Unit -2

. Relationship between price and demand is .

(a) Direct (b)
Inverse
(c) Proportionate (d) Positive
. The meaning of term ceteris paribus is .
(a) Other
things
being equal (b) Other things are changeable
(c) Other things are different (d) Other things are movable
. What is demand schedule?
(a) Table that shows relationship between price and quantity demanded
(b) Table showing relationship between price and quantity supplied
(c) Table that shows relationship between demand and income
(d) Table showing relationship between demand and supply
What is demand curve?
(a) Shows relationship between price and quantity supplied

(c) Graphs as an upward sloping line

(d) Shows the relationship between income and spending
Law of demand states...

(b) There is no relationship between price and quantity demanded

(c) There is positive relationship between price and quantity demanded
(d) Price changes as per the change in demand
Law of supply states
(a) There is inverse relationship between price and quantity supplied
(b) There is positive relationship between price and income

(d) There is positive relationship between supply and demand

What is schedule of supply?
(a) Table showing relationship between price and quantity demanded

(c) Table showing relationship between price and income

(d) Table showing relationship between supply and demand
Historical data is used in estimating future demand under...
(a) Survey method (b) Expert opinion method
(c) Statistical method (d) Complete enumeration method
An increase in supply, demand remaining constant will change the equilibrium..
(a) Causing a fall in price (b) Causing a backward shift in demand curve
(c) Causing no change in price (d) Causing no change in income
10. The market structure where very few sellers sell slightly different products referred to as...
(a) Perfect competition (b) Pure monopoly
(c) Duopoly (d) Oligopoly
11. Which of the following is an example of an economic barrier to entry?
(a) Network externalities (b) Copyrights
(c) Patent (d) Dumping
12. A monopoly that arises because of economies of scale is referred to
(a) Local monopoly (a) Natural monopoly
(b) Network monopoly (d) Regulated monopoly
13. Which of the following is not a condition of oligopoly?
(a) Each seller can influence the market prices
(b) Each firm must consider the behaviour of its rivals
(©) Each firm faces a perfectly elastic demand curve
(d) Entry into a market is difficult
14. Which one is not the type of elasticity of demand?
(a) Price (b) Consumer preferences
(c) Income (d) Cross
15. When do we say that product is elastic?
(a) Noimpact of price change on demand
(b) Change of income effects price
(©) Demand changes as per changes in price
(d) Demand does not change as per change in price
16. Which one is not the method of demand forecasting?
(a) Barometric (b) Multiple regression
(c) Moving average (d) Game theory
17. What is profit maximization point?
(a) AR=MR (b) MR=MC
(c) MC=AC (d) AC=MR
18. Which of following is not a characteristic of perfect competition?
(a) Free entry and exit (b) Heterogeneous products
(c) Good market knowledge (d) Price taker
19. What kind of profit firm earns in long-run perfect competition?
(a) Accounting (b) Normal
(c) Supernormal (d) Abnormal
20. Which two curves help to understand revenue and cost?
(a) AR & MC (b) AR & AC
(c) AC& MR (d) MC&MR
21. When a fall in the price of one good reduces the demand for another good, the two goods are
called
(a) Complimentary goods (b) Substitutes
(c) Normal goods (d) Inferior goods
22. When a fall in the price of one good increases the demand for another good, the two goods are
called
(a) Complimentary goods (b) Substitutes
(c) Normal goods (d) Inferior goods
23. Upward-sloping line relating price to quantity supplied is called as
(a) Supply curve (b) Demand curve
(c) Supply schedule (d) Supply elasticity
24. Movement along the supply curve caused by a change in the market price of the product is
called as
(a) Change in supply (b) Change
in quantity supplied
(c) Change in supply elasticity (d) Change in prices of products
25. A shift in the supply curve, either to the left or right caused by a change in a determinant other
than price is called as
(a) Change in supply (b) Change in quantity supplied
(c) Change in supply elasticity (d) Change in income elasticity
26. Which of the following is an exception to law of demand?
(a) Inferior goods (b) Bread and butter
(c) Shelter (d) Government taxes
27. Quantity demanded does not responds to change in price is called as
(a) Perfectly elastic (b) Perfectly inelastic
(c) Unitary elastic (d) Unitary inelastic
28. Quantity demanded changes infinitely with any change in price is called as
(a) Perfectly elastic (b) Perfectly inelastic
(c) Unitary elastic (d) Unitary inelastic
29. Quantity demanded changes by the same percentage as the price is called as,
(a) Perfectly elastic (b) Perfectly inelastic
(c) Unitary elastic (d) Unitary inelastic
30. Which of the following is not an assumption of perfect competition?
(a) Restricted
entry into the industry — (b) Many firms
(c) Many buyers (d) Each firm sells an identical product
31. A monopolist is a
(a) Price taker
(b) Price setter
(c) Produces a product that has a close substitute
(d) Must constantly worry about the other firms entering into market
32. Why monopoly earns economic profit in long-run?
(a) Because there is single firm in market

