All Icai MCQ Final

CA Foundation- All ICAI MCQ
necessary to increase our ability to satisfy

Chapter 1- wants.
Introduction to 5. Which of the following is a normative

statement?
Business Economics a) Planned economies allocate resources via
government departments.
1. Economists regard decision making as
important because: b) Most transitional economies have experienced
problems of falling output and rising prices
a) The resources required to satisfy our
over the past decade.
unlimited wants and needs are finite, or
scarce. c) There is a greater degree of consumer
sovereignty in market economies than planned
b) It is crucial to understand how we can best
economies.
allocate our scarce resources to satisfy
society’s unlimited wants and needs. d) Reducing inequality should be a major priority
for mixed economies.
c) Resources have alternative uses.
d) All the above.
6. In every economic system, scarcity imposes
limitations on
2. Business Economics is________________ a) households, business firms, governments, and
a) Abstract and applies the tools of the nation as a whole.
Microeconomics. b) households and business firms, but not the
b) Involves practical application of economic governments.
theory in business decision making. c) local and state governments, but not the
c) Incorporates tools from multiple disciplines. federal government.
d) households and governments, but not business
d) (b) and (c) above.
firms.
3. In Economics, we use the term scarcity to mean;

7. Macroeconomics is also called____________
a) Absolute scarcity and lack of resources in less economics.
developed countries.
a) Applied
b) Relative scarcity i.e. scarcity in relation to the
b) Aggregate
wants of the society.
c) Experimental
c) Scarcity during times of business failure and
natural calamities. d) none of the above
d) Scarcity caused on account of excessive

consumption by the rich. 8. An example of ‗positive‘ economic analysis would
be:
4. What implication(s) does resource scarcity have

a) an analysis of the relationship between the
price of food and the quantity purchased.
for the satisfaction of wants?
a) Not all wants can be satisfied. b) determining how much income each person
should be guaranteed.
b) We will never be faced with the need to make
choices. c) determining the ‘fair’ price for food.
c) We must develop ways to decrease our d) deciding how to distribute the output of the
individual wants. economy.
d) The discovery of new natural resources is
CA ADITYA SHARMA 7887788707 V SMART ACADEMY Page 1

9. A study of how increases in the corporate 14. The branch of economic theory that deals with
income tax rate will affect the national the problem of allocation of resources is
unemployment rate is an example of
a) Micro-Economic theory.
a) Macro-Economics.
b) Macro-economic theory.
b) Descriptive Economics.
c) Econometrics.
c) Micro-economics.
d) none of the above.
d) Normative economics.
15. Which of the following is not the subject matter

10. Which of the following does not suggest a of Business Economics?
macro approach for India?
a) Should our firm be in this business?
a) Determining the GNP of India.
b) How much should be produced and at price
b) Finding the causes of failure of ABC Ltd.
should be kept?
c) Identifying the causes of inflation in India.
c) How will the product be placed in the market?
d) Analyse the causes of failure of industry in
d) How should we decrease unemployment in the
providing large scale employment
economy?
11. In this conversation, the normative statement is

made by 16. Which of the following is a normative economic
statement?
a) Ram: My corn harvest this year is poor.
a) Unemployment rate decreases with
b) Krishan: Don’t worry. Price increases will
industrialization
compensate for the fall in quantity supplied.
b) Economics is a social science that studies
c) Vinod: Climate auects crop yields. Some years
human behaviour.
are bad, others are good.
c) The minimum wage should be raised to `200/-
d) Madhu: The Government ought to guarantee
per day
that our income will not fall.
d) India spends a huge amount of money on
national defense.
12. Consider the following and decide which, if any,
economy is without scarcity:
17. Which of the following would be considered a
a) The pre-independent Indian economy, where
topic of study in Macroeconomics?
most people were farmers.
b) A mythical economy where everybody is a

a) The effect of increase in wages on the
profitability of cotton industry
billionaire.
c) Any economy where income is distributed b) The effect on steel prices when more steel
equally among its people. is imported
d) None of the above. c) The effect of an increasing inflation rate on

living standards of people in India
d) The effect of an increase in the price of

13. Which of the following is not a subject matter
coffee on the quantity of tea consumed
of Micro-economies?
a) The price of mangoes.
b) The cost of producing a fire truck for the fire
department of Delhi, India.
c) The quantity of mangoes produced for the

mangoes market.
d) The national economy’s annual rate of growth.

18. The difference between positive and normative 22. In a free market economy the allocation of
Economics is: resources is determined by
a) Positive Economics explains the performance of a) voting done by consumers

the economy while normative Economics finds b) central planning authority.
out the reasons for poor performance.
c) consumer preferences.
b) Positive Economics describes the facts of
the economy while normative Economics d) the level of profits of firms.
involves evaluating whether some of these
are good or bad for the welfare of the people.
23. A capitalist economy uses a
c) Normative Economics describes the facts of
a) Demand
the economy while positive Economics involves
evaluating whether some of these are good or b) Supply
bad for the welfare of the people.
c) Efficiency
d) Positive Economics prescribes while d) prices
normative Economics describes.
24. Which of the following is considered as a

19. Which of the following is not within the disadvantage of allocating resources using the
scope of Business Economics? market system?
a) Capital Budgeting a) Income will tend to be unevenly distributed.
b) Risk Analysis b) People do not get goods of their choice.
c) Business Cycle c) Men of Initiative and enterprise are not
rewarded.
d) Accounting standard
d) Profits will tend to be low.
20. Which of the

following statement 25. Which of the following statements does not
is incorrect? apply to a market economy?
a) Business economics is normative in nature. a) Firms decide whom to hire and what to
produce.
b) Business Economics has a close connection
with statistics. b) Firms aim at maximizing profits.
c) Business Economist need not worry about c) Households decide which firms to work for
macro variables. and what to buy with their incomes.
d) Business Economics is also called Managerial d) Government policies are the primary forces
Economics. that guide the decisions of firms and
households.
21. Economic goods are considered scarce

26. In a mixed economy
resources because they
a) all economic decisions are taken by the
a) cannot be increased in quantity.
central authority.
b) do not exist in adequate quantity to satisfy the
b) all economic decisions are taken by private
requirements of the society.
entrepreneurs.
c) are of primary importance in satisfying social c) economic decisions are partly taken by the
requirements.
state and partly by the private entrepreneurs.
d) are limited to man made goods. d) none of the above.

