SLM

ECONOMICS-XI
PART- II
MULTIPLE CHOICE QUESTIONS

1. Following is the feature of Karl Pearson's coefficient of correlation :

(a) Indicates the direction of correlation (b) Measures the degree of correlation
(c) Measures the co-variance (d) All the above
2.If the values of two series move in the same direction, the correlation is said to be
(a) Negative (b) Positive
(c) Zero (d) None of the above
3. The correlation is _____ when the values of two series move in the opposite direction.
(a) Nonsense (b) Positive
(c) Zero (d) Negative
4. What kind of correlation is found between advertisement and sales?
(a) Positive correlation (b) Negative correlation
(c) Zero (d) None of the above
5. Following is an example of series of positive correlation.
(a) Heights and weights
(b) Household income and expenditure on luxury goods
(c) Amount of rainfall and yield of crop
(d) All the above
6. Following is the characteristic feature of index number:
(a) Special type of average (b) Expressed in number
(c) Basis of comparison (d) All the above
7. Index number measures
(a) relationship between two variables (b) change in a group of related variables
(c) the difference in the values of the variable (d) None of these
8. The base year is
(a) reference year (b) current Year
(c) any year (d) preceding the current year
9.The current year is
(a) The year in which changes are measured (b) Reference year
(c) The year succeeding the base year (d) Any year
10. Consumer Price Index (CPI) measures
(a) average change in retail prices (b) average change in income
(c) average change in demand for goods (d) average change in supply of goods
11. Consumer Price Index numbers are useful
(a) in adjusting national income for price changes
(b) in wage negotiations
(c) in forecasting business conditions
(d) None of these
12. Consumer price index for the industrial workers in India is computed with
base year.
(a) 1981 (b) 1982 (c) 2001 (d) 1993-94

1
 Ch-2 MEASURES OF DISPERSION

Q-1. Particulars regarding the income of two villages are given below:
Village X Village Y
Number of people 600 500
Average income (in Rs.) 175 186
Variance of income (in Rs.) 100 81
(i) In which village is the variation in income greater?
(ii) What is the combined standard deviation of the village X and village Y put
together?
(Ans: 11.01)
Q-2. Mean and standard deviation of the following continuous series are 31 and 15.9
respectively. The distribution after taking step deviation is as follows:
d -3 -2 -1 0 1 2 3
f 10 15 25 25 10 10 5
Determine the actual class intervals.
(Ans: 35)
Q-3. You are incharge of rationing in a State affected by food shortage. The following reports
arrive from your local investigators:
Daily calorie value of food available per adult during current period:
Area Mean Standard Deviation
X 2,500 500
Y 2,200 300
The estimated requirement of an adult is taken at 3,000 calories daily and the absolute
minimum at 1250. Comment on the reported figure and determine which area in your
opinion needs more urgent attention.
(Ans: X needs more urgent attention)
Q-4. The arithmetic mean and standard deviation of a series of 20 items were calculated by
a student as 20 cm and 5 cm respectively. But while calculating an item 13 was misread
as 20. Find the correct arithmetic mean and standard deviation.
(Ans: Mean= 19.15, Standard Deviation= 4.66)
Q-5. Find the missing information from the following:
Group I Group II Group III Combined
Number 50 ? 90 200
Standard Deviation 6 ? ? 7.746
Mean 113 ? 115 116
(Ans: N3= 60, Ẍ2= 120, ‫ס‬2= 8)
Q-6. (a) For a group containing 100 observations, the arithmetic mean and standard deviation
are 8 and √10.5. For 50 observations selected from these 100 observations the mean
and the standard deviation are 10 and 2 respectively. Find the arithmetic mean and the
standard deviation of the other half.
(Ans: ‫ס‬22= 450/50= 9 or ‫ס‬2= 3)
(b) A sample of 35 values has mean 80 and standard deviation 4. A second sample of
65 values has mean 70 and standard deviation 5. Find the standard deviation of the
combined sample of 10 values. (Ans: 6.68)

2
Q-7. The scores of two batsman A and B in ten innings during a certain season are:
A: 32 28 47 63 71 39 10 60 96 14
B: 19 31 48 53 67 90 10 62 40 80

Find (using coefficient of variation) which of the two batsman, A or B, is more

consistent in scoring.
(Ans: Batsman A Batsman B
Ẍ= 46 Ẏ= 50
‫ =ס‬25.495 ‫ =ס‬24.43
C.V.= 55.41 C.V.= 48.86)

Q-8. An analysis of monthly wages of workers of two workers of two organisations C and D
yielded the following results: Organisation
C D
No. of workers 50 60
Average monthly wages Rs. 60 Rs.48
Variance 100 144
Obtain the average monthly wage and the standard deviation of wages of all workers
in the two organisations taken together. Which organisation is more equitable in
regard to wages?
( Ans: S.D= 12.637
Organisation C Organisation D
C.V= 16.67 C.V= 25)
Q-9. The mean and standard deviation of 200 items are found to be 60 and 20 respectively.
If at the time of calculations, two items were wrongly taken as 3 and 67 instead of 13
and 17, find the correct mean and standard deviation. What is the correct coefficient of
variation? (Ans: 20.094)

Q-10. (a) The mean and S.D. of a set of 100 observations were worked out as 40 and 5
respectively. But by mistake a value 50 was taken in place of 40 for one
observation. Re-calculate the correct mean and S.D. (Ans: 4.9)

(b) Coefficients of variation of two series are 75% and 90% and their standard
deviations 15 and 18 respectively. Find their mean. (Ans: 20)

Q-11. For two groups of observations the following results were available:
Group I Group II
∑(X-5) = 8 ∑(X-8) = -10
∑(X-5)2= 40 ∑(X-8)2= 70
N1= 20 N2= 25
Find the mean and the standard deviation of the 45 observations obtained by
combining the two groups. (Ans: Mean= 6.222, S.D. = 1.865)

Q-12. If the values of the mean and standard deviation of the following frequency distribution
(obtained by step deviation method) are 135.3 and 9.6 respectively, determine the
actual class-intervals:
d -4 -3 -2 -1 0 +1 +2 +3 Total
f 2 5 8 18 22 13 8 4 80
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Q-13. The table below gives the weight measurements of 200 castings:
Weight in Kg. No. of Castings Weight in Kg. No. of Castings
81-90 2 141-150 37
91-100 5 151-160 29
101-110 13 161-170 11
111-120 20 171-180 3
121-130 30 181-190 1
131-140 49
Calculate arithmetic mean, median, mode and standard deviation.
(Ans: ‫ =ס‬18.46)
Q-14. Determine the standard deviation from the following frequency distribution for grouped
measurements of weight of bullocks:
Weight of No. of Weight of No. of
Bullocks Bullocks Bullocks Bullocks
(lbs) (lbs)
850-900 2 1100-1150 140
900-950 24 1150-1200 66
950-1000 45 1200-1250 42
1000-1050 120 1250-1300 20
1050-1100 110 1300-1350 15
(Ans: 90.35)
Q-15. An algebra test was given to 400 high school children of whom 150 were boys and
250 girls. The results were as follows:
n1= 150 n2= 250
Ẍ1= 72 Ẍ2= 73
‫ס‬1= 7.0 ‫ס‬2= 6.4
Find the mean and the standard deviation of combined group.
(Ans: 6.65)

Q-16. Calculate coefficient of quartile deviation and coefficient of variation from the following
data;
Marks No. of Students
Below 20 8
Below 40 20
Below 60 50
Below 80 70
Below 100 80
(Ans: 0.273)
Q-17. The mean weight of 150 students is 60 kg. The mean weight of boys is 70 kg. with a
standard deviation of 10 kg. For the girls, the mean weight is 55 kg and the standard
deviation is 15 kg. Find the number of boys and the combined standard deviation.
(Ans: 50, 100, 15.28)
Q-18. A student obtained the mean and standard deviation of 100 observations as 40 and 5.1
respectively. It was later found that one observation was wrongly copied as 50, the
correct figure being 40. Find the correct mean and standard deviation.
(Ans: 39.9, 5)

4
Q-19. The mean and the standard deviation of one sample are respectively 54.4 and 8; the
mean and the standard deviation of another sample are 50.3 and 7 respectively. The
size of the first sample is 50 and that of the second is 100. Find the mean and standard
deviation of the composite sample (size 150) combining the aforesaid two samples.
(Ans: 51.67, 7.6)
Q-20. Find the interquartile range and the coefficient of quartile deviation from the following
data:
Marks in
Statistics: above 0 10 20 30 40 50 60 70 80
No. of
Students: 150 140 100 80 80 70 30 14 0
(Ans: 0.608)

Q-21. You are given below the daily wages paid to the workers in two factories X
and Y:Daily Wages No. of workers
Factory X Factory Y
12-13 15 25
13-14 30 40
14-15 44 60
15-16 60 35
16-17 30 12
17-18 14 15
18-19 7 5
Using appropriate measures answer the following:
(i) Which factory pays higher average wage.
(ii) Which factory has a more consistent wage structure.
(Ans: C.V. (X) = 9.60, C.V. (Y) = 10.5)

