Find out the price BEFORE the change in demand.
(a) ₹ 100
(b) ₹ 140
(c) ₹ 120
(d) ₹ 160

214. Regardless of changes in its price, if the quantity demanded of a good remains constant, then the demand curve for the good will be-
(a) horizontal
(b) vertical
(c) positively sloped
(d) negatively sloped

215. The total revenue of the seller will increase with a fall in price if-
(a) demand is unitary
(b) the percentage change in quantity demand¬ed is less than percentage in price
(c) demand is inelastic
(d) the percentage in quantity demanded is greater than the percentage change in price

216. Point elasticity is useful for which of the following situations?
(a) A restaurant is considering increasing the price of dosa from ₹ 100 to ₹ 200
(b) Lakme is considering lowering the price of its lipsticks by 50%
(c) Maruti Car Ltd. lower the price of Alto 800 by ₹ 1,000
(d) None of the above

217. If there are finite change in price and quantity demanded over a stretch on the demand curve, it is called-
(a) Arc elasticity
(b) Point elasticity
(c) Average elasticity
(d) Both ‘a’ and ‘c’

218. The formula used in the Arc Elasticity method is-

219. When price elasticity at a single point on a demand curve is measured, we use ____
(a) Proportionate Method
(b) Geometric Method
(c) Total Expenditure Method
(d) Arc Elasticity

220. The exact and precise co-efficient of elasticity cannot be found by _____ method.
(a) Proportionate Method
(b) Geometric Method
(c) Total Expenditure Method
(d) Arc Elasticity

221. ____ method only classifies elasticity into elastic, inelastic or unitary elastic.
(a) Proportionate Method
(b) Geometric Method
(c) Total Expenditure Method
(d) Arc Elasticity

222. Slope of a demand curve may remain constant but elasticity still can does change. This is-
(a) Absolutely correct as slope of a curve and its elasticity are not the same thing
(b) Absolutely incorrect as slope of a curve and its elasticity are same thing
(c) Partly correct and partly incorrect
(d) None of the above

223. Let slope of demand curve = -0.5. The elasticity of demand will be ____ if initial price is ₹ 20 per unit and initial quantity is 50 units of the commodity
(a) – 0.6
(b) – 0.7
(c) – 0.8
(d) – 0.9

For Q. Nos. 224 to 226 refer the following information. Given –

224. What is the price of the commodity when Quantity Demanded is 20 units ?
(a) ₹ 4
(b) ₹ 5
(c) ₹ 6
(d) ₹ 7

225. What is the price of the commodity when the Quantity Demanded is 30 units?
(a) ₹ 4
(b) ₹ 5
(c) ₹ 6
(d) ₹ 7

226. Using percentage method, the price elasticity of demand is-
(a) 1.5
(b) 2.0
(c) 2.5
(d) 3.0

227. Life saving drugs has ____ demand.
(a) inelastic
(b) elastic
(c) perfectly elastic
(d) perfectly inelastic

228. The price elasticity of demand is 0.5. The percentage change in quantity is 4. What is the percentage in price?
(a) 6
(b) 8
(c) 10
(d) 12

229. When price of a commodity gets doubled, its quantity demanded is reduced to half. The coefficient of price elasticity of demand will be-
(a) – 1
(b) – 0.5
(c) – 1.5
(d) – 2

230. Calculate the price elasticity of demand-

(a) – 1
(b) – 2
(c) – 2.5
(d) – 1.5

231. The price elasticity of demand for good ‘X’ is twice that of good ‘Y’. Price of ‘X’ falls by 5% while that of good ‘Y’ rises by 5%. The percentage change in the quantities demanded of X and Y will be
(a) 10% and 5%
(b) 5% and 10%
(c) 10% and 15%
(d) 15% and 20%

232. A consumer buys a certain quantity of a good at a price of ₹ 10 per unit. When the price falls to ₹ 8 per unit, he buys 40% more quantity. The price elasticity of demand will be-
(a) 8
(b) 6
(c) 4
(d) 2
Consider the following diagram to answer questions from 233 to 234

233. At a price of OP the total expenditure of the consumer is-
(a) OC RP₁
(b) OBTP
(c) BCRT
(d) None of the above

234. At a price of OP₁ the total expenditure of the consumer is-
(d) OC RP₁
(b) OBTP
(c) BCRT
(d) None of the above

235. All demand curves but one indicate same elasticity of demand at all their points-
(a) Horizontal Straight Line Demand Curve
(b) Vertical Straight Line Demand Curve
(c) Relatively Elastic Demand Curve
(d) Rectangular Hyperbola

236. The point where the downward sloping straight line demand curve intercept the horizontal axis, price elasticity of demand is ____ because price at the point is ____
(a) zero ; zero
(b) = 1; zero
(c) > 1 ; zero
(d) < 1 ; zero

237. If the price elasticity of demand is ZERO, it means expenditure on the commodity may ____ with the change in price of the commodity.
(a) increase
(b) decrease
(c) increase or decrease
(d) remain constant

238. The price elasticity of demand is higher, when the price of the commodity is-
(a) higher
(b) lower
(c) constant
(d) zero

239. If 10% increase in price of good ‘X’ causes a 10% increase in expenditure on good ‘X’, elasticity of demand is equal to ____
(a) 2
(b) 3
(c) 1
(d) zero

240. Price of the commodity increases from ₹ 10 to ₹ 12 per unit and expenditure on the commodity increases by 20%, elasticity of demand would be-
(a) 3
(b) zero
(c) 2
(d) 1

241. The income elasticity of demand in case of an inferior good is-
(a) positive
(b) zero
(c) negative
(d) infinite

242. If a good is a luxury, its income elasticity of demand is-
(a) positive & less than one
(b) negative but greater than one
(c) positive and greater than one
(d) zero

243. When a given change in income does not lead to any change in the quantity demanded, it is called as-
(a) negative income elasticity of demand
(b) income elasticity of demand less than one
(c) zero income elasticity of demand
(d) income elasticity of demand is greater than one

244. The goods having zero income elasticity of demand are called goods.
(a) luxury
(b) comfort
(c) necessity
(d) neutral

245. Salt, Match Box, etc. are ____ goods as Σy = 0
(a) neutral
(b) necessary
(c) luxury
(d) none of the above

246. As income rises, the consumer will go in for superior goods and as a result the demand for inferior goods will fall. This implies-
(a) income elasticity of demand less than one
(b) negative income elasticity of demand
(c) zero income elasticity of demand
(d) unitary income elasticity of demand

247. Firms that supply products with higher income elasticity of demand can expect ____ as the economy grows.
(a) rise in sales
(b) fall in sales
(c) constant sales
(d) first rise then

248. Firms that supply products with relatively low income elasticity of demand experience in an economic downturn.
(a) rise in sales
(b) fall in sales
(c) stable sales
(d) none of the above

249. Which one of the following is income inelastic product/service?
(a) Air travel
(b) Visit to water park
(c) Life Saving Drugs
(d) Dinner at a five star hotel

250. The responsiveness of demand of a commodity to the change in income is known as-
(a) price elasticity of
(b) income elasticity demand of demand
(c) cross-elasticity
(d) none of the above of demand

251. The responsiveness of the change in quantity demanded of one commodity due to a change in the price of another commodity is known as-
(a) price elasticity of demand
(b) income elasticity of demand
(c) cross elasticity of demand
(d) none of the above

252. Cross elasticity of demand between two perfect substitutes will be-
(a) low
(b) very high
(c) infinity
(d) very low

253. Complementary goods like tea and sugar have a ____ cross elasticity of demand.
(a) Negative
(b) Positive
(c) Zero
(d) Infinite

Consider the following information to answer Q. Nos. 254 to 256
The following elasticities relating to demand for CORN are given-

• Price Elasticity E_P = 1.50
• Cross Elasticity between the demand for CORN and price of WHEAT = 0.75
• Income Elasticity, E_y = 0.50

254. If the price of corn rises, other things being the same, the consumers will spend ____ on corn.
(a) more
(b) less
(c) same amount
(d) none of the above

255. The above information shows that wheat and corn are ____
(a) neutral goods
(b) necessity
(c) complementary goods
(d) substitute goods

256. If income rises, the share of income spent on corn will-
(a) remain same
(b) increase
(c) fall
(d) none of the above

257. Given – Q_x = 500 – 4 P_x
Find elasticity demand when price = ₹ 25
(a) .50
(b) .25
(c) 1
(d) .75

258. Give – Q_x = 20 – 2 P_x, what is the price elasticity of demand when price is ₹ 5?
(a) 0.50
(b) .25
(c) 1
(d) .75

259. If the amounts of two goods purchased increase or decrease simultaneously when the price of one changes, then the cross elasticity of demand between then is-
(a) one
(b) negative
(c) positive
(d) zero

260. Of the following commodities, which has the lowest elasticity of demand?
(a) Car
(b) Tea
(c) Houses
(d) Salt

261. Suppose your income increases by 20% and demand for a commodity increases by 10%, then the income elasticity of demand is-
(a) infinity
(b) negative
(c) zero
(d) positive

262. Which of the following does not have uniform elasticity of demand at all points?
(a) A downward sloping demand curve
(b) A vertical demand curve
(c) A rectangular hyperbola demand curve
(d) A horizontal demand curve

263. A negative income elasticity of demand for a commodity indicates that as income falls the amount of commodity purchased-
(a) remains unchanged
(b) falls
(c) rises
(d) none of these

264. In which case the elasticity shown by different points of a curve is the same?
(a) A rectangular hyperbola curve
(b) A straight line curve
(c) A downward sloping curve
(d) None of these

265. “The proportional change in quantity purchased divided by the proportional change in price”. The quotation is given by-
(a) Alfred Marshall
(b) Cobb – Douglas
(c) Joan Robionson
(d) Adam Smith

266. If the quantity demanded of a commodity is plotted against the price of a substitute goods, the curve is expected to be-
(a) Vertical
(b) Positively sloped
(c) Horizontal
(d) Negatively sloped

267. Cross elasticity of demand between petrol and automobiles is-
(a) infinite
(b) high
(c) zero
(d) low

268. There are two goods ‘X’ and ‘Y’. The cross elas¬ticity of demand for ‘X’ with respect to price of ‘Y’ is greater than zero, they are-
(a) complementary to each other
(b) complementary goods
(c) substitutes
(d) close substitutes

269. If two demand curves are shooting downward from the same point, then-
(a) flatter curve have greater elasticity of demand
(b) steeper curve have greater elasticity of demand
(c) both curves show same elasticity of demand since they shoot down from the same point
(d) none of the above

270. If income elasticity for the household for good A is 2, then the good is-
(a) necessity item
(b) inferior good
(c) luxury item
(d) neutral good
Consider the following figure to answer Q. Nos. 271 to 273

271. In the figure above elasticity of demand at point ‘D’ is-
(a) < elasticity of demand at point ‘C’
(b) > elasticity of demand at point ‘C’
(c) = elasticity of demand at point ‘C’
(d) None of the above

272. Price at point ‘B’ price is ____ and therefore elasticity of demand is ____
(a) high ; high
(b) low; low
(c) zero ; zero
(d) zero ; high/low

273. The elasticity of demand at point ‘A’ is-
(a) low
(b) infinite
(c) high
(d) zero
Consider the following figure to answer Q. Nos. 274 to 276

274. In the figure above, for a given fall in price to P₁ the change in quantity is highest in case of-
(a) d₁
(b) d₂
(c) d₃
(d) None of the above as all curves shoot from same point

275. Demand curve d₂ is-
(a) more elastic than d₁
(b) less elastic than d₁
(c) more elastic than d₂
(d) none of the above

276. Of the three demand curves highest elasticity is denoted by-
(a) d₁
(b) d₂
(c) d₃
(d) all show same elasticity

277. If the quantity demanded of a commodity is plotted against the price of a complementary good, the demand curve will be-
(a) Negatively sloped
(b) Positively sloped
(c) Vertical
(d) Horizontal

278. Income of a household rises by 10% and its demand for jawar falls by 4%. In this case jawar is ____ good.
(a) Normal
(b) Luxurious
(c) Inferior
(d) Neutral

279. If Cross Elasticity of Demand is equal to Zero, it means that the goods are-
(a) Perfect Substitute goods
(b) Complementary goods
(c) Unrelated goods
(d) Substitutes

280. If the quantity demanded of Tea rises by 5% when the price of Coffee increase by 20%, the Cross Elasticity of demand between Tea and Coffee is-
(a) – 0.25
(b) 0.25
(c) – 4
(d) 4

Theory of Consumer Behaviour

281. Want satisfying power of a commodity is called-
(a) consumption
(b) utility
(c) production
(d) value addition

282. Utility depends on the ____ of a want.
(a) intensity
(b) quality
(c) novelty
(d) uniformity

283. All but one are the commodities that have both utility and usefulness except-
(a) pencil
(b) notebook
(c) tobacco
(d) clothes

284. Utility is-
(a) a subjective and relative concept
(b) morally or ethically colourless
(c) different from pleasure
(d) all the above

285. Utility may be defined as-
(a) power of a commodity to satisfy wants
(b) usefulness of a commodity
(c) desire for a commodity
(d) none of the above

286. The utility of a commodity is ____
(a) its accepted social value
(b) the extent to which it is of practical use
(c) the fact that it is wanted by some people
(d) its relative scarcity

287. Utility is measured in terms of-
(a) Grams
(b) Seconds
(c) Centimeter
(d) Utils

288. Utility is-
(a) usefulness
(b) moral implications
(c) legal implications
(d) none of the above

289. The cardinal approach postulates that utility can be ____
(a) compared
(b) measured
(c) ranked
(d) all the above

290. Cardinal Utility Theory is associated with-
(a) W.S. Jevons
(b) Dr. A. Marshall
(c) H.H. Gossen and Walras
(d) All the above

291. Cardinal Utility approach is also known as-
(a) Indifference Curve Analysis
(b) Hicks and Allen Approach
(c) Marginal Utility Analysis
(d) All the above

292. Marginal Utility Approach is also called-
(a) Ordinal Utility Analysis
(b) Hicks and Allen Approach
(c) Cardinal Utility Analysis
(d) All the above

293. According to marginal utility analysis, utility can be measured as-
(a) 1^st, 2^nd, 3^rd ……
(b) 1,2,3, ……
(c) Nominal numbers
(d) All the above

294. Cardinal measure of utility is required in-
(a) Marginal Utility Theory
(b) Indifference Curve Theory
(c) Revealed Preference Theory
(d) None of the above

295. Which of the following approaches uses MONEY as a measuring rod of utility-
(a) Ordinal
(b) Cardinal
(c) Both ‘a’ and ‘b’
(d) Neither ‘a’ nor ‘b’

296. Which of the theories is applicable under Cardinal Approach to Utility?
(a) Law of Diminishing Marginal Utility
(b) Law of Equi-Marginal Utility
(c) Consumer Surplus Theory
(d) All the above

297. All but one are the assumptions of the Cardinal Utility Theory. Which one is not the assumption?
(a) Rational Consumer
(b) Constant Marginal Utility of money
(c) Perfectly Competitive Market
(d) Independent Utilities

298. Which of the following assumptions ignores the presence of complementary and substitute goods in Cardinal Utility Theory?
(a) Rational Consumer
(b) Constant Marginal Utility of money
(c) Independent Utilities
(d) None of the above

299. The price that a consumer is ready to pay for a commodity represents the utility he is expecting from the commodity means-
(a) Utility is measurable
(b) Utility is not measurable
(c) Money is the measuring rod of utility
(d) Both ‘a’ and ‘c’

300. Consumer makes all calculations carefully and then purchase the commodities in order to maximize his utility means consumer is-
(a) careless
(b) rational
(c) irrational
(d) unpredictable

301. Which of the following statements regarding ordinal utility is true?
(a) Utility can be measured, but cannot be ranked in order of preferences
(b) Utility can be measured only
(c) Utility can neither be measured nor be ranked in order or preferences
(d) Utility cannot be measured, but can be ranked in order of preferences

302. The cardinal approach to utility assumes marginal utility of money is-
(a) Zero
(b) Constant
(c) Increasing Trend
(d) Decreasing Trend

303. ____ is the sum total of the utility derived from additional units of a commodity
(a) Average utility
(b) Marginal utility
(c) Total utility
(d) Ordinal utility

304. _____ is the addition made to the total utility by the consumption of additional unit of a commodity
(a) Marginal Utility
(b) Total Utility
(c) Average Utility
(d) Ordinal Utility

305. Marginal Utility can be stated by-
(a)

(b) Additional utility derived from additional unit of a commodity
(c) TU_n – TU_n-1
(d) All the above

306. Utility of a good can be termed as the ____
(a) Monetary value a consumer gains from consuming a particular good
(b) The difference between what a consumer is willing to pay and actually pays
(c) The satisfaction a consumer derives from the consumption of a particular good
(d) The desire to consume a good

307. Marginal Utility-
(a) is always positive
(b) is always negative
(c) can be positive or negative but not zero
(d) can be positive or negative or zero

308. Total Utility can be calculated as-
(a) TU = Σ MU
(b) TU = MU₁ + MU₂ + MU₃ + MU_n
(c) Both ‘a’ and ‘b’
(d) none of the above

309. When only ONE unit of the commodity is consumed-
(a) MU = TU
(b) MU > TU
(c) MU < TU
(d) none of these

310. When marginal utility is negative, total utility is-
(a) zero
(b) diminishing
(c) maximum
(d) minimum

311. When total utility is maximum, marginal utility becomes-
(a) zero
(b) unity
(c) positive
(d) negative

312. Total Utility is ____ when marginal utility is positive
(a) maximum
(b) diminishing
(c) increasing
(d) minimum

313. When TU is increasing at a diminishing rate, MU must be-
(a) increasing
(b) decreasing
(c) constant
(d) negative

314. MU of a particular commodity at the point of saturation is-
(a) zero
(b) unity
(c) greater than unity
(d) less than unity

315. Which of the following equation is incorrect?

316. The rate of which TU changes is indicated by-
(a) MU
(b) TU
(c) both ‘a’ and ‘b’
(d) none of these

317. With the increase in consumption by ONE unit of the commodity, TU increases from 120 to 150, then marginal utility is-
(a) 50
(b) 1.25
(c) 0.88
(d) 30

318. The shape of MU curve is-
(a) upward sloping
(b) Concave to origin
(c) downward sloping
(d) straight line

319. TU starts diminishing when-
(a) MU is positive
(b) MU is increasing
(c) MU is negative
(d) MU is constant

320. TU curve-
(a) always rises
(b) always falls
(c) first falls and then rises
(d) first rises at a diminishing rate, reaches maximum point and then falls

321. MU curve will be below X-axis when-
(a) MU is positive
(b) MU is negative
(c) MU is zero
(d) MU is constant

322. What is called the point of satiety?
(a) The point where MU >0
(b) The point where MU < 0
(c) The point where MU = 0
(d) None of these

323. ____ states that marginal utility of a good diminishes as the consumer consumers additional units of a good.
(a) The Law of Equi-Marginal Utility
(b) The Law of Diminishing Marginal Utility
(c) Revealed Preference theory
(d) None of the above

324. MU curve of a consumer is also his ____
(a) indifference curve
(b) total utility curve
(c) supply curve
(d) demand curve

325. ____ curve is the slope of the TU curve.
(a) MU Curve
(b) Average Utility Curve
(b) Supply Curve
(d) Indifference Curve

326. At saturation point the slope of total utility curve is ____
(a) rising
(b) falling
(c) zero
(d) none of these

327. Constant Marginal Utility of Money means ___
(a) quantity
(b) importance
(c) composition
(d) Both ‘a’ and ‘c’

328. A curve which first move upwards then down wards is naturally ____
(a) Marginal Utility Curve
(b) Average Utility Curve
(c) Total Utility Curve
(d) Demand Curve

329. The peradox of value means that-
(a) people are irrational in consumption choices
(b) the total utilities yielded by commodities do not necessarily have relationship to their prices
(c) value has no relationship to utility schedule
(d) free goods are goods that are essential to life

330. The value paradox (diamond and water paradox) arises because-
(a) Water has too low price
(b) Value in use differs from utility
(c) Diamonds are too high priced
(d) Value-in-use differs from value-in-exchange

331. In ONE COMMODITY, case, the consumer is at equilibrium when-

332. The second samosa consumed gives lesser satisfaction to Mohan. This is a case of-
(a) Law of Demand
(b) Law of Diminishing Returns
(c) Law of Diminishing Marginal Utility
(d) Law of Supply

333. Marginal Utility of a commodity depends on its quantity and is –
(a) inversely proportional to its quantity
(b) not proportional to its quantity
(c) independent of its quantity
(d) none of the above

334. Which of the following is NOT an assumption of Law of Diminishing Marginal Utility?
(a) Homogenity
(b) Continuity
(c) Standard Unit
(d) None of the above

335. MU of one commodity has no relation with MU of another commodity implies-
(a) assumption of uniform quality
(b) assumption of rational consumer
(c) assumption of independent utilities
(d) assumption of reasonable quantity

336. Consumer in consumption of single commodity ‘X’ will be at equilibrium when-
(a) MUx = Px
(b) Mux >Px
(c) Mux < Px
(d) all the above

337. if Mux >Px then consumer-
(a) is not at equilibrium
(b) he will buy more of X good
(c) he will buy less of X good
(d) both ‘a’ and ‘b’

338. Suppose the price of good X is given as ₹ 8 and the MU in terms of money for 4 units is given as-

How many units should a consumer purchase to maximize satisfaction?
(a) 4 units
(b) 3 units
(c) 2 units
(d) 1 unit