(c) Because there are close substitutes to firm’s product

(d) All the above
33. Price discrimination is the practice of charging different prices to
(a) Different countries because of tariffs and transportation cost
(b) Different customers because the costs of selling are different

(d) The same customers because of changes in cost

34, Monopolistic competition is a market structure in which
(a) There are barriers to entry
(b) A small number of firms compete
(c) Firms only compete on product price

35. In the long-run, in monopolistic competition firm earns

(b) Abnormal profit
(c) Supernormal profit (d) Net profit
36. An oligopoly is a market structure in which there are
(a) Many sellers selling a differentiated product.
(b) Only a few buyers but many sellers.
(c) A few products sold by many sellers.
(d) Only a few sellers selling either an identical or differentiated product.
37. The kinked demand curve model assumes that a firm's rivals will

(b) Not follow any of the firm's price changes.

(c) Follow any price change the firm makes.
(d) Follow the firm's price increases but not its price decreases.
38. In the short-run, a firm in monopolistic competition produces profit where

(b) MR= MC and economic profit is equal to zero.

(c) The given market price is equal to MC and economic profit is equal to zero.
(d) The given market price is equal to MC.
39. In monopolistic competition, a firm can determine what price to set for its product because
(a) There are many buyers.
(b) There are many sellers.

(d) The demand for its product is perfectly elastic.

40. When a market is in equilibrium,

(b) Everyone has all they want of the commodity in question.

(c) The supply curve has the same slope as the demand curve.
(d) The number of buyers is exactly equal to the number of sellers.
41. When demand increases, the equilibrium price and the equilibrium quantity

(a) Falls; increases (b) Rises; increases

(c) Rises; decreases (d) Falls; decreases
42. If the demand for a good is elastic, that means that when price increases
(a) The demand will decrease.

(c) The quantity demanded will increase.

(d) The quantity demanded will decrease by a smaller percentage than the price increased.
43. If demand is inelastic, an increase in the price will
(a) Not change total revenue. (b) Increase the quantity demanded.
(c) Increase total revenue. (d) Decrease total revenue.
44, If the cross elasticity of demand between coffee and tea is positive, an increase in the price of
tea will shift the demand curve for
(a) Tea leftward. (b) Tea rightward.
(c) Coffee leftward. (d) Coffee rightward.
45. The income elasticity of demand is
(a) Always negative.
(b) Always positive.
(c) Negative for a normal good and positive for an inferior good.

46. Which of the following is a defining characteristic of a perfectly competitive industry?

(a)
restrictions
No on entry into the industry
(b) Persistent economic profits in the long-run
(c) Advertisements by well-known celebrities
(d) Higher prices being charged for certain name brands
47. Individual firms in perfectly competitive industries are price takers because

(a) Each individual firm is too small to affect the market price.
(b) The government sets all prices.
(c) Firms decide together on the best prices to charge.
(d) Buyers set prices.
48. The firm's goal is to
(a) Maximize its total revenue. (b) Maximize its normal profit.
(€)
Maximize
its economic profit. (d)_ Maximize its industry's revenue.
 49. A barrier to entry is
(a) A brick wall that a firm places around its corporate headquarters.
(b) The result of highly elastic demand.

(d) A necessary condition for perfect competition.

50. If marginal revenue exceeds marginal cost, to increase its profit the firm will
(a) Shut down. (b) Keep its output the same.
(c) Increase its output. (d) Decrease its output.

Answer Key

1. (b) 11. (a) 21. (b) 31. (b) Al, (b)

2. (a) 12. (b) 22. (a) 32. (b) 42, (b)
3. (a) 13. (c) 23. (a) 33. (c) 43, (c)
4, (b) 14. (b) 24. (b) 34. (d) 44, (d)
5. (a) 15. (c) 25. (a) 35. (a) 45, (d)
6. (c) 16. (d) 26. (a) 36. (d) 46, (a)
7. (b) 17. (b) 27. (b) 37. (a) 47, (a)
8. (c) 18. (b) 28. (a) 38. (a) 48, (c)
9. (a) 19. (b) 29. (c) 39. (c) 49, (c)
10. (d) 20. (b) 30. (a) 40. (a) 50. (c)