Q-22. You are given below the mean and standard deviation of the distributions:
Standard
N Mean deviation
Distribution-I 100 50 5
Distribution-II 150 60 6
Find the mean and standard deviation of all 250 items taken together.
(Ans: Mean= 44, S.D. = 7.46)

5
 Ch-3 CORRELATION

Q-1. Calculate Karl Pearson’s coefficient of correlation from the following data and interpret
its value:
Roll No. of Students: 1 2 3 4 5
Marks in Accountancy: 48 35 17 23 47
Marks in Statistics: 45 20 40 25 45
(Ans: 0.429)

Q-2. Making use of the data summarized below, calculate the coefficient of correlation, r 12:
Case X1 X2 Case X1 X2
A 10 9 E 12 11
B 6 4 F 13 13
C 9 6 G 11 8
D 10 9 H 9 4
(Ans: +0.896)

Q-3. The following table gives indices of industrial production of registered unemployed (in
hundred thousand). Calculate the value of the coefficient so obtained.
Year : 1978 1979 1980 1981 1982 1983 1984 1985
Index of Production : 100 102 104 107 105 112 103 99
Number Unemployed : 15 12 13 11 12 12 19 26
(Ans: -0.619)

Q-4. Calculate coefficient of correlation from the following data:

X 100 200 300 400 500 600 700
Y 30 50 60 80 100 110 130
(Ans: +0.997)

Q-5. (a) Find Karl Pearson’s coefficient of correlation between the values of X and Y given
below and calculate the probable error:
X 78 89 96 69 59 79 68 61
Y 125 13 156 112 107 136 123 108
Assume 69 and 112 as the main values for X and Y respectively.
(Ans: 0.021)

Q-6. (a) The ranking of 10 students in two subjects, Accountancy and Auditing, are as follows:
Accountancy : 3 5 8 4 7 10 2 1 6 9
Auditing :6 4 9 8 1 2 3 10 5 7
What is the coefficient of rank correlation? (Ans: -0.297)

(b) Two ladies were asked to rank 7 different types of lipsticks. The ranks given by them
are given below:
Lipsticks A B C D E F G
Neelu 2 1 4 3 5 7 6
Neena 1 3 2 4 5 6 7
Calculate Spearman’s rank correlation coefficient. (Ans: 0.786)
Q-7. Ten competitorts is a beauty contest are ranked by three judges in the following order:
1st Judge 1 6 5 10 3 2 4 9 7 8
6
 2nd Judge 3 5 8 4 7 10 2 1 6 9
3rd Judge 6 4 9 8 1 2 3 10 5 7
Use the rank correlation coefficient to determine which pair of judges has the nearest
approach to common tastes in beauty.
(Ans: I and II= -0.212, II and III= -0.297, I and III= 0.636)
Q-8. (a) Quotations on Index Numbers of security prices of a certain joint stock
company are given below:
Debenture Share
Year price price
1 97.8 73.2
2 99.2 85.8
3 98.8 78.9
4 98.3 75.8
5 98.4 77.2
6 96.7 87.2
7 97.1 83.8
Using rank correlation method, determine the relationship between debenture prices
and share prices. (Ans: -0.107)

(b) Calculate Spearman’s coefficient of correlation between marks assigned to ten students
by Judges X and Y in a certain competitive test as shown below:
S. No. : 1 2 3 4 5 6 7 8 9 10
Marks by
judge X: 52 53 42 60 45 41 37 38 25 27
Marks by
judge Y: 65 68 43 38 77 48 35 30 25 50
(Ans: 0.539)

Q-9. Calculate the coefficient of correlation from the following data by the Spearman’s Rank
difference method:
Price of Price of Price of Price of
Tea (Rs.) Coffee (Rs.) Tea (Rs.) Coffee (Rs.)
75 120 60 110
88 134 80 140
95 150 81 142
70 115 50 100
(Ans: +0.929)
Q-10. Calculate the rank coefficient of correlation of the following data:
X: 80 78 75 75 68 67 60 59
Y: 12 13 14 14 14 16 15 17
(Ans: -0.929)
Q-11. Calculate the correlation coefficient from the following data of marks obtained in
Commerce (X) and Economics (Y):
X: 50 60 58 47 49 33 65 43 46 68
Y: 48 65 50 48 55 58 63 48 50 70
(Ans: 0.611)

PART-B

7
 UNIT-3 PRODUCER BEHAVIOUR AND SUPPLY
Q1. When is total output maximum?
Q2. What is the general shape of MPP curve?
Q3. State and explain the law of diminishing returns to a factor.
Q4. What type of changes take place in total product and Marginal Product when there are
a) Increasing returns to a factor
b) Diminishing returns to a factor. Why do these changes take place?
Q5. Give reasons. State whether the following statements are true or false:
a) When there are diminishing returns to a factor, total product always decreases.
b) Total product will increase only when marginal product increase.
Q6. Give reasons, state whether the following statements are true or false:
a) Increase in total product always indicates that there are increasing returns to a factor.
b) When there are diminishing returns to a factor marginal and total product both always
fall.
Q7. Give reasons, state whether the following statements are true or false:
a) When marginal product falls, average product will also fall.
b) When there are diminishing returns to a factor, total product first increases and then
starts falling.
c) Total product always increases where there is increasing returns or diminishing returns
to a factor.
Q8. State the two conditions of producer’s equilibrium for a competitive firm.
Q9. What causes a downward movement along a supply curve of a commodity?
Q10. What causes an upward movement along a supply curve of a commodity?
Q11. What causes a movement along a supply curve of a good?
Q12. What effect does a cost saving technical progress have on the supply curve?
Q13. How does an increase in the price of an input affect the supply curve of a firm?
Q14. How does the imposition of a unit tax affect the supply curve of a firm?
Q15. If a former grows rice and wheat, how will an increase in the price of wheat affect the
supply curve of rice?
Q16. Define ‘Market Supply’. What is the effect on the supply of a good when government
imposes a tax on the production of that good? Explain.
Q17. Distinguish between supply and stock.
Q18. Find the profit maximizing level of output from the following:
Units Price (Rs. Per unit) ATC
7 10 6
8 9 5
9 8 6
10 7 7

Q19. From the following schedule find out the level of output at which the producer is in
equilibrium. Give reasons.

8
 Units Price (Rs. Per unit) ATC
1 24 26
2 24 50
3 24 72
4 24 92
5 24 115
6 24 139
7 24 165
Q20. From the following schedule find out the level of output at which the producer is in
equilibrium, using marginal cost and marginal revenue approach. Give reasons.
Price per Unit Units TC
8 1 6
7 2 11
6 3 15
5 4 18
4 5 23
Q21.The co-efficient of elasticity of supply of a commodity is 3. A seller supplies 20 units of
this commodity at a price of Rs. 8 per unit. How much quantity of this commodity will the
seller supply when price rises by Rs 2 per unit?
Q22. The market price of a good changes from Rs. 5 to Rs. 20. As a result, the quantity
supplied by a firm increases by 15 units. The price elasticity of the firm’s supply curve is
0.5. find the initial and final output levels of the firm.
Q23. The quantity supplied of a commodity at a price of Rs 8 per unit is 400 units. The price
elasticity of supply is 2. Calculate the price at which its quantity supplied will be 600
units.
Q24. Commodities X and Y have equal price elasticity of supply. The supply of X rises from
400 units to 500 units due to 20% rise in its price. Calculate the percentage fall in supply
of Y if its price falls of 8%.
Q25. The price elasticity of supply of good X and Y are equal. The price of X falls from Rs 10
to 28 per unit and its quantity supplied falls by 16%. The price of Y rises by 10%.
Calculate the percentage increase in its supply.
Q26. The price elasticity of supply of commodity Y is half the price elasticity of supply of
commodity X. 16% rise in the price of X results in 40% rise in its supply. If the price of Y
falls by 8%. Calculate the percentage fall in its supply.
Q27. The ratio of elasticity of supply of commodities A and B is 1:1.5. 20% fall in price of A
results in a 40% fall in its supply. Calculate the percentage increase in supply of B if its
price rises from Rs 10 per unit to Rs 11 per unit.

