KS Academy Main – Model (07-12-2021)

KS Academy

CA Foundation Nov 21 – Main - Model Exam

(Answer Key)

Business Economics & Business & Commercial Knowledge

Roll Number ……………. Paper Code – ME4E

Time Allowed – 120 Minutes Total No of Printed Pages – 15
Total Number of Questions – 100 Maximum Marks - 100

Business Economics

1) In Economics, we use the term scarcity to mean;

(a) Absolute scarcity and lack of resources in less developed countries
(b) Relative scarcity i.e. Scarcity in relation to the wants of the society
(c) Scarcity during times of business failure and natural calamities
(d) Scarcity caused on account of excessive consumption by the rich

2) What implication(s) does resource scarcity have for the satisfaction of wants?
(a) Not all wants can be satisfied
(b) We will never be faced with the need to make choices
(c) We must develop ways to decrease our individual wants
(d) The discovery of new natural resources is necessary to increase our ability to satisfy
wants

3) In every economic system, scarcity imposes limitations on

(a) Households, business firms, governments and the nation as a whole
(b) Households and business firms, but not the governments
(c) Local and state governments, but not the federal government
(d) Households and governments, but not business firms
(e) Business firms, governments and the nation as a whole

4) Consider the following and decide which, if any, economy is without scarcity:
(a) The pre-independent Indian economy, where most people were farmers
(b) A mythical economy where everybody is billionaire
(c) Any economy where income is distributed equally among its people
(d) None of these

5) Economic goods are considered scarce resources because they

(a) Cannot be increased in quantity
(b) Do not exist in adequate quantity to satisfy the requirements of the society
(c) Are of primary importance in satisfying social requirements
(d) Are limited to man made goods

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6) The Central problem in economics is that of

(a) Comparing the success of command versus market economies
(b) Guaranteeing that production occurs in the most efficient manner
(c) Guaranteeing a minimum level of income for every citizen
(d) Allocating scarce resources in such a manner that society's unlimited needs or wants
are satisfied in the best possible manner

7) Which of the following is not one of the four central questions that the study of economics is
supposed to answer?
(a) Who produces what?
(b) When are goods produced?
(c) Who consumes what?
(d) How are goods produced?

8) In a free market economy, the allocation of resources is determined by

(a) Voting done by consumers
(b) A central planning authority
(c) Consumers preferences
(d) The level of profits of firms

9) A capitalist economy uses ____ as the principal means of allocating resources

(a) Demand
(b) Supply
(c) Efficiency
(d) Prices

10) Which of the following statements does not apply to a market economy?
(a) Firms decide whom to hire and what to produce
(b) Firms aim at maximizing profits
(c) Households decide which firms to work for and what to buy with their incomes
(d) Government policies are the primary forces that guide the decisions of firms and
households

11) Which of the following statements is incorrect?

(a) Consumer surplus means the difference between the maximum amount a person
is willing to pay for a good and its market price.
(b) Consumer surplus is highest in the case of necessities.
(c) The law of consumer surplus is based on the law of diminishing marginal utility
(d) None of the above

12) If the elasticity of demand for a commodity is perfectly inelastic then which of the
following is incorrect?
(a) The commodity must be essential to those who purchase it.
(b) The commodity must have many substitutes.
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(c) The commodity will be purchased regardless of increase in its price.
(d) The elasticity of demand for this commodity must be equal to zero.

13) If a good has price elasticity greater than one then

(a) Demand is unit elastic and a change in price does not affect sellers' revenue.
(b) Demand is elastic and a change in price causes sellers' revenue to change in the
opposite direction.
(c) Demand is inelastic and a change in price causes sellers' revenue to change in the
same direction.
(d) None of the above is correct

14) Which of the following statements is incorrect?

(a) Marginal revenue will be negative if elasticity of demand is Less than one.
(b) In the case of a luxury good, income elasticity of demand is positive and greater
than 1
(c) In the case of an inferior good the income elasticity of demand is negative.
(d) None of the above

15) Which of the following is incorrect?

(a) The cross elasticity of demand for two substitutes is positive
(b) The income elasticity of demand is the percentage change in quantity demanded
of a good due to a change in the price of a substitute
(c) The cross elasticity of demand for two complements is negative
(d) The price elasticity of demand is always negative, except for Giffen goods

16) Which of the following situation does not lead to an increase in equilibrium price?
(a) An increase in demand, without a change in supply
(b) A decrease in supply accompanied by an increase in demand
(c) A decrease in supply without a change in demand
(d) An increase in supply accompanied by a decrease in demand

17) Which of the following statements is incorrect?