339. Following is the utility schedule of a person-

If the commodity is sold for ₹ 4 and MU of one rupee is 5 utils, how many units will the consumer buy to maximize satisfaction?
(a) 1 unit
(b) 2 units
(c) 3 units
(d) 4 units

340. Suppose that an ice-cream is sold for ₹ 30. Ritu has already eaten 3 ice-creams. Her MU from eating the 3rd ice-cream is 90 utils. MU of ₹ 1 is 3 utils. Should she eat more ice-creams or stop?
(a) Stop eating more ice-creams
(b) Continue eating more ice-creams
(c) Stop after eating one more ice-cream
(d) Eat 2 more ice-creams

341. If one burger give you satisfaction of 15 utils and two burgers give total satisfaction of 25 utils, then the marginal utility of second burger is-
(a) 10 utils
(b) 11 utils
(c) 12 utils
(d) 13 utils

342. ____ refers to a situation when a consumer maximizes his satisfaction with his limited income.
(a) Producer’s Equilibrium
(b) General Equilibrium
(c) Consumer’s Equilibrium
(d) None of these

343. The general condition of consumer’s equilibrium with respect to any particular product is-

344. The consumer is in equilibrium and is consuming good-X only. The MU from last unit of good X consumed is 50 utils and Mu_m =10. What is the price of good X?
(a) ₹ 5
(b) ₹ 40
(c) ₹ 10
(d) ₹ 4

345. The principal limitation of utility analysis re¬lates to the basic assumption that utility can be expressed in terms of-
(a) cardinal numbers
(b) ordinal numbers
(c) both ‘a’ and ‘b’
(d) none of these

346. Marginal Utility theory is based on ____ from a good.
(a) actual satisfaction
(b) anticipated satisfaction
(c) realised satisfaction
(d) none of these

347. Which one of the following is the ODD one?
(a) Law of Substitution
(b) Law of Diminishing Marginal Utility
(c) Indifference curve analysis
(d) Law of Variable Proportions

348. Which statement is correct in connection with utility?
1. It is same for all consumer
2. It is a subjective concept
3. It is different for all its consumers
4. It’s a want satisfying power
5. It decreases uniformly for all its consumers
(a) 1, 2 and 3 only
(b) 2, 3 and 4 only
(c) 3, 4 and 5 only
(d) 1, 3 and 5 only

349. The excess of the price which a person would be willing to pay rather than go without the thing over that he actually does pay is called-
(a) extra satisfaction
(b) surplus satisfaction
(c) consumer’s surplus
(d) all the above

350. The doctrine of consumer’s surplus is based on ____
(a) Elasticity of Demand
(b) Indifference Curve Analysis
(c) Law of Substitution
(d) Law of Diminishing Marginal Utility

351. The term optimum allocation of consumer’s expenditure on different goods and services is used in-
(a) Law of Demand
(b) Giffens Paradox
(c) Law of Equi-Marginal Utility
(d) Law of Diminishing Marginal Utility

352. Buyer’s surplus is highest in the case of _____
(a) Luxuries
(b) Comforts
(c) Necessaries
(d) All the above
For Q – Nos. 353 to 355, refer the following figure :

353. In the above figure, the total utility is represented by the area ____
(a) DPR
(b) OQRP
(e) OQRD
(d) none of these

354. In the above figure, the given price is _____ and the consumer for OQ amount of commodity spends a total amount of money equal to the area _____
(a) OP ; POOR
(b) OD ; POOR
(c) OP ; DPR
(d) OD ; DPR

355. In the above figure, the consumer’s surplus is shown by the area-
(a) POOR
(b) DPR
(c) OQRD
(d) none of these
For Q. Nos. 356 and 359 refer the following figure

356. In the above diagram, the consumer’s surplus at the price of P₁ is equal to the area-
(a) P₁CA
(b) P₁OQ₁
(c) Both ‘a’ and ‘b’
(d) none of these

357. In the above diagram when price of the commodity decreases from P₁ to P₂, the gain in consumer’s surplus is equal to ____
(a) AP₃C
(b) AP₂D
(c) P₁P₂DC
(d) AP₃B

358. In the above diagram, when price of the commodity rises from P1 to P3, the loss in consumer’s surplus is equal to ___
(a) AP3B
(b) AP1C
(c) AP2D
(d) P1P3 BC

359. The consumer’s surplus at the price P₁ is ____ than the consumer’s surplus at the price of P₃ but ____ at the price of P₂.
(a) greater; less
(b) less ; greater
(c) same at all the prices
(d) none of these

360. The area of consumer’s surplus is correctly shaded in ____

361. The concept of consumer’s surplus is useful in ____
(a) Distinguishing between value-in-use and value-in-exchange
(b) Comparing the advantages of different places
(c) Useful in cost benefit analysis of projects
(d) All the above

362. Amit divides his income entirely between Good X and Good Y. He allocates his income between these two goods is such a way that he maximizes his satisfaction. His MU from extra unit of Y is 4 Utils and the price of Y is ₹ 40. If the price of X is ₹ 80, how much of X good he consumes per day?
(a) 4
(b) 6
(c) 8
(d) 10

363. A free good is plentiful so as to have no price, will be used upto the point where its marginal utility is ____
(a) zero
(b) highest
(c) lowest
(d) none of these

364. The more rapidly the marginal utility of additional units of a good falls, the will be the elasticity of demand.
(a) more
(b) less
(c) zero
(d) infinite

365. According to utility theory, for a consumer who is maximizing total utility, Mu_a / Mu_b

366. In which of the following fields the concept of consumer’s surplus is useful?
(a) Monetary policy
(b) Tax policy
(c) Investment policy
(d) Fixing remuneration on factors

367. An example of a commodity having consumers surplus is ____
(a) Salt
(b) Branded Shirt
(c) Machinery
(d) Pen

368. Consumer’s surplus means-
(a) difference between market price and individual price
(b) difference between actual and potential price
(c) low price is prevailing
(d) happiness of the consumer

369. Consumer’s surplus is measured with the help of ____
(a) market demand curve
(b) marginal productivity curve
(c) marginal utility curve
(d) none of these

Consider the following details to answer Q. Nos. 370 to 372
Given Px = ₹ 2 and Py = ₹ 1 and income = ₹ 12.
Also given is the utility schedule of good X & Y.

370. How many units of X and Y the consumer will buy in order to maximize utility?
(a) 2 units of X & 6 units of Y
(b) 3 units of X & 5 units of Y
(c) 4 units of X & 4 units of Y
(d) 3 units of X & 6 units of Y

371. What will be the total utility received by the Consumer from the two commoddities
(a) 90
(b) 92
(c) 93
(d) 95

372. How much of total income will the consumer spend on good X and good Y?
(a) ₹ 3 & ₹ 6
(b) ₹ 6 & ₹ 6
(c) ₹ 6 & ₹ 3
(d) ₹ 3 & ₹ 3

373. When the price of both the commodities is same, the consumer attains maximum satisfaction where

374. A consumer will purchase more of Good-x than Good-Y, only when :

375. A locus of constant utility is called the ____
(a) expansion path
(b) utility function
(c) indifference curve
(d) demand function

376. An indifference curve is ____
(a) downward sloping and convex to origin
(b) downward sloping and concave to origin
(c) upward sloping and convex to origin
(d) vertical and parallel to y-axis

377. The slope of indifference curve show-
(a) marginal rate of substitution
(b) level of satisfaction to the consumer
(c) elasticity of indifference curve
(d) none of the above

378. At a point near the right hand below corner of a indifference curve, the MRS of commodity ‘X’ for commodity ‘Y’ is-
(a) very high
(b) very low
(c) zero
(d) neither high nor low

379. As one moves upward towards left along an indifference curve, the MRS of commodity ‘X’ for commodity ‘Y’-
(a) increases
(b) decreases
(c) is constant
(d) fluctuates

380. A higher IC denotes-
(a) a higher level of satisfaction
(b) a lower level of satisfaction
(c) same level of satisfaction
(d) none of the above

381. Which of the following is not a characteristics of the indifference curve-
(a) downward sloping to the right
(b) convex to the origin
(c) intersecting at one point
(d) none of the above

382. IC theory assumes that-
(a) buyers can measure satisfaction
(b) buyers can identify preferred combinations of goods
(c) the prices of the goods are equal
(d) none of the above

383. An IC shows all combinations of two commodities which-
(a) give the same level of satisfaction to the consumer
(b) represent the highest level of satisfaction to the consumer
(c) give the different level of satisfaction to the consumer
(d) none of the above

384. The slope of IC tends to diminish as we move down the curve means-
(a) MRS is constant
(b) MRS is increasing
(c) MRS is decreasing
(d) none of the above

385. Marginal rate of substitution of ‘X’ for ‘Y’ is calculated as-

386. In an indifference map, higher IC indicates :
(a) lower level of satisfaction
(b) same level of satisfaction
(c) higher level of satisfaction
(d) either same or higher level of satisfaction

387. MRS is determined by-
(a) satisfaction level of the consumer
(b) income of the consumer
(c) tastes of the consumer
(d) preferences of the consumer

388. A set of ICs drawn in a graph is called-
(a) indifference curve
(b) indifference map
(c) budget line
(d) budget set

389. An IC is convex to origin because of-
(a) diminishing marginal utility
(b) diminishing marginal productivity
(c) diminishing marginal cost
(d) diminishing marginal rate of substitution

390. Marginal Rate of Substitution indicates the slope of-
(a) budget line
(b) indifference curve
(c) total utility curve
(d) demand curve

391. The slope of IC is different at different points of the curve
(a) Correct
(b) Incorrect
(c) ∴ slope of IC is measured by MRS which falls
(d) Both ‘a’ & ‘c’

392. Only one IC will pass through a given point on an indifference map implies that-
(a) One combination can lie only on one IC
(b) One combination can lie on two ICs.
(c) One combination can lie on as many ICs.
(d) none of the above

393. Considering the map, the satisfaction derived from the combination is _____

(а) A > B, B > C but A > C
(b) A>B>C
(c) A < B > C
(d) C > B > A

394. A consumer may not be in equilibrium at point C or D because _____

(a) MRS_xy = Px / Py
(b) The whole income is not spent
(c) Point E gives higher level of Satisfaction with the same expenditure as on point C and D
(d) Of sufficiency of income

395. On an indifference curve, the MRS falls when-
(a) moving upwards
(b) moving downwards
(c) at the middle
(d) none of these

396. Should a consumer move upward along an IC, his total utility-
(a) First increases and then decreases
(b) First decreases and then increases
(c) Remains constant
(d) Increases

397. Which of the following is not an assumption of ordinal utility analysis?
(a) Consumers are consistent in their preference
(b) Consumers can measure the total utility
(c) Consumers are non-satiated with respect of two goods
(d) None of the above

398. All points on the same IC represent-
(a) Equal satisfaction
(b) Higher satisfaction
(c) Lower satisfaction
(d) All the above

399. IC approach deals with-
(a) One commodity only
(b) Two commodities
(c) Many commodities
(d) No commodities at all

400. If two goods were perfect substitutes of each other, the IC will be-
(a) Curvilinear
(b) linear
(c) right angled
(d) convex to origin

401. A downward sloping linear IC indicates that the rate of MRSxy is-
(a) diminishing
(b) increasing
(c) constant
(d) zero

402. In the case of two perfect substitute goods, the IC will be-
(a) L – shaped
(b) U – shaped
(c) S – shaped
(d) Straight line

403. If a consumer has monotonic preferences, which bundle will he choose?
(a) (10,8)
(b) (8,6)
(c) (10,7)
(d) (8,8)

404. If a consumer has monotonic preferences how would he rank his preference over the bundles (10,9); (9,9) (10,10)-
(a) (10,9) (10,10) ; (9,9)
(b) (10,10) (10,9) ; (9,9)
(c) (9,9) (10,10) ; (10,9)
(d) None of the above

405. When an IC is L shaped, then two goods will be-
(a) Perfect Substitute Goods
(b) Perfect Substitute
(c) Perfect Complementary Goods
(d) Complementary Goods

406. The Other name associated with ordinal approach apart from R.G.D. Allen and J.R. Hicks is-
(a) Edgeworth
(b) Vilfredo Pareto
(c) Slutsky
(d) All the above

407. _____ depicts complete scale of consumer’s tastes and preferences.
(a) Budget Line
(b) MU curve
(c) Indifference curve map
(d) One indifference curve

408. One combination can lie only on one IC means-
(a) Only one IC will pass through the point
(b) Two ICs will pass through the point
(c) As many ICs can pass through the point
(d) None of the above

409. When the quantity of one good is increased in the combination, the quantity of other is reduced to maintain same level of satisfaction. This means that IC is ____
(a) positively sloped
(b) vertical straight line
(c) horizontal straight line
(d) negatively sloped

410. When the combinations on a IC do not represent same level of satisfaction, it means IC is _____
(a) positively sloped
(b) horizontal straight line
(c) vertical straight line
(d) all the above

411. is a graphical representation of all possible combination of two goods which can be purchased given income and prices.
(a) Budget Line
(b) Price Opportunity Line
(c) Consumption Possibility Line
(d) All the above

412. If a combination is below the Budget Line, it indicates that there is-
(a) Underspending by a consumer
(b) Overspending by a consumer
(c) Full spending by a consumer
(d) None of the above

413. All combinations that lie on the budget line are _____
(a) unaffordable by consumer
(b) affordable by consumer
(c) attainable by consumer
(d) Both ‘b’ and ‘c’

414. Each point on the budget line shows-
(a) the ratio of change in MU
(b) the ratio of prices of two goods
(c) Marginal Rate of Substitution .
(d) Both ‘b’ and ‘c’

415. A shift of the budget line, when prices are constant, is due to-
(a) change in demand
(b) change in income
(c) change in preference
(d) change in utility

416. Slope of budget line is indicated by-

417. The budget line of a consumer in the analysis of IC is-
(a) Vertical straight line
(b) Horizontal straight line
(c) Straight line sloping down towards right
(d) Straight line sloping upwards towards right

418. The budget line is not known as-
(a) consumption possibility curve
(b) price line
(c) price opportunity line
(d) isoutility line

419. Refer the following figure-

Figure denotes-
(a) Change in income
(b) Change in price of Good-X
(c) Change in price of Good-Y
(d) Change in the prices of both Good X & Y

420. When the prices of both Good-X and Good-Y change by same percentage, a rise in price will-
(a) shift the budget line upwards
(b) shift the budget line downwards
(c) no shift in budget line
(d) all the above

421. If the budget line does not shift it means-
(a) prices of both goods X & Y has changed by same percentage
(b) there is no change in the prices of both goods X & Y
(c) money income of consumer has changed
(d) income of the consumer and prices of both goods X & Y change by same percentage

422. If price of Goods-X falls and price of Good-Y rises then budget line will-
(a) shift upward
(b) shift downward
(c) rotate
(d) remain same

423. Refer the following figure, what change budget line shows –

(a) Px fails and Py rises
(b) Px rise and Pv falls
(c) Px=Py
(d) none of the above

Refer the following to answer question nos. 424 to 426
A consumer wants to buy two good X and Y. The prices of the two goods are ₹ 4 and ₹ 5 respectively. The consumers income is ₹ 20.

424. If the consumer spends the entire money income to buy only Good-X, how much quantity he can buy of it?
(a) 5 units
(b) 6 units
(c) 4 units
(d) 3 units

425. If the consumer spends the full income only to buy Good-Y, how much quantity he would be able to buy of it-
(a) 5 units
(b) 6 units
(c) 4 units
(d) 3 units

426. The slope of the budget line is-
(a) 0.9
(b) 0.8
(c) 0.7
(d) 0.5

427. A consumer can buy 6 units Good-X and 8 units of Good-Y if he spends his entire income. The prices of the two goods are ₹ 6 and ₹ 8 respectively. What is the consumer’s income.
(a) ₹ 100
(b) ₹ 150
(c) ₹ 200
(d) ₹ 250

428. Ravi consumes Apples and Bananas whose price are ₹ 6 and ₹ 3 p.u. respectively. If he is in the state of equilibrium, the value of marginal rate of substitution is-
(a) 4
(b) 3
(c) 2
(d) 1

429. A budget constraint line is a result of
(a) market price of good X
(b) market price of good Y
(c) income of the consumer
(d) all the above

430. The budget line equation is-

431. The consumer will maximize his satisfaction and will be at equilibrium where-
(a) budget line is tangent to IC
(b) price line crosses on IC
(c) price line does not touch the IC
(d) none of the above

432. How many indifference curves can touch the price line-
(a) Two
(b) One
(c) As many as possible
(d) No IC will touch

433. MRSxy = p_x / p_y where-
(a) consumer is in equilibrium
(b) consumer is not at equilibrium
(c) producer is at equilibrium
(d) none of the above

434. The point where the budget line is tangent to an IC-
(a) equal amounts of goods give equal satisfaction
(b) the ratio of prices of the two goods equals MRS
(c) the prices of the goods are equal
(d) none of the above

435. Maximisation of total utility is an assumption of a consumer in an analysis that is-
(a) Indifference curve approach
(b) Demand analysis
(c) Utility analysis
(d) All the above

436. A consumer is in equilibrium at the point of tangency of his IC and the price line, because-
(a) He cannot go below
(b) He cannot go beyond
(c) He cannot go along
(d) None of the above

437. Which of the following conditions is necessary for utility to be maximum?

Consider the following figure and answer question Nos. 438 and 439

438. The consumer is not at equilibrium at point C, since-
(a) MRSxy > Px / Py
(b) MRSxy = Px / Py
(c) MRSxy < Px / Py (d) None of the above

439. The consumer is at equilibrium at point E, since-
(a) MRSxy > Px / Py
(b) MRSxy = Px / Py
(c) MRSxy < Px / Py
(d) MUx = MUy

440. In a situation where MRSxy > p_x / p_y , the consumer would react by-
(a) reducing the consumption of Good – X
(b) increasing the consumption of Good – Y
(c) increasing the consumption of Good – X
(d) none of these

441. When MRSxy < p_x / p_y , in order to reach equilibrium, the consumption of-
(a) Good-Y should increase
(b) Good-X should increase
(c) Good-Y should decrease
(d) None of these

442. The situation of a consumer is better when-
(a) MRSxy >Px / Py
(b) MRSxy < Px / Py
(c) MRSxy = Px / Py
(d) none of these

Read the following to answer question Nos. 443 and 444
A consumer wants to buy two goods X and Y. He has ₹ 24 to spend. The prices of two goods X and Y are ₹ 4 and ₹ 2 respectively.