Cost and Revenue

Q28. Give reason, state whether the following are true or false:

9
 a) Average cost falls only when marginal cost falls.
b) The difference between average total cost and average variable cost is constant.
c) As output is increased, the difference between average total cost and average variable
cost falls and ultimately becomes zero.
Q29. Give reasons, state whether the following statements are true or false:
a) The difference between average total cost and average variable cost decreases with
decrease in the level of output.
b) When marginal cost rises, average cost will also rise.
Q30. Give reasons, state whether the following are true or false:
a) Average variable cost can fill even when marginal cost is rising.
b) The difference between total cost and total variable cost falls with increase in output.’
c) As soon as marginal cost starts rising, average variable cost also starts rising.
Q31. What change should take place in total revenue so that
a) Marginal revenue is positive and constant
b) Marginal revenue is falling?
Q32. What change will take place in marginal revenue when:
a) Total revenue increase at an increasing rate.
b) Total revenue increase at a diminishing rate.
Q33. What change in total revenue will result in:
a) A decrease in marginal revenue.
b) An increase in marginal revenue.
Q34. What will be the effect of the following changes in total revenue on marginal revenue?
a) Total revenue on marginal revenue?
b) Total revenue increases at a constant rate.
Q35. Comment on the shape of the MR curve in case the TR curve is a
a) A positively sloped straight line passing through the origin?
b) A horizontal line?
Q36. Giving reasons, state whether the following statements are true or false:
a) When marginal revenue is zero, average revenue will be constant.
b) Marginal revenue is always the price at which the last unit of a commodity is sold.
Q37. Giving reasons, state whether the following statements are true or false:
a) When total revenue is maximum, marginal revenue is also maximum.
b) When marginal revenue is positive and constant, average and total revenue will both
increase at constant rate.
Q38. Complete the following table:
Output TC TFC TVC MC
0 150 ___ ___ ___
1 180 ___ ___ ___
2 200 ___ ___ ___

Q39. Calculate AC and TC with the help of following data:

10
 Output MC
1 20
2 16
3 12
Q40. Given below is the cost schedule of a firm. Its total fixed cost is Rs. 100. Calculate
AVC and MC at each given level of output.
Output TC
1 350
2 450
3 610
4 820
Q41. Complete the following table:
Output TVC AVC MC
1 10

8 6

3 27

10 13

Q42. Complete the following table:

Output TVC AVC MC
1 12

2 20

10 10

4 40

Q43. Complete the following table:

Output AVC TC MC
1 60 20

2 18

3 18

4 20 120

5 22

Q44. Complete the following table:

11
 Output TC AVC MC
1 90 30

2 27

3 27

4 180 30

Q45. Complete the following table:

Units Sold TR AR MR
1 20

2 18

3 12

4 56

5 4

6 0

Q46. Complete the following table:

Units AR MR TR
1 15

2 26

3 11

4 3

Q47. Complete the following table:

Price Units TR MR
7 7

2 10

3 -1

1 -5

Q48. Complete the following table:

12
 Price Units TR MR
1 6

4 2

3 6

1 -2

Q49. Complete the following table:

Price Units TR MR
1 5

4 8

3 1

2 8

Q50. Complete the following table:

Units TR MR AR
1 8

2 4

3 12 4

4 8 2

Q51. Complete the following table:

Units Price MR TR
1 16

2 12 24

3 6

4 7 28

Q52.Suppose the market price of the variable factor rises , explain the likely effect of this
rise on return to factor.

Q53.What is the economic value of the law diminishing returns in the context of standard of
living of people residing in an area?

Q54.Can the operation of the law of diminishing returns be postponed ? Suggest one way
to suspend the operation of the law.

13
Q55.Why is ATC greater than AVC ?

Q56. Identify implicit and explicit cost from the following :

a) An individual is both owner and the manager of a shop taken on rent.

b) A producer borrows money and opens a shop. The shop premise is owned by him.
c) A producer invests his own saving in starting a business and employs a manager to
look after it.
d) A farmer takes a farm on rent and carries on farming with the help of family
members.
e) A producer borrows money and starts a business . He himself look after the
business.

Q57.Money cost of producing a good does not include social cost. Explain its implication.

Q58.When a firm adopts cost saving technology in production, how can at benefit the firm in
particular and society at large?

Q59.What is price line ?

Q60. What policy initiatives can the government undertake to increase the supply of wheat

in the country?

Topic – Production and Supply

Q1. Why is more supplied at higher supply?

Q2. State true or false and give reasons.
a. More can only be supplied at higher price.
b. If the supply curve is horizontal, then elasticity of supply is zero.
c. An increase in the price of complimentary good will lead to fall in the supply of the
given good.
d. As the number of firms fall , the supply curve shifts left.
Q3. Comment on the elasticity of supply of the following giving reasons.
a. Apples b. Air conditioners c. Cakes d. Steel furniture
Q4. ‘Less will only be supplied at lower price’ do you agree?
Q5. What initiative can government take to increase the supply of sugar in the market? What
is the reason for which government wants its supply to be high?
Q6. Three straight line supply curves pass through the origin making angles of 30o, 45o and
60o. Comment on their elasticity.
Q7.How does time period affect the elasticity of supply for a commodity?
Q8. How is returns to a factor different from returns to scale?
Q9. Identify the stages of the law of variable proportion and also give one
reason behind each of the stages.
Units of labour: 1 2 3 4 5 6 7 8
Total product: 6 14 24 32 38 40 40 36
Q10. State true or false giving reasons:
(a) Both TP and MP fall when we get diminishing returns.
(b) The moment MP falls, AP also starts falling.
14
 (c) Negative returns arise even in long run.
(d) When TP is maximum MP is minimum.

Q11. State true or false giving reasons:-

(a) Producer’s Equilibrium is a situation of normal profit.
(b) Losses occur when AC = AR. (c) Normal profit is a part of cost.
(d) TR and MR Curves of all markets are same. (e) When TR is constant AR is also
constant.
(f) When MR > MC producer is in equilibrium.(g) When MC > MR, the firm is incurring
losses.
(h) With more sales TR and AR both increase throughout.
(i) AR and MR Curves of imperfect market are same.
(j) AR and MR Curves of perfect competition are parallel to Y axis.

Q12. From the following data calculate the profit maximization output.
Units Price TC
1 5 7
2 5 12
3 5 16
4 5 21
5 5 27
6 5 36
Q13. Explain the condition of producer’s equilibrium using MR-MC approach.
Q14. Differentiate between monopoly and monopolistic using AR curves.
Q15. Producer should stop producing when MR = MC. Comment.
Q16. Write the relationship between TR and MR under imperfect competition.

Unit - 4 (FORMS OF MARKET AND PRICE

DETERMINATION)
15
 1. Why is monopoly firm price maker?
2. Explain what happens to the losses in the long run if the firms are free to leave the
industry ?
3. What is difference between a firm’s demand curve and an industry demand curve under
perfect competition . Use diagram.
4. How can price discrimination promote social welfare? Give an example.
5. Explain the economic value of granting of patent right to the producers.
6. China is a big manufacturer of telephone instruments .It has recently become member
of WTO, which means that it can sell its product in other member countries like India,
suppose that it does export a large number of telephone instruments to India.
7. How will it affect the price and quantity sold of telephone instruments in India?
8. Suppose that the demand for telephone instruments is relatively elastic. How will it affect
India’s total expenditure on telephone instruments?
9. State true or false giving reasons:
(a) Perfect competition earns supernormal profits In the long run.
(b) A firm under monopoly is a price taker.
(c) Monopoly can have losses in the short run.
(d) Total revenue curve of monopolistic market is an inverted U-shape Curve.
(e) There are price wars in Collusive oligopoly.
(f) Simultaneous increase in demand and supply always causes increase in price.
(g) When price is fixed below equilibrium price it is excess supply.
(h) Minimum price ceiling is done to protect the consumers.
(i) Monopoly can practice price discrimination.
(j) If demand is perfectly elastic increase in supply leads to fall in price.
10. ‘It is difficult to enter oligopoly market’ comment.
11. ‘Monopoly firm can sell any output at given price’ Defend or refute.
12. What factors lead a firm to hold a monopoly position?
13. How will simultaneous decrease in demand and supply affect equilibrium and quantity
of a competitive firm?
14. What are the implications of fixing the market price.
15. (a) Lower than Equilibrium price.
(b) Higher than equilibrium price.

MULTIPLE CHOICE QUESTIONS

PART- A ( MICRO ECONOMICS)

16
 Chapter-1 (INTRODUCTION)

Q.1. Study of behavior of individual economics decision making units can be defined as:
(a) Macro-economics (b) Economics
(c) Micro economics (d) All of the above

Q.2. Study of the economic behavior of the country as a whole is defined as:
(a) Micro-economics (b) Macro-economics
(c) Economics (b) All of the above

Q.3. Land, Labour, capital and enterprise are known as:

(a) Factors of production (b) Factor income
(c) Factor services (d) All of the above
Q.4. Which branch of economics deals with the study of aggregate price level?
(a) Micro-economics
(b) Macro-economics
(c) Both micro and macro economics
(d) None of the above
Q.5. Macroeconomics can be defined as:
(a) Study of economics behavior of individual economic units
(b) Study of behavior of the country as a whole
(c) Study of a particular society
(d) None of the above

Q.6. An aggregate of all such economic activities which enable people to earn their
livelihood is defined as:
(a) Economics (b) Economy
(c) Society (d) None of the above

Q.7. What are vital economic activities?

(a) Production (b) Capital formation
(c) Consumption (d) All of the above
Q.8. Which among the following is macroeconomics variable?
(a) Unemployment (b) Inflation
(c) Poverty (d) All of the above

Q.9. Macroeconomics studies:

(a) How economic decision are being taken?
(b) How economic decision are being taken by people?
(c) How economic decision are being taken by the government?
(d) How economic decision are being taken by the industry

Q.10. Which among the following is microeconomics variable?