27. The central problem in economics is that of b) Capitalism
a) comparing the success of command versus c) Mixed economy
market economies.
d) Communism
b) guaranteering that production occurs in the
most eflcient manner. 32. Macro Economics is the study of
c) guaranteering a minimum level of income for a) all aspects of scarcity.
every citizen.
b) the national economy and the global economy
d) allocating scarce resources in as a whole.
such a manner that society’s
c) big businesses.
unlimited needs or wants are
satisfied in the best possible d) the decisions of individual businesses and
manner. people.
28. Capital intensive technique would get chosen in
a 33.Freedom of choice is the advantage of
a) labour surplus economy where the relative a) Socialism
price of capital is lower.
b) Capitalism
b) capital surplus economy where the relative
c) Communism
price of capital is lower.
d) None of the above
c) developed economy where technology is
better.
34. Exploitation and inequality are minimal under:
d) developing economy where technology is
poor. a) Socalism
b) Capitalism
29. Which of the following is not one of c) Mixed Economy

the four central questions that the
study of economics is supposed to
answer?
a) Who produces what? 35. Administered prices refer to:
b) When are goods produced? a) Price determined by forces of Market Demand

and supply
c) Who consumes what?
b) Price determined by seller in the market
d) How are goods produced?
c) Price determined by external authorities which
is usually government
30. Larger production of goods would
lead to higher production in future.
a) consumer goods
b) capital goods
MY Notes
c) agricultural goods
d) public goods
31. The economic system in which

all the means of production are
owned and controlled by
private individuals for profit.
a) Socialism

d) 2
Chapter 2- Utility Analysis 6. The Law of Demand, assuming other things to
remain constant, establishes the relationship
Chapter 3- Demand Analysis between:
a) income of the consumer and the quantity of a

Chapter 4- Theory of Supply good demanded by him.
1. Demand for a commodity refers to: b) price of a good and the quantity demanded.
a) desire backed by ability to pay for the c) price of a good and the demand for its
commodity. substitute.
b) need for the commodity and willingness to pay d) quantity demanded of a good and the relative
for it. prices of its complementary goods.
c) the quantity demanded of that commodity at a 7. Identify the factor which generally keeps the
certain price. price-elasticity of demand for a good low:
d) the quantity of the commodity demanded at a a) Variety of uses for that good.
certain price during any particular period of
time. b) very low price of a commodity.
c) Close substitutes for that good.

2. Contraction of demand is the result of: d) High proportion of the consumer’s income spent
a) decrease in the number of consumers. on it.
b) increase in the price of the good concerned. 8. Identify the co-efficient of price-elasticity of
c) increase in the prices of other goods. demand when the percentage increase in the quantity
of a good demanded is smaller than the percentage
d) decrease in the income of purchasers.
fall in its price:
3. All but one of the following are assumed to remain a) Equal to one.
the same while drawing an individual‘s demand curve b) Greater than one.
for a commodity. Which one is it?
c) Smaller than one.
a) The preference of the individual.
d) Zero.
b) His monetary income.
c) Price of the commodity. 9. In the case of an inferior good, the income

elasticity of demand is:
d) Price of related goods.
a) positive.
4. Which of the following pairs of goods is an b) zero.
example of substitutes?
c) negative.
a) Tea and sugar.
d) infinite.
b) Tea and coffee.
c) Pen and ink. 10. If the demand for a good is inelastic, an
increase in its price will cause the total expenditure
d) Shirt and trousers.
of the consumers of the good to:
5. In the case of a straight line demand curve a) remain the same.

meeting the two axes, the price-elasticity of demand b) increase.
at the mid-point of the line would be:
c) decrease.
a) 0
d) any of these.
b) 1
c) 1.5 11. If regardless of changes in its price, the

quantity demanded of a good remains unchanged,

then the demand curve for the good will be:
a) elastic.
a) horizontal.
b) inelastic.
b) vertical.
c) unitarily elastic.
c) positively sloped.
d) perfectly elastic.
d) negatively sloped.
18. If the quantity demanded of mutton increases by
5% when the price of chicken increases by 20%, the
12. Suppose the price of Pepsi increases, we will
cross-price elasticity of demand between mutton and
expect the demand curve of Coca Cola to:
chicken is:
a) shift towards left since these are substitutes.
a) -0.25
b) shift towards right since these are substitutes.
b) 0.25
c) remain at the same level.
c) -4
d) None of the above.
d) 4
13. All of the following are determinants of demand

except: 19. Given the following four possibilities, which one
results in an increase in total consumer expenditure?
a) tastes and preferences.
a) demand is unitary elastic and price falls.
b) quantity supplied.
b) demand is elastic and price rises.
c) income of the consumer.
c) demand is inelastic and price falls.
d) price of related goods.
d) demand is inelastic and prices rises.
14. A movement along the demand curve for soft
drinks is best described as :
20. Which of the following statements about price
a) An increase in demand. elasticity of supply is correct?
b) A decrease in demand. a) Price elasticity of supply is a measure of how