443. Which of the following bundles a consumer would be able to buy-
(a) 4X and 5Y
(b) 2X and 7Y
(c) 3Xand6Y
(d) None of the above

444. What will be the MRSxy when the consumer is at equilibrium-
(a) 1:2
(b) 2:1
(c) 1:1
(d) 2:2

445. At the point of equilibrium on Indifference Curve-
(a) Slope of budget line = slope of IC
(b) Slope of budget line > slope of IC
(c) Slope of budget line < slope of IC
(d) None of the above

446. In case of IC approach, an income effect means-
(a) a movement towards X-axis
(b) a movement towards the right
(c) a movement towards another indifference curve
(d) a movement along the indifference curve

447. In the case of substitution effect in IC approach, the consumer moves-
(a) along the same IC from left to right
(b) up and down along the same IC
(c) from a point on IC to a point on budget line
(d) none of these

448. IC is downward sloping from left to right since more X and less Y gives-
(a) less satisfaction
(b) more satisfaction
(c) equal satisfaction
(d) maximum satisfaction

Supply

449. In economics, supply means-
(a) quantity of a commodity which is actually offered for sale at a given price in a given period of time
(b) quantity of a commodity which is offered for sale at a particular price
(c) stock of commodity which is sold at a give price
(d) none of the above

450. Which of the following is not true in case of supply?
(a) Supply is a flow concept
(b) Supply is a stock concept
(c) Supply is directly related to price
(d) Market supply is horizontal summation of the individual supply curves

451. When price rises, quantity supplied-
(a) expand
(b) falls
(c) increases
(d) is unchanged

452. Which of the following statement is correct?
(a) Supply does not depends on Govts, tax policy
(b) Stock is the quantity brought to market for sale
(c) There is difference between stock and supply
(d) Stock and supply are always equal

453. The supply of good refers to-
(a) actual production of a good
(b) total stock of the good
(c) stock available for sale
(d) amount of the good offered for sale at a particular price per unit of time

454. According to law of Supply-
(a) there is positive relation between supply and price
(b) there is negative relation between supply and price
(c) there is constant relation between supply and price
(d) there is no relation between supply and price

455. ______ shows the quantity of goods a producer or seller wishes to sell at a given price level
(a) Average Product Curve
(b) Marginal Product Curve
(c) Supply Curve
(d) Total Product Curve

456. The supply curve slopes-
(a) Slopes downward from left to right
(b) Slopes upwards from left to right
(c) Slopes upward from right to left
(d) None of the above

457. Graphical presentation of supply curve of an individual firm in the market is called-
(a) producer’s demand curve
(b) consumers demand curve
(c) individual supply curve
(d) market supply curve

458. When the state of technology improves, supply
(a) fall
(b) contract
(c) increase
(d) expand

459. When government imposes taxes, supply will
(a) expand
(b) increase
(c) contract
(d) decrease

460. Movement along the supply curve occurs due to-
(a) rise in price of the commodity
(b) fall in price of the commodity
(c) factors other than own price of the commodity
(d) both ‘a’ and ‘b’

461. Supply curve shifts rightward due to-
(a) increase in the number of firms
(b) fall in the price of factors of production
(c) new and better technology
(d) all the above

462. Expansion of supply takes place due to-
(a) change in goal of the firm
(b) rise in price of the commodity
(c) number of firms
(d) technique of production

463. If producer expects an increase in price of goods in the near future, then current supply will:
(a) fall
(b) rise
(c) remain constant
(d) become zero

464. When more units of the good are supplied at a higher price, it is called-
(a) Contraction of supply
(b) Change in supply
(c) Extension in supply
(d) Increase in supply

465. When supply price increases in the short run, the profit of the producer-
(a) Increases
(b) Decreases
(c) Remains constant
(d) Decreases a bit

466. The long-run supply curve of a diminishing cost industry is-
(a) downward sloping to right
(b) upward sloping to left
(c) horizontal
(d) vertical

467. The law of supply does not apply to-
(a) agriculture goods
(b) industrial goods
(c) perishable goods
(d) both ‘a’ and ‘c’

468. When supply falls due to factors other than own price of the commodity, it means-
(a) contraction of supply
(b) decrease in supply
(c) extension of supply
(d) none of these

469. In case of contraction of supply, there is-
(a) an upward movement on supply curve
(b) shift of supply curve to the right
(c) downward movement on supply curve
(d) shift to supply curve to the left

470. In case of increase in supply, there is –
(a) an upward movement on supply curve
(b) shift of supply curve to the right
(c) downward movement on supply curve
(d) shift to supply curve to the left

471. Imposition of a unit tax, shifts the supply curve-
(a) to the right
(b) to the left
(c) to the right as well
(d) none of these as to the left

472. Due to incentives like tax holiday, subsidies which reduces the cost of production, the supply quantity will-
(a) Increase
(b) Decrease
(c) Remain Constant
(d) Become zero

473. In case of failure of rains, floods, etc. the supply of agricultural goods will-
(a) Increase
(b) Decrease
(c) Remain constant
(d) Become zero

474. The percentage change in quantity supplied due to percentage in price is called-
(a) Expansion of supply
(b) inelastic supply
(c) elasticity of supply
(d) changes in supply

475. Elasticity of supply refers to the responsiveness of quantity supplied to changes in its-
(a) Demand
(b) Price
(c) Cost of production
(d) State of technology

476. When supply curve is a vertical straight line, it indicates _____ supply
(a) unitary elastic
(b) perfectly elastic
(c) perfectly inelastic
(d) relatively elastic

477. A straight line supply curve passing through origin forming 50° indicates-
(a) E =0
(b) E_s= 1
(c) E_s > 1
(d) E_s < 1

478. Elasticity of supply for a positively sloped supply cure that starts from price axis is –
(a) zero
(b) greater than one
(c) less than one
(d) equal to one

479. In case of perfectly elastic supply the supply curve is-
(a) rising
(b) vertical
(c) falling
(d) horizontal

480. Supply is relatively elastic in-
(a) very short period
(b) short period
(c) long period
(d) both ‘b’ and ‘c’

481. When supply curve is parallel to X-axis, elasticity of supply is-
(a) zero
(b) infinity
(c) unity
(d) negative

482. If the co-efficient of elasticity of supply is 0.6, the supply is-
(a) perfectly inelastic
(b) inelastic
(c) perfectly elastic
(d) elastic

483. When upward sloping straight line curve shoots up from quantity axis, it implies-
(a) E_s < 1
(b) E_s > 1
(c) E_s = 1
(d) E_s = 0

484. Which of the above curves unitary elastic demand?

(a) Curve A
(b) Curve B
(c) Curve C
(d) all the above

485. Elasticity of supply for a positively sloped supply that shoots from origin
(a) E_s < 1
(b) E_s > 1
(c) E_s = 1
(d) E_s = ∞

486. The supply of perishable goods is-
(a) relatively elastic
(b) relatively inelastic
(c) perfectly elastic
(d) none of the above

487. The supply function of a commodity is given by – Q = 20 + 3 Px. If the price is ₹ 6, the quantity supplied is-
(a) 35 units
(b) 38 units
(c) 40 units
(d) 42 units

Refer the following supply function to answer 0. Nos. 488 to 490
Q_s = -10 + 2p

488. How much quantity is supplied at a price of ₹ 10?
(a) 10 units
(b) 8 units
(c) 12 units
(d) 6 units

489. At which price, the supply would be zero?
(a) ₹ 1
(b) ₹ 3
(c) ₹ 4
(d) ₹ 5

490. Calculate the price at which, the firm is willing to supply 100 units
(a) ₹ 55
(b) ₹ 50
(c) ₹ 45
(d) ₹ 40

491. When price of a commodity falls by 20%, the quantity supplied falls by 25%, the price elasticity of supply is-
(a) 0.75
(b) 1.25
(c) 1.50
(d) 1.75

492. A vegetable vendor sells 80 quintals of potatoes at a price of ₹ 4 p. kg. The elasticity of supply of potatoes is known to be 2. How much quantity will he sell at ₹ 5 p. kg.?
(a) 100 quintals
(b) 110 quintals
(c) 120 quintals
(d) 130 quintals

493. When the price of a good rises from ₹ 15pu to ₹ 19pu, its quantity supplied increases from 75 units to 95 units. The price elasticity of supply is-
(a) 1
(b) 2
(c) 3
(d) 4

494. Total revenue of a firm rises from ₹ 50 to ₹ 100 when the price rises from ₹ 5 pu to ₹ 10 pu. The co-efficient of E_s =
(a) 0
(b) 0.8
(c) 1
(d) 1.2

495. The price of a commodity doubles, to its response the quantity supplied increases 4 times of orig¬inal quantity supplied. The co-efficient of price elasticity of supply is-
(a) 1
(b) 2
(c) 3
(d) 4

496. A price of ₹ 10 p.u. the quantity supplied is 500 units. If the price falls by 10% and quantity supplied falls to 400 units, the co-efficient of price elasticity of supply is-
(a) 1
(b) 2
(c) 3
(d) 4

497. Market forces refer to-
(a) Demand
(b) Supply
(c) Both ‘a’ and ‘b’
(d) Neither ‘a’ nor ‘b’

498. Supply is the-
(a) limited resources that are available with the seller
(b) cost of producing a good
(c) entire relationship between the quantity supplied and the price of good
(d) willingness to produce

499. In a very short period the supply-
(a) can be changed
(b) cannot be changed
(c) can be increased
(d) none of the above

500. If the demand is more than supply, then the pressure on price will be-
(a) upward
(b) downward
(c) constant
(d) none of the above

501. A perfectly inelastic supply curve shooting up from X-axis shows-
(a) constant supply at higher price
(b) constant supply at lower price
(c) constant supply at zero price
(d) all the above

502. What is incorrect about advertisement elasticity?
(a) It is the responsiveness of good’s demand to changes in firm’s expenditure on advertising
(b) It is also called promotional elasticity of demand
(c) Advertising elasticity of demand is typically positive
(d) all the above

503. All but one are correct about demand forecasting. Which one is not correct?
(a) Demand forecasting is the art and science of predicting probable demand of a product in future
(b) Demand forecasting is a simple guesses
(c) It considers past behaviour pattern and prevailing trends in the present
(d) Demand forecasting plays an important role in planning and decision making

504. The burden of forecasting is put on customers in _____ method of demand forecasting
(a) Survey of buyers intentions
(b) collective opinion
(c) Expert opinion
(d) Controlled experiments

505. Delphi technique was developed by-
(a) Schumpeter
(b) Nicholas Kaldor
(c) Olaf Helmer
(d) Hawtrey

506. Collective opinion method of demand forecasting is useful for _____ forecasting.
(a) short run
(b) long run
(c) secular period
(d) none of the above

507. _____ method of forecasting is useful in use of capital goods.
(a) Collective opinion
(b) Expert Opinion
(c) Barometric
(d) Survey of buyer’s intention

508. Which of the following affect the demand for non-durable consumer goods?
(a) Disposable Income
(b) Price
(c) Demography
(d) All the above

509. What would be the shape of the supply curve of T-shirts, if the seller offers to sell any number of T-shirts at ₹ 250?
(a) Vertical
(b) Horizontal
(c) Upward sloping
(d) Downward sloping

510. All the following factors affect the demand for durable consumer goods except-
(a) special facilities for use
(b) credit facilities
(c) disposable income
(d) social status

511. ____ is considered as a ‘naive’ approach to demand forecasting.
(a) Trend Projection Method
(b) Expert Opinion Method
(c) Collective Opinion Method
(d) Regression Analysis

512. Short-term demand forecasting is useful for-
(a) current production scheduling
(b) purchases of. raw materials
(c) inventory of stocks
(d) all the above

513. A firm planning capacity expansion and diversification will go in for-
(a) Short term demand forecasting
(b) Medium term demand forecasting
(c) Long term demand forecasting
(d) Current demand forecasting

Answers

MULTIPLE CHOICE QUESTIONS

1. Economics is a science because
(a) Systematised study
(b) Scientific laws
(c) Has its own methodology
(d) All the above

2. Positive statements concern what is; normative statements concern—
(a) What was
(b) What is the normal situation
(c) What will be
(d) What ought to be

3. Which of the following statements are positive statements?
(i) India is overpopulated.
(ii) Agricultural income should be taxed.
(iii) Service-class people should be exempted from income tax
(vi) There is tremendous tax evasion in India.
(a) i and ii
(b) i and iii
(c) i and iv
(d) iii and iv

4. The central problems of an economy arises because of—
(a) Unlimited wants
(b) Scarce resources having alternative uses
(c) Limited wants and unlimited resources
(d) Both (a) and (b)

5. The central problems relating to allocation of resources are—
(a) What to produce?
(b) How to produce?
(c) For whom to produce?
(d) All the above.

6. The problem of ‘What to produce’ relates to—
(a) The distribution of produced goods and services
(b) The technique of production to produce good
(c) The distribution of income among factor owners
(d) None of these

7. Micro economics deals with—
(a) Inflation in the country
(b) The economic behaviour of an individual unit
(c) The per capita income
(d) The problems of poverty and unemployment in the country

8. The objective of macro-economics is to study about—
(a) Problems, principles and policies relating to full employment of available resources
(b) Problems, Principles and policies relating to optimum allocation of resources
(c) Growth of resources
(d) Both a and c

9. Micro economics covers the study of—
(i) Consumer’s behaviour
(ii) Producer’s equilibrium
(iii) Fiscal system of an economy
(iv) Factor pricing
(a) i and iii (b) ii and iv
(c) i, ii and iii (d) i, ii and iv

10. Macro-economics is also known as—
(i) Method of Lumping
(ii) Price Theory
(iii) General equilibrium analysis
(iv) Aggregative Economics
(a) i and ii only
(b) iii and iv only
(c) i, iii and iv only
(d) ii, iii and iv only

11. Which of the following is not correct?
(a) Micro and Macro economics are complementary to each other
(b) Every macro-economic problem requires micro-economic analysis for its proper understanding
(c) Micro-economic behaviour can be added-up to derive macro-economic behaviour.
(d) What is macro from the national angle is micro from world angle

12. A theory may contain all but one of the following—
(a) An unorganised collection of facts about the real world!
(b) A set of definitions of the terms used.
(c) A set of assumptions
(d) One or more hypotheses

13. Positive economics deals with—
(a) What is
(b) What ought to be
(c) Both ‘a’ ‘b’
(d) None of these

14. Micro economics does not cover—
(a) Consumer behaviour
(b) Factor Pricing
(c) General price level
(d) Product Pricing

15. Find the odd—
(a) Normative economics is concerned with welfare propositions.
(b) Normative economics is prescriptive in nature.
(c) Normative economics is regulatory in nature.
(d) Economic laws are hypothetical.

16. A mixed economy to solve its central problems relies on—
(a) Economic planning
(b) Price mechanism
(c) Price fixing
(d) Both ‘a’ and ‘b’

17. In a socialist economy, the basic force of economic activity is profit. This statement is—
(a) Correct
(b) Incorrect
(c) Partially correct
(d) None of these

18. The interference of the government is very limited in—
(a) Socialist economy
(b) Capitalist economy
(c) Mixed economy
(d) All the above.

19. Both private and public sectors exist side by side in—
(a) China
(b) U.S.A.
(c) India
(d) Russia

20. In a competitive economy, the uncrowned king is—
(a) Government
(b) Producer
(c) Consumer
(d) Seller

21. Wastes of competition are found in—
(a) Capitalist economy
(b) Socialist economy
(c) Mixed economy
(d) None of these

22. A dual system of pricing exists in—
(a) Capitalist economy
(b) Socialist economy
(c) Mixed economy
(d) None of these

23. One of the important features of capitalist economy is—
(a) Economic planning
(b) Price mechanism
(c) Economic equalities
(d) Social welfare

24. ‘A government deficit will reduce unemployment and cause an increase in prices.’ This statement is—
(a) Positive
(b) Normative
(c) Incomplete
(d) None of these

25. Positive economics remains strictly neutral towards ends. This means that—
(a) Positive economics study the facts as they are
(b) Positive economics is prescriptive in nature
(c) Positive economics is based on ethical, philosophical and religious beliefs
(d) Only (a) and (b)

26. “During the boom periods when aggregate demand, national income and prices are high, entrepreneurs tend to make high profits”. This statement shows—
(a) Effect of micro-economic variables on macro variables
(b) Effect of macro-economic variables on micro variables
(c) Inter-dependence of micro and macro-economics
(d) Both (b) and (c)

27. Social insurance, sickness benefits, old age pension, etc are some social benefits provided by—
(a) State in capitalist economy
(b) State in socialist economy
(c) State in mixed economy
(d) Both (b) and (c)

28. In a capitalistic economy what to produce depends on—
(a) governments is policy
(b) consumer’s preference
(c) profits of firm
(d) none of these

29. The economy in which the government allows freedom of action of all economic units is essentially—
(a) a socialist economy
(b) a mixed economy
(c) a capitalistic
(d) none of the these

30. Which of the following is not correct about capitalistic system—
(a) Too much of waste due to cut throat competition
(b) There is right of private property.
(c) Conditions are not favourable for equitable distribution of wealth.
(d) There is central planning authority.

31. Which of the following is not the feature of socialist economy ?
(a) Economic planning
(b) Social welfare
(c) Private ownership of productive resources
(d) Economic equalities

32. Micro economics is also known as—
(a) Price theory
(b) Slicing method
(c) Product theory
(d) Both (a) and (b)

33. Economics is an art as—
(a) it teaches us to do
(b) it provides practical solutions to various economic problems.
(c) it is practice of knowledge
(d) all the above

34. Study of the problem of poverty denotes that economics is—
(a) a science
(b) an art
(c) both a science and an art
(d) neither a science nor an art

35. Framing suitable policies to solve inequalities of income denotes that economics is—
(a) a science
(b) an art
(c) both a science and an art
(d) neither science nor an art

36. Study of unemployment problem and then framing suitable policies to reduce the extent of unemployment shows that economics is—
(i) Both a science and an art
(ii) Neither a science nor an art
(iii) Positive science
(iv) Normative science
(a) i and iii only
(b) ii and iv only
(c) i, iii and iv
(d) ii, iii and iv

37. _____ economics explains cause and effect relationship between economic phenomena
(a) Positive
(b) Normative
(c) Empirical
(d) Applied

38. Positive economics concerns .
(a) what should be
(b) what is
(c) both (a) and (b)
(d) what ought to be

39. Normative economics is in nature
(a) modern
(b) descriptive
(c) prescriptive
(d) none of the above

Q. 40 to Q. 43 are based on the following conversation
Ram : “Rise in prices of goods have made it difficult to make two ends meet”
Shy am : “Yes, the cost of cultivation too has increased very much”.
Raghu : “Government should take steps to curb the price rise and provide relief to common man”.
Bhola : “Yes, he government should deal strictly on hoarders and black marketers”.

40. In the above conversation whose statements shows positive aspect of Economics?
(a) Ram
(b) Shyam
(c) Both (a) and (b)
(d) Bhola

41. In the above conversation whose statements shows normative side of economics
(a) Shyam
(b) Raghu
(c) Bhola
(d) Both (b) and (c)

42. Shyam’s statement in the above conversation shows—
(a) What is
(b) What can be
(c) What ought to be
(d) What will be

43. Bhola’s statement in the above conversation shows—
(a) What is
(b) What should be the things
(c) What was
(d) None of the above

44. As compared to other economic systems, inequalities of incomes is relatively less in economic system
(a) Capitalist
(b) Socialist
(c) Mixed
(d) None of the above

45. Price-mechanism is an important feature of –
(i) Market economy
(ii) Regulated economy
(iii) Mixed economy
(iv) Capitalist economy
(a) i and ii only
(b) iii and iv only
(c) i and iii only
(d) i and iv only

46. Consumers and produces make their choices based on the market forces of demand and supply in—
(a) Socialist (Command) Economy
(b) Mixed Economy
(c) Capitalist Economy
(d) Closed Economy

47. The problem of what goods and services are produced and how much, is covered by the general term—
(a) resource allocation
(b) choice of technique of production
(c) distribution
(d) macro-economics

48. Business Economics is generally in nature.
(a) normative
(b) positive
(c) neutral
(d) descriptive

49. Capital intensive technique would be chosen in a
(a) labour surplus economy where the relative price of capital is lower
(b) capital surplus economy where the relative price of capital is lower
(c) developed economy where technology is better
(d) developing economy where technology is poor

50. Which of the following statement is incorrect?
(a) Business economics is a normative in nature
(b) Business economics is closely related with statistics
(c) Business economics only considers micro variables
(d) Business economics is also called Managerial economics

51. All of the following are within the scope of Business Economics except
(a) Capital Budgeting
(b) Risk Analysis
(c) Business Cycles
(d) Accounting Standards

52. Which of the following is considered as a disadvantage of allocating resources in a capitalist economy?
(a) Income will tend to be unevenly distributed
(b) People do not get goods of their choice
(c) Men of initiative and enterprise are not rewarded
(d) Profits will tend to be low

ANSWERS

MULTIPLE CHOICE QUESTIONS

1. The term business cycle refers to –
(a) fluctuations in aggregate economic activity over time.
(b) ups and down in the production of goods
(c) increasing unemployment
(d) declining savings

2. Expansion phase all but one of the following characteristics.
(a) Increase in national output
(b) Increase in consumer spending
(c) Excess production capacity of industries
(d) Expansion of bank credit

3. Which one of the following is not the characteristic of business cycle?
(a) They are recurrent
(b) They are not at regular intervals
(c) They have uniform causes
(d) All the above

4. The turning points of the business cycle are
(a) Expansion and Peak
(b) Peak and Contraction
(c) Contraction and Trough
(d) Peak and Trough

5. _____ refers to the top or the highest point of business cycle.
(a) Expansion
(b) Peak
(c) Expansion and Peak
(d) None of the above

6. Involuntary unemployment is almost zero in the _____ phase of business cycle.
(a) Expansion
(b) Contraction
(c) Trough
(d) Depression

7. The economy is said to be overheated at the _____ phase of business cycle.
(a) Expansion
(b) Peak
(c) Contraction
(d) Depression

8. Cost of living increases when business cycle is _____
(a) expanding
(b) contracting
(c) at peak
(d) at lowest point

9. There is large scale of involuntary unemployment in the _____ phase of business cycle.
(a) expansion
(b) peak
(c) contraction
(d) none of the above

10. Fall in the level of investments, fall in production, fall in employment, fall stock prices, etc. are found during _____ phase of business cycle.
(a) expansion
(b) boom
(c) peak
(d) contraction

11. All but one are the endogenous factors of business cycle
(a) War
(b) Changes in government spending
(c) Money supply
(d) Fluctuations in investments

12. _____ is the severe form of recession with lowest level of economic activity.
(a) Upswing
(b) Depression
(c) Downswing
(d) Peak

13. Fall in the interest rates is a typical feature of
(a) recovery
(b) boom
(c) depression
(d) contraction

14. During depression _____ industry suffer from excess production capacity.
(a) capital goods
(b) consumer durable goods
(c) non-durable goods
(d) both ‘a’ and ‘b’

15. The great depression of _____ caused enormous misery and human sufferings
(a) 1929 – 33
(b) 1919 – 23
(c) 1940 – 53
(d) 1950 – 63

16. The lowest level of economic activity is called _____
(a) contraction
(b) trough
(c) recovery
(d) none of the above

17. There is end of pessimism and the beginning of optimism at ______
(a) expansion
(b) peak
(c) trough
(d) depression

18. Which of the following is not the features of business cycle?
(a) Business cycle follow perfectly timed cycle
(b) Business cycle vary in intensity
(c) Business cycle vary in length
(d) Business cycle have no set pattern

19. The trough of a business cycle occur when _____ hits its lowest point.
(a) the money supply
(b) the employment level
(c) inflation in the economy
(d) aggregate economic activity

20. Industries that are most adversely affected by business cycles are the _____
(a) Durable goods and services sector
(b) Non-durable goods and services
(c) Capital goods and Non-durable goods sectors
(d) Capital goods and durable goods sectors

21. _____ indicators change before the economy itself changes.
(a) Lagging
(b) Coincident
(c) Leading
(d) concurrent

22. _____ indicators change after the economy as a whole changes.
(a) Lagging
(b) Coincident
(c) Leading
(d) Concurrent