(a) Foreign exchange
(b) Exports and imports of a country
17
 (c) Balance of payments
(d) None of the above
Q.11. Macroeconomics we deal with:
(a) General price level (b) Price of a factor of production
(c) Price of a particular product (d) All the above
Q.12. Which of the following is micro approach?
(a) National Income (b) Per Capital Income
(c) Individual Income (d) National Savings

Q.13. Socialist economy is a:

(a) Central Planned economy (b) Mixed economy
(c) Profit oriented economy (d) All of the above
Q.14. The study of micro economics deals with:
(a) A consumer (b) Production of a good
(c) A Particular firm (d) All of above
Q.15. Microeconomics deals with the economic behavior of:
(a) A particular country
(b) Economics entities that make up the system
(c) System of a country
(d) A Particular region of a country
Q.16. The study of macro economics deals with the:
(a) Behaviour of members of a family
(b) Behaviour of all producers of a product
(c) Taking all consumers of all products
(d) All the above
Q.17. What among the following are the characteristics of resources?
(a) Resources are limited (b) Resources have alternative uses
(c) Human wants are unlimited (d) Both (a) and (b)
Q.18. Centrally planned economy can be defined as:
(a) In which decision are taken by market forces of demand and supply
(b) In which central problem are solved by government
(c) In which central problems are solved bath by the private sector and by the
government
(d) None of the above

Q.19. Characteristics of human wants is described as:

(a) Human wants are unlimited
(b) Resources are limited
(c) Resources have alternative uses
(d) None of the above

Q.20. The Word “economy” refers to:

(a) Private institution
(b) People
(c) People doing income earning activities
18
 (d) Government institution
Q.21. It is the problem of deciding what goods and services should be produced and in
what quantity”, which central problem is indicated above?
(a) What to produce (b) How to produce
(c) For whom to produce (d) All of the above
Q.22. Choosing best possible technique or technology of production”, which central
problem is indicated in above line?
(a) What to produce (b) How to produce
(c) For whom to produce (d) All of the above
Q.23. In this type of technique labour is use more intensively than capital?
(a) Labour-Intensive technique (b) Capital-intensive
(c) Both (a) and (b) (d) None of the above
Q.24. The central problem of an economy is:
(a) Ensuring the Optimum Level of Production
(b) Selection between Centrally Planned or free play economic systems
(c) Ensuring employment and a minimum level of income for every citizen.
(d) Allocating scarce resources in such a manner that unlimited wants are fulfilled as
far as possible.
Q.25. The various combinations of goods that can be produced in an economy when it uses
its available resources and technology optimally are depicted by:
(a) Indifference Curve
(b) Marginal production Curve
(c) Total Production Curve.
(d) Production Possibilities Curve
Q.26. Opportunity cost can be defined as the value of the opportunity:
(a) Gained in the next alternative
(b) Which is available in the future
(c) Actually availed at present
(d) Which is available at present as a next best alternative
Q.27. A typical Production Possibility curve shows:
(a) The potential output that nation can produce from the given resources with given
technology
(b) The actual output that nation can produce
(c) The less than potential output that nation can produce
(d) The more than potential output that nation can produce

Chapter-2 (CONSUMER EQUILIBRIUM AND DEMAND)

Q.1. Total Utility is maximum when:

19
 (a) Marginal Utility is zero (b) Marginal Utility is negative
(c) Marginal Utility is Maximum (d) None of the above

Q.2. The utility of a good, refers to:

(a) The usefulness of that good
(b) The desire for that good
(c) The satisfaction gained from consuming the good
(d) The rate at which consumers are willing to consume that good

Q.3. Marginal utility can be defined as utility:

(a) Derived from consuming the last unit of a good.
(b) Derived from consuming one less unit of a good.
(c) Derived from consuming one more additional unit of a good.
(d) None of the above

Q.4. When a consumer consumes a good, the utility derived from it is 10 utils.
This is an example of:
(a) Cardinal utility (b) Total utility
(c) Ordinal utility (d) None of the above

Q.5. According to the “Law of diminishing marginal utility” as consumer consumes more and
more units of a good, the utility derived from each unit consumed goes on:
(a) Decreasing (b) Increasing
(c) Remains constant (d) None of the above

Q.6. Indifference curve approach is given by:

(a) Paul Sweezy (b) J.R. Hicks
(c) Paul Samuelson (d) Adam Smith
Q.7. An indifference curve is sloping downward from left to right because:
(a) To obtain more units of one good, he has to give up some units of other good.
(b) Marginal at of substitution is rising.
(c) Marginal rate of substituting is falling.
(d) None of the above

Q.8. In the indifference curve analysis, monotonic preferences means that:

(a) More of good is preferred to less
(b) Less of good is preferred to more
(c) Marginal rate of substitution is rising
(d) None of the above

Q.9. An indifference curve to the right means higher utility because of:
(a) Ordinal preferences (b) Monotonic preferences
(c) Cardinal preferences (d) None of the above

Q.10. Write the budget constraint equation when consumer is consuming two good X and Y
and Px be the prices and Qx and Qy be the quantity bought respectively.
(a) Px.Qx + Py.Qy > m (b) Px.Qx + Py.Qy + m

20
 (c) Px.Qx + Py. Qy < m (d) None of the above.

Q.11. What is the slope of budget line:

(a) Increases throughout (b) Remains constant
(c) Decreases throughout (d) None of the above

Q.12. Shift in the budget line can takes place due to:
(a) Change in income (b) Change in prices
(c) Change in quantity bought (d) Both (a) and (b)

Q.13. Quantity Demanded for a commodity refers to:

(a) Want for the commodity
(b) Willingness for the commodity
(c) Quantity of that commodity demanded at a certain price and particular point of
time.
(d) None of these

Q.14. Extension of demand is the result of:

(a) Increase in the number of consumers.
(b) Decrease in the price of the good concerned.
(c) Increase in the income of consumers.
(d) Increase in the prices of other goods.

Q.15. In the case of a giffen good, the demand curve will be:
(a) Downward-sloping from left to right.
(b) Parallel to X-axis
(c) Parallel to Y-axis
(d) Upward-sloping from left to right.

Q.16. If the prices of a commodity falls

(a) Consumer’s real income will increase
(b) No change in the real income will increase
(c) Consumer’s real income will decrease
(d) None of the above

Q.17. The goods having a direct relationship between price and demand are called:
(a) Normal goods (b) Complimentary goods
(c) Substitute goods (d) Giffen goods
Q.18. What quantity demanded for a commodity increases with a fall in its price, it is known
as:
(a) Increase in demand
(b) Increase in quantity demanded
(c) Decrease in demand
(d) Decrease in quantity demanded

Q.19. A demand of a good includes information about:

(a) Quantity (b) Price
(c) Period of time (d) All of the above

21
Q.20. The price-elasticity of demand at the mid-point of a straight-line demand curve meeting
the two axes would be:
(a)  (b) .5
(c) 1 (d) 0

Q.21. Price elasticity of demand is defined as:

(a) Degree of responsiveness in demand to initial change in price
(b) Degree of responsiveness in demand price due to change in demand
(c) Response of price to change in demand
(d) When demand response due to change in price

Q.22. The family of indifference curve which represent consumer preferences over all the
bundles of the two goods is called as:
(a) Indifference curve (b) Indifference map
(c) Budget line (d) None of the above

Q.23. According to indifference curve approach, a consumer attains equilibrium at a point

where budget line is _______to indifference curve.
(a) Tangent (b) Cuts
(c) Intersect (d) None of the above

Q.24. The tabular representation of demand curve is called:

(a) Demand schedule (b) Budget line
(c) Indifference curve (d) None of the above

Q.25. When due to change in price of one commodity, demand of the other commodity is
affected then this effect is called.
(a) Price effect (b) Income effect
(c) Cross price effect (d) None of the above

Chapter-3 (PRODUCER BEHAVIOUR AND SUPPLY)

Q.1. Average Product can be derived when:

(a) Marginal Product is divided by the Variable Input
22
 (b) Total product is divided by Marginal Product
(c) Total Product is divided by the Variable input
(d) Total Product is divided by the Total Cost

Q.2. The change in the Total Product because of change in variable input is known as:
(a) Average cost (b) Marginal Cost
(c) Average Product (d) Marginal Product

Q.3. The Production function refers to:

(a) Input (b) Output
(c) Product (d) Technology

Q.4. When all the inputs are varied in the production function, then that law is known as:
(a) Returns to a factor (b) Returns to scale
(c) Law of variable proportion (d) All of the above

Q.5. Diminishing marginal returns to a factor implies:

(a) Constant Marginal cost (b) Decreasing marginal cost
(c) Increasing Marginal Cost (d) None of the above

Q.6. Which of the following cost curves can be ‘U’ shaped?

(a) Marginal cost curve (b) Average cost curve
(c) Average Variable cost curve (d) All of the above

Q.7. Which one of the following is a Variable Cost?