(a) Elasticity of supply refers to the degree of responsiveness of supply of a good to
changes in its price
(b) A horizontal supply curve parallel to the quantity axis implies that the elasticity
of Supply is infinite.
(c) An isoquant slopes downward to the right.
(d) None of the above

18) Which of the following statements is incorrect?

(a) If increasing air fares increases revenues and decreasing them decreases
revenues, then the demand for air travel has a price elasticity of greater than zero
but less than one
(b) Marginal utility approach to demand was given by Alfred Marshall.
(c) If R point bisects the demand curve in two equal part, then elasticity at R equals
to one.
(d) None of the above

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19) Which one is not an assumption of the theory of demand based on analysis of
indifference curves?
(a) Given scale of preferences as between different combinations of two goods.
(b) Diminishing marginal rate of substitution
(c) Constant marginal utility of money
(d) Consumers would always prefer more of a particular good to less of it, other
things remaining the same

20) A drought in India leads to unusually low level of wheat production. This would lead
to a rise in price of wheat and fall in the quantity of wheat demanded due to
(a) Excess demand at the original price
(b) Excess supply at the original price
(c) The supply curve shifting to the right
(d) The demand curve shifting to the left

21) Which of the following is False?

(a) Total Cost in the long run is classified into Fixed Cost & Variable Cost.
(b) Produced by our Forefathers is not a characteristic of Land.
(c) Economic Costs also include cash payment by the entrepreneur.
(d) Interest that could have been earned on Retained Earnings used by the Firm to
finance expansion is an example of an "Explicit Cost.

22) Which of the following is False?

(a) Marginal costs are closely associated with Variable Costs
(b) The vertical difference between TC and TVC is equal to TFC
(c) The Negatively sloped (i.e. Falling) part of the Long-Run Average Total Cost
Curve is due to the increase in productivity due to economies of Scale
(d) The Positively sloped (i.e. Rising) part of the Long-Run Average Total Cost Curve
is due to economies of Scale

23) Which of the following is False?

(a) Tiling of Soil and the Services of a Doctor are not considered production in
Economics
(b) Initiating a Business Enterprise, Risk Bearing and Innovating are the functions of
an Entrepreneur
(c) If Decreasing Returns to Scale are present, then if all Inputs are increased by 10%
then Output will increase by less than 10%
(d) The Production Function is a relationship between a given combination of inputs
and the Highest Resulting Output

24) Which of the following is False?

(a) A firm producing 7 units of output has an Average Total Cost of Rs 150 & has to
pay Rs 350 to its fixed factors of production whether it produces or not. Average
Variable Cost is Rs 100
(b) A firm has a Variable Cost of Rs 1000 at 5 units of output. If Fixed Costs are Rs
400, the Average Total Cost at 5 units of output is Rs 280
(c) A firm's Average Total Cost is Rs 300 at 5 units of output & Rs 320 at 6 units of
output. The Marginal Cost of producing the 6th unit is Rs 420
(d) None of these

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25) A firm is producing 7 units of output has an average total cost of Rs 150 and has to pay
Rs 350 to its fixed factors of production whether it produces or not. How much of the
average total cost is made up of variable cost?
(a) 200
(b) 50
(c) 300
(d) 100

26) An isoquant slopes

(a) Downward to the left
(b) Downward to the right
(c) Upward to the left
(d) Upward to the right

27) Which of the following statements is incorrect?

(a) The average product of labour is maximized when marginal product of labour is
equal to the average product of labour
(b) Production may be defined as an act of creating utility
(c) The cost that firm incurs in hiring or purchasing any factor of production is
referred to as explicit cost
(d) None of the above

28) Which of the following statements is incorrect?

(a) The MC curve cuts the AVC and ATC curves at their respective minimal
(b) In the long run any firm will eventually leave the industry if price does not at
least cover average total cost
(c) The law of diminishing returns states that beyond some level of a variable input,
the marginal product of that variable begins to decrease steadily
(d) None of these

29) When a market is in equilibrium:

(a) No shortages exist
(b) Quantity demanded equals quantity supplied
(c) A price is established that clears the market
(d) All of the above are correct

30) Which of the following statements is incorrect?