23. Changes in stock prices, profit margins and profits, manufacturing activity, etc. are examples of _____ indicator.
(a) Leading
(b) Lagging
(c) Concurrent
(d) Coincident

24. A variable that moves later than aggregate economic activity is called _____
(a) a leading variable
(b) a coincident variable
(c) a lagging variable
(d) a cyclical variable

25. While _____ indicators forecast economic fluctuation, _____ indicators confirm the trends.
(a) lagging ; leading
(b) lagging ; coincident
(c) coincident ; leading
(d) leading ; lagging

26. A variable that occur simultaneously with the business cycle movements is _____ indicator.
(a) Leading
(b) Lagging
(c) Coincident
(d) Cyclical

27. Coincident indicators show _____
(a) the current state of business cycle
(b) the rate of change of expansion
(c) the rate of change of contraction
(d) all the above

28. At the time of Great Depression of 1930s, the global GDP fell by around _____
(a) 12%
(b) 14%
(c) 15%
(d) 10%

29. Which one of the following is not correct about business cycle?
(a) They occur simultaneously in all industries and sectors
(b) They affect not only output level but also other related variables
(c) They are international in character
(d) None of the above

30. Which of the following describes best a typical trade cycle?
(a) Economic expansions are followed by economic contractions
(b) Inflation is followed by rising income and employment
(c) Economic expansions are followed by economic growth and development
(d) Stagflation followed by rising employment

31. During upswing, the unemployment rate and output _____
(a) rises ; falls
(b) rises ; rises
(c) falls ; rises
(d) falls ; falls

32. Which of the following does not occur during expansion phase?
(a) Consumer spending increases
(b) Employment increases as demand for labour rises
(c) Business profits and business confidence increase
(d) None of the above

33. When aggregate economic activity is declining, the economy is said to be in _____
(a) contraction
(b) an expansion
(c) a trough
(d) a turning point

34. Which one of the following is not an example of coincident indicator?
(a) GDP
(b) inflation
(c) retail sales
(d) New orders for plant and machinery

35. Which one of the following is an example of lagging indicator?
(a) personal income
(b) new orders for plant and equipment
(c) the consumer price index
(d) slower deliveries

36. _____ is of the view that fluctuations in economic activities are because of fluctuations in aggregate effect demand.
(a) Keyens
(b) Schumpeter
(c) Nicholas Kaldor
(d) Joan Robinson

37. High rate of investment brings _____
(a) high level of employment
(b) increase in the aggregate demand
(c) increase in output
(d) all the above

38. If any unemployment exists during expansion phase of business cycle, it is _____ un employment.
(a) voluntary and frictional
(b) technological and structural
(c) frictional and structural
(d) structural and involuntary

39. The most probable outcome of increase in aggregate demand is _____
(a) expansion of economic activity
(b) contraction of economic activity
(c) stable economic activity
(d) volatile economic activity

40. According to _____ a trade cycles is a purely monetary phenomena
(a) Keyens
(b) Hawtrey
(c) Schumpeter
(d) Nicholas Kaldor

41. Optimistic and pessimistic mood of the business community also affects the economic activities is the view of _____
(a) Hawtrey
(b) Schumpeter
(c) Pigou
(d) Keyens

42. According to _____ trade cycles occur due to onset of innovations
(a) Hawtrey
(b) Adam Smith
(c) JM Keyens
(d) Schumpeter

43. Business cycles appear due to present fluctuations in prices affecting the output and employment in future is _____
(a) Cobweb theory by Nicholas Kaldor
(b) Ordinal theory by Allen & Hicks
(c) Cobweb theory by J.M. Keyens
(d) None of the above

44. Production of _____ goods fall during the war times.
(a) arms and ammunition
(b) non-durable and capital
(c) capital and weapons
(d) capital and consumer

45. During war times most of the productive resources are diverted for the production of
(a) capital goods
(b) consumer goods
(c) weapons and arms
(d) service

46. Economic recession is characterized by all of the following except _____
(a) Decline in investments, employment
(b) Increase in the price of inputs due to increased demand for inputs
(c) Investors confidence is shaken
(d) Demand for goods, services decline

47. Production of new and better goods and services using new technology results in _____
(a) expansion of employment
(b) increase in the incomes and profits
(c) boost to economy
(d) all the above

48. Understanding the business cycle is important for business managers because _____
(a) they affect the demand for their products
(b) they affect their profits
(c) to frame appropriate policies and forward planning
(d) all the above

49. Businesses whose fortunes are closely linked to the rate of economic growth called _____
(a) Cyclical business
(b) Capital good business
(c) Both ‘a’ and ‘b’
(d) None of the above

50. If the population growth rate is higher than the economic growth rate it will result in _____
(a) higher income ; lower savings ; lower employment
(b) lower income ; lower savings ; lower investment
(c) higher investment ; lower income ; higher saving
(d) lower income ; lower savings ; higher employment

Answers

MULTIPLE CHOICE QUESTIONS

Theory of Production

1. The term production in economics means-
(a) creation of a physical product only
(b) rendering of a service only
(c) creation of economic utilities
(d) none of the above

2. Which of the following is considered production in economics?
(a) Singing a song in a birthday party
(b) Run for fun
(c) Giving tuitions
(d) Helping an old man to cross road

3. Making use of personal skill of doctors, lawyers, actors, etc. results in the creation of-
(a) form utility
(b) place utility
(c) personal/service utility
(d) time utility

4. Making available materials at times when they are normally not available is called conferring of utility of-
(a) place
(b) time
(c) form
(d) service

5. Which of the following statements incorrect?
(a) Man cannot create matter.
(b) Production is an activity of making some-thing material only.
(c) Production can be defined as addition of utility.
(d) Production is any economic utility which is directed towards the satisfaction of the wants of the people.

6. Economic utilities may be created or added
(a) By changing the form of raw materials into finished goods
(b) By transporting goods from one place to another
(c) By making things available when they are required
(d) All the above

7. Which of the following is not a feature of land
(a) Free gift
(b) Limited in quantity
(c) Mobile factor
(d) Indestructible

8. The factor of production which has no reserve price is-
(a) land
(b) labour
(c) capital
(d) all the above

9. Which of the following can be considered as labour in economics-
(a) Singing for pleasure
(b) A teacher teaching his own child at home
(c) Looking after, a sick friend
(d) A teacher teaching in school

10. The supply of land is-
(a) Unlimited
(b) Increased
(c) Decreased
(d) Limited

11. Land in economics means-
(a) Material and Non-material goods
(b) Minerals under the surface of earth
(c) All natural resources available to man for producing wealth
(d) All the above

12. Labour is-
(a) Active factor
(b) Passive factor
(c) Alternative factor
(d) None of the above

13. Which factor loses its value of it cannot find a purchaser today-
(a) Land
(b) Labour
(c) Capital
(d) All the above

14. Supply curve of labour is-
(a) upward sloping
(b) horizontal
(c) backward bending
(d) vertical

15. Income effect when wage rises means
(a) work hours rise
(b) work hours fall
(c) work hours remain constant
(d) work hours first fall and then rise

16. Which of the following statements is not true?
(a) Capital is a produced means a production.
(b) Capital is a man made instruments of production.
(c) Capital is a primary factor of production.
(d) Machine tools, factories, dams, canals, etc. are examples of capital.

17. Tools, machines, etc. are included in-
(a) circulating capital
(b) fixed capital
(c) sunk capital
(d) human capital

18. The capital which belongs to the society as a whole is called-
(a) Individual Capital
(b) Human Capital
(c) Social Capital
(d) Floating Capital

19. Raw material is an example of –
(a) Circulating Capital
(b) Fixed Capital
(c) Tangible Capital
(d) Real Capital

20. Which capital includes education, training, skill, ability?
(a) Human Capital
(b) Individual Capital
(c) Social Capital
(d) Real Capital

21. Goodwill, patent rights, etc. are examples of –
(a) Tangible Capital
(b) Real Capital
(c) Intangible Capital
(d) Human Capital

22. Which of the following statements is true?
(a) Capital Formation involves production of more capital goods.
(b) Capital Formation is also called investment.
(c) To accumulate capital goods, some current consumption is to be sacrificed.
(d) All the above

23. Surplus of production over consumption in an economy in a year is called-
(a) Capital
(b) Capital formation
(c) Stock
(d) Savings

24. The third stage of capital formation is-
(a) creation of savings
(b) mobilization of savings
(c) distribution of savings
(d) investment of savings

25. With an increase in income-
(a) the propensity to consume increases
(b) the propensity to save increases
(c) the propensity to consume remains constant
(d) the propensity to save falls

26. A ____ country has greater ability to save.
(a) poor
(b) developing
(c) rich
(d) under developed

27. An individual’s saving level depends upon-
(a) ability to save
(b) willingness to save
(c) both ‘a’ & ‘b’
(d) only ‘a’

28. The factor which mobilize land, labour and capital; combines them in the right proportion and then organizes the production activity is –
(a) Owner
(b) Labour
(c) Manger
(d) Entrepreneur

29. The reward of all factors of production is usually predetermined (pre-fixed) except-
(a) Land
(b) Labour
(c) Capital
(d) Entrepreneur

30. The reward of an entrepreneur for his efforts and risk-taking is-
(a) Interest
(b) Profit/Loss
(c) Rent
(d) Wages

31. The reward of capital is-
(a) Rent
(b) Interest
(c) Wages
(d) Profit

32. The reward of an entrepreneur i.e. profit is –
(a) predetermined income
(b) residual income
(c) constant income
(d) none of the above

33. The risks which can be anticipated and can be insured against are called-
(a) Insurable risks
(b) Non-Insurable risks
(c) Unforeseeable risks
(d) None of the above

34. The risks like change in demand for a commodity, the cost structure, fashion, technological, etc. which an entrepreneur has to bear are called-
(a) Uncertainties
(b) Insurable risks
(c) Foreseeable risks
(d) Both ‘a’ and ‘c’

35. According to _____ innovations introduced by an entrepreneur give rise to profits.
(a) Prof. F.H. Knight
(b) Prof. Joseph A. Schumpeter
(c) Prof. Paul Samuelson
(d) Dr. Alfred Marshall

36. Which of the following statement is incorrect?
(a) Mobilisation of savings is done through network of banking and other financial institutions.
(b) Land lacks geographical mobility but has occupational mobility.
(c) Entrepreneur is also called the organizer, § the manager or the risk taker.
(d) Labour can be stored.

37. Labour is ____
(a) Human factor
(b) Perishable
(c) inseparable from labour
(d) All the above

38. Leather in a shoe factory is
(a) Fixed capital
(b) Sunk capital
(c) Floating Capital
(d) Circulating capital

39. _____ Cannot be stored.
(a) Land
(b) Labour
(c) Capital
(d) Both a & b

40. Capital that can be used for several purposes or by several industries is
(a) Working capital
(b) Social capital
(c) Floating capital
(d) Human capital

41. Addition to the stock of capital goods in a country means
(a) Capital reduction
(b) Investment
(c) Capital formation
(d) Both (b) & (c)

42. Find the odd out
(a) Capital is man-made
(b) All capital is wealth
(c) Capital is durable
(d) Mobilisation of savings

43. Consider the following groups of items:
(i) Factory buildings
(ii) Plant and Machinery
(iii) Stocks of raw materials
(iv) Wage bills
Which of these are known as working capital?
(a) i and ii
(b) iii and iv
(c) i, ii and iii
(d) ii, iii and iv

44. The production function means relationship between
(a) Cost of input
(b) Cost of output
(c) Physical input to physical output
(d) Wages of profit

45. A production function is an expression of _____ relation between inputs and outputs.
(a) monetary
(b) economic
(c) quantitative
(d) qualitative

46. A short run production function is one in which-
(a) at least one factor is fixed
(b) all factors are fixed
(c) all factors are variable
(d) at least one factor is variable

47. Technically efficient combinations of inputs of those which-
(a) minimizes wastage
(b) maximizes profits
(c) minimises cost
(d) maximises reve¬nue

48. In the short period there is no change in factors.
(a) fixed
(b) variable
(c) human
(d) physical

49. In the period all factors are variable.
(a) short
(b) long
(c) market
(d) secular

50. In its original for Cobb-Douglas production function applies to-
(a) individual manufacturing firm
(b) individual firm
(c) whole of manufacturing in US
(d) None of the above

51. Cobb-Dauglas production function revealed that the increase in the manufacturing production was contributed by labour and capital respectively by-
(a) 3/4 th and l/4 th
(b) l/4 th and 3/4 th
(c) 2/3 rd and l/3 rd
(d) None of the above

52. Cobb-Douglas production-
(a) is linear
(b) is homogeneous
(c) shows constant returns to scale
(d) all the above

53. Cobb-Douglas production function exhibits returns to scale.
(a) increasing
(b) diminishing
(c) constant
(d) negative

54. The above equations shows that-

(a) One factor is fixed and another variable
(b) Both factors are fixed
(c) Both factors are variable
(d) Both factors are semi-variable

55. The main difference between the short period/ run and the long period/run is that –
(a) in the short period all inputs are fixed, while in the long period all inputs are variable.
(b) in the short run at least one input is fixed
(c) in the short run firm varies the quantities of all inputs
(d) in the long run, the firm uses the existing plant capacity

56. The law of variable proportions is a law of production which takes place in the-
(a) market period
(b) short run
(c) long run
(d) very long period

57. All but one are the assumptions of the law of variable proportions. Which one is not?
(a) There is only one factor which is variable
(b) All units of variable factor are homogeneous
(c) State of technology remains constant
(d) Applies in long run

58. When there is a fixed factor and a variable factor, then the law would be-
(a) law of increasing returns to scale
(b) law of constant returns to scale
(c) law of decreasing returns to scale
(d) law of variable proportions

59. The total quantity of goods and services produced by a firm with the given inputs during a specified period of time is called-
(a) Total Product
(b) Average Product
(c) Marginal Product
(d) Labour Product

60. The amount of output produced per unit of variable factor employed is called-
(a) Total Product
(b) Average Product
(c) Marginal Product
(d) Labour Product

61. The change in TP resulting from the employment of an additional unit of a variable factor is called-
(a) Total Product
(b) Marginal Product
(c) Average Product
(d) All the above

62. The average product of a variable input can be described as-
(a) total product divided by the number of units of variable input
(b) additional output resulting from employment of additional unit of variable factor
(c) the total quantity of goods produced with all inputs
(d) None of the above

63. TP of variable factor is –

(a) only i
(b) only i and iii
(c) only ii
(d) only ii and iv

64. Initially TP curve increases at an-
(a) increasing rate
(b) diminishing rate
(c) constant rate
(d) maximum rate

65. As more units of variable factor is employed it will-
(a) always increase the TP
(b) always decrease the TP
(c) not always increase the TP
(d) always result in constant TP

66. As long as TP is positive, AP is-
(a) negative
(b) constant
(c) positive
(d) falling

67. AP curve is-
(a) U-Shaped
(b) S-Shaped
(c) inverted U-Shaped
(d) inverted S-Shaped

68. MP curve is the slope of at each point.
(a) AP curve
(b) TP curve
(c) TR curve
(d) AR curve

69. When TP is maximum, MP is –
(a) rising
(b) falling
(c) zero
(d) negative

70. When TP is falling, MP is –
(a) zero
(b) rising
(c) negative
(d) falling

71. MP curve is –
(a) U – shaped
(b) S- shaped
(c) inverted U – shaped
(d) inverted S – shaped

72. When TP is maximum, the slope of TP curve is –
(a) rising
(b) falling
(c) constant
(d) zero

73. TP is the area under the –
(a) AP curve
(b) AR curve
(c) MP curve
(d) MR curve

74. MP is positive so long as TP is-
(a) increasing
(b) decreasing
(c) maximum
(d) negative

75. When TP is rising-
(a) AP and MP are rising
(b) AP and MP are falling
(c) AP and MP may be either rising or falling
(d) Only MP is either rising or falling

76. When MP is negative-
(a) TP and AP are falling
(b) TP and AP are rising
(c) TP and AP are constant
(d) Only TP is falling

77. When MP is at a maximum-
(a) AP = MP and TP is rising
(b) AP < MP and TP is rising
(c) AP > MP and TP is rising .
(d) AP and TP are falling

78. If MP goes on increasing, it should be understood that law of _____ is applying.
(a) increasing returns
(b) decreasing returns
(c) constant returns
(d) diminishing returns

79. If MP goes on decreasing it should be understood that law of _____ is in operation.
(a) decreasing cost
(b) constant cost
(c) average cost
(d) increasing cost

80. When MP is falling, TP will increase at the rate.
(a) constant
(b) increasing
(c) diminishing
(d) normal

81. When average product is maximum, marginal product is equal to-
(a) total product
(b) zero
(c) one
(d) average product

82. MP curve cuts AP curve from-
(a) its top
(b) below
(c) both ‘a’ and ‘b’
(d) neither ‘a’ nor ‘b’

83. The marginal product is maximum at the .
(a) equilibrium point
(b) inflection point
(c) focal point
(d) optimum point

84. The stage of production where the marginal product is greater than the average product is-.
(a) stage of increasing returns
(b) stage of diminishing returns
(c) stage of negative returns
(d) stage of constant returns

85. Which of the following statements reveal the diminishing returns?
(a) The MP of a factor is constant
(b) The MP of a factor is positive and rising
(c) The MP of a factor is falling and negative
(d) The MP of a factor is positive but falling

86. The MP curve is above the AP curve when the average product-
(a) is constant
(b) is falling
(c) is increasing
(d) is negative

87. The actual stage of production under the law of variable proportions is-
(a) stage of increasing returns
(b) stage of diminishing returns
(c) stage of negative returns
(d) stage of either increasing or diminishing returns

88. Reason for rise in both AP and MP curves is-
(a) under utilization of the fixed factor
(b) under utilization of the variable factor
(c) over utilization of the fixed factor
(d) over utilization of the variable factor

89. Reason for fall in both AP and MP curves is-
(a) under utilization of the fixed factor
(b) over utilization of the fixed factor
(c) under utilization of the variable factor
(d) full utilization of the variable factor

90. When AP and MP curves are rising, MP curve rises-
(a) at a faster rate
(b) at a lower rate
(c) at normal rate
(d) at constant rate

91. When AP and MP curves are falling, MP curve falls-
(a) at a faster rate
(b) at a lower rate
(c) at normal rate
(d) at constant rate

92. When AP and MP curves are rising, AP curve _____
(a) lies above the MP curve
(b) lies below the MP curve
(c) co-inside with the MP curve
(d) none of the above

93. The reason for increasing returns to factor is-
(a) Indivisibility of fixed factor
(b) Division of labour
(c) Specialisation
(d) All the above

94. When the ideal factor ratio is violated in short run-
(a) diminishing returns to a factor set in
(b) MP of the variable factor starts falling
(c) TP increases at a diminishing rate
(d) All the above

95. AP increases so long as-
(a) MP > AP
(b) MP < AP
(c) MP = AP
(d) MP is zero

96. AP may continue to even when MP starts declining.
(a) rise
(b) fall
(c) remain constant
(d) fluctuate

97. MP curve cuts AP curve from its top, this means-
(a) MP < AP
(b) MP > AP
(c) MP is rising
(d) MP is zero

98. Increasing MP implies TP is increasing at-
(a) increasing rate
(b) constant rate
(c) diminishing rate
(d) fluctuating rate

99. MP of labour becoming negative implies-
(a) excessive employment
(b) disguised unemployment
(c) over exploitation of the fixed factor
(d) all the above

100. TP starts declining only when-
(a) MP is rising
(b) MP is falling
(c) MP is negative
(d) MP is constant

101. MP of the variable factor may be zero or negative, but AP continue to be-
(a) constant
(b) positive
(c) negative
(d) zero

102. AP decreases when-
(a) MP = AP
(b) MP > AP
(c) MP < AP
(d) None of the

Use the following information of answer questions 103 to 105

103. In the above equations the fixed factor is-
(a) Labour
(b) Capital
(c) Output
(d) both ‘a’ & ‘b’

104. The MP of variable factor is-
(a) 4
(b) 5
(c) 6
(d) 7

105. In the equation (i) the AP of the variable factor is-
(a) 12 units
(b) 14
(c) 10
(d) 16

Use the following data to answer questions 106 and 107

TP is Zero level of employment

106. The total product when 5 units of labour are employed is-
(a) 60
(b) 76
(c) 90
(d) 96

107. The average product of 3rd unit of labour is-
(a) 21
(b) 20
(c) 19
(d) 18

Use the following data to answer questions 108 and 109

108. The total product of 3 units of labour is-
(a) 30
(b) 50
(c) 90
(d) 120

109. The marginal product of 5th unit of labour is-
(a) 10
(b) 20
(c) 30
(d) 40

Use the following data to answer questions 110 and 112

110. What is the total product when 2 hours of labour are employed?
(a) 160
(b) 200
(c) 360
(d) 540

111. What is the average product of the first 2 hours
(a) 250
(b) 260
(c) 270
(d) 280

112. What is the marginal product of the 3rd hour of labour?
(a) 160
(b) 180
(c) 120
(d) 200

113. Find the odd one out-
(a) law of diminishing returns to factor
(b) law of returns to scale
(c) cost function
(d) production function

114. The production process described below exhibits

(a) increasing marginal product of labour
(b) increasing returns to scale
(c) diminishing marginal product of labour
(d) constant marginal product of labour

115. Diminishing marginal returns for the first four doses of inputs when all factors of production are increased in the same proportion is revealed by the total product sequence
(a) 50, 50, 50, 50
(b) 50, 100, 150, 200
(c) 50, 90, 120, 140
(d) 50, 110, 180, 260

116. The behaviour of output in response to a change in the scale is studied in the-
(a) Market Period
(b) Short Period
(c) Long Period
(d) Very Short Period

117. In the theory of production the long runs is defined as the period of time in which-
(a) All factors can be varied
(b) No factors can be varied
(c) Some factors are fixed but other can be varied.
(d) None of these

118. If all inputs are increased in the same proportion, then it is a case of-
(i) Short run production function
(ii) Long run production function
(iii) Laws of Variable Proportions
(iv) Laws of Returns to Scale
(a) i and ii only
(b) ii and iii only
(c) i and iv only
(d) ii and iv only

119. In the long run-
(a) all inputs are fixed
(b) one input is fixed and one input is variable
(c) all inputs are variable
(d) two inputs are variable and one input is fixed

120. Law of increasing returns to scale will apply if-
(a) economies exceed the diseconomies
(b) economies and diseconomies are equal
(c) diseconomies exceed the economies
(d) in all the above situations

121. Internal economies accrue when-
(a) an industry develops
(b) an economy grows
(c) foreign trade develops
(d) a firm expands production in long run

122. External economies accrue when-
(a) a firm expands
(b) an individual progress
(c) an industry expands
(d) trade expands

123. If we have constant returns to scale and we increase both labour and capital by 10% output will also increase by-
(a) 20%
(b) 30%
(c) 10%
(d) 5%

124. Find the odd one out-
(a) All factors are variable
(b) A firm can experience returns to scale
(c) Management can be reorganized
(d) Law of variable proportions

125. Economies of scale means-
(a) reduction in per unit cost of production
(b) reduction in per unit cost of distribution
(c) addition to the per unit cost of production
(d) reduction in the total cost of production

126. Linear Homogeneous Production Function is-
(a) Increasing Returns to Scale
(b) Constant Returns to Scale
(c) Diminishing Returns to Scale
(d) Negative Returns to Scale .