(a) Expenditure incurred on purchase of equipment.
(b) Expenditure incurred on purchase of raw materials
(c) Expenditure incurred on payment of interest on borrowings.
(d) Expenditure incurred on payment of rent of building

Q8. Marginal Cost can be defined as:

(a) The change in total variable cost due to additional unit of a good produced.
(b) The change in average total cost due to additional unit of good product.
(c) The change in total fixed cost due to additional unit of a good product.
(d) All of the above

Q.9. Which of the following is the fixed cost:

(a) Expenditure incurred on purchase of law materials
(b) Electricity Bill
(c) Salary of watchman (Permanent Staff)
(d) Wages of labour

Q10. Which one of the following is a variable cost:

(a) Rent of the land and building
(b) Wages paid to the labour
(c) Interest paid on borrowed capital
23
 (d) All of the above

Q.11. If Marginal Cost I equal to Average Total Cost:

(a) Average Total Cost is rising
(b) Average Total Cost is falling
(c) Average Total Cost is maximum
(d) Average Total Cost is minimum

Q.12. When marginal cost curve is below average total cost curve:
(a) Average total cost curve is at maximum
(b) Average total cost curve is falling
(c) Average total cost curve is raising
(d) Average fixed cost curve is raising

Q.13. If the average cost is falling then:

(a) Marginal cost is also falling
(b) Marginal cost is rising
(c) Marginal cost is equal to average cost
(d) It is impossible to tell if marginal cost is rising or falling

Q.14. The difference between average total cost and average variable cost keeps on:
(a) None of the above (b) Decreasing
(c) Constant (d) Increasing

Q.15. The average profit or loss is equal to the difference between which of the following:
(a) AC and AVC (b) AC and VC
(c) AC and AR (d) AC and TC

Q.16. The vertical difference between AVC and AC is equal to:

(a) TFC (b) MC
(c) AFC (d) None of the above

Q.17. Which one of the following is not a U-shaped curve:

(a) AVC curve (b) AFC curve
(c) MC curve (d) AC curve

Q.18. Name the cost which is present in the long run:

(a) Fixed Cost (b) Variable Cost
(c) Partly variable and partly fixed cost (d) Mostly variable cost

Q.19. In microeconomics, Revenue is meant as:

(a) Profits (b) Losses
(c) Tax allocation (d) Market value of output produced by a firm

Q.20. What is the behaviour of MR when TR rises at a decreasing rate:

(a) Becomes Zero (b) Negative
(c) falls but remains positive (d) None of the above

24
Q.21. The quantity supplied of a good means:
(a) Total stock of a good
(b) Total output of the good
(c) Total stock available for sale
(d) Total amount of the good offered for sale at a particular price and point of time.

Q.22. When supply curve moves right on the same slope, it means:
(a) Decrease in quantity supplied (b) Decrease in supply
(c) Increase in quantity supplied (d) Increase in supply

Q.23. The supply curve of a perishable good will be:

(a) Elastic (b) Inelastic
(c) Perfectly elastic (d) All of the above

Q.24. The reason for “change in supply” is:

(a) Change in price of other goods
(b) Change in technology
(c) Change in government policy on production
(d) All of the above

Q.25. Price elasticity of supply can be defined as:

(a) When supply response to change in price
(b) When price response to change in supply
(c) The degree of responsiveness in supply to initial change in price
(d) None of the above

Q.26. Examples of fixed cost are:

(a) Rent (b) Salary of permanent employee
(c) Expenditure on raw materials (d) Both (a) and (b)

Q.27. What is the relationship between AC, AFC & AVC?

(a) AC=AFC+AVC (b) AC=AFC-AVC
(c) AC=AFC-AVC (d) None of the above

Q.28. What is the shape of AFC?

(a) Upward sloping (b) Straight line from the
(c) Rectangular hyperbola (d) None of the above

Q.29. Among the following, which is not a U-shaped curve?

(a) AC (b) AVC
(c) AFC (d) MC

Q.30. What is the behavior of TVC when MC declines?

(a) TVC rises at increasing rate (b) TVC rises at diminishing rate
(c) TVC rises at constant rate (d) None of the above

25
Q.31. What is the elasticity of demand curve of monopoly firm?
(a) More than unit elastic (b) Less than unit elastic
(c) Unit elastic (d) None of the above

Q.32. What is the elasticity of demand curve of a firm under monopolistic competition?
(a) More than unit elastic (b) Less than unit elastic
(c) Unit elastic (d) None of the above

Q.33. Name the type of market under which AR & MR curve coincide with each other?
(a) Perfect competition (b) Monopolistic competition
(c) Monopoly (d) None of the above

Q.34. What is the shape of AR curve in monopoly?

(a) downward (b) upward sloping
(c) straight line from the origin (d) Both (a) and (b)

Q.35. Name the type of market in which MR curve can never be negative?
(a) Perfect competition (b) Monopoly
(c) Oligopoly (d) None of the above

CH-4 (FORMS OF MARKET AND PRICE DETERMINATION)

Q.l. Which of the following is not an essential condition of perfect competition?
26
 (a) Large number of buyers and sellers
(b) Freedom of entry and exit
(c) Homogeneous product
(d) Absence of transport cost
Q.2. What is the shape of the demand curve of a firm under perfect competition?
(a) Horizontal (b) Negatively sloped
(c) Positively sloped (d) Vertical
Q.3. Which of the following is not a condition of perfect competition?
(a) Freedom of entry and exit into and out of the market.
(b) Perfect mobility of factors of productions
(c) Informative advertising to ensure that consumers are attracted towards the good.
(d) A large number of buyers and sellers.
Q.4. Under which of the following forms of market a firm has no control over the price of its
product?
(a) Oligopoly (b) Monopolistic competition
(c) All given below (d) Perfect competition
Q.5. A perfectly competitive firm's supply schedule in the short run is determined by:
(a) Its Marginal Revenue Curve
(b) Its Average Revenue Curve
(c) Its Marginal Utility for Money curve
(d)Rising portion of MC curve
Q.6. Under perfect competition, firms profits in the long run will be:
(a) Normal profit (b) Abnormal profit
(c) Abnormal losses (d) None of the above
Q.7. The meaning of the products to be homogenous in a perfectly competitive market are:
(a) Products are differentiated
(b) quantity of the products is same
(c) All the products are identical for the buyers.
(d)All of the above
Q.8. In a perfectly competitive market, equilibrium price is determined by:
(a) Taking individual firm for its own product
(b) A group of firms
(c) Taking all the firms together
(d)Some big firms
Q.9. From the following find out which of the following is not the feature of a perfectly
competitive market?
(a)There is free entry and exit of firms.
(b) Each firm has very less share in market supply.
(c) The firms are interdependent.
(d)Very large no. of buyers and sellers exist

Q.10. Effect of simultaneous "increase" in both demand and supply is:

(a) No change in equilibrium price (b) Decrease in equilibrium price
(c) Increase in equilibrium price (d) Any of the above
Q.11. In a perfectly competitive market, what is the behaviour of average
27
 revenue as more output is produced:
(a) Decreases (b) Increases
(c) Remains unchanged (d) First rises, then falls
Q.12. Which of the following is not a characteristic of monopolistic competition?
(a) Product differentiation (b) P > MR
(c) Imperfect knowledge (d) A homogenous product
Q.13. Which of the following is not a characteristics of monopoly:
(a) The firm is a price maker
(b) There is a single producer or seller
(c) The firm and industry are the same
(d) Firms AR curve is parallel to X-axis
Q.14. Oligopolistic industries are characterized by:
(a) A few dominant firms and substantial barriers on entry or exit.
(b) A large number of small firms and no barrier on entry or exit.
(c) A few large firms and no barrier on entry or exit.
(d) One dominant firm and barrier on entry or exit.
Q.15. A monopolist is able to maximise his firm's profit when:
(a) He charges high prices
(b) Output is maximum
(c) His Average Cost is minimum
(d) His Marginal Cost is equal to Marginal Revenue
Q.16. In which form of market the degree of control over the price of its product by a firm is
maximum?
(a) Monopoly (b) Oligopoly
(c) Monopolistic Competition (d) Perfect competitio
Q.17. The Average Revenue Curve is also known as:
(a) Indifference Curve (b) Demand Curve
(c) Supply Curve (d) Profit or loss Curve
Q.18. In the oligopoly market, the market demand curve hypothesis shows:
(a) None of the above (b) Price rigidity
(c) Collusion among rivals (d) Price and output determination
Q.19. Identify the market structure, in which many firms sell products that are similar but not
identical:
(a) Monopolistic competition (b) Perfect competition
(c) Monopoly (d) Oligopoly
Q.20. Which of the following is not a characteristic of a monopolistic competitive market?
(a) Differentiated products (b) Abnormal profits in the long run
(c) Many sellers (d) AR > MR
Q.21. In which form of market the firm and the industry are one and the same in:
(a) Monopolistic competition (b) Perfect Competition
(c) Duopoly (d) Monopoly

Q.22. Which is the distinguishing feature of monopolistic competition among

the following which separates monopolistic competition from a perfectly

28
 competitive market?
(a) Free entry and exit of firms (b) Products are homogenous
(c) Products are differentiated (d) Very large number of buyers
Q.23. Which among the following is a characteristic of monopoly market?
(a) No substitutes (b) No close substitute
(c) Free entry and exit of firms (d) None of the above
Q.24. What is the behaviour of MR curve under monopoly market:
(a) It lies below the AR curve (b) It lies above the AR curve
(c) It coincides with the AR curve (d) It intersects with the AR curve
Q.25. How many firms exist in monopoly market?
(a) Single (b) Two
(c) Three (d) Many
Q.26. In which market form are products differentiated?
(a) Perfect competition (b) Oligopoly
(c) Monopoly (d) Monopolistic competition
Q.27. Demand curve under perfect competition is:
(a) Horizontal line (b) Vertical line
(c) Downward sloping (d) Upward sloping
Q.28. Profit earned in excess of normal profit is called:
(a) Super normal profit (b) Normal profit
(c) Abnormal losses (d) None of the above
Q.29. Under which market form a firm's marginal revenue is always equal to price?
(a) Perfect competition (b) Monopoly
(c) Monopolistic competition (d) Oligopoly
Q.30. In which markets form demand curve of a firm is perfectly elastic?
(a) Monopoly (b) Monopolistic competition
(c) Oligopoly (d) Perfect competition
Q.31. Under which market form, firm is a price taker?
(a) Perfect competition (b) Monopoly
(c) Monopolistic competition (d) Oligopoly
Q.32. The price at which quantity demanded and quantity supplied of a commodity are equal
are known as:
(a) Equilibrium price (b) Equilibrium quantity
(c) Either (a) or (b) (d) Neither (a) nor. (&)