(a) If there are implicit costs of production, economic profit will be less than
accounting profit.
(b) Both Production and Consumption of Goods and Services represent Economic
activities.
(c) The payment of wages by the firm is an example of an "implicit cost".
(d) Lesser production of Capital goods would lead to lesser production in future.

31) The control of firm over price is nil under

(a) Monopoly
(b) Oligopoly
(c) Monopolistic Competition
(d) Perfect Competition

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32) A Monopolist is a
(a) Price-maker
(b) Price-taker
(c) Price-adjuster
(d) None of the above

33) The firm and the industry are one and the same in
(a) Monopoly
(b) Oligopoly
(c) Monopolistic Competition
(d) Perfect Competition

34) All are the features of monopoly except

(a) There is a single seller
(b) The firm is a price taker
(c) The firm produces a unique product
(d) The existence of some advertising

35) Monopoly power refers to the firm‟s ability to

(a) Earn economic Profit
(b) Restrict entry into the industry
(c) Set prices above marginal cost
(d) Possess economies of scale

36) Monopoly may arise in a product market because

(a) A significantly important resource for the production of the commodity is owned by a
single firm
(b) The government has given the firm patent right to produce the commodity
(c) The costs of production and economies of scale makes production by a single producer
more efficient
(d) All of these

37) A monopolist is able to maximize his profits when

(a) His output is maximum
(b) He charges a higher price
(c) His average cost is minimum
(d) His marginal cost is equal to marginal revenue

38) Price discrimination occurs when

(a) Producer sells a specific commodity or service to different buyers for the same price
(b) Producer sells a specific commodity or service to different buyers at two or more
different prices due to differences in cost
(c) Producer sells a specific commodity or service to different buyers at two or more
different prices for reasons not associated with difference in cost
(d) Producer under perfect competition sells different goods to consumers at different
prices

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39) Price discrimination is a situation when a producer

(a) Charges different prices in different markets
(b) Charges same price
(c) Charges many prices
(d) All the above

40) Price discrimination is not possible

(a) Under Monopoly
(b) Under Monopolistic Competition
(c) Under Perfect Competition
(d) Under any market form

41) The four phases of business cycle in order are

(a) Expansion, contraction, peak, trough
(b) Boom, prosperity, recession, depression
(c) Expansion, boom, contraction, depression
(d) Upswing, peak, depression, trough

42) Discriminating monopoly implies that the monopolist charges different prices for his
commodity
(a) From different groups of consumers
(b) For different uses
(c) At different places
(d) Any of the above

43) Price discrimination will be profitable only if the elasticity of demand in different sub-
markets is
(a) Uniform
(b) Different
(c) Less
(d) Zero

44) Price discrimination is related to

(a) Time
(b) Size of the purchase
(c) Income
(d) Any of the above

45) When the monopolist divides the consumers into separate sub markets and charges different
prices in different sub-markets it is known as
(a) First degree of price discrimination
(b) Second degree of price discrimination
(c) Third degree of price discrimination
(d) None of the above

46) Which of the following is false?

(a) According to JM Keynes business cycles occur due to fluctuations in aggregate
effective demand
(b) According to Hawtrey business cycles occur due to unplanned changes in the

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money supply
(c) According to Pigou business cycles occur due to waves of optimism and
pessimism
(d) Great boom of 1920, the great depression on 1930, dot.com bubble burst and
global economic crisis (2008-09) have their origin in US

47) The term business cycle refers to

(a) Fluctuations in aggregate economics activities of an economy over a period of
time
(b) Rise in aggregate economic activity over a period of time
(c) Decline in aggregate economic activity over a period of time
(d) Rise and decline in aggregate economic activity of an economy during a
particular year

48) Fluctuations in aggregate economic activities of an economy over a period of time is

referred to as
(a) Expansion
(b) Peak
(c) Contraction
(d) Business cycle

49) The condition of Price discrimination

(a) Existence of Monopoly
(b) Segmentation of markets
(c) Difference in Elasticity of Demand
(d) All of these

50) The four phases of business cycle are

(a) Peak, recession, trough and boom
(b) Peak, depression, trough and boom
(c) Peak, recession, trough and recovery
(d) Peak, depression, bust and boom

51) According to J.M Keynes business cycles occurs due to

(a) Fluctuations in aggregate effective demand
(b) Unplanned changes in the money supply
(c) Waves of optimism or pessimism
(d) Innovations

52) Which of the following is not a variable in the index of leading indicators?
(a) New consumer goods orders
(b) Delayed deliveries
(c) New building permits
(d) Prime rate

53) A significant decline in aggregate economic activities of an economy over a period of

time is
(a) Recession
(b) Depression
(c) Recovery

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(d) Business cycle

54) The lowest point in the business cycle is referred to as the

(a) Contraction
(b) Downswing
(c) Recession
(d) Trough

55) Which of the following statements is incorrect?