127. Internal economies relate to
(a) Marketing economies
(b) Financial economies
(c) Managerial economies
(d) All the above

128. In which of the following cases there is less than proportionate increase in output when all factors are increase-
(a) Constant returns to scale
(b) Diminishing returns to scale
(c) Increasing returns to scale
(d) Increasing as well as diminishing returns to scale

129. Problems like difficulties in management, lack of supervision, higher input cost, etc. due to large scale production leads to-
(a) economies of scale
(b) real economies of scale
(c) diseconomies of scale
(d) Both ‘b’ and ‘c’

130. Benefits like improved organization, division of labour and specialization, better supervision and control, etc. enjoyed by a firm when it expands production leads to-
(a) economies of scale
(b) real economies
(c) diseconomies of scale
(d) both ‘a’ and ‘b’

131. _____ economies are common to all the firms in an industry and shared by many firms or industries.
(a) internal
(b) external
(c) real
(d) all the above

132. _____ economies are related to an individual firm’s own cost reduction effort.
(a) internal
(b) external
(c) real
(d) all the above

133. means all those factors which raise the cost of production per unit when production is expanded by a firm beyond optimal capacity.
(a) External economies
(b) Internal economies
(c) External diseconomies
(d) Internal diseconomies

134. Economies of localization, cheaper inputs, growth of ancillary industries, etc. are examples of-
(a) Internal economies
(b) Internal diseconomies
(c) External economies
(d) External diseconomies

135. _____ economies can be of long term in nature
(a) nature
(b) internal
(c) production
(d) real

136. _____ shows all the input combinations that will produce the same level of output.
(a) Isoquant
(b) Isocost line
(c) Expansion Path
(d) None of the above

137. Isoquant is also called as _____
(a) production indifference curve
(b) is-product curve
(c) equal-product curve
(d) all the above

138. All of the following are the properties of isoquant except-
(a) An isoquant is downward sloping curve
(b) A higher isoquant represents a higher level of output
(c) Two isoquants can intersect each other
(d) Isoquants are convex to the origin

139. An isoquant slopes-
(a) downward to the left
(b) downward to the right
(c) upward to the left
(d) upward to the right

140. In the context of input-output relation _____ means same output produced from different combinations of inputs.
(a) law of variable proportions
(b) ridge lines
(c) law of constant returns
(d) isoquant

141. A higher isoquants denotes a –
(a) higher level of output
(b) lower level of output
(c) same level of output
(d) none of the above

142. An isoquant is _____ indifference curve
(a) buyer’s
(b) producer’s
(c) trader’s
(d) economy’s

143. The rate of which one factor of production can be substituted for the other is known as-
(a) marginal rate of substitution
(b) marginal opportunity cost
(c) marginal rate of technical substitution
(d) marginal cost

144. The slope is iso-product curve show-
(a) MRS_xy
(b) MRTS_xy
(c) elasticity of an iso-product curve
(d) none of the above

145. An isoquant is-
(a) downward sloping and concave to origin
(b) downward sloping and convex to origin
(c) downward sloping straight line curve
(d) horizontal straight line curve

146. The convexity of isoquants is due to the _____ MRTS_xy
(a) increasing
(b) constant
(c) diminishing
(d) none of the above

147. Convexity of an isoquant implies _____ slope.
(a) diminishing
(b) increasing
(c) constant
(d) none of the above

148. MRTS_xy is constant then an isoquant is _____
(a) downward sloping and convex to origin
(b) downward sloping straight line curve
(c) right angled curve
(d) downward sloping and concave to origin

149. MRTS_xy is increasing then an isoquant is
(a) downward sloping and convex to origin
(b) downward sloping straight line curve
(c) right angled curve
(d) downward sloping and concave to origin

150. A right-angled isoquant denotes that the
(a) two factors are perfect substitutes of each other
(b) two factors are imperfect substitutes of each other
(c) two factors are perfect complements of each other
(d) position between perfect substitutes and perfect complements

151. The MRTSxy is constant if two factors are _____ of each other
(a) perfect substitutes
(b) perfect complements
(c) imperfect substitutes
(d) imperfect complements

152. MRTS_xy =

153. Increasing MRTS_xy could happen only when the _____ operate.
(a) law of increasing returns
(b) law of diminishing returns
(c) law of constant returns
(d) law of negative returns

154. Which of the following isoquant indicates that the two factors ‘X’ and ‘Y’ are imperfect substitutes of each other?

155. At a point near the right hand below the corner of isoquant curve, the MRTS_xy of factor ‘X’ for factor ‘Y’ is –
(a) very high
(b) very low
(c) zero
(d) neither high nor low

156. Convexity of an isoquant denotes that the two factors are _____ of each other.
(a) perfect complements
(b) imperfect complements
(c) perfect substitute
(d) imperfect substitutes

157. In order to increase output, if both inputs mustbe increased in fixed proportion, it follows that both the inputs are ____ of each other.
(a) perfect substitutes
(b) perfect complements
(c) imperfect substitutes
(d) imperfect complements

158. _____ is the locus of various combinations of two inputs which a producer can buy with the given outlay and the prices of two inputs.
(a) Isocost line
(b) Opportunity cost line
(c) Production line
(d) Profit line

159. Isocost line is also known as _____
(a) outlay line
(b) price line
(c) producer’s budget line
(d) all the above

160. If the expenditure to be done on purchase of factors increases, the prices of both inputs remaining the same, the firm’s isocost line will –
(a) shift downward
(b) shift upward
(c) remain the same
(d) none of the above

161. The slope of the isocost line can change when the outlay remains the same but the price of –
(a) only one input change
(b) both the inputs change
(c) both inputs remain unchanged
(d) Both ‘a’ and ‘b’

162. The iso-cost line in production optimization is _____
(a) Vertical straight line
(b) Straight line sloping upward towards right
(c) Straight line sloping downwards towards right
(d) Horizontal straight line

163. The slope of isocost line with factor ‘Y’ on the vertical axis and factor ‘X’ on the horizontal axis is –

164. At equilibrium point, a particular isoquant _____ to isocost line
(a) tangent
(b) perpendicular
(c) parallel
(d) concave

165. Where the slope of isoquant = the slope of isocost line, it is the _____ combination of inputs.
(a) maximum cost
(b) least cost
(c) balanced cost
(d) cost-production

166.

(a) consumer is in equilibrium
(b) consumer is not in equilibrium
(c) producer is in equilibrium
(d) producer is not in equilibrium

167. Where the isocost line is tangent to an isoquant-
(a) equal amount of factors give equal output
(b) the prices of the factors are equal
(c) the ratio of prices of the two factors equal MRTS
(d) none of the above

168. All but one of the following statements are correct. Find the incorrect statement.
(a) The word isoquant means equal quantities.
(b) The slope of isoquant is called MRTS.
(c) The producer is at equilibrium where MRTS_xy = p_{x /} p_y 
(d) A set of isoquant curves is called isocost map.

169. If there is perfect substitution between two factors of production the shape of isoquant is-
(a) linear
(b) non-linear
(c) positively sloped
(d) right angled

170. Condition for the producer’s equilibrium is-
(a) Isoquant should be tangent to the isocost line
(b) At tangency point, isoquant should be convex to origin

(d) all the above

171. Technically efficient combinations of inputs is those which-
(a) minimizes cost
(b) minimizes loss
(c) maximizes profits
(d) maximizes revenue

172. Internal economies and diseconomies of scale occur due to _____ causes.
(i) endogenous
(ii) exogenous
(iii) internal
(iv) external
(a) i and ii
(b) iii and iv
(c) i and iii
(d) ii and iv

173. External economies and diseconomies of scale occur due to _____
(a) endogenous
(b) exogenous
(c) internal
(d) both (b) and (c)

174. When a large firm takes up advertising and grants higher margin to retailers, it is called-
(a) technical economies
(b) managerial economies
(c) marketing economies
(d) financial economies

175. When a firm’s dependence on external sources of funds increase and it finds difficulty to repay, it is a case of –
(a) financial diseconomies
(b) financial economies
(c) managerial diseconomies
(d) technical diseconomies

176. A firm uses two inputs, labour (L) and capital (K). The firm produces and sells a given output. You have the following information P_L = ₹40; P_K = ₹ 100; MP_L = 40; MP_K = 40. What would you say about the firm?
(i) That the firm is operating efficiently
(ii) That, the firm is not operating efficiently

(a) Only i
(b) Only ii
(c) i and iii
(d) ii and iv

177. A firm can hire additional labour @ ₹ 50 per hour. By hiring 10 more hours of labour output will increase by 3 units. If per unit sells for ₹ 200, should the firm hire the labour? Why?
(a) No ∴ MP of labour < price of labour
(b) Yes ∴ MP of labour > price of labour
(c) Neither ‘a’ or ‘b’
(d) Only ‘a’

178. If MRTS_LK,equals 2, then the MP_K / MP₁
(a) 1/2
(b) 2/1
(c) 1/1
(d) 0/1

179. Suppose that we are producing holes. The only way to get a hole is to use one man and one shovel. What shall be the shape of isoquants?
(a) downward sloping and convex to origin
(b) downward sloping straight line curve
(c) downward sloping and concave to origin
(d) light angled curve

180. You are doing homework. The inputs needed to produce homework is blue ink pen or black ink pen. What shall be the shape of isoquants?
(a) downward sloping and convex to origin
(b) downward sloping straight line curve
(c) downward sloping and concave to origin
(d) right angled curve

181. When 5 units of variable factor are combined with 5 units of fixed factor and MP remains constant at 10 units. Find TP
(a) 30
(b) 40
(c) 50
(d) 60

182. The production function of a firm is- Q = 5L 1/2 K 1/2 What would be the maximum possible output the firm can produce with 100 units of L and 100 units of K.
(a) 500
(b) 400
(c) 600
(d) None of the above

183. The production function of a firm is- Q = 2 L² K² Find the output the firm can produce with 5 units of L and 2 units of K.
(a) 100
(b) 200
(c) 300
(d) 150

184. What will be the output with 10 units of L and 10 units of K, if the production function is Q = 5L + 2K production
(a) 50
(b) 60
(c) 70
(d) 80

185. From the following find out AP and MP of 4th unit of Labour.

(a) 15 ; 15
(b) 10 ; 15
(c) 10 ; -15
(d) 10 ; -10

Theory of Cost

186. Cost analysis refer to the study of ____ inrelation to different production criteria.
(a) production
(b) cost
(c) price
(d) inputs

187. Cost is a _____ function
(a) direct
(b) derived
(c) both direct and derived
(d) none of the above

188. Theory of costs is restatement of the theory of _____ in monetary terms
(a) demand
(b) consumer’s behaviour
(c) production
(d) all the above

189. _____ costs relate to those costs which involve cash payments by the entrepreneur of the firm.
(a) Accounting
(b) Marginal
(c) Economic
(d) Implicit

190. Accounting costs are also called _____ costs.
(a) economic
(b) implicit
(c) explicit
(d) opportunity

191. Wages paid to labourers, cost of raw-materials purchase, interest on the money borrowed, etc. are examples of _____ cost.
(i) accounting
(ii) implicit
(iii) economic
(iv) explicit
(a) i and ii
(b) iii and iv
(c) ii and iii
(d) i and iv

192. Economic costs includes-
(a) Accounting cost + Explicit cost
(b) Accounting cost + Implicit cot
(c) Fixed cost + Variable cost
(d) Accounting cost + Direct cost

193. Economic costs equals-
(a) Explicit cost + Implicit cost
(b) Fixed cost + Variable cost
(c) Accounting cost + Explicit cost
(d) none of the above

194. _____ costs are the value of foregone opportunities that do not involve any contractual obligation of cash payment.
(a) Explicit
(b) Implicit
(c) Accounting
(d) Hidden

195. _____ includes all payments made to factors of production and opportunity cost.
(a) Accounting costs
(b) Economic costs
(c) Implicit costs
(d) Explicit costs

196. An entrepreneur must recover his _____ cost if he wants to earn normal and abnormal profits.
(a) accounting
(b) implicit
(c) economic
(d) all the above

197. Which of the following are implicit costs?
(i) A shop taken on rent by entrepreneur
(ii) Savings invested to start business
(iii) An individual is both owner and manager of business
(iv) A farmer takes a farm on rent
(a) i and ii
(b) iii and iv
(c) ii and iii
(d) i and iv

198. Which of the following are explicit costs?
(i) A producer borrows money to start a factory
(ii) A producer invests his savings to start a factory
(iii) Wages paid to workers
(iv) An individual is both owner & manager of business
(a) i & ii
(b) iii & iv
(c) i & iii
(d) ii & iv

199. The difference between Economic Cost and Accounting Cost is equal to _____
(a) Implicit cost
(b) Explicit cost
(c) Marginal cost
(d) none of the above

200. All but one is not included in the books of account? Which one?
(a) Taxes
(b) Electricity charges
(c) Cost of raw-material
(d) Imputed salary of owner

201. _____ costs involve actual expenditure of funds on wages, material, rent, etc.
(a) Opportunity
(b) Outlay
(c) Economic
(d) Implicit

202. The cost that a firm incurs in purchasing or hiring, the services of various productive factors is referred to as-
(a) Explicit cost
(b) Fixed cost
(c) Implicit cost
(d) Variable cost

203. Explicit costs are also known as-
(a) Accounting costs
(b) Outlay costs
(c) Out-of-Pocket costs
(d) All the above

204. For an economist, the cost means-
(a) Accounting Costs
(b) Economic Costs
(c) Outlay Costs
(d) Sink Cost

205. Implicit costs are also known an-
(a) Opportunity costs
(b) Imputed costs
(c) Notional costs
(d) All the above

206. Opportunity cost refers to-
(a) money expenses incurred on purchasing or hiring factor, services
(b) the next best alternative
(c) involving cash payment
(d) all the above

207. Opportunity cost refers to-
(a) Cost of opportunity foregone
(b) Comparison between the policy that was chosen and the policy that was rejected
(c) Costs relating to sacrificed alternatives
(d) all the above

208. The cost of one thing in terms of the alternative given up is known as-
(a) Production cost
(b) Accounting cost
(c) Opportunity cost
(d) Real cost

209. Opportunity costs find its application in situations _____
(a) for short run and long run decision making
(b) capital expenditure budgeting
(c) when the supply of input factors is strictly limited
(d) all the above

210. Opportunity costs are a result of _____
(a) Abundance of resources
(b) Scarcity of resources
(c) Technology obsolescence
(d) Cost controls

211. All but one are true about opportunity cost. Which one is not true?
(a) Opportunity costs are recorded in the books of account.
(b) Opportunity costs are applicable to those factors which have alternative uses.
(c) Opportunity cost is also known as ‘alternative cost’
(d) Opportunity cost is also known as ‘displacement cost’

212. If no sacrifice is involved, then the opportunity cost is
(a) very high
(b) very low
(c) zero
(d) both ‘b’ & ‘c’

213. The concept of opportunity cost helps us to know that-
(a) resources are scarce,
(b) resources have alternative uses,
(c) how scarce resources get allocated in different production activities
(d) all the above

214. If you give up a full-time job to go to college, the major cost is –
(a) tuition fees
(b) room and board
(c) the income you could have earned from job
(d) social expenses

215. If a firm’s machinery, has no possible alternative use, its opportunity cost is –
(a) high
(b) low
(c) zero
(d) none of the above

216. If you own a cottage in Shimla which you could rent for August and September to some family for a net gain of ₹ 20,000/- after all expenses and taxes, the opportunity cost of living in it yourself for summer is _____
(a) ₹ 10,000
(b) ₹ 20,000
(c) ₹ 30,000
(d) ₹ 40,000

217. Cost of getting something involves losing something else means –
(i) accounting costs
(ii) opportunity costs
(iii) explicit costs
(iv) implicit costs
(a) Only i
(b) ii and iii
(c) i and iii
(d) ii and iv

218. The costs which can be identified easily and indisputably with a unit of operation, a product, a department, a plant or a process are called-
(i) direct cost
(ii) indirect cost
(iii) traceable cost
(iv) non-traceable cost
(a) Only i
(b) ii and iii
(c) i and iii
(d) ii and iv

219. _____ costs are not identified readily and indisputably to specific product, process, department, plant, operations, etc.
(a) Indirect costs
(b) Traceable costs
(c) Non-traceable costs
(d) Both ‘a’ & ‘c’

220. Accounting process recognizes-
(a) direct costs
(b) indirect cost
(c) only direct costs
(d) both direct and indirect costs

221. The function which gives least cost combinations of inputs corresponding to different levels of output is called-
(a) Production function
(b) Demand function
(c) Cost function
(d) Supply function

222. Cost functions are derived from _____
(a) Demand function
(b) Supply function
(c) Isoquant function
(d) Production function

223. _____ refers to the functional relationship between cost of a product and the various determinants of cost.
(a) Cost function
(b) Isoquant function
(c) Production function
(d) Supply function

224. In a cost function, the total cost or cost per unit is a/an _____
(a) Dependent Variable
(b) Independent Variable
(c) Either ‘a’ or ‘b’
(d) Neither ‘a’ nor ‘b’

225. In a cost function, the prices of factors of production is a/an _____
(a) Dependent Variable
(b) Independent Variable
(c) Either ‘a’ or ‘b’
(d) Neither ‘a’ nor ‘b’

226. Which one of the following is the dependent variable in a cost function?
(a) Level of capacity utilization
(b) Lot size of output
(c) Scale of operations
(d) Total Cost

227. Which one of the following is an independent variable in a cost function?
(a) Cost per unit
(b) Total cost
(c) Managerial efficiency
(d) None of the above

228. All but one are independent variables. Which one is not independent variable?
(a) Quantity of output
(b) Prices of factors of production
(c) Per unit cost of production
(d) Time Period under study

229. Which one of the following is not a determinant of the firm’s cost function?
(a) Price of firm’s output
(b) Production function
(c) Price of labour
(d) Rent paid for use of building

230. The functional relationship between output and the long-run cost of production is called _____
(a) Cost function
(b) Production function
(c) Long-run Cost function
(d) Long-run Production function

231. Law of Returns to Scale forms the basis of _____ cost function
(a) Long-run
(b) Short-run
(c) Fixed
(d) all the above

232. A cost function determines the behaviour of cost with change in _____
(a) Output
(b) Input
(c) Technology
(d) Wages

233. Increase in the size of a firm and its production capacity determines _____
(a) Short-run production function
(b) Long-run production function
(c) Fixed production function
(d) None of the above

234. When a firm operates with a given scale of production it affects the _____
(a) Long-run production function
(b) Fixed production function
(c) Short run production function
(d) All the above

235. Find the odd one-
(a) Output
(b) Price of raw-materials
(c) Time period
(d) Total cost

236. The costs which do not change with the level of output are called :
(i) Supplementary Costs
(ii) Money Costs
(iii) Overhead Costs
(iv) Prime Cost
(a) i & ii
(b) ii & iii
(c) i & iii
(d) i, ii, iii & iv

237. The costs which change with the level of output are called _____
(a) Prime cost
(b) Direct cost
(c) Variable cost
(d) All the above

238. The costs which remain constant at all the levels of output are called _____
(a) Supplementary Costs
(b) Fixed Costs
(c) Overhead Costs
(d) All the above

239. Fixed costs includes-
(a) Historical costs
(b) Explicit costs
(c) Implicit costs
(d) Both ‘b’ and ‘c’

240. At zero level of output _____ cost can never be zero.
(a) Variable
(b) Fixed
(c) Direct
(d) Real

241. At zero level of output cost _____ is zero.
(a) Fixed
(b) Overhead
(c) Variable
(d) Real

242. _____ costs are incurred even before production starts
(a) Fixed
(b) Variable
(c) Real
(d) Marginal