29
 MICRO ECONOMICS
(MULTIPLE CHOICE QUESTIONS)

1. INTRODUCTION
1. Economics is:
(a) The study of stock and bond market (b) Mainly the study of business firms
(c) The problem of choice under scarcity (d) The study of management decisions

2. In economics, the central problem is :

(a) Scarcity (b) consumption
(c) Money making (d) exchange

3. Microeconomics is not concerned with the behavior of:

(a) National income (b) A consumer
(c) A firm (d) A producer

4. Macroeconomics deals with

(a) The behavior of firms (b) The behaviour of electronics industry
(c) The activities of individual units (d) Economic aggregates

5. Microeconomics deals with which of the following:

(a) The total output of an economy
(b) The measurement of a nations inflation rate
(c) How producers and consumers interact in individual markets
(d) How tax policies influence economic growth

6. Total output of an economy is the sum of total outputs of individual producers. This
statement pre
that:
(a) Macroeconomics depends on micro economics
(b) There is no correlation between micro and macro economics
(c) Study of micro and macro economics is independent of each other
(d) Microeconomics is dependent on macroeconomics

7. Which of the following is not an economic problem faced by a country?

(a) Alternate uses of limited resources (b) Unlimited wants
(c) Scarce wants (d) Limited resources

8- In a centrally planned economy, all the economic decisions are taken by

the:
(a) Consumers (b) Government
(c) Market force (d) Capitalists

9. The central problem of how to produce is a problem of choice regarding:

(a) Distribution (b) Technique of production
(c) Quantity to be produced (d) Commodities to be produced

30
10. The government of India decided to produce 1000 million quintals of wheat this year.
The dec-
regarding quantity of production is a part of which central problem of the economy:
(a) What to produce . (b) How to produce
(c) For whom to produce (d) None of the above

11. Opportunity cost is:

(a) The additional benefit of buying an additional unit of a product
(b) The cost incurred in the past before we make a decision about what to do in future
(c) A cost that is born in term of discomfort and pain while supplying factors of
production
(d) That which we forgo, or give up, while making a choice or a decision

12. The opportunity cost of watching a movie will be equal to;

(a) The time lost while watching the show
(b) The pleasure that could have been enjoyed watching TV instead
(c) The pleasure enjoyed by watching the show
(d) The amount paid to buy the tickets

13. When there is an improvement in technology, holding everything else constant:

(a) The production possibilities frontier shifts inward
(b) The production possibilities frontier shifts upward
(c) The production possibilities frontier remains the same
(d) The production possibilities frontier shifts downwards

14. Many people have died and large number factories destroyed because of a severe
earthquake in a country. How will it affect the country's PPC?
(a) Its PPC will shift to the right (b) Its PPC will shift to the left
(c) Economy will operate inside PPC (d) PPC will not be affected with this change

15. The reason behind a rightward or outward shift of PPC could be:
(a) Growth of resources (b) Technological advancement
(c) Either (a) or (b) or both (d) Fall in resources or obsolete technology

16. The reason behind the concave shape of PPC is:

(a) Increasing marginal opportunity cost (b) Falling marginal rate of transformation
(c) Falling marginal opportunity cost (d) Constant marginal rate of transformation

17. PPC will be a straight line when MOC will be:

(a) Falling (b) Rising
(c) Constant (d) Zero

31
 CH -2. CONSUMER'EQUILIBRIUM AND DEMAND

1. How is MU expressed mathematically?

(a) MUn = TUn-TUn_1 (b) MUn = TU
(c) MUn = TUn + TUn_1 (d) MUn = TUn-1- TUn

2. Additional utility derived from the consumption of an additional unit of a commodity is

called:
(a) Average utility (b) Total utility
(c) Marginal utility (d) None

3. According to law of diminishing marginal utility, while eating cake the satisfaction
derived from the second slice of it :
(a) Greater than the consumption of first slice
(b) Less than the consumption of first slice
(c) No comparable to that from the first
(d) Equal to that from first

4. Hitesh buys pizza and coke. The marginal utility of last piece of pizza is 80 utils and of last
sip of coke is 40 utils. The price of pizza is ? 40 and that of coke is ? 20. This means that
Hitesh is buying:
(a) More pizza and less coke (b) More coke and less pizza
(c) Both at optimal level (d) Same quantity of both

5. What happens to MU when TU is maximum?

(a) MU becomes zero (b) MU becomes negative
(c) MU declines (d) MU remains same

6. The slope of indifference curve is equal to:

(a) Marginal utility (b) Marginal rate of substitution
(c) One (d) None of the above

7. Why is indifference curve convex to origin?

(a) Due to law of diminishing marginal utility
(b) Due to monotonic preferences
(c) Due to the continuous decline of marginal rate of substitution
(d) Both a and b

8. It is the property of indifference curve that no two indifference curves can intersect each
other. The reason behind this is:
(a) Consumer preferences are monotonic
(b) Preferences are complete
(c) Same combination of two goods cannot give different level of satisfaction
(d) Diminishing marginal rate of substitution

9. Slope of budget line is:

(a) Px/Py (b) Py/Px
(c) MRS (d) Px.Py
32
10. Which of the following is not the property of indifference curve?
(a) Higher the indifference curve higher the level of satisfaction
(b) Two indifference curves cannot intersect each other
(c) Indifference curve is concave to origin
(d) Indifference curve is downward sloping

11. According to law of demand, other things being constant:

(a) There exists negative relationship between quantity demanded and price of a
commodity
(b) With increase in price, there is rightward shift in demand curve
(c) There exists positive relationship between quantity demanded and price of a
commodity
(d) With increase in price, there is leftward shift in demand curve

12. A rise in income of the consumer X leads to a fall in the demand for that good by that
consumer. What is the good A called?
(a) Complementary good (b) Substitute good
(c) Inferior good (d) Normal good

13. How will the demand of sugar change if price of tea rises?
(a) Decrease because both the goods are complementary
(b) Increase because both the goods are substitutes
(c) Not change unless the price of sugar changes
(d) None of the above

14. Goods X and Y are complementary while goods X and Z are substitutes. What will
happen to goods Y and Z if price of good X increases :
(a) The demand for good Y will decrease and for Z will increase
(b) The demand for both goods Y and Z will decrease
(c) The demand for both goods Y and Z will increase
(d) The demand for good Y will increase and for Z will decrease

15. When demand for a good falls due to rise in its own price, what is the change in demand
called?
(a) Fall in quantity demanded (b) Contraction of demand
(c) Fall in demand (d) Both a and b

16. The price of good X and the quantity demanded of Y bear a positive relationship between
each other.
What could be the reason behind that?
(a) X and Y are substitutes (b) X and Y are complementary goods
(c) Y is an inferior good while X is an normal good (d)None of the above

17. What causes rightward shift in the demand curve?

(a) Fall in the price of the good (b) Fall in the price of substitute good
(c) Fall in the price of complementary good (d) Both (b) and (c)

18. Market demand curve for soups is given and known to us. With the onset of cold
weather, price remaining the same the consumer would:
(a) Move to a higher demand curve (b) Move downward along same demand
(c) Move to a lower demand curve (d) Move upward along the same demand
33
19. Price elasticity of demand is defined as:
(a) The ratio of change in price to change in quantity demanded
(b) Ratio of change in quantity demanded to change in price
(c) Ratio of percentage change in quantity demanded to percentage change in price
(d) Ratio of proportionate change in price due to proportionate change in quantity
demanded

20.What will be the elasticity of demand curve that is a horizontal line parallel to x-axis?
(a) Zero (b) Unity
(c) Ed > 1 {d) Infinity

21.What is the value of elasticity of demand on rectangular hyperbola demand curve?