(a) An indifference curve must be downward-sloping to the right
(b) Convexity of a curve implies that the slope of the curve diminishes as one moves from left
to right
(c) The income elasticity for inferior goods to a consumer is positive
(d) The total effect of a Change in the price of a good on its quantity demanded is called the
price effect

56) If as a result of 10% increase in price, the quantity supplied does not change at all, it implies
that the elasticity of supply is
(a) Zero
(b) Infinite
(c) Equal to 1
(d) Greater than zero but less than 1

57) Which of the following is false?

(a) A variable that tends to move in advance of aggregate economic activity is called a leading
indicator
(b) A variable that tends to move consequent on aggregate economic activity is called a
lagging indicator
(c) A variable that tends to move along with the level of aggregate economic activity is called
a coincident indicator
(d) New orders for plant and equipment is an example of coincident indicator

58) A variable that tends to move consequent on aggregate economic activity is called
(a) A leading indicator
(b) A lagging indicator
(c) A coincident indicator
(d) A cyclical variable

59) Turning points of the business cycle are:

(a) Expansion and contraction
(b) Recession and depression
(c) Boom and recession
(d) Peak and depression

60) Peaks and troughs of the business cycle are known collectively as
(a) Volatility
(b) Turning points
(c) Equilibrium points
(d) Real business cycle events

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Business & Commercial Knowledge

61) Which of the following is economic activity?

(a) Social, religions & cultural
(b) Personal & recreational
(c) Charity and patriotic
(d) Self-interest & rationality of what do I get in return

62) On the basis of size and scale of the activity undertaken, business may be classified as:
(a) Micro, Small, medium & large
(b) Public and Private
(c) Big and Small
(d) Small Scale and Large Scale

63) Which of the following is not a form of organisation?

(a) Partnership
(b) Company
(c) Partners
(d) Sole Proprietorship

64) In relation to business organization structure, which one of the following is easy to form
and wind up?
(a) A company
(b) A sole proprietorship
(c) Statutory corporation
(d) Public enterprises

65) In HUF:
(a) Liability of Karta is limited
(b) No liability of Karta
(c) Liability of Karta is unlimited
(d) Liability of everyone is unlimited

66) The registration of partnership firm is:

(a) Compulsory
(b) Mandatory
(c) Statutorily required
(d) Optional

67) ________ oversees the governance of the LLP.

(a) Ministry of Corporate Affairs
(b) State Government
(c) SEBI
(d) FEMA

68) The objectives of the Company can be traced from which of the following document?
(a) Memorandum of Association
(b) Articles of Association

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(c) Prospectus
(d) All of the above

69) In environmental scanning, the factor _________ represents certain happening in the
internal or external organizational environment which can be observed and tracked.
(a) Events
(b) Trends
(c) Issues
(d) Expectations

70) The businesses should continuously _________ and _________ to the environment if it is to
service and prosper.
(a) Identify, appraise
(b) Monitor, adapt
(c) Identify, monitor
(d) Monitor, appraise

71) The Micro Environment of external Environment includes:

(a) Market
(b) Technological
(c) Demographic
(d) Economic

72) According to _________, the aim of the business is to create and retain customer.
(a) Peter Drucker
(b) Adam Smith
(c) Henry Ford
(d) Schumpeter

73) The non-specific elements of the organisations surroundings that may affect its activities
are;
(a) Customers, suppliers and employees
(b) Suppliers, owners, employees
(c) Owners, Board of Directors and Employees
(d) Customers, Intermediaries, Suppliers

74) The _________ environment refers to the nature and direction of the economy in which a
company competes or may compete.
(a) Sociocultural
(b) Internal
(c) Micro
(d) Economic

75) PESTLE analysis does not include _________.