243. _____ costs are incurred after the production actually starts.
(a) Fixed
(b) Variable
(c) Marginal
(d) Real

244. At zero level of output Fixed Cost must be greater than Variable Cost.
(a) False
(b) Partially True
(c) True
(d) None of the above

245. Fixed Costs are a function of _____
(a) Time
(b) Output
(c) Both time and output
(d) All the above

246. Variable Costs are a function of _____
(a) Time
(b) Output
(c) Both time and output
(d) All the above

247. _____ costs are directly or positively related to output.
(a) Fixed
(b) Stair-step
(c) Semi-Variable
(d) Variable

248. When production level is zero, then fixed cost is-
(a) zero
(b) negative
(c) positive
(d) equal to variable cost

249. Which of the following indicates fixed costs?
(a) Electricity Bill
(b) Wages to daily labourers
(c) Expenses on transportation
(d) Interest on fixed capital

250. Variable costs include costs of-
(a) Hiring the building for the factory
(b) Purchase of heavy machines
(c) Pay wages to factory manager
(d) Paying for power and fuel

251. Which one of the following is correct?
(a) TC = TFC × TVC
(b) TC = TFC ÷ TVC
(c) TC = TFC + TVC
(d) TC = TFC – TVC

252. Which cost increases continuously with the increase in production?
(a) Average cost
(b) Marginal cost
(c) Fixed cost
(d) Variable cost

253. When output is increased variable cost also rises initially at _____ rate and later at _____ rate.
(a) diminishing; constant
(b) increasing; constant
(c) diminishing; increasing
(d) constant; increasing

254. The costs which are neither perfectly variable, nor absolutely fixed when output level are changed are _____
(a) Variable costs
(b) Semi Variable costs
(c) Stair Step costs
(d) Prime costs

255. _____ costs are independent of the level of output.
(a) Fixed
(b) Variable
(c) Marginal
(d) Semi Variable costs

256. TVC can be calculated as-

257. TC reflect the behaviour of-
(a) TFC
(b) TVC
(c) AFC
(d) None of the above

258. At zero level of output Total Cost of Production is equal to-
(a) Total Fixed Cost
(b) TotalVariableCost
(c) Marginal Cost
(d) Explicit Cost

259. Total Fixed Cost Curve is indicated by a-
(a) Positively sloped Curve
(b) Vertical Straight Line Curve
(c) Horizontal Straight Line Curve
(d) Negatively sloped Curve

260. Total cost curve shoots from a point on Y-axis means-
(a) we are referring to the short period
(b) we are referring to the long period
(c) we are referring to the market period
(d) we are referring to the secular period

261. In the short period, TC = ∑ MC Is it correct ?
(a) Yes
(b) No, as TC = TFC + ∑ MC
(c) Partially correct
(d) none of the above

262. Total Variable Cost initially rises at a diminishing rate due to-
(a) increasing returns to factor
(b) increasing returns to scale
(c) diminishing returns to factor
(d) diminishing returns to scale

263. Total Variable Cost curve shoots upwards from-
(a) a certain point on quantity axis
(b) a certain point on cost axis
(c) origin
(d) Any of the above

264. TFC curve will be a straight line –
(a) Parallel to X-axis
(b) Parallel to Y-axis
(c) Sloping upward from left to right
(d) Sloping downward from left to right

265. Total Variable Cost curve originate from the point of origin means-
(a) Variable cost is zero at zero output
(b) Variable cost has to be incurred at zero output
(c) Variable cost is diminishing
(d) All the above

266. The total cost curve and total variable cost curve are parallel because-
(a) Vertical distance between the two is total fixed cost which is constant
(b) behaviour of total cost depends upon total variable cost
(c) change in total cost is only due to change in variable cost
(d) all the above

267. The vertical distance between TVC and TC is equal to –
(a) Marginal Cost
(b) Total Fixed Cost
(c) Average Variable Cost
(d) None of the above

268. The fixed cost per unit of output is called-
(a) Average Fixed Cost (b) Total Fixed Cost
(c) Marginal Cost (d) None of the above

269. In the short run, when output of a firm increases, its average fixed cost-
(a) rises continuously
(b) falls continuously
(c) remain constant
(d) first rises and then falls

270. Average Fixed Cost curve _____
(a) slope upwards
(b) slope downwards
(c) is TJ’ shaped
(d) is ‘S’ shaped

271. Total Variable Curve is _____ shaped
(a) ‘U’ shaped
(b) Inverted’U’shaped
(c) Inverted ‘S’ shaped
(d) ‘C’ shaped

272. Average Fixed Cost curve is indicated by-
(a) a rectangular hyperbola
(b) a straight line parallel to X-axis
(c) a straight line parallel to Y-axis
(d) a ‘U’ shaped curve

273. Average Fixed Cost curve will never touch-
(a) X-axis
(b) Y-axis
(c) both ‘a’ and ‘b’
(d) none of the above

274. Average Variable Cost equals-

275. Which of the following falls continuously?
(a) Marginal Cost
(b) Average Fixed Cost
(c) Average Variable Cost
(d) Total Fixed Cost

276. Average Variable Cost falls as output is expanded-
(a) upto normal capacity output
(b) beyond normal capacity output
(c) all the levels of output
(d) Nothing can be said

277. Beyond normal capacity output, as output in-creases AVC will-
(a) remain constant
(b) decrease
(c) increase
(d) nothing can be said

278. Average variable cost is inversely related to _____
(a) MP of variable factor
(b) AP of variable factor
(c) TP
(d) nothing can be said

279. AVC falls as output increases upto normal ca-pacity due to-
(a) constant returns to scale
(b) diminishing returns to factor
(c) increasing returns to factor
(d) negative returns to factor

280. AVC curve is-
(a) ‘S’ shaped
(b) ‘U’ shaped
(c) Inverted ‘S’ shaped
(d) Inverted’U’shaped

281. _____ and _____ curves start from the same point on Y-axis which is above the origin.
(a) TFC and TVC
(b) TVC and TC
(c) TFC and TC
(d) None of the above

282. Two curves which are inverted ‘S’ shaped are –
(a) TFC and TVC
(b) TVC and TC
(c) TC and AVC
(d) AFC and AVC

283. Average Cost curve is-
(a) Horizontal Line parallel to x-axis
(b) Inverted ‘S’ shaped
(c) Inverted ‘U’ shaped
(d) ‘U’ shaped

284. When output is increased Average Cost at all the levels of output includes both AVC and AFC means that-
(a) AC curve will always lie above the AVC curve
(b) AC curve will always lie below the AVC curve
(c) AC and AVC are parallel to each other with same vertical distance throughout
(d) None of the above

285. The vertical gap between AC and AVC curves as the output increases.
(a) increases
(b) decreases
(c) remain constant
(d) None of the above

286. Since AFC can never be zero, _____ and _____ curves never intersect each other
(a) AC and MC
(b) AC and AFC
(c) AC and AVC
(d) None of the above

287. The two inverted ‘S’ shaped short run cost curves are parallel to each other and maintain a constant distance of ₹ 100. Which cost is indicated by ₹100?
(a) Total Variable Cost
(b) Total Cost
(c) total Fixed Cost
(d) Average Fixed Cost

288. Find the odd one out-
(a) Salary to manager of the company
(b) Payment of insurance premium for insurance of factory
(c) Interest on loan taken from Union Bank
(d) Payment of excise duty

289. Average Fixed Cost falls as the output rises because-
(a) AFC and output are inversely related
(b) AFC and output are positively related
(c) AFC and output are not related
(d) All the above

290. Production at the loss of _____ may continue in short run.
(a) Variable Cost
(b) Fixed Cost
(c) Marginal Cost
(d) Direct Cost

291. Production at the loss of _____ cannot be continued in short run.
(a) Direct Cost
(b) Fixed Cost
(c) Marginal Cost
(d) Variable Cost

292. Which of the following statements is correct of the relationship among the short run costs?
(a) ATC = AFC – AVC
(b) AVC = AFC + ATC
(c) AFC = ATC + AVC
(d) AFC = ATC -AVC

293. Average Total Cost equals-

294. Average Total Cost means-
(a) The general average cost
(b) The average cost of producing one unit
(c) The cost of producing the last unit
(d) None of the above

295. Average Cost curve contains in it-
(a) Normal Profits
(b) No Normal Profits
(c) Both ‘a’ and ‘b’
(d) None of the above

296. Average Cost curve is a _____
(a) ‘S’ shaped curve
(b) T shaped curve
(c) ‘U’ shaped curve
(d) Straight Line

297. When expressed as an average, it shows a continuous fall with increase in output-
(a) the average cost of a firm
(b) the fixed cost of a firm
(c) marginal cost
(d) variable cost

298. An addition to the total cost caused by producing one more unit of output is called _____
(a) average cost
(b) marginal cost
(c) fixed cost
(d) variable cost

299. Marginal Cost varies inversely with _____ in short run
(a) average product of variable factor
(b) total product
(c) marginal product of variable factor
(d) both ‘a’ and ‘b’

300. Marginal Curve is _____
(a) ‘U’ shaped
(b) ‘L’ shaped
(c) ‘S’ shaped
(d) downward sloping continuously

301. At the minimum average cost, a firm can produce the _____
(a) maximum output
(b) optimum profit
(c) optimum output
(d) marginal output

302. Any change in Marginal Cost will lead to a change in firm’s _____
(a) total fixed cost
(b) total variable cost
(c) average fixed cost
(d) both ‘a’ and ‘c’

303. With increase in output, the average fixed cost will fall in _____
(a) very long period
(b) long period
(c) market period
(d) short period

304. Marginal Cost is the slope of _____ curve.
(a) total variable cost
(b) total fixed cost
(c) average cost
(d) all the above

305. When total variable cost rises at a diminishing rate, marginal cost _____
(a) rises
(b) remain constant
(c) falls
(d) none of the above

306. When TVC rises at an increasing rate, MC _____
(a) rises
(b) falls
(c) remain constant
(d) none of the above

307. Graphically, the area under the Marginal Cost curve is _____
(a) TFC
(b) TVC
(c) TC
(d) AC

308. Marginal Cost Curve cuts the Average Cost Curve at its _____
(a) falling part
(b) rising part
(c) minimum point
(d) both ‘a’ and ‘b’

309. Marginal Cost is independent of
(a) fixed cost
(b) variable cost
(c) opportunity cost
(d) output

310. All but one are ‘U’ shaped
(a) The AVC curve
(b) The AC curve
(c) The MC curve
(d) The AFC curve

311. Find the Odd One out of the following
(a) TC_n – TC_n-1
(b) TFC_n – TFC_n-1
(c) TVC_n-TVC_n -1
(d) TC_n-(TVC_n-1+TFC_n-1) .

312. The point at which marginal cost equate average cost shows-
(a) The maximum Profit
(b) The equilibrium point of the consumer
(c) The plant capacity
(d) The minimum price of the product

313. Which of the following is incorrectly matched?
(a) MC – ‘U’ shaped
(b) AFC – Rectangular Hyperbola
(c) TC – ‘J’ shaped
(d) AVC – ‘U’ shaped

314. If a table shows number of units produced and average cost of each unit, one can calculate-
(a) AVC
(b) MC
(c) TC
(d) All the above

315. Consider the following statements and point the correct one-
(a) If MC curve is below the AC curve, then the AC curve must be rising
(b) When MC curve is above the AC curve, then the AC curve must be falling
(c) MC cost curve cuts the AC curve at the minimum point of AC curve
(d) AC pulls up or down the MC Sp

316. When AC is at its minimum, then-
(a) AC >MC
(b) AC < MC
(c) AC = MC
(d) All the above

317. Per unit cost of a commodity is called-
(a) fixed cost
(b) variable cost
(c) average cost
(d) marginal cost

318. When MC curve cuts AC curve-
(a) AC = MC
(b) AC > MC
(c) AC < MC
(d) both AC and MC are falling

319. What happens to Average Cost when MC > AC?
(a) AC will fall
(b) AC will rise
(c) AC will remain constant
(d) None of the above

320. Marginal cost includes-
(a) fixed cost and variable cost
(b) only fixed cost
(c) only variable cost
(d) None of the above

321. If the marginal cost of production is less than the average cost then-
(a) MC curve lies under the AC curve
(b) AC would be falling
(c) MC cost pulls down AC
(d) All the above

322. MC is greater than AC when production is in a state of _____
(a) increasing returns
(b) diminishing returns
(c) constant returns
(d) None of the above

323. AC is greater than MC, so long as –
(a) AC is falling
(b) AC is rising
(c) AC is constant
(d) All the above

324. MC = AC when –
(a) AC is falling
(b) AC is rising
(c) AC tends to stabilize
(d) None of the above

325. The distance between AC and AVC curves tends to _____ at higher level of output
(a) increase
(b) remain constant
(c) reduce
(d) None of the above

326. ATC and AVC curves tend to intersect at some level of output
(a) Statement is Incorrect
(b) Statement of Correct
(c) Statement is Partially Correct
(d) None of the above

327. The difference between ATC and AVC:
(a) is constant
(b) is total fixed cost
(c) gets narrow as output falls
(d) is the average fixed cost

328. Can AC fall, when MC is rising?
(a) No
(b) Yes
(c) Can’t say
(d) None of the above

329. When MC < AVC, _____ with increase in the output
(a) AVC rises
(b) AV C falls
(c) AVC remain constant
(d) AVC curve cut MC curve

330. When MC becomes equal to AC and AVC, they _____
(a) begin to rise
(b) begin to fall
(c) become constant
(d) Any of the above

331. There will be productive efficiency when-
(a) MC = AC
(b) firm is producing at the minimum point of Average Cost Curve
(c) MC curve cuts the AC curve
(d) All the above

332. Marginal Cost is _____
(a) Always less than the Average Cost
(b) Always more than the Average Cost
(c) Equal to the Average Cost at its minimum point
(d) Never equal to Average Cost

333. The slope of the TVC or total cost curve indicates the-
(a) marginal revenue
(b) average cost
(c) variable cost
(d) marginal cost

334. Falling average cost means-
(a) increasing returns
(b) diminishing returns
(c) constant returns
(d) negative returns

335. _____ costs are important in short run to de¬termine optimum level of output
(a) Fixed
(b) Marginal
(c) Opportunity
(d) Sunk

336. Short run average costs eventually rise because of _____
(a) rising overhead costs
(b) rising factor prices
(c) falling marginal and average productivity
(d) None of these

337. Decreasing average costs for a firm, as it expands plant size and output-
(a) results from decreasing returns to scale
(b) results usually from the effects of increased mechanism and specialization
(c) results from increased complexity of rapid expansion
(d) None of the above

338. MC curve passes through the minimum point of _____
(a) AC curve
(b) TC curve
(c) AVC curve
(d) both ‘a’ and ‘c’

339. Which of the following statements about the relationship between marginal cost and average cost is correct? –
(a) When MC is falling AC is falling
(b) AC equals MC at MC’s lowest point
(c) When MC exceeds AC, AC must be rising
(d) When AC exceeds MC, MC must be rising

340. Salesmen’s commission is an example of –
(a) Fixed cost
(b) Variable cost
(c) Semi-Variable cost Le. fixed over some range and then increase
(d) Stair-Step cost

341. The Long Run Average Curve shows the average cost of production when _____ in supply
(a) all factors are fixed
(b) all factor are variable
(c) some factors are fixed while some are variable
(d) one factor is fixed while all others are variable

342. Which one of the following is called planning curve?
(a) Long Run Average Cost Curve
(b) Short Run Average Cost Curve
(c) Average Variable Cost Curve
(d) Average Total Cost Curve

343. Falling portion Le. negatively sloped portion of the long run average cost curve is because of-
(a) economies of scale
(b) diseconomies of scale
(c) diminishing returns
(d) law of variable proportions

344. Each point on LAC curve is a point of tangency with the corresponding-
(a) short run AC curves
(b) short run AVC curves
(c) short run MC curves
(d) none of the above

345. Which one of the following is also known as PLANT CURVE?
(a) LAC curve
(b) SAC curve
(c) AVC curve
(d) ATC curve

346. The LAC curve helps the firm to make choice about size of plant for producing a particular output at _____
(a) Optimum Cost
(b) Minimum Cost
(c) Maximum Cost
(d) Nothing can be said

347. Which of the following is correct regarding Long Run Average Cost curve?
(i) It shows least cost of producing each level of output
(ii) LAC curve is envelope of SAC curves
(iii) LAC is U-shaped
(iv) LAC curve is U-shaped due to economies and diseconomies
(a) (i) and (ii) only
(b) (ii) and (iii) only
(c) (i), (ii), (iii) and (iv)
(d) (iii) and (iv) only

348. When the long run average cost curve is falling, it is tangent to _____
(a) the falling portion of SAC curve
(b) the rising portion of SAC curve
(c) the minimum point of SAC curve
(d) the minimum point of MC curve

349. When LAC curve is _____ it will be tangent to rising portions of the SAC curves
(a) sloping downward
(b) sloping upwards
(c) constant
(d) none of the above

350. When the LAC curve slopes upward, the firm is experiencing _____
(a) economies of scale
(b) external economies
(c) diseconomies
(d) none of these

351. Larger outputs can be economically produced ie. at the lowest cost with the _____
(a) smaller plant
(b) medium size plant
(c) bigger plant
(d) none of these

352. The LAC is –
(a) U-shaped
(b) Inverted U-shaped
(c) V-shaped
(d) S-shaped

353. In the long run, when a firm faces infinite SAC curves, the LAC curve will be-
(a) perpendicular to each SAC curve
(b) connect the lowest point of each SAC curve
(c) smooth curve, so as to be tangent to each of the SAC curves
(d) all the above

354. The LAC curve envelopes many SAC curves, it is therefore also called _____
(a) planning curve
(b) envelope curve
(c) family curve
(d) none of these

355. The LAC curve is flattened U-shaped because-
(a) some factors are fixed
(b) some factors are variable
(c) of change in technology
(d) technology remains constant

356. Modern firms face _____ shaped LAC curves
(a) L
(b) U
(c) S
(d) C

357. L-shaped LAC curve over a range shows that all sizes of plant have the _____
(a) different minimum cost of production
(b) falling cost of production
(c) same minimum cost of production
(d) rising cost of production

358. In the short period the firm can control only the _____ cost and not the _____ Cost and therefore must recover at least _____ Cost
(a) fixed ; variable ; fixed
(b) variable ; fixed ; variable
(c) average ; marginal; average
(d) accounting ; opportunity ; accounting

359. In short run the producer can control only _____ cost
(a) fixed
(b) semi-fixed
(c) variable
(d) stair step

360. In the long period _____ costs are under the control of the producer
(a) fixed
(b) variable
(c) all
(d) none

361. What does the shaded area show in the figure below?

(a) TFC
(b) TVC
(c) TC
(d) ATC

362. Consider the figure and answer which region represents diseconomies

(a) Region ‘c’ to ‘d’
(b) Region ‘a’ to ‘b’
(c) Region ‘d’ to ‘e’
(d) Region ‘b’ to ‘d’

Consider the following diagram to answer questions 363 to 369.

363. In the above diagram curve numbers 1, 2 and 3 are _____ respectively
(a) AVC ; AFC ; AC
(b) AFC ;AVC ; AC
(c) AC ; AFC ; AVC
(d) AC ; AVC ; AFC

364. In the above diagram at OK level of output, the average cost equals-
(a) KN
(b) KM
(c) KL
(d) MN

365. In the diagram above at OK level of output, KL denotes-
(a) AFC
(b) MC
(c) AVC
(d) AC

366. In the diagram above at OK level of output, KM denotes-
(a) AC
(b) AVC
(c) MC
(d) AFC

367. In the diagram above at OK level of output, the vertical distance shaded between LN denotes-
(a) AFC
(b) AVC
(c) AC
(d) None of these

368. In the above diagram, on the right side curve 3 becomes closer to curve 2 means-
(i) component of AFC shrinks
(ii) component of AFC increases
(iii) component of AVC increases
(iv) component of AVC shrinks
(a) i and iii
(b) ii and iv
(c) ii and iii
(d) none of the above

369. In the above diagram on the right side curve 1 gets away from curve 3 means-
(a) component of AFC increases but component of AVC shrinks
(b) component of both AFC and AVC increases
(c) component of AFC shrinks but component of AVC increases
(d) None of the above

370. Marginal Cost reflects change in either _____ or _____
(a) total cost; total variable cost
(b) total cost; average variable cost
(c) fixed cost; total variable cost
(d) none of the above

Use the following data to answer questions 371 to 376 :

371. The total variable cost of the 3rd unit is-
(a) 216
(b) 84
(c) 126
(d) 174

372. The marginal cost of the 2nd unit is-
(a) 0
(b) 45
(c) 39
(d) 42

373. The average cost of producing the 4th unit is-
(a) 66
(b) 48
(c) 67
(d) 49

374. The total fixed cost at the 3rd unit of output is-
(a) 180
(b) 42
(c) 66
(d) 90

375. The average fixed cost at the 4th unit of output , is-
(a) 42
(b) 32
(c) 22.5
(d) 20

376. The average variable cost at the 3rd unit of output is-
(a) 42
(b) 32
(c) 22
(d) none of these

Use the following data to answer questions 377 to 379:
Suppose that the Total Fixed Cost is ₹ 120

377. The total variable cost of the 3rd unit is-
(d) 120
(b) 200
(c) 300
(d) 520

378. The marginal cost of the 2nd unit of output is-
(a) 120
(b) 80
(c) 100
(d) 220

379. The total cost of 4th units of output is-
(a) 320
(b) 420
(c) 640
(d) 900

Use the following data to answer questions 380 to 382:
Fixed cost of a firm is ₹ 30.