(a) Infinity (b) Unity
(c) Zero (d) Ed>l

22. The value of price elasticity of demand for a demand curve with vertical line parallel to y-
axis is:
(a) Zero (b) Infinity
(c) One (d) Less than one

23. Total expenditure by Ashmin remains the same even after the price of apples fall.
According to total expenditure approach, what could be the elasticity of demand?
(a) Perfectly elastic (b) Perfectly inelastic
(c) Unitary elastic (d) More than unitary elastic

24. Demand for water is inelastic because:

(a) it is abundant (b) it is necessity
(c) its use can be postponed (d) None of the above

34
 CH-3 PRODUCER'S BEHAVIOUR AND SUPPLY
1. A production function states that there exists a technical relationship between:
(a) Input prices and output prices
(b) Input prices and quantity of output
(c) The quantity of inputs and the quantity of output
(d) The quantity of inputs and input prices

2. When average product decreases, the marginal product is always:

(a) greater than average product (b) less than average product
(c) increasing (d) decreasing

3. Whenever marginal product is less than average product, the average product must be:
(a) Rising (b) Falling
(c) Equal to marginal product (d) None of the above

4. According to the law of variable proportions, total product is maximum when:

(a) Marginal product is zero (b) Marginal product is equal to average product
(c) Slope of marginal product is zero (d) Marginal product becomes negative

5. The formula to calculate Marginal product from Total product is:

(a) MPn = TPn+1 - TPn (b) MPn = TPn - TPn_1
(c) MP= TP (d) MP = TP/units of variable factor

6. Whenever MP falls and is positive, TPP changes at what rate?

(a) TPP rises at increasing rate (b) TPP rises at diminishing rate
(c) TPP decreases after reaching its maximum (d) None of the above

7. According to the law of returns to factor, third stage of production begins when:
(a) TPP starts falling (b) MPP starts falling
(c) APP starts falling (d) MPP becomes equal to APP

8. What happens to ATC when marginal cost is greater than ATC ?

(a) ATC rises (b) ATC falls
(c) Slope of ATC becomes constant (d) None of the above

9. What can be said about the relationship between marginal cost and average cost, when
average cost is rising?
(a) Marginal cost is equal to average cost
(b) Marginal cost is greater than average cost
(c) Marginal cost is less than average cost
(d) None of the above

10. The expenditure incurred on the factors of production supplied by the entrepreneur
himself comes under:
(a) Implicit cost (b) Explicit cost
(c) Fixed cost (d) Variable cost

35
11. In the short run, when a firm produces zero output, its total cost is equal to:
(a) Zero (b) Variable cost
(c) Fixed cost (d) Marginal cost

12. Which among the following cost do not change when the output changes in the short
run?
(a) Average variable cost (b) Total variable cost
(c) Average fixed cost (d) Total fixed cost

13. At any given rate of output, the difference between total cost and fixed cost is :
(a) Equal to marginal cost (b) Equal to average variable cost
(c) Zero in the short run (d) Total variable cost

14. Average total cost curve cannot intersect average variable cost curve because:
(a) There difference is equal to average fixed cost
(b) Average fixed cost can never be zero
(c) Both (a) and (b)
(d) None of the above

15. At what point does SMC curve intersect SAC curve?

(a) At the minimum of SAC (b) At the minimum of SMC
(c) At the maximum of SAC (d) None of the above

16. Whenever marginal revenue becomes negative, total revenue:

(a) Becomes maximum • (b) Starts Increasing
(c) Starts Decreasing (d) Remains constant

17. For a perfectly competitive market, price would be equivalent to:

(a) Average revenue (b) Marginal revenue
(c) Total revenue (d) Both {a) and (b)

18. The relationship between average revenue and marginal revenue under perfect
competition is:
(a) Average revenue is greater than marginal revenue
(b) Average revenue is less than marginal revenue
(c) average revenue is equal to marginal revenue
(d) none of the above

19. How does total revenue behave when marginal revenue falls but remains positive?
(a) Total revenue increases (b) Total revenue decreases
(c) Total revenue becomes maximum (d) Total revenue is constant

20. The average revenue curve under monopoly is:

(a) A straight line parallel to x-axis (b) A downward sloping straight line
(c) An upward sloping straight line (d) A straight line parallel to y-axis

36
21. One of the condition of producer equilibrium for a firm under perfectly competitive market
is:
(a) MR = MC (b) MR = AR
(c) MC=AR (d) None

22. At a particular level of output, a producer finds that MC < MR. What will a producer do to
maximize his profits?
(a) Producer will increase the production
(b) Producer will reduce his production
(c) Producer will make no change in production as he is already getting maximum profit
(d) None of the above

23. Profit of a producer under perfect competition is maximum at a level where P= MC and
MC is:
(a) decreasing (b) constant
(c) increasing (d) equal to MR

24. Under imperfect competition, producer equilibrium can be achieved at a point where:
(a) MR = MC=AR (b) MR=MC
(c) MC<MR (d) None of the above
25.Other things being constant, there exists relationship between price and quantity
supplied.
(a) Direct (b) Negative
(c) Proportionate (d) Cannot be explained

26.If supply curve shifts towards right, it means that there is:
(a) A decrease in supply (b) An increase in quantity supplied
(c) Increase in supply (d) Decrease in quantity supplied
27.Change in supply refers to:
(a) An Upward or downward shift in supply curve
(b) An Upward shift in supply curve
(c) An Upward or downward movement along the supply curve
(d) A Downward movement along the supply curve

28.An increase in quantity supplied refers to a situation where the producers are willing to
supply:
(a) A larger quantity of the commodity at decreased price
(b) A larger quantity of the commodity at increased price of inputs
(c) A larger quantity of the commodity at increased price of related goods
(d) A larger quantity of the commodity at increased price

29.Due to improvement in technology, the marginal cost of production of televisions has gone
down. How will it affect the supply curve of television?
(a) Supply curve will shift towards left
(b) There will be downward movement along a supply curve
(c) Supply curve will shift towards right
(d) There will be upward movement along a supply curve
37
30.If a farmer grows rice and wheat, how will an increase in price of wheat affect the supply
curve of rice?
(a) Supply curve of rice will shift towards left
(b) Supply curve of rice will shift towards right
(c) Supply curve of rice will remain the same
(d) There will be downward movement along the supply curve of rice

31.Government decided to increase excise duty on the production of goods. What will be its
impact on the supply of goods?
(a) Supply of goods will increase
(b) Supply of goods will decrease
(c) There will be no impact on the supply of goods
(d) None of the above

32.Due to change in price, if there is more than proportionate change in quantity supplied,
the supply is considered to be:
(a) Perfectly elastic (b) Relatively inelastic
(c) Relatively elastic (d) Perfectly inelastic

33.A manufacturer supplies goods in such a way that if the price rises by 10 %, they are
prepared to
supply 15 % more. In this case, elasticity will be best described as:
(a) Inelastic (b) More than unitary elastic
(c) Perfectly elastic (d) Unitary elastic

38
 CH- 4. FORMS OF MARKET AND PRICE DETERMINATION UNDER
PERFECT COMPETITION WITH SIMPLE APPLICATIONS

1 .Perfect competition is a form of market in which there are:

(a) A few firms producing identical goods
(b) Many firms producing differentiated goods
(c) A few firms producing goods that differ somewhat in quality
(d) Many firms producing identical goods

2. In perfect competition:
(a) There are barriers on the entry of new firms
(b) Each firm can influence the price of the good
(c) There are few buyers
(d) All the firms in the market sell their product at the same price

3. How does AR curve under perfectly competitive market looks like?

(a) Downward sloping (b) Straight line parallel to X-axis
(c) Upward sloping (d) Straight line parallel to Y-axis

4. The number of buyers and sellers in the industry are large, this implies that:
(a) Firm is a price taker (b) Firm is a price maker
(c) Firms earn normal profits (d) Both a and b

5. What is the shape of TR curve under perfectly competitive market?

(a) Straight line parallel to X- axis
(b) Straight line parallel to Y- axis
(c) Upward sloping straight line passing through origin
(d) Negative downward sloping

6. There is no role of selling cost under perfectly competitive market. This is because
in this market form:
(a) There are large number of buyers and sellers
(b) Goods sold are homogeneous
(c) There is freedom of entry and exit of firms
(d) None of the above

7. Under conditions of perfect competition:

(a) Sellers have perfect knowledge about market conditions
(b) Buyers have perfect knowledge about market conditions
(c) Both buyers and sellers have perfect knowledge about market conditions
(d) Neither buyers nor sellers have perfect knowledge about market conditions

8. There are many wheat farms, each of whom produces the same product. The
wheat market can best be classified as:
(a) Monopolistic competition (b) Perfect competition
(c) Oligopoly (d) Monopoly

39
9. Perfect competition is characterized by all the following except:
(a) Well informed buyers and sellers with respect to price
(b) Large number of buyers and sellers
(c) No restrictions on entry and exit of firms
(d) Considerable advertising by individual firms

10. The price at which quantity supplied and quantity demanded are same is termed
as:
(a) Equilibrium price (b) Market price
(c) Both (a) and (b) (d) None of the above

11. If market price is above equilibrium price, there exists a situation of:
(a) Excess supply (b) Excess demand
(c) Price ceiling (d) Both A and C

12. When demand increases with no change in supply, equilibrium price and
equilibrium quantity__________________:
(a) Rises, rises (b) Rises, falls
(c) Falls, falls (d) Falls, rises

13. Price ceilings are primarily targeted to help ______________________ , while

price floor generally benefit __________
(a) Producers, consumers
(b) Increase in tax revenue for government, producers
(c) Consumers, producers
(d) Consumers, consumers

14. Which of the following is not the feature of monopoly market?

(a) No close substitutes (b) Barriers to entry
(c) Influence over price (d) Large number of buyers and sellers

15. Define patent.

(a) It is a guarantee of quality to consumers
(b) It is an exclusive right to an inventor of a product
(c) It is a control over some unique source
(d) None of these