(a) Legal
(b) Economic
(c) Technology
(d) Policy

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76) The “Least Assistance approach” of Strategic response to the environment has been
followed by the Company:
(a) Airtel
(b) BSNL
(c) Vodafone
(d) None of the above

77) The Core Values of Axis Bank Includes:

(a) Consumer centricity & ethics
(b) Transparency
(c) Team work & Ownership
(d) All of the above

78) The mission of Bharti Airtel Ltd. is:

(a) Hunger to win Customers for life
(b) Focus on value based marketing
(c) Continual improvement
(d) Serving for better

79) Which one of the following refineries, operated by BPCL, has the highest Capacity of 13
million metric tonnes per year?
(a) Mumbai Refinery
(b) Kochi Refineries
(c) Bina Refinery
(d) Numaligarh Refinery

80) Which pharmaceutical company has the slogan „caring for life‟?
(a) Dr. Reddy‟s
(b) Lupin Ltd.
(c) Cipla Ltd.
(d) Sun Pharmaceutical Industries Ltd.

81) In relation to pharmaceuticals business, API Stands for _________.

(a) Active Pharmaceutical Ingredients
(b) Action Pharma Integral
(c) Automatic Pharma Integral
(d) None of the above

82) The first recognized brand of Dr. Reddy‟s Lab Ltd. was _________.
(a) Omez
(b) Norilet
(c) Stamlo
(d) Razo

83) The Public Policy depicts the concern of the Government and involved its action to a
particular problem an which the policy is made. Therefore, public Policy is:
(a) Aggressive
(b) Positive
(c) Negative
(d) Autocratic

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84) The Conducive policies towards the development of Micro-Small- Medium Enterprises
are an example of _________ policy.
(a) Restrictive
(b) Regulatory
(c) Facilitating
(d) Liberal

85) Which one of the following western European nations have followed a Capitalistic model?
(a) Great Britain
(b) France and Spain
(c) Portugal and Germany
(d) All of the above

86) FEMA replaced FERA in _________.

(a) 2004
(b) 2000
(c) 1991
(d) 1999

87) In 1992, some of the Public Sector Enterprises were first corporatized and process was
started to sold a large chunk of shares to public. This process may be regarded as :
(a) Merger
(b) Disinvestment
(c) Globalization
(d) Sell-off

88) In case of NOCIL (National Organic Chemicals Industries Limited), the Reliance
Industries Limited as a private enterprise expanded and gradually displaced the Government
entity. It was a case of:
(a) Partial Disinvestment
(b) Complete Privatization
(c) Delegation
(d) Displacement

89) _________ may be described as a flow of capital investment to an enterprise in a nation by

another enterprise located in a different nation by capturing a majority stake in ownership in
a company in the target country.
(a) Foreign Direct Investment
(b) Foreign Direct Inflow
(c) Globalization
(d) Foreign Intuitional Investors

90) Hyundai India Limited came to India through the FDI route. It followed the path of:
(a) Divestment in Public Sector Unit
(b) Joint Venture
(c) By creating a 100% Indian subsidiary
(d) Replacement of a Government sector business

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91) With the enforcement of the Competition Act, 2002, the ________ shall stand repealed.
(a) MRTP Act
(b) Consumer Protection Act
(c) Controller of Capital Issues Act
(d) None of the above

92) NABARD serves as an apex financing agency for the institutions providing investment
and production credit for promoting the various developmental activities in ________.
(a) Rural areas
(b) Urban areas
(c) Sub-urban areas
(d) All of the above

93) NABARD looks after the development of the ________.

(a) Cottage Industry
(b) Small and village Industries
(c) Rural Industries
(d) All of the above

94) Competition law is a tool ________.

(a) To implement and enforce Competition policy
(b) To Prevent and punish anti-competitive business practices by firms
(c) To Prevent unnecessary Government interference in the market
(d) All of the above

95) With increased competition, the producers have the following benefits except:
(a) Incentive to innovate
(b) Incentive to specialize
(c) Reduced Costs
(d) Monopoly Status

96) Risk is a probable chance that investments‟ actual returns will be __________ than as
calculated.
(a) Increased
(b) Reduced
(c) Equal
(d) None of the above

97) __________ is an option that givens to the investor the right but no obligation to buy a
particular Stock at a specified price within a specified time period.
(a) Put Option
(b) Call Option
(c) Derivative option
(d) Badla option

98) __________ is a party or person who acts as a link between a provider who provides
securities and the user, who purchases the securities.
(a) Financial Intermediary
(b) Financial Agent

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(c) Financial Advisor
(d) None of these

99) The collection of various types at securities related to various companies is called as:
(a) Portfolio
(b) Investment
(c) Bundle
(d) Stock

100) __________ involves charging a relatively high price for a short period of time.
(a) Price skimming
(b) Price sensitivity
(c) USP
(d) Holding price

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