much the quantity supplied of a good responds
c) A change in quantity demanded.
to a change in the price of that good.
d) A change in demand.
b) Price elasticity of supply is computed as the
percentage change in quantity supplied divided
15. If the price of Pepsi decreases relative to the
by the percentage change in price.
price of Coke and 7-UP, the demand for :
c) Price elasticity of supply in the long run would
a) Coke will decrease.
be different from that of the short run.
b) 7-Up will decrease.
d) All the above.
c) Coke and 7-UP will increase.
d) Coke and 7-Up will decrease. 21. Which of the following is an incorrect
statement?
16. If a good is a luxury, its income elasticity of a) When goods are substitutes, a fall in the price
demand is: of one (ceteris paribus) leads to a fall in the
quantity demanded of its substitutes.
a) positive and less than 1.
b) When commodities are complements, a fall in
b) negative but greater than -1.
the price of one (other things being equal) will
c) positive and greater than 1. cause the demand of the other to rise.
d) zero. c) As the income of the consumer increases, the
demand for the commodity increases always and
17. The price of hot dogs increases by 22% and the vice versa.
quantity of hot dogs demanded falls by 25%. This
d) When a commodity becomes fashionable people
indicates that demand for hot dogs is:

prefer to buy it and therefore its demand charges increase, which of the following is likely to
increases. occur?
a) Quantity demanded will fall by a relatively large

22. Suppose the price of movies seen at a theatre amount.
rises from ` 120 per person to ` 200 per person.
b) Quantity demanded will fall by a relatively small
The theatre manager observes that the rise in price
amount.
causes attendance at a given movie to fall from 300
persons to 200 persons. What is the price elasticity c) Quantity demanded will rise in the short run,
of demand for movies? (Use Arc Elasticity Method) but fall in the long run.
a) 0.5 d) Quantity demanded will fall in the short run, but

rise in the long run.
b) 0.8
c) 1.0 27. Suppose the demand for meals at a medium-
priced restaurant is elastic. If the management of
d) 1.2
the restaurant is considering raising prices, it can
expect a relatively:
23. Suppose a department store has a sale on its
silverware. If the price of a plate-setting is reduced a) large fall in quantity demanded.
from ` 300 to ` 200 and the quantity demanded
b) large fall in demand.
increases from 3,000 plate-settings to 5,000 plate-
settings, what is the price elasticity of demand for c) small fall in quantity demanded.
silverware? (Use Arc Elasticity Method) d) small fall in demand.
a) 0.8
28. Point elasticity is useful for which of the
b) 1.0
following situations?
c) 1.25
a) The bookstore is considering doubling the price
d) 1.50 of notebooks.
b) A restaurant is considering lowering the price of

24. When the numerical value of cross elasticity
its most expensive dishes by 50 percent.
between two goods is very high, it means
c) An auto producer is interested in determining
a) The goods are perfect complements and
the response of consumers to the price of cars
therefore have to be used together.
being lowered by rs. 100.
b) The goods are perfect substitutes and can be
used with ease in place of one another.
c) There is a high degree of substitutability 29. A decrease in price will result in an increase in
between the two goods. total revenue if :
d) The goods are neutral and therefore cannot be a) the percentage change in quantity demanded in
considered as substitutes. less than the percentage change in price.
b) the percentage change in quantity demanded is
25. If the local pizzeria raises the price of a
greater than the percentage change in price.
medium pizza from ` 60 to ` 100 and quantity
demanded falls from 700 pizzas a night to 100 c) demand is inelastic.
pizzas a night, the price elasticity of demand for d) the consumer is operating along a linear demand
pizzas is: (Use Arc Elasticity Method) curve at a point at which the price is very low
a) 0.67 and the quantity demanded is very high.
b) 1.5
30. An increase in price will result in an increase in
c) 2.0 total revenue if :
d) 3.0 a) the percentage change in quantity demanded is

less than the percentage change in price.
26. If electricity demand is inelastic, and electricity b) the percentage change in quantity demanded is

greater than the percentage change in price.
c) Constant marginal utility of money.
c) demand is elastic.
d) Consumers would always prefer more of a
d) the consumer is operating along a linear demand particular good to less of it, other things
curve at a point at which the price is very high remaining the same.
and the quantity demanded is very low.
36. The consumer is in equilibrium at a point where
31. Demand for a good will tend to be more elastic the budget line:
if it exhibits which of the following characteristics?
a) is above an indifference curve.
a) It represents a small part of the consumer’s
b) is below an indifference curve.
income.
c) is tangent to an indifference curve.
b) The good has many substitutes available.
d) cuts an indifference curve.
c) It is a necessity (as opposed to a luxury).
d) There is little time for the consumer to adjust 37. An indifference curve slopes down towards right
to the price change. since more of one commodity and less of another
result in:
32. Demand for a good will tend to be more inelastic
a) same level of satisfaction.
if it exhibits which of the following characteristics?
b) greater satisfaction.
a) The good has many substitutes.
c) maximum satisfaction.
b) The good is a luxury (as opposed to a necessity).
d) any of the above.
c) The good is a small part of the consumer’s
income.
38. Which of the following statements is incorrect?
d) There is a great deal of time for the consumer
a) An indifference curve must be downward-
to adjust to the change in prices.
sloping to the right.
33. Suppose a consumer‘s income increases from ` b) Convexity of a curve implies that the slope of
30,000 to ` 36,000. As a result, the consumer the curve diminishes as one moves from left to
increases her purchases of compact discs (CDs) from right.
25 CDs to 30 CDs. What is the consumer‘s income c) The income elasticity for inferior goods to a
elasticity of demand for CDs? (Use Arc Elasticity consumer is positive.
Method)
d) The total effect of a change in the price of a
a) 0.5 good on its quantity demanded is called the
b) 1.0 price effect.
c) 1.5
39. The second glass of lemonade gives lesser
d) 2.0 satisfaction to a thirsty boy. This is a clear case of
a) Law of demand.
34. Total utility is maximum when:
b) Law of diminishing returns.
a) marginal utility is zero.
c) Law of diminishing utility.
b) marginal utility is at its highest point.
d) Law of supply.
c) marginal utility is negative.
40. What will happen in the rice market if buyers
are expecting higher rice prices in the near future?
35. Which one is not an assumption of the theory of a) The demand for rice will increase.
demand based on analysis of indifference curves?
b) The demand for rice will decrease.
a) Given scale of preferences as between di-
c) The demand for rice will be unaffected.
fferent combinations of two goods.
b) Diminishing marginal rate of substitution.