16. Monopolistic competition is different from perfect competition because of:

(a) Large number of firms in industry
(b) Lack of barriers to entry and exit of firms
(c) Differentiation of the product
(d) Lower level of price competition in monopolistic competition

17. Feature of oligopoly that differentiates it from the other three models of market
behavior is that:
(a) There is a small number of firms
(b) Product is differentiated
(c) There are barriers to entry and exit of firms
(d) There are large and small firms in the industry

40
18. The motive of a cartel is to regulate the:
(a) Quality of the product (b) Demand for a product
(c) Output and sales of a product (d) Wages of the workers

19. The soft drink market is dominated by coke, pepsi and very few other firms. The
firms often start price wars. The market can best be classified as:
(a) Perfect competition (b) Monopolistic competition
(c) Oligopoly (d) Monopoly

20. Which of the following could be the characteristic of an oligopoly market?

(a) A few firms (b) High barriers to entry
(c) Price rigidity (d) All the above

21. How could an oligopolist increase its output without changing price?
(a) Reduce output (b) Reduce marketing efforts
(c) Through non price competition (d) Reduce costs

22. In which of the following market structures does a firm produce a unique product
for which there are no close substitutes:
(a) Perfect competition (b) Monopolistic competition
(c) Oligopoly (d) Monopoly

23. In which of the following market structures are entry barriers the highest?
(a) Perfect competition (b) Monopolistic competition
(c) Oligopoly (d) Monopoly

24. A monopolistic competitive firm has ___ power to set the price of its product
because::
(a) No; there are barriers to entry (b) Some; there are barriers to entry
(c) Some; of product differentiation (d) No; of product differentiation

25. AR and MR curves are downward sloping under:

(a) Monopoly (b) Monopolistic competition
(c) Perfect competition (d) Both (a) and (b)

26. Collusive oligopoly refers to a situation:

(a) Where firms cooperate with each other rather than compete in setting price
and output
(b) Where firms compete with each other and follows its own price and output
policy
(c) Every firm tries to increase its market share through competition
(d) None of the above

27. A price ceiling is:

(a) A minimum price that a firm may charge for a good or service
(b) Usually established by the manufacturer of a product
(c) The maximum price that a firm may charge for a good or service
(d) None of the above

41
28. Price ceilings are generally used to:
(a) Benefit the sellers of certain goods (b) Increase government revenue
(c) Benefit the buyers of certain goods (d) None of the above

29. An attempt to set a minimum price for a good is called a:

(a) Price floor (b) Price ceiling
(c) Price subsidy (d) Both a and c

30. Rent control is an example of:

(a) Price floors (b) Price ceiling
(c) Equilibrium prices (d) None of the above

42
 EVALUATION AND MULTI DISCIPLINARY QUESTIONS
PART-A (MICRO ECONOMICS )
UNIT-1 (INTRODUCTION)
Q.1. Unemployment is reduced due to the measure taken by the government. State
its economic value in the context of production possibilities frontier.
Q.2. The government has started promoting foreign capital. What is its economic
value in the context of Production Possibilities Frontier ?
Q.3. Large number of technical training institutions have been started by the
government. State its economic value in-the context of production possibility
frontier.
Q.4. An economy has made a choice between the production of consumer goods or
capital goods and is producing sugar (consumer good). The economy also
decides the quantity of sugar to be produced. Which economic value does the
economy indicate.
Q.5. An economy is involved in production of cloth. This production is possible either
by handlooms or by modern machines. The economy chooses to use labour
intensive techniques, i.e. production of cloth by handloom more than machine.
By doing so, the economy was able to produce at less cost. Which economic
value does the economy indicate?
Q.6. Multi National Corporations in India are driven by profit motive and they produces
goods relatively for the riches section of the society. Which economic value is being
disturbed?
Q.7. An increase in the labour productivity causes the PPC to shift to the right. Which
economic value is being indicated?
Q.8 In every economy there are three problems. As these are basic and common to
all economies so these are also known as central problems of economy. One of
the central problem emphasizes which technique viz. capital intensive or labour
intensive is to be used for production of good.
(i) Identify the central problem highlighted above.
(ii) What do you mean by the labour intensive technique?
(iii) Highlight the value if an economy promotes labour intensive techniques.
Q.9 Production in an economy is below its potential due to unemployment.
Government starts employment generation schemes. Explain its effect using
production possibilities curve.
Q.10. PPC is concave from the origin and describes how an economy can produce
more of two goods which are fixed in the economy. The production of goods
should take place at some point on PPC.
(i) Give reason why PPC is concave to the origin.
(ii) Give reason for leftward shift of PPC.
(iii) Name the value which is emphasized when production of good takes place
somewhere on PPC.

43
 UNIT-2 (CONSUMER BEHAVIOUR AND DEMAND)

Q.1. In case of petrol when price increases demand also increases. But this is
violating the law of demand as law of demand. State that as price increases
demand falls. Give reasons for your answer. Identify the value involved.
Q.2. Abhay wants to drink a cup of tea but he finds the price of coffee to be lower.
Which of the two hot beverages will be more beneficial to consume?
Q.3. Consuming cigarette is harmful for the health yet people are ready to pay even
high prices for it. Give reason.
Q.4. Government introduced low floor AC buses at an affordable price. What is the
objective of government behind this?
Q.5 One of the factors influencing demand for a good by an individual is 'income of
the consumer'. Mudit, a consumer likes a particular good but Rohit, another
consumer does not like the same good because his income as compared to
Mudit is high.
(i) Identify the value which has been affected by unequal distribution
of income.
(ii) List the other factors influencing the demand for a good.

UNIT-3 (PRODUCER BEHAVIOUR AND SUPPLY)

Q.1. The seller has some moral responsibility while serving the society. List
the moral responsibility of the seller.
Q.2. Mr. Subodh Kumar Aggarwal, Director of Pantene Ltd. was worried about
how to maximise his profit. He decided to consult an economist regarding
the same. What possible measures would have the economist told ?
Q.3. For the construction of a factory a private contractor decided to cut
numerous trees for the setting up of the factory. The residents of the area
did not agree to it because of the cost it has to pay for it. Identify the value
being disturbed above.
Q.4 According to the law of variable proportion, there all three phases in the
change of TP on account of increase in variable input. In the first phase TP
increases at an increasing rate. Here MP also increases. In the beginning of
the phase, quantity of variable input is so small that fixed inputs cannot be
effectively utilized. Assuming that the variable input to be workers and as
numbers of workers increase, each worker is assigned a specialized task
which leads to increase in efficiency of the workers.
(a) State the law of variable proportion.
(b) Identify the value emphasized in Phase-I.

44
Q.5 As the output increases there are two phases in the changing behaviour of TVC.
In the first phase, TVC rises at decreasing rate that is every new unit of output
produced involves a lower cost. In the second phase TVC rises at an increasing
rate.

(a) State the reasons for rising of TVC at deceasing rate in the first phase.
(b) State the reasons for increase of TVC at increasing rate in the second phase.
(c) Identify the value which led to lowering cost of every new unit of output
produced in first phase in the changing behavior of TVC.

UNIT- 4 (FORMS OF MARKET AND PRICE DETERMINATION)

Q.1 Indian Railways is the monopoly for the Indian government not for the profit motive
but for social welfare as it wants all the section of the society to use this means of
transport. Which economic value is being indicated above?
Q.2. The equilibrium price of exhaustible sources of energy like LPG, CNG etc. is rising
continuously. Which economic value should be followed to being there prices in
control?
Q.3. The consumers benefit from non-collusive oligopoly than collusive oligopoly as
the price changed is higher than in case of non collusive oligopoly. Government
also discourages collusive oligopoly. Indentify the value being kept in mind by
the Government.
Q.4 In one of the market form, there
(i) is only one producer of a product
(ii) is no close substitute
(iii) are barriers to the entry of new firms.
(a) Name the form of market highlighted above.
(b) The barriers to entry into industry for new firms may be due to some government
orders as in the case of production of defense goods. Identify the value which
is being emphasized by not allowing firms producing defense goods.
(c) In your opinion suggest whether producing defense goods by Government is
valid? Give reason.
Q.5 In one of the market form (i) there is a large number of sellers and buyers, (ii) all firms
produce homogeneous products, (iii) there is perfect knowledge about market and
technology and (iv) there is complete freedom of entry and exit for firms in the long
run.
(a) Name the form of market highlighted above.
(b) In the market form identified above, an individual firm is called 'price taker'. Give
reason.
(c) Identify the value which is being highlighted in the feature allowing complete
freedom of entry and exit for firms in the long run.
45
Q.6 Factors such as large number of buyers and sellers, the differences in products,
knowledge about market and the freedom of starting or closing down the business
collectively determine the particular form a market assumes. However, in two forms
of the markets, there are (i) large number of buyers and seller, (ii) perfect knowledge
about market and technology and (iii) freedom of entry and exit of firms.

(a) Name the two forms of markets highlighted above.

(b) Despite of above similarities, the two forms of markets identified in (a) above
can be distinguished on one feature. Name it.
(c) In monopoly market situations there is a single seller, no close substitute and
there are barriers to the entry of new firms. In your opinion highlight the value
which is being affected.

46