380. Total Cost of 4th unit is-
(d) 68
(b) 116
(c) 50
(d) 90

381. The Average Cost of 2nd unit is-
(a) 50
(b) 34
(c) 29
(d) None of the above

382. The Marginal Cost of 3rd unit is-
(a) 18
(b) 22
(c) -26
(d) 50

Use the following data to answer questions 383 to 386:

383. The Total Fixed Cost of the 5th unit is-
(a) 80
(b) 40
(c) 120
(d) 240

384. The Average Fixed Cost of 2nd unit is-
(a) 40
(b) 20
(c) 10
(d) 05

385. The Average Variable Cost of 3rd unit is-
(a) 65
(b) 46.67
(c) 42.5
(d) 44

386. The Average Total Cost of 2nd unit is-
(a) 120
(b) 85
(c) 52.5
(d) 52

387. Table for the production of a firm.

One the basis of the above table match the following
(i) Prime Cost
(ii) Direct Cost
(iii) Fixed Cost
(iv) Variable Cost
(v) Total Cost
(a) (A, i) (B, ii) (C, iii)
(&) (A, ii) (B, iii) (C, iv)
(c) (A, iii) (B, iii) (C, iv)
(d) (A, v) (B, iii) (C, iv)

388. Considering the following information of firm’s production department for a week, the TVC, AVC and ATC would be-

(a) ₹ 11,9000 ; ₹ 119 and ₹ 123 respectively
(b) ₹ 11,600 ; ₹ 116 and ₹ 123 respectively
(c) ₹ 11,900 ; ₹ 119 and ₹ 119 respectively
(d) None of these

389. The average cost is ₹ 40 and it is minimum when 8 units are produced. The marginal cost of producing 4 unit is-
(a) 40
(b) 160
(c) 48
(d) 10

390. If the marginal cost of producing 1 unit of a commodity is ₹ 15 and that of producing 2 units is 10, which of the following is correct?
(a) Total cost = ₹ 25
(b) Variable cost = ₹ 25
(c) Average cost = ₹ 25
(d) None of the above

391. The total cost at 10 units of output is ₹ 55. The fixed cost is ₹ 5. The average variable cost at 10 units of output is-
(a) ₹ 25
(b) ₹ 6
(c) ₹ 5
(d) ₹ 1

392. The total cost of producing 5 units of a commodity is ? 20 and that of producing 4 units is? 15, what will be the marginal cost?
(a) ₹ 2.5
(b) ₹ 5
(c) ₹ 7.5
(d) ₹ 10

393. A firm produces 100 units of a commodity. Actual money expenditure incurred on producing this commodity is ₹ 1500. The owner supplies inputs worth ₹ 500 for which he does not get any payment. The economic cost turned out to be ₹ 2,100. The difference is-
(a) Normal Profit
(b) Loss
(c) Abnormal Profit
(d) None of these

394. What would be the economic cost considering the following-
Purchase of raw materials ₹ 200
Payment of wages and salaries ₹ 500
Payment of rent ₹ 50
Estimated value of owner’s services ₹ 300
Expected minimum profit ₹ 40
Estimated super normal profit ₹ 240
(a) 1000
(b) 1,180
(c) 1,090
(d) 2000

395. The total cost curve makes an intercept of ₹ 50 on y-axis, Calculate total fixed cost and total variable cost of 3rd unit of output :

(a) 50 ; 15
(b) 40 ; 50
(c) 50 ; 70
(d) 110 ; 50

396. A firm is producing 20 units. At this level of output, ATC and AVC are equal to ₹40 and ₹37 respectively. What is the total fixed cost of the firm?
(a) ₹ 3
(b) ₹ 60
(c) ₹ 40
(d) ₹ 20

397. The total cost of producing 9 units of output is ₹85. If the ATC of producing 10 units is ₹10, then what will be the marginal cost of producing the 10th unit?
(a) ₹ 10
(b) ₹ 05
(c) ₹ 15
(d) ₹ 20

398. The AC of producing 5 units is ₹ 6 and AC of producing 6 units is ₹5. What is the MC of the 6th unit?
(a) ₹ 0
(b) ₹ 15
(c) ₹ 20
(d) ₹ 30

399. The TC of a firm increased by ₹450, when production increased from 12 units to 14 units. What is the MC of the firm?
(a) ₹ 150
(b) ₹ 175
(c) ₹ 200
(d) ₹ 225

400. Find the AC and AVC if entire output is sold at ₹ 60 per unit from the following :
Wage Bill ₹ 20,000
Raw-material Bill ₹ 60,000
Interest ₹ 6,000
Fuel consumption ₹ 10,000
Rent ₹ 4,000
(a) ₹ 50 ; ₹ 50
(b) ₹ 50 ; ₹ 45
(c) ₹ 45 ; ₹ 45
(d) ₹ 45 ; ₹ 50

401. A firm’s average fixed cost is ₹ 40 at 12 units of output. What will it be at 8 units of output.
(a) ₹ 120
(b) ₹ 60
(c) ₹ 80
(d) ₹ 40

402. A firm producing 5 units of output has AC of ₹ 150 and it pays ₹ 200 to its fixed factors of production. What is the AVC?
(a) ₹ 100
(b) ₹ 50
(c) ₹ 110
(d) ₹ 150

403. What is the Average Cost of producing 20 units if the Total Fixed Cost is ₹ 5,000 and AVC is ₹ 2?
(a) ₹ 250
(b) ₹ 260
(c) ₹ 258
(d) ₹ 252

404. The ATC of producing 50 units is ₹ 250 and TFC is ₹ 1,000. What is the AFC of producing 100 units?
(a) ₹10
(b) ₹ 30
(c) ₹ 20
(d) ₹ 5

405. When a bus with a seating capacity of 50 passengers is carrying on 40 passengers. The cost of passenger ticket is ₹ 100. What would be the Marginal Cost of carrying one additional passenger?
(a) ₹ 100
(b) zero
(c) ₹ 4,100
(d) ₹ 4,000

406. Electricity charges are increased for the commercial use from ₹ 3 per unit to ₹ 5 per unit. This would affect-
(a) Fixed Cost
(b) Variable Cost
(c) Both Fixed and Variable Cost
(d) Neither Fixed Cost nor Variable Cost

407. The development of Special Economic Zone will-
(a) generate internal economies and lower per unit cost
(b) generate external economies and lower per unit cost
(c) generate internal diseconomies and increase per unit cost
(d) generate external diseconomies and in-crease per unit cost

408. The following is the marginal cost schedule. Find the avarage cost of production of 4 unit of output

(a) ₹ 4
(b) ₹ 6
(c) ₹ 5
(d) ₹ 7

409. If the total cost of production of Good ‘X’ is ₹ 1,25,000; out of it implicit cost is ₹ 35,000 and normal profit is ₹ 25,000. What will be the explicit cost of Good ‘X?
(a) ₹ 60,000
(b) ₹ 90,000
(c) ₹ 1,00,000
(d) ₹ 65,000

410. When output increased from 40 units to 55 units, TC increased from ₹ 2,500 to ₹ 3,250. The MC is-
(a) ₹ 150
(b) ₹ 50
(c) ₹ 100
(d) ₹ 200

Answers

MULTIPLE CHOICE QUESTIONS

1. In economics the term market refers to –
(i) a particular place
(ii) a commodity
(iii) buyers and sellers
(iv) bargaining for a price
(a) only i
(b) only ii
(c) ii & iii
(d) ii, iii and iv

2. Price depends on –
(a) utility and scarcity
(b) Cost of production
(c) transferability
(d) all the above

3. The basic behavioural principle which apply to all market conditions –
(a) A firm should produce only if its TR \(\ge\) TVC
(b) A firm should produce at a level where its MC = MR
(c) MC curve cuts the MR curve from below.
(d) All the above

4. Total revenue can be found out by –

5. When marginal revenue is zero, total revenue will be –
(a) lowest
(b) highest
(c) negative
(d) zero

6. If MR < 0, then the TR will be –
(a) rising
(b) highest
(c) falling
(d) zero

7. The change in the total revenue that results from a one unit change in sales is –
(a) Total Revenue
(b) Average Revenue
(c) Marginal Revenue
(d) both c and d

8. The revenue per unit of called as – one commodity sold is
(a) Total Revenue
(b) Marginal Revenue
(c) Average Revenue
(d) None of the above

9. AR can be found out by the formula –

10. Which of the following is not correct –

11. Which concept of revenue is called price?
(a) TR
(b) AR
(c) MR
(d) None of these

12. If a producer sells 4 units of a good at ₹ 10 per unit and 5 units at ₹ 8 per unit, marginal revenue would be –
(a) 0
(b) 1
(c) 2
(d) 3

13.

(i) Total Revenue
(ii) Marginal Revenue
(iii) Average Revenue
(iv) Price
(a) i & iii
(b) ii & iv
(c) ii & iii
(d) iii & iv

14. Which of the following statement is incorrect –
(a) Demand and supply determine price of a commodity
(b) At equilibrium price quantity demanded equals quantity supplied.
(c) Demand factor influences price more.
(d) Equilibrium price can change.

Use the following figure to answer questions 15-16

15. In the figure above at the equilibrium point E –
(a) demand is more than supply
(b) supply is more than demand
(c) demand and supply are equal
(d) none of the above

16. In the above figure equilibrium point, quantity and price are –
(a) E , OQ , OP
(b) E , ES , EP
(c) ES , ED, OQ
(d) E , EP , ED

17. When demand and supply increase equally, then –
(a) both equilibrium price and equilibrium quantity remain unchanged.
(b) both equilibrium price and equilibrium quantity increase
(c) equilibrium price remains unchanged but equilibrium quantity increases
(d) equilibrium price changes but equilibrium quantity remains unchanged.

18. If increase in demand is more than increase in supply, then –
(a) equilibrium price will fall but equilibrium quantity will increase
(b) equilibrium price will increase but equilibrium quantity will decrease
(c) both equilibrium price and equilibrium quantity will increase
(d) both equilibrium price and equilibrium quantity will decrease

19. When demand increases equilibrium price will increase only if –
(a) supply also increases
(b) supply also decreases
(c) supply remains same
(d) if the elasticity remains the same

20. The equilibrium price remains constant only if demand and supply
(a) increase unequally
(b) decrease unequally
(c) increase equally
(d) none of the above

21. The price will decrease if demand remains same and –
(a) supply increases
(b) supply decreases
(c) supply is more than the previous level
(d) none of these

22. In the short period equilibrium price is –
(i) higher than long run price
(ii) higher than market price
(iii) lower than market price
(iv) lower than long run price
(a) i & ii
(b) ii & iii
(c) iii & iv
(d) i & iii

23. The inter-action of market demand and supply curves determines the –
(a) equilibrium price
(b) reserve price
(c) both a & b
(d) none of these

24. Uniform price for homogeneous product at any one time is the essential condition of –
(a) monopolistic competition
(b) oligopoly
(c) perfect competition
(d) duopoly

25. For maximizing profit, the condition is –
(a) AR = AC
(b) MR = AR
(c) MR = MC
(d) MC = AC

26. MC = MR = AR means equilibrium position of a firm –
(a) in the long period
(b) in the short period under imperfect com-petition
(c) in the short period under perfect competition
(d) under perfect competition.

27. Under perfect competition –
(a) MC = Price
(b) MC > Price
(c) MC < Price
(d) none of these

28. All but one are correct about perfect competition –
(a) Large number of buyers and sellers
(b) Homogeneous product
(c) Differentiated product
(d) Uniform price

29. An increase in demand for a commodity causes –
(a) an increase in equilibrium price
(b) an increase in equilibrium quantity
(c) both a & b
(d) none of these

30. Which of the following is/are the features of perfect competition ?
(i) Large number of buyers and sellers
(ii) Identical product
(iii) Free entry and exit
(iv) No transportation cost
(a) i, ii and iii
(b) ii, iii and iv
(c) i, ii, and iv
(d) i, ii, iii and iv

31. The demand curve of a commodity faced by a competitive firm is –
(a) very elastic
(b) perfectly inelastic
(c) very inelastic
(d) perfectly elastic

32. In the short period, a perfectly competitive firm earns –
(a) normal profit
(b) super normal profit
(c) can incur losses
(d) all the above

The questions 33 to 35 are based on the above diagram

33. Figure (A) shows the equilibrium position –
(a) of an industry
(b) of a firm
(c) of a perfectly competitive industry
(d) of a perfectly competitive firm

34. Figure (B) shows the equilibrium –
(a) of a firm
(b) of a long run perfectly competitive firm
(c) of a short run competitive firm
(d) none of these

35. In figure (B) L, M and N represents –
(a) SMC, SAC and STC
(b) LMC, SAC and AR = AC
(c) SMC, LAC and AR = AC
(d) LMC, LAC and AR = MR

36. The following figure shows that –

(a) a firm is a price maker
(b) a firm is price taker
(c) an industry is price taker
(d) none of these

37. The figure above shows that the firm belong to –
(a) Imperfect competitive market
(b) monopoly
(c) oligopoly
(d) Perfectly competitive market

38. The firm’s short run supply curve is its marginal cost curve above its average variable cost curve is correct about –
(a) perfect competition
(b) oligopoly
(c) monopoly
(d) duopoly

39. Under perfect competition the price of commodity
(a) can be controlled by a firm
(b) cannot be controlled by a firm
(c) controlled up to some extent by a firm
(d) none of the above

40. AR and MR curve coincide in –
(a) Monopoly
(b) Monopolistic Competition
(c) Perfect Competition
(d) Oligopoly

41. Consider the following figure-

(a) super normal profit
(b) normal profit
(c) loss
(d) shut down point

42. Perfectly elastic demand curve implies that –
(a) the firm has no control over price
(b) the firm can sell any quantity at the ruling price
(c) the firm is price taker and output adjuster at ruling price
(d) all a, b and c.

43. Under perfect competition, if the AR curve lies below the AC curve, the firm would –
(a) make only normal profit
(b) incur losses
(c) make super normal profit
(d) firm cannot determine profit

44. Short run supply curve of a perfectly competitive firm is represented by –
(a) short run MC curve
(b) short run AC curve
(c) the part of the MC curve that lies above AVC
(d) none of these

45. Firms are of optimum size in the long period in case of –
(a) Monopoly
(b) Perfect competition
(c) Monopolistic competition
(d) All the above

46. The condition of the long run equilibrium for a competitive firm is –
(a) MC = MR = AR
(b) MC = AC = AR
(c) MC = MR = AC
(d) MC = MR = AR = AC

47. In the long run, firms only earn normal profits is a feature of –
(a) perfect competition
(b) monopoly
(c) both a & b
(d) none of these

48. Odd one out of the following :
(a) Firms are of optimum size and earn normal s profits only in long run.
(b) Firms sell identical product at uniform price
(c) Firms are not of optimum size and earn super normal profits in long run.
(d) Firms are free to move in or out of the industry.

49. The industry’s demand curve and the average revenue curve are same in case of –
(a) perfect competition
(b) monopoly
(c) oligopoly
(d) none of the above

50. All the characteristics of monopolistic competition except –
(a) Large number of buyers and sellers
(b) Freedom of entry and exit
(c) Excess production capacity in long run
(d) Full control over price of commodity

51. There is no difference between firm and industry in case of –
(a) pure monopoly
(b) pure oligopoly
(c) duopoly
(d) perfect competition

52. Find the odd out –
(a) Monopoly may be the result of control over raw materials
(b) Monopoly may be the result of business combines
(c) Monopoly may be the result of patents, copyrights, etc.
(d) Monopoly may be the result of control over demand of commodity

53. The demand curve of consumers for product produced by firm is indicated by –
(a) the average cost curve of a firm
(b) the marginal cost curve of a firm
(c) the average revenue curve of a firm
(d) the average revenue curve of an industry.

54. If in the long run super normal profits can be made by a firm, it means the firm belongs to
(a) perfect competition market
(b) monopolistic competition market
(c) monopoly market
(d) oligopoly market

55. If e >1 on average revenue curve –
(a) MR is positive and TR is rising
(b) MR is negative and TR is falling
(c) MR is zero and TR is maximum
(d) none of these

56. When MR is zero the elasticity of demand on AR curve is –
(a) e < 1 and TR is maximum
(b) e = 1 and TR is maximum
(c) e > 1 and TR is rising
(d) none of these

57. Entry to the market for new firms is blocked in –
(a) perfect competition
(b) monopoly
(c) oligopoly
(d) monopolistic competition

58. When the firm charges different prices to different customers for the same commodity, it is engaged in –
(a) price determination
(b) price rigidity
(c) price discrimination
(d) none of these

59. Lux Supreme, Rexona, Dove Soap, Pears Soap, Liril Soap, etc. indicates –
(a) perfectly competitive market
(b) monopoly market
(c) monopolistic competitive market
(d) duopoly market

60. If price and marginal revenue are same then the demand curve must be –
(a) perfectly inelastic and vertical
(b) highly elastic and downward sloping
(c) perfectly elastic and horizontal
(d) highly inelastic and downward sloping

61. Perfectly elastic demand curve signifies that –
(a) the firm has no control over price of commodity
(b) the firm has to sell any amount of commodity at prevailing price
(c) the firms average revenue and marginal revenue coincide
(d) all the above

62. If under perfect competition, the demand curve lies above the average cost curve, the firm would –
(a) make normal profits
(b) incur losses
(c) make super normal profits
(d) profit is indeterminate

63. If a monopoly firm is charging price ₹ 20 per unit and elasticity of demand is 5, then, MR will be –
(a) ₹ 10
(b) ₹ 12
(c) ₹ 14
(d) ₹ 16

64. Monopoly price is the function of –
(a) MC of production
(b) price elasticity of demand
(c) neither (a) nor (b)
(d) both (a) and (b)

65. Railways is an example of –
(a) perfect competition
(b) monopoly
(c) oligopoly
(d) monopolistic competition

66. Highly elastic negatively sloped demand curve is related to –
(a) monopoly
(b) monopolistic competition
(c) perfect competition
(d) both (a) and (b)

67. The cross elasticity of demand for monopolist’s product is –
(a) zero
(b) less than zero
(c) infinite
(d) unity

68. A market situation in which there are only few firms producing differentiated product which are close substitutes is –
(a) monopolistic competition
(b) oligopoly
(c) duopoly
(d) perfect competition

69. The cross elasticity of demand for the product of a firm under perfect competition is –
(a) zero
(b) less than zero
(c) infinite
(d) unity

70. Demand curve of a firm is indeterminate in case of –
(a) monopoly
(b) oligopoly
(c) duopoly
(d) none of these

71. Under monopolistic competition the cross elasticity of demand for the product of a single firm is –
(a) infinite
(b) highly elastic
(c) highly inelastic
(d) zero

72. At every level of output AR = MR in case of –
(a) perfect competition
(b) monopoly
(c) oligopoly
(d) all the above

73. Kinked demand curve is related to –
(a) monopoly
(b) pure competition
(c) oligopoly
(d) none of these

74. A single movie theatre in a small town or city means –
(a) perfect competition
(b) monopoly
(c) monopolistic competition
(d) both (a) and (b)

75. According to kinked demand curve theory, the upper segment of the demand curve is –
(a) highly elastic
(b) highly inelastic
(c) unitary elastic
(d) perfectly inelastic

76. A firm under perfectly competitive market wants to double its sales. The firm would –
(a) lower the price of commodity
(b) improve the quality of commodity
(c) offer double the quantity for sale at ruling price
(d) advertise the product aggressively

77. For maximization of profits, MR = MC is the first order condition –
(a) only under monopoly
(b) only under perfect competition
(c) both under monopoly as well as perfect competition
(d) in any type of market

78. Which of the following statements are correct with regard to firm’s equilibrium –
(i) MR = MC
(ii) MC curve cuts the MR curve from below
(iii) TR = TC
(iv) MR = AR
(a) i & ii
(b) ii & iii
(c) iii & iv
(d) none of these

79. A firm under monopolistic competition is in long run equilibrium –
(a) at the minimum point of the long run AC curve
(b) at the falling segment of the long run AC curve
(c) at the rising segment of the long run AC curve
(d) when Price = MC

80. The AR curve is tangent to the minimum point of AC curve in the long run, if there is –
(a) perfect competition
(b) oligopoly
(c) monopoly
(d) monopolistic competition

81. In the long run, one firm operates at the optimum level while other operates at sub-optimum level. Such firms belong to –
(a) monopoly and perfect competition
(b) perfect competition and monopolistic competition
(c) monopolistic competition and oligopoly
(d) oligopoly and monopoly

82. Which one of the following gives the correct relationship between MR, AR and price elasticity

83. Marginal revenue will be negative if elasticity of demand is –
(a) equal to zero
(b) less than zero
(c) greater than one
(d) less than one

84. The phenomena of excess production capacity is associated with –
(a) Perfect competition
(b) Monopolistic competition
(c) Monopoly
(d) Oligopoly

85.