b) total existing stock of the good.
41. In the case of a Giffen good, the demand curve
will be: c) stock available for sale.
a) horizontal. d) amount of the good ordered for sale at a

particular price per unit of time.
b) downward-sloping to the right.
c) vertical.
47. An increase in the supply of a good is caused by:
d) upward-sloping to the right.
a) improvements in its technology.
42. By consumer surplus, economists mean b) fall in the prices of other goods.
a) the area inside the budget line. c) fall in the prices of factors of production.
b) the area between the average revenue and d) all of the above.
marginal revenue curves.
c) the difference between the maximum amount a 48. Elasticity of supply refers to the degree of
person is willing to pay for a good and its market responsiveness of supply of a good to changes in its:
price. a) demand.
d) none of the above. b) price.
43. Which of the following is a property of an indi- c) cost of production.

fference curve? d) state of technology.
a) it is convex to the origin.
b) the marginal rate of substitution is constant as 49. A horizontal supply curve parallel to the quantity
you move along an indifference curve. axis implies that the elasticity of supply is:
c) marginal utility is constant as you move along a) zero.

an indifference curve. b) infinite.
d) total utility is greatest where the 45 degree c) equal to one.
line cuts the indifference curve.
d) greater than zero but less than one.
44. When economists speak of the utility of a
certain good, they are referring to 50. Contraction of supply is the result of:
a) the demand for the good. a) decrease in the number of producers.
b) the usefulness of the good in consumption. b) decrease in the price of the good concerned.
c) the expected satisfaction derived from c) increase in the prices of other goods.
consuming the good. d) decrease in the outlay of sellers
d) the rate at which consumers are willing to
exchange one good for another. 51. Conspicuous goods are also known as:
a) prestige goods.
45. A vertical supply curve parallel to Y axis implies b) snob goods.
that the elasticity of supply is:
c) veblen goods.
a) Zero.
d) all of the above.
b) Infinity.
c) Equal to one. 52. The quantity purchased remains constant
irrespective of the change in income. This is known
d) Greater than zero but less than infinity. as
a) negative income elasticity of demand.

46. The supply of a good refers to:
b) income elasticity of demand less than one.
a) actual production of the good.

c) zero income elasticity of demand. b) Represents a combination of goods which costs
less than the consumer’s income.
d) income elasticity of demand is greater than one.
c) Represents a combination of goods which is
53. As income increases, the consumer will go in for unattainable to the consumer given his/her
superior goods and consequently the demand for money income.
inferior goods will fall. This means:
d) Represents a combination of goods which costs
a) income elasticity of demand less than one. more than the consumers’ income.
b) negative income elasticity of demand.

59. Demand is the
c) zero income elasticity of demand.
a) the desire for a commodity given its price and
those of related commodities.
d) unitary income elasticity of demand.
b) the entire relationship between the quantity
demanded and the price of a good other things
54. When income increases the money spent on
remaining the same.
necessaries of life may not increase in the same
proportion, This means: c) willingness to pay for a good if income is larger
enough.
a) income elasticity of demand is zero.
d) ability to pay for a good.
b) income elasticity of demand is one.

60. If, as people‘s income increases, the quantity
c) income elasticity of demand is greater than one. demanded of a good decreases, the good is called
d) income elasticity of demand is less than one. a) a substitute.
b) a normal good.
55. The luxury goods like jewellery and fancy
articles will have c) an inferior good.
a) low income elasticity of demand d) a complement.
b) high income elasticity of demand

61. The price of tomatoes increases and people buy
c) zero income elasticity of demand tomato puree. You infer that tomato puree and
d) none of the above tomatoes are
a) normal goods.
56. A good which cannot be consumed more than
b) complements.
once is known as
c) substitutes.
a) durable good
d) inferior goods.
b) non-durable good
c) producer good 62. Chicken and -fish are substitutes. If the price
d) none of the above of chicken increases, the demand for fish will
a) increase or decrease but the demand curve for

57. A relative price is chicken will not change.
a) price expressed in terms of money b) increase and the demand curve for -fish will
shift rightwards.
b) what you get paid for babysitting your cousin
c) not change but there will be a movement along
c) the ratio of one money price to another
the demand curve for -fish.
d) equal to a money price
d) decrease and the demand curve for -fish will
shift leftwards.
58. A point below the budget line of a consumer
a) Represents a combination of goods which costs

63. Potato chips and popcorn are substitutes. A rise
the whole of consumer’s income.
in the price of potato chips will —————— the

demand for popcorn and the quantity of popcorn will
——————— 69. An example of a good that exhibit direct price-
demand relationship is
a) increase; increase
a) Giffen goods.
b) increase; decrease
b) Complementary goods.
c) decrease; decrease
c) Substitute goods.
d) decrease; increase
64. If the price of Orange Juice increases, the
demand for Apple Juice will _____________.
70. In Economics, when demand for a commodity
a) increase increases with a fall in its price it is known as:
b) decrease a) contraction of demand.
c) remain the same. b) expansion of demand.
d) become negative. c) no change in demand.
65. An increase in the demand for computers, other
things remaining same, will:
71. The quantity supplied of a good or service is the
a) Increase the number of computers bought. amount that
b) Decrease the price but increase the number of a) is actually bought during a given time period at a
computers bought. given price.
c) Increase the price of computers. b) producers wish they could sell at a higher price.
d) Increase the price and number of computers c) producers plan to sell during a given time period
bought. at a given price.
d) people are willing to buy during a given time

66. When total demand for a commodity whose price
period at a given price.
has fallen increases, it is due to:
a) income effect. 72. Supply is the
b) substitution effect. a) limited resources that are available with the
seller.
c) complementary effect.
b) cost of producing a good.
d) price effect.
c) entire relationship between the quantity
67. With a fall in the price of a commodity: supplied and the price of good.
a) consumer’s real income increases. d) Willingness to produce a good if the technology

to produce it becomes available.
b) consumer’s real income decreases.
c) there is no change in the real income of the 73. In the book market, the supply of books will
consumer. decrease if any of the following occurs except
d) none of the above. a) a decrease in the number of book publishers.
b) a decrease in the price of the book.

68. With an increase in the price of diamond, the
quantity demanded also increases. This is because it c) an increase in the future expected price of the
is a: book.
a) substitute good. d) an increase in the price of paper used.
b) complementary good.
74. If price of computers increases by 10% and
c) conspicuous good. supply increases by 25%. The elasticity of supply is :
d) none of the above. a) 2.5

80. In a very short period, the supply
b) 0.4
a) can be changed.
c) (-) 2.5
b) can not be changed.
d) (-) 0.4
c) can be increased.
75. An increase in the number of sellers of bikes will d) none of the above.
increase the
81. When supply curve moves to the left, it means
a) the price of a bike.
a) Smaller supply at a given price.
b) demand for bikes.
b) larger supply at a given price.
c) the supply of bikes.
c) constant supply at a lower price.
d) demand for helmets.
76. If the supply of bottled water decreases, other
things remaining the same, the equilibrium price —— 82. When supply curve moves to right, it means
————— and the equilibrium quantity ———————
a) supply increases.
a) increases; decreases.
b) supply decreases.
b) decreases; increases.
c) supply remains constant.
c) decreases; decreases.
d) increases; increases.
83. The elasticity of supply is defined as the
77. A decrease in the demand for cameras, other a) responsiveness of the quantity supplied of a
things remaining the same will. good to a change in its price.
a) increase the number of cameras bought. b) responsiveness of the quantity supplied of a

good without change in its price.
b) decrease the price but increase the number of
cameras bought. c) responsiveness of the quantity demanded of a
good to a change in its price.
c) increase the price of cameras.
d) responsiveness of the quantity demanded of a
d) decrease the price and decrease in the number
good without change in its price.
of cameras bought.
84. Elasticity of supply is measured by dividing the

78. If good growing conditions increases the supply
percentage change in quantity supplied of a good by
of strawberries and hot weather increases the
——————————
demand for strawberries, the quantity of
strawberries bought a) Percentage change in income.
a) increases and the price might rise, fall or not b) Percentage change in quantity demanded of
change. goods.
b) does not change but the price rises. c) Percentage change in price.
c) does not change but the price falls. d) Percentage change in taste and preference.
d) increases and the price rises.

85. Elasticity of supply is zero means
79. Comforts lies between a) perfectly inelastic supply.
a) inferior goods and necessaries. b) perfectly elastic supply.
b) luxuries and inferior goods. c) imperfectly elastic supply.
c) necessaries and luxuries. d) none of the above.

86. Elasticity of supply is greater than one when

a) proportionate change in quantity supplied is
more than the proportionate change in price.
The prices of these two commodities respectively
are:
b) proportionate change in price is greater than
the proportionate change in quantity supplied. a) 10 and ` 20
c) change in price and quantity supplied are equal. b) ` 20 and ` 10
d) None of the above. c) ` 10 and ` 5
d) Any of the above.

87. If the quantity supplied is exactly equal to the
91. Which of the following statements about price
relative change in price then the elasticity of supply
elasticity of demand is correct?
is
a) Price elasticity of demand is a measure of how
a) less than one.
much the quantity demanded of a good responds
b) greater than one. to a change in the price of that good.
c) one. b) Price elasticity of demand is computed as the
d) none of the above. percentage change in quantity demanded divided
by the percentage change in price.
88. The price of a commodity decreases from ` 6 to c) Price elasticity of demand in the long run would
` 4 and the quantity demanded of the good increases be different from that of the short run.
from 10 units to 15 units, find the coefficient of
d) All the above.
price elasticity. (Use Point Elasticity Method)
a) 1.5 92. The aim of the consumer in allocating his income
b) 2.5 is to ____________________.
c) -1.5 a) maximize his total utility.
d) 0.5 b) maximize his marginal utility.

c) to buy the goods he wants most whatever the
89. The supply function is given as Q= -100 + 10P. price.
Find the elasticity using point method, when price is
d) to buy the goods which he expects to be short
` 15.
in supply.
a) 4
b) -3 93. At higher prices people demand more of certain
goods not for their worth but for their prestige
c) -5 value – This is called
d) 5 a) Veblen effect.
b) Giffens paradox.
90. The figure below shows the budget constraint
of a consumer with an income of ` 900/- to spend c) speculative effect.
on two commodities, namely ice cream and d) none of the above.
chocolates.
94. If the price of air-conditioner increases from `
30,000 to ` 30,010 and resultant change in demand
is negligible, we use the measure of _____________
to measure elasticity.
a) point elasticity.
b) perfect elasticity.
c) perfect inelasticity.
d) price elasticity.

95. If the percentage change in supply is less than 101. The cross elasticity between Rye bread and
the percentage change in price it is called Whole Wheat bread is expected to be:
a) unit elasticity of supply. a) positive
b) perfectly elastic. b) negative
c) more elastic supply. c) zero
d) inelastic supply. d) can’t say
96. The supply curve shifts to the right because of—

102. In the diagram given below, the shaded portion
——————
represents.
a) improved technology.
a) Price above which there is no demand for the
b) increased price of factors of production. commodity.
c) increased excise duty. b) Monopoly price of the commodity.
d) all of the above. c) Consumer surplus.