The AR and MR for 6 units would be –
(a) 55 and 30 respectively
(b) 30 and 55 respectively
(c) 60 and 30 respectively
(d) 30 and 60 respectively

Use the following data to answer Qs. 86 – 87

86. The total revenue of the of 2 units would be –
(a) ₹ 10
(b) ₹ 16
(c) ₹ 18
(d) can not be determined

87. The marginal revenue of 3rd unit would be –
(a) ₹ 10
(b) ₹ 6
(c) ₹ 4
(d) ₹ 2

88. Suppose the price of a commodity determined in a competitive market is ₹ 5, then the marginal revenue of the 4th unit sold would be –
(a) ₹ 20
(b) ₹ 15
(c) ₹ 10
(d) ₹ 5

89. A monopoly firm faces a downward sloping demand curve because –
(a) it has an inelastic demand
(b) it sells large quantities to few buyers
(c) it is same as the industry
(d) consumers prefer its product

90. At the quantity where MR equals MC, the AFC is ₹ 7; AVC is ₹ 23 and the price is ₹ 30, hence, the firm –
(a) should continue production in short run
(b) should continue production in long run
(c) should shut down
(d) none of these

91. A firm has to take decision whether to produce 15th unit of output but finds its marginal cost of 15th unit to be ₹ 25 and marginal revenue of 15th unit to be ₹ 18 hence firm –
(a) should produce 15th unit
(b) should cut down its output level
(c) should further expand production beyond 15th unit
(d) can not determine output level

Use the following data for Qs. 92-94
A perfectly competitive firm has the following cost schedule

92. if the market price is ₹ 13, to maximize profits the firm should produce –
(a) 8 units
(b) 7 units
(c) 6 units
(d) 9 units

93. At the market price of ? would be – 6, the maximum profits
(a) ₹ 5
(b) ₹ 10
(c) ₹ 15
(d) ₹ (-) 24

94. Suppose the price falls choose to produce – to ₹ 7, the firm would
(a) 5 units
(b) 6 units
(c) 7 units
(d) 8 units

95. A competitive firms MC curve and AVC curve are given to, show which region of the curves show the firm’s supply curve in the short run.

(a) region HE
(b) region EG
(c) region EF
(d) region IE

96. A firm making zero economic profit –
(a) earns super normal profits
(b) incur losses
(c) earns a normal profits
(d) profit or loss is indeterminate

97. If average variable cost exceeds the market price, the firm should produce –
(a) zero output with fixed costs
(b) zero output without fixed cost
(c) less output without fixed costs
(d) zero output with or without fixed cost

98. An individual firm is only output adjuster at ruling market price in –
(a) monopoly
(b) oligopoly
(c) perfect competition
(d) monopolistic competition .

99. There are few firms selling homogeneous or differentiated products in –
(a) Perfect competition
(b) Oligopoly
(c) Monopolistic competition
(d) None of these

100. Kinked demand curve shows-
(a) Fall in price
(b) rise in price
(c) Stability in price
(d) both (a) and (b)

101. In the above figure, the demand curves facing a seller under perfect competition, monopolistic ‘ competition and Monopoly are-
(a) AR2 ; AR1, AR
(b) AR1, AR2, AR
(c) AR, AR2, AR1
(d) AR, AR1, AR2

102. The demand curve is undefined under _____ market structure.
(a) oligopoly
(b) monopoly
(c) perfect competition
(d) monopolistic competition

103. When demand is elastic, MR is _____
(a) negative
(b) positive
(c) zero
(d) one

104. The market that induces formation of cartels is _____
(a) Perfect Competition
(b) Monopoly
(c) Oligopoly
(d) None of these

105. Match the following ;

(a) A-2 ; B-3 ; C-1 ; D-4
(b) A-4 ; B-1 ; C-2 ; D-3
(c) A-1 ; B-2 ; C-3 ; D-4
(d) A-2 ; B-1 ; C-4 ; D-3

106. A bilateral monopoly is one which-
(a) there are two products with one producer
(b) there are international monopoly agree-ments
(c) monopoly is shared between the people
(d) a monopolist is facing a monopsonist

107. The characteristic of monopolistic competition which is compatible with monopoly is-
(a) One seller and large number of buyers
(b) Full control over price
(c) Freedom of entry and exit
(d) Demand Curve slopes downward

108. If the demand curve of a firm is a horizontal straight line-
(a) a firm can sell any quantity at prevailing price
(b) a firm can sell only specific quantity at prevailing price
(c) all firms can sell equal amount of a com-modity
(d) firms can differentiate their products

109. When demand curve is inelastic ; MR is-
(a) negative
(b) positive
(c) zero
(d) one

110. A rational producer will always operate on the _____ portion of the demand curve
(a) elastic
(b) inelastic
(c) unitary elastic
(d) perfectly inelastic

111. Firms have chronic excess production capacity in _____ market
(a) duopoly
(b) perfect competition
(c) monopolistic competition
(d) oligopoly

112. The theory of monopolistic competition is developed by-
(a) H.E. Chamberlin
(b) Mrs.JoanRobinson
(c) Dr. Marshall
(d) Nicholoas Kaldor

113. The point where P = AC is called –
(a) profit earning point
(b) loss making point
(c) breakeven point
(d) shut down point

114. TR is a straight positively sloping line from origin is under-
(a) perfect competition
(b) monopoly
(c) duopoly
(d) oligopoly

115. If a monopolist resorts to price discrimination, price will be higher in the market where demand is-
(a) unitary elastic
(b) elastic
(c) inelastic
(d) none of these

116. Under collusive oligopoly, price is often decided by-
(a) the industry
(b) the firm
(c) price leader
(d) none of these

117.

In the figure above, If OP is price, then ACO represents-
(a) TC
(b) TR
(c) TR at OP price
(d) TR at OY price

118. Slope of firm’s demand curve = ∞ under perfect competition means demand curve is_____
(a) horizontal
(b) vertical
(c) positive
(d) negative

119. Price exceeds MC under monopoly, but not under perfect competition because-
(a) in perfect competition AR = MR
(b) in perfect competition AR = MC
(c) in monopoly AR > MR
(d) all the above

120. In the long run, a monopolist produces _____ level of output and charge a _____ price than a firm under perfect competition market
(a) lower ; higher
(b) lower; lower
(c) higher ; lower
(d) higher ; higher

121. TR minus total explicit cost is called
(a) profit
(b) economic profit
(c) supernormal profit
(d) accounting profit

122. Under perfect competition when price line (AR) passes through minimum point of AVC curve is called _____
(a) minimum losses point
(b) shut down point
(c) breakeven point
(d) profit point

123. At the shut down point, losses of a firm under perfect competition are equal to-
(a) AVC
(b) TFC
(c) AC
(d) MC

124. In the long run under monopolistic competition, profit maximizing profit is _____
(a) less than least cost output
(b) more than least cost output
(c) equal to least cost output
(d) none of the above

125. “Purchase only made-in-India jadi-booti toothpaste” will impact the different of market more towards
(a) monopoly
(b) duopoly
(c) oligopoly
(d) none of the above

126. A monopolist can determine –
(a) price
(b) output
(c) either price or output
(d) both price and output

127. A monopolistic firm has a position of ATC = price in the _____
(a) short run equilibrium
(b) very short run equilibrium
(c) long run equilibrium
(d) any period of time

128. In perfect competition, in the long run, if new firms enter the industry the supply curve shifts to the right resulting in ______
(a) fall in price
(b) rise in price
(c) no change in price
(d) none of the above

129. The difference between least cost output and profit maximizing output is called _____
(a) reserve capacity
(b) excess capacity
(c) normal capacity
(d) abnormal capacity

130. The kink occurs at-
(a) any price
(b) prevailing price
(c) any quantity
(d) to be determined price

131. Doctors, lawyers, consultants, services like power supply, telecommunication fees to different patients/clients. This is a ______ price discrimination.
(a) first degree
(b) second degree
(c) third degree
(d) both second and third degree

132. Charging different prices by monopolist to customers in geographically separate market is a degree of price discrimination.
(a) first
(b) second
(c) third
(d) price discrimination is not possible in separate markets

133. Monopolist charging a price that takes away the entire consumer surplus is a case of _____ degree of price discrimination.
(a) first
(b) second
(c) third
(d) none of the above

134. Which of the following statements refer to Trice leadership?
(a) Existence of perfect competition
(b) A form of price collusion
(c) Stiff competition
(d) The maintenance of a monopolistic price

135. How many sellers usually exist in an oligopoly market?
(a) A large number of sellers
(b) One seller
(c) Few sellers
(d) Two sellers

136. Which of the following is not correct?
(a) if e > 1, MR is +ve
(b) if e < 1, MR is – ve
(c) if e = 1, MR = 0
(d) if e = 0, MR = 0

137. Long-run supply curve in the constant cost industry-
(a) slopes downward to the right
(b) slopes upward to the right
(c) is horizontal straight line
(d) none of the above

138. The concept of group equilibrium is related to-
(a) Paul Sweezy
(b) Chamberlin’s monopolistic competition
(c) Perfect competition
(d) none of the above

139. Dumping is an example of price discrimination which is _____ price discrimination
(a) of first degree
(b) of second degree
(c) of third degree
(d) international

140. _____ is the market structure where there is a single buyer.
(a) Monopsony
(b) Monopoly
(c) Oligopsony
(d) Duopoly

141. At all the level of output AR = MR in _____
(a) a perfect competition market
(b) a monopoly market
(c) a oligopoly market
(d) all the above

142. The long run supply curve of an increasing cost industry
(a) slopes downwards towards right
(b) slopes down towards left
(c) slopes up towards right
(d) none of these

143. The long run supply curve sloping down towards right belongs to _____ industry
(a) increasing cost
(b) decreasing cost
(c) constant cost
(d) none of these

144. Under perfect competition, the MC curve at equilibrium will be-
(a) constant
(b) rising
(c) falling
(d) none of these

145. Market price is the price that prevails in a _____
(a) very short period market
(b) short period market
(c) long period market
(d) secular period market

146. The market in which normal price prevails is a _____ market.
(a) Market period
(b) short period
(c) long period
(d) secular period

147. Excess capacity is not found under
(a) Monopoly
(b) Monopolistic Competition
(c) Oligopoly
(d) Perfect Competition

148. Which of the following is not a characteristics of a “price taker”?.
(a) TR = P X Q
(b) AR = Price
(c) Negatively sloped demand curve
(d) Marginal Revenue = Price

149. In monopolistic competition, a firm is in long run equilibrium _____
(a) at the lowest point of the LAC curve
(b) at the falling part of the LAC curve
(c) at the rising part of the LAC curve
(d) when, price = MC

150. The sale of branded goods is common situation is case of _____
(a) perfect competition
(b) monopolistic competition
(c) monopoly
(d) pure competition

151. Which market explains that Marginal Cost is equal to price for attaining equilibrium.
(a) Perfect Competition
(b) Monopoly
(c) Oligopoly
(d) Monopolistic Competition

152. When AR = ₹ 10 and AC = ₹ 8 the firm makes
(a) Normal Profit
(b) Net Profit
(c) Gross Profit
(d) Supernormal Profit

153. A firm’s AVC curve is rising, its MC curve must be ______
(a) constant
(b) above the TC curve
(c) above the AVC curve
(d) all the above

154. When a market is in equilibrium or has cleared it means _____
(a) No shortages exist
(b) Quantity demanded equals quantity sup-plied
(c) A price is established that clears the market
(d) All the above

155. If a competitive firm doubles its output, its total revenue-
(a) doubles
(b) more than doubles
(c) less than doubles
(d) none of these

156. Which is the first order condition for the profit of a firm to be maximum?
(a) AC = MR
(b) MC = MR
(c) MR = AR
(d) AC = AR

157. Full capacity is utilized only when there is
(a) Monopoly
(b) Perfect Competition
(c) Price Discrimination
(d) Oligopoly

158. The upper portion of the kinked demand curve is relatively-
(a) More elastic
(b) More inelastic
(c) Less elastic
(d) Inelastic

159. In the very short run period, the price of the commodity is influenced most by-
(a) demand
(b) supply
(c) cost
(d) production

160. Long run normal prices is that which is likely to prevail-
(a) all the times
(b) in market period
(c) in short-run period
(d) in long-run period

161. The degree of monopoly power is measured in terms of difference between-
(a) Marginal Cost and the price
(b) Average Cost and Average Revenue
(c) Marginal Cost and Average Cost
(d) Marginal Revenue and Average Cost

Answers

Internal Economies and Diseconomies

• Internal economies are those benefits which accrue to a firm when it expands the scale of production.
• Internal economies are the result of the firm’s own efforts independent of the actions of other firms.
• These economies are particular to the individual firms and are different for different firms depending upon the size of the firm.

The main types of internal economies are as follows

1. Technical Economies:

– The large scale production is associated with technical economies.
– As the firm increases its scale of production, it becomes possible to use better plant, machinery, equipment and techniques of production.
– Following are the main forms (causes/reasons) of technical economies

• Economies of superior techniques
  – A large sized firm can use sophisticated and costly machines and equipments.
  – Use of superior techniques reduces the cost of production per unit and increases aggregate output.
• Economies of increased dimensions
  – A large firm can get the mechanical advantage in using large machines and other mechanical units to produce more output.
  – E.g. A Large boiler, large furnace, etc. can be operated by same team as required by smaller boiler, furnace, etc.
• Economies of linked processes
  – A large sized firm can develop its own sources of raw material, means of transportation, distribution system, etc.
• Economies of the use of By-products
  – A large sized firm can avoid all kinds of wastage of materials. The firm can use its by- products and waste material to produce another material.
  – E.g.- Sugar industry can make alcohol out of the molasses.
• Economies of specialization
  – A large sized firm can introduce greater degree of division of labour and specialisation.

2. Managerial Economies:

• Large sized firms can introduce division of labour in managerial tasks.
• They can employ business executive of high skill and qualification to look after the functioning of various departments like production, finance, sales, advertising, personnel, etc.
• This helps to increase the efficiency and productivity of managers resulting in reduction in managerial costs.

3. Commercial Economies:

• A large sized firm is able to reap economies of bulk purchases.
• It can get discounts from suppliers, railways, transport companies, etc.
• It enjoys prompt and regular supply of raw materials.
• A large sized firm can also afford to spend large amount of money on advertising, publicity, etc.
• It can also give various concessions to wholesale and retail dealers and customers and thus capture markets for its product.

4. Financial Economies:

• A big firm enjoys goodwill among lenders or investors.
• For raising finance it can either borrow from bank as it can offer better security or it can raise finance by issuing shares, debentures and by inviting public deposits. Such opportunities are not available to small firms.

5. Risk Bearing Economies:

• A large firm is better placed to face the uncertainties and risks of business.
• A big firm producing many variety of goods is in a better position to withstand economic ups and downs. Therefore, it enjoys economies of risk bearing.

Internal diseconomies means all those factors which raise the cost of production per unit of a particular firm when the scale of production is expanded beyond the point of optimal capacity.

Such diseconomies of scale are as follows

1. Production Diseconomies:

• Production diseconomies sets in when expansion of firm’s production beyond optimum size leads to rise in the cost per unit of output.
• E.g. Use of inferior or less efficient factors due to non-availability of efficient factors raises the per unit cost of output.

2. Managerial Diseconomies:

• As the scale of production increases burden on management also increases.
• Co-ordination of work among different departments becomes difficult. Supervision and control over the activities of subordinates becomes difficult, decision taking is delayed, etc.
• As a result, wastage increase and the efficiency and productivity decrease.
• Per unit cost starts rising.

3. Technical Diseconomies:

• Every equipment has an optimum point at which it works more efficiently and economically.
• Beyond optimum point they are overworked and may result in breakdowns, heavy cost of maintenance, etc.

4. Financial Diseconomies:

• Expansion of production beyond the optimum scale results in increase in the cost of capital.
• It may be due to increased dependence on external finances.

5. Marketing Diseconomies:

• Selling diseconomies set in if the scale of production is expanded beyond optimum level.
• The advertisement expenditure and marketing overheads increase more proportionately with the scale.

External Economies and Diseconomies

• External economies are those benefits which accrue to all the firms operating in a given industry from the growth and expansion of that industry.
• External economies are not related to an individual firm’s own cost reduction efforts.
• These are common to all the firms in an industry and shared by many firms or industries.

The main types of external economies are as follows

1. Technological Economies:

• When the whole industry expands, it may result in the discovery of new technical knowledge, firms pool manpower and finance for research and development resulting in new and improved methods of production and new inventions.
• Use of improved and better machinery improves production function and cost of production per unit falls.

2. Economies of Localization:

• When in an area, many firms producing the same commodity are set up, it is called localization of an industry.
• Due to localization there is expansion of railways, post & telegraph, banking services, insurance, setting up of booking offices by transport, companies, setting § up of powerful transformer by electricity department, etc.
• All the firms get these facilities at low prices.

3. Economies of Information:

• As pointed earlier, firms pool their resources for research and development.
• All firms get the benefit of the research in terms of market information, technical information, information about governments economic policies, information about availability of new source of raw material, etc.
• Also, specialized journals give information about latest developments.

4. Cheaper Inputs:

• When an industry expands its needs for raw materials, machines, etc. also expand.
• This may result in exploration of new and cheaper sources of raw materials, machinery, etc.
• Also, the industries producing such inputs also expand in scale.
• Therefore, they can supply these inputs at lower prices.
• As a result the cost of production per unit of the firm using these inputs falls.

5. Growth of Ancillary Industries:

• With the growth of an industry, many firms specialized in the production of inputs like raw material, tools, machinery, etc. come up.
• Such firms are called ancillary units which provides inputs at lower cost to the main industry.
• Likewise, some firms may get developed by processing the waste products of the industry.
• Thus, wastes are converted into by-products. This reduces the cost of production in general.

6. Development of Skilled Labour:

• When an industry expands specialized institutions like colleges, training centers, management institutes, etc. develop.
• This results in continuous availability of skilled labour like technicians, engineers, management experts, etc.

7. Better transportation & Marketing Facilities:-

• When an industry expands many specialized transporters also develop.
• The firm in need of specialized transport service can get them easily at cheaper rates.
• Also many new marketing outlets and specialized marketing institutions develop. The firm need not spend on developing its own marketing outlets.
• This reduces the cost.

The growth and expansion of an industry in a particular area beyond optimum level results in many disadvantages for firms in the industry. Such disadvantages increases the costs of production of each firm. Therefore, they are called external diseconomies. Some of the external diseconomies are as follows:

1. Diseconomies of Scarcity of Inputs:

• When an industry expands its need for raw materials, machines, tools and equipments, etc. also expands.
• Some inputs are such which cannot be totally substituted.
• The firms supplying these inputs come under pressure and may supply inputs at a higher price.
• This raises the cost of production per unit of the firm who uses these inputs.

2. Diseconomies of Strains on Infrastructure:

• Due to concentration of firms in an area infrastructural facilities become inadequate over a time.
• E.g. Excessive pressure on transport system results in delayed transportation of raw materials and finished goods.
• Other facilities like electric power supply, communication system, water supply, etc. are also over taxed.
• This puts strain on infrastructural facilities resulting in increased cost of production. ’

3. Diseconomies of High Factor Prices:

• With the concentration of an industry in a particular area, the demand for factors of production rises.
• Thus, the prices of the factors of production go up resulting in increased cost of production.

4. Diseconomies of Expenditure on Advertising:

• Expansion of an industry also means increase in the number of firms.
• This means increase in competition among the firms.
• This forces a firm to spend more and more on advertising.
• This raises per unit cost.

Internal and External Economies

S.No	INTERNAL ECONOMIES	EXTERNAL ECONOMIES
1.	Internal economies are the benefits which accrue to a firm when it expands the scale of production.	External economies are those benefits which accrue to all the firms operating in a given industry from the growth and expansion of that industry.
2.	Internal economies are called ‘internal’ because these arise due to the internal efforts of the firm. These economies are specific to the individual firm and are different for different firms depending upon the size of the firm.	External economies are called ‘external’ because they accrue to a firm as a result of factors that are entirely outside the firm i.e. from the expansion of the industry.
3.	Internal economies are the result of the firm’s OWN EFFORTS INDEPENDENT OF THE ACTIONS OF OTHER FIRMS. These economies are peculiar to each fir m. It reflects the working pattern of the firm.	External economies are independent of firm’s own efforts and output. They are dependent on the general development of the industry. They are not restricted to a single firm but are shared by a number of firms.
4.	Internal economies cause the long-run average cost to fall in the initial stage and internal diseconomies cause the long-run average cost to rise at the later stage. Thus, the shape of LAC curve is determined by internal economies and diseconomies as scale expands.	External economies and diseconomies cause the LAC curve to shift down or up as the case may be. When external economies increase, the cost per unit of output falls. So, LAC curve shift downwards. When external diseconomies are more, the cost per unit of output rises. So, LAC curve shift upwards.
5.
6.	If every thing is effectively managed, internal economies can be of long term in nature.	External economies depend upon the conditions of the entire industry and economy. Thus, it can be of short term in nature.
7.	Internal economies are in the form of technical economies like superior techniques, use of by- products, etc.; managerial economies; commercial economies; financial economies and risk-bearing economies.	External economies are in the form of cheaper inputs; discovery of new technical knowledge; development of skilled labour; economies of information; growth of ancillary units; better transport and marketing facilities.

Production Optimisation
Isoquants:

An iso-product curve or isoquant is a curve, which represents the various combinations of two variable inputs that give the same level of output. As all combinations on the iso-product curve give the same level of output, the producer becomes indifferent to these combinations. That is why iso-product curve are also called ‘production indifference curve’ or ‘equal product curve’. To understand consider the following production isoquant schedule.

In the schedule I above, the producer is indifferent whether he gets combination A, B, C, D or E. This is because all the combinations of capital and labour give the same level of output i.e. 100 units.