97. Which of the following statements is correct?
a) When the price falls the quantity demanded

103. The income elasticity of tomatoes is 0.25, it
falls.
means tomatoes are:
b) Seasonal changes do not affect the supply of a
a) inferior goods.
commodity.
b) luxury goods.
c) Taxes and subsidies do not influence the supply
of the commodity. c) normal goods.
d) With lower cost, it is pro-table to supply more d) can’t say.

of the commodity.
104. The cross elasticity between personal
98. If the demand is more than supply, then the computers and soft wares is:
pressure on price will be
a) positive.
a) upward
b) negative.
b) downward
c) zero .
c) constant
d) one.
d) none of the above
105. The cross elasticity between Bread and DVDs
99. The supply curve for perishable commodities is is:
________________.
a) positive.
a) elastic
b) negative.
b) inelastic
c) zero .
c) perfectly elastic
d) one.
d) perfectly inelastic
100. Supply is a ___________ concept.
a) With the help of statistical tools, the demand
a) stock can be forecasted accurately.
b) upward stock b) The more the number of substitutes of a
c) constant commodity, more elastic is the demand.
d) none of the above c) Demand for butter is perfectly elastic.
d) Gold jewellery will have negative income

elasticity.
107. Suppose the income elasticity of education in

private school in India is 1.6. What does this
indicate:
a) Private school education is a luxury.
b) Private school education is a necessity.
c) Private school education is an inferior

commodity.
d) We should have more private schools.
108. Suppose potatoes have (-).0.4 as income

elasticity. We can say from the data given that:
a) Potatoes are inferior goods.
b) Potatoes are superior goods.

c) Potatoes are necessities.
d) There is a need to increase the income of

consumers so that they can purchase potatoes.
My Notes

Chapter 5 and 6- 5. In the production of wheat, all of the following
are variable factors that are used by the farmer
Production, cost and except:
a) the seed and fertilizer used when the crop is

Revenue concept planted.
1. Which of the following is considered production in b) The field that has been cleared of trees and in
Economics? which the crop is planted.
a) Tilling of soil. c) the tractor used by the farmer in planting and

cultivating not only wheat but also corn and
b) Singing a song before friends.
barley.
c) Preventing a child from falling into a manhole on
d) the number of hours that the farmer spends in
the road.
cultivating the wheat fields.
d) Painting a picture for pleasure.
6. The marginal product of a variable input is best

2. Identify the correct statement: described as:
a) The average product is at its maximum when a) total product divided by the number of units of
marginal product is equal to average product. variable input.
b) The law of increasing returns to scale relates to b) the additional output resulting from a one unit
the effect of changes in factor proportions. increase in the variable input.
c) Economies of scale arise only because of c) the additional output resulting from a one unit
indivisibilities of factor proportions. increase in both the variable and fixed inputs
d) Internal economies of scale can accrue when d) the ratio of the amount of the variable input
industry expands beyond optimum that is being used to the amount of the fixed
input that is being used.
3. Which of the following is not a characteristic of

7. Diminishing marginal returns implies:
land?
a) decreasing average variable costs.
a) Its supply for the economy is limited.
b) decreasing marginal costs.
b) It is immobile.
c) increasing marginal costs.
c) Its usefulness depends on human efforts.
d) decreasing average fixed costs.
d) It is produced by our forefathers.
8. The short run, as economists use the phrase, is

4. Which of the following statements is true?
characterized by:
a) Accumulation of capital depends solely on income
a) at least one fixed factor of production and fi-
of individuals.
rms neither leaving nor entering the industry.
b) Savings can be ininfluenced by government
b) generally a period which is shorter than one
policies.
year.
c) External economies go with size and internal
c) all factors of production are fixed and no
economies with location.
variable inputs.
d) The supply curve of labour is an upward slopping
d) all inputs are variable and production is done in
curve.
less than one year.

9. The marginal, average, and total product curves 13. Diminishing returns occur:
encountered by the firm producing in the short
a) when units of a variable input are added to a fi-
run exhibit all of the following relationships
xed input and total product falls.
except:
b) when units of a variable input are added to a -
a) when total product is rising, average and
fixed input and marginal product falls.
marginal product may be either rising or falling.
c) when the size of the plant is increased in the
b) when marginal product is negative, total product
long run.
and average product are falling.
d) when the quantity of the fixed input is
c) when average product is at a maximum, marginal
increased and returns to the variable input falls.
product equals average product, and total
Use the following information to answer questions 14-16.
product is rising.
Hours of labour Total output Marginal product
d) when marginal product is at a maximum, average 0 - -
product equals marginal product, and total 1 100 100
product is rising. 2 - 80
3 240 -
10. To economists, the main difference between the 14. What is the total output when 2 hours of labour
short run and the long run is that: are employed?
a) In the short run all inputs are fixed, while in the a) 80

long run all inputs are variable. b) 100
b) In the short run the firm varies all of its inputs c) 180
to find the least-cost combination of inputs.
d) 200
c) In the short run, at least one of the firm’s input
levels is fixed.
15. What is the marginal product of the third hour
d) In the long run, the firm is making a constrained of labour?
decision about how to use existing plant and
equipment efficiently. a) 60
b) 80
11. Which of the following is the best definition of c) 100

―production function‖? d) 240
a) The relationship between market price and
quantity supplied. 16. What is the average product of the first three
b) The relationship between the firm’s total hours of labour?
revenue and the cost of production. a) 60
c) The relationship between the quantities of b) 80
inputs needed to produce a given level of output.
c) 100
d) The relationship between the quantity of inputs
d) 240
and the firm’s marginal cost of production.
17. Which cost increases continuously with the
increase in production?
12. The ―law of diminishing returns‖ applies to:
a) Average cost.
a) the short run, but not the long run.
b) Marginal cost.
b) the long run, but not the short run.
c) Fixed cost.
c) both the short run and the long run.
d) Variable cost.
d) neither the short run nor the long run.
18. Which of the following cost curves is never ‗U‘

shaped?
b) Fixed cost.
a) Average cost curve.
c) Opportunity cost.
b) Marginal cost curve.
d) Economic cost.
c) Average variable cost curve.
d) Average fixed cost curve. 24. Which of the following statements is correct?
a) When the average cost is rising, the marginal

19. Total cost in the short run is classified into fixed cost must also be rising.
costs and variable costs. Which one of the
b) When the average cost is rising, the marginal
following is a variable cost?
cost must be falling.
a) Cost of raw materials.
c) When the average cost is rising, the marginal
b) Cost of equipment. cost is above the average cost.
c) Interest payment on past borrowings. d) When the average cost is falling, the marginal
cost must be rising.
d) Payment of rent on building.
25. Which of the following is an example of ―explicit

20. In the short run, when the output of a firm cost‖?
increases, its average fixed cost:
a) The wages a proprietor could have made by
a) increases. working as an employee of a large rm.
b) decreases. b) The income that could have been earned in
alternative uses by the resources owned by the
c) remains constant.
firm.
d) first declines and then rises.
c) The payment of wages by the rm.
d) The normal profit earned by a rm.

21. Which one of the following is also known as
planning curve?
26. Which of the following is an example of an
a) Long run average cost curve.
―implicit cost‖?
b) Short run average cost curve.
a) Interest that could have been earned on
c) Average variable cost curve. retained earnings used by the firm to finance
d) Average total cost curve. expansion.
b) The payment of rent by the firm for the

building in which it is housed.
22. If a firm moves from one point on a production
c) The interest payment made by the firm for
isoquant to another, which of the following will
funds borrowed from a bank.
not happen.
d) The payment of wages by the firm.
a) A change in the ratio in which the inputs are
combined to produce output.
b) A change in the ratio of marginal products of Use the following data to answer questions 27-29.
the inputs. Output 0 1 2 3 4 5 6
Total 240 330 410 480 540 610 690
c) A change in the marginal rate of technical cost
substitution.
27. The average fixed cost of 2 units of output is :
d) A change in the level of output.
a) 80
23. With which of the following is the concept of b) 85

marginal cost closely related? c) 120
a) Variable cost. d) 205

b) The price of labour.
28. The marginal cost of the sixth unit of output is : c) Taxes.
a) 133 d) The price of the firm’s output.
b) 75
c) 80 34. Which of the following statements is correct
concerning the relationships among the firm‘s cost
d) 450 functions?
a) TC = TFC – TVC.
29. Diminishing marginal returns start to occur b) TVC = TFC – TC.
between units:
c) TFC = TC – TVC.
a) and 3.
d) TC = TVC – TFC.
b) 3 and 4.
c) 4 and 5. 35. Suppose output increases in the short run. Total

d) 5 and 6. cost will:
a) increase due to an increase in fixed costs only.
30. Marginal cost is defined as: b) increase due to an increase in variable costs
a) the change in total cost due to a one unit change only.
in output. c) increase due to an increase in both fixed and
b) total cost divided by output. variable costs.
c) the change in output due to a one unit change in d) decrease if the firm is in the region of
an input. diminishing returns.
d) total product divided by the quantity of input.

36. Which of the following statements concerning the
long-run average cost curve is false?
31. Which of the following is true of the relationship
between the marginal cost function and the a) It represents the least-cost input combination
average cost function? for producing each level of output.
a) If MC is greater than ATC, then ATC is falling b) It is derived from a series of short-run average
cost curves.
b) The ATC curve intersects the MC curve at
minimum MC. c) The short-run cost curve at the minimum point
of the long-run average cost curve represents
c) The MC curve intersects the ATC curve at
the least–cost plant size for all levels of output.
minimum ATC.
d) As output increases, the amount of capital
d) If MC is less than ATC, then ATC is increasing.
employed by the firm increases along the curve
32. Which of the following statements is true of the

relationship among the average cost functions 37. The negatively-sloped (i.e. falling) part of the
long-run average total cost curve is due to which
a) ATC = AFC – AVC.
of the following?
b) AVC = AFC + ATC.
a) Diseconomies of scale.
c) AFC = ATC + AVC.
b) Diminishing returns.
d) AFC = ATC – AVC.
c) The difficulties encountered in coordinating the
many activities of a large rm.
33. Which of the following is not a determinant of d) The increase in productivity that results from
the firm‘s cost function? specialization.
a) The production function.

38. The positively sloped (i.e. rising) part of the long 43. Which of the following statements is true?
run average total cost curve is due to which of
a) The services of a doctor are considered
the following?
production.
a) Diseconomies of scale.
b) Man can create matter.
b) Increasing returns.
c) The services of a housewife are considered
c) The firm being able to take advantage of large- production.
scale production techniques as it expands its
d) When a man creates a table, he creates matter
output.
d) The increase in productivity that results from
specialization. 44. Which of the following is a function of an
entrepreneur?
39. A firm‘s average total cost is ` 300 at 5 units of a) Initiating a business enterprise.
output and ` 320 at 6 units of output. The b) Risk bearing.
marginal cost of producing the 6th unit is :
c) Innovating.
a) 20
d) All of the above.
b) 120
c) 320
45. In describing a given production technology, the
d) 420
short run is best described as lasting:
a) up to six months from now.

40. A firm producing 7 units of output has an average
total cost of ` 150 and has to pay ` 350 to its - b) up to five years from now.
fixed factors of production whether it produces c) as long as all inputs are fixed.
or not. How much of the average total cost is
made up of variable costs? d) as long as at least one input is fixed.
a) 200
46. If decreasing returns to scale are present, then
b) 50 if all inputs are increased by 10% then:
c) 300 a) output will also decrease by 10%.
d) 100 b) output will increase by 10%.
c) output will increase by less than 10%.
41. A firm has a variable cost of ` 1000 at 5 units
of output. If fixed costs are ` 400, what will be d) output will increase by more than 10%.
the average total cost at 5 units of output?
a) 280 47. The production function is a relationship between

a given combination of inputs and:
b) 60
a) another combination that yields the same
c) 120 output.
d) 1400 b) the highest resulting output.
c) the increase in output generated by one-unit

42. A firm‘s average fixed cost is ` 20 at 6 units of increase in one output.
output. What will it be at 4 units of output?
d) all levels of output that can be generated by
a) 60 those inputs.
b) 30
c) 40 48. If the marginal product of labour is below the

average product of labour, it must be true that:
d) 20
a) the marginal product of labour is negative.

they yield the same profit.
b) the marginal product of labour is zero.
c) All the alternative combinations of two inputs
c) the average product of labour is falling.
that yield the same total product.
d) the average product of labour is negative.
d) Both (b) and (c).
49. The average product of labour is maximized when

54. Economies of scale exist because as a firm
marginal product of labour:
increases its size in the long run:
a) equals the average product of labour.
a) Labour and management can specialize in their
b) equals zero. activities more.
c) is maximized. b) As a larger input buyer, the firm can get finance
d) none of the above. at lower cost and purchase inputs at a lower per
unit cost.
c) The firm can afford to employ more
50. The law of variable proportions is drawn under all
sophisticated technology in production.
of the assumptions mentioned below except the
assumption that: d) All of these.
a) the technology is changing.
b) there must be some inputs whose quantity is 55. The production function:
kept fixed. a) Is the relationship between the quantity of
c) we consider only physical inputs and not inputs used and the resulting quantity of
economically profitability in monetary terms. product.
d) the technology is given and stable. b) Tells us the maximum attainable output from a
given combination of inputs.
c) Expresses the technological relationship

51. What is a production function?
between inputs and output of a product.
a) Technical relationship between physical inputs
d) All the above.
and physical output.
b) Relationship between fixed factors of
production and variable factors of production. 56. The production process described below exhibits
c) Relationship between a factor of production and Number of Workers Output
the utility created by it. 0 0
1 23
d) Relationship between quantity of output 2 40
produced and time taken to produce the output. 3 50
(a) constant marginal product of labour.
(b) diminishing marginal product of labour.
52. Laws of production does not include …… (c) increasing return to scale.
a) returns to scale. (d) increasing marginal product of labour
b) law of diminishing returns to a factor.

57. Which of the following is a variable cost in the
c) law of variable proportions.
short run?
d) least cost combination of factors.
a) rent of the factory.
b) wages paid to the factory labour.
53. An iso-quant shows
c) interest payments on borrowed financial capital
a) All the alternative combinations of two inputs
that can be produced by using a given set of d) payment on the lease for factory equipment.
output fully and in the best possible way.
b) All the alternative combinations of two products 58. The efficient scale of production is the quantity
among which a producer is indifferent because of output that minimizes

induces a reduction in the marginal product.
a) average fixed cost.
b) Before reaching the inevitable point of
b) average total cost.
decreasing marginal returns, the quantity of
c) average variable cost. output obtained can increase at an increasing
d) marginal cost. rate.
c) The first stage corresponds to the range in
which the AP is increasing as a result of utilizing
59. In the short run, the firm's product curves show
increasing quantities of variable inputs.
that
d) All the above.
a) Total product begins to decrease when average
product begins to decrease but continues to
increase at a decreasing rate.
63. Marginal product, mathematically, is the slope of
b) When marginal product is equal to average the
product, average product is decreasing but at
a) total product curve.
its highest.
b) average product curve.
c) When the marginal product curve cuts the
average product curve from below, the average c) marginal product curve.
product is equal to marginal product.
d) implicit product curve.
d) In stage two, total product increases at a
diminishing rate and reaches maximum at the
end of this stage. 64. Suppose the first four units of a variable input
generate corresponding total outputs of 200,
350, 450, 500. The marginal product of the
60. A fixed input is defined as third unit of input is:
a) That input whose quantity can be quickly a) 50

changed in the short run, in response to the
b) 100
desire of the company to change its production.
c) 150
b) That input whose quantity cannot be quickly
changed in the short run, in response to the d) 200
desire of the company to change its production.
c) That input whose quantities can be easily

65. Which of the following statements is false in
changed in response to the desire to increase or
respect of fixed cost of a firm?
reduce the level of production.
a) As the fixed inputs for a firm cannot be
d) That input whose demand can be easily changed
changed in the short run, the TFC are constant,
in response to the desire to increase or reduce
except when the prices of the fixed inputs
the level of production.
change.
b) TFC continue to exist even when production is

61. Average product is defined as
stopped in the short run, but they exist in the
a) total product divided by the total cost. long run even when production is not stopped.
b) total product divided by marginal product. c) Total fixed Costs (TFC) can be defined as the
total sum of the costs of all the fixed inputs
c) total product divided by the number of units of
associated with production in the short run.
variable input.
d) In the short run, a firm’s fixed cost cannot be
d) marginal product divided by the number of units
escaped even when production is stopped
of variable input.
62. Which of the following statements is true? 66. 66. Diminishing marginal returns for the first
four units of a variable input is exhibited by the
a) After the ininflection point of the production
total product sequence:
function, a greater use of the variable input

a) 50, 50, 50, 50 b) Also its long-run supply curve because it explains
the relationship between price and quantity
b) 50, 110, 180, 260
supplied.
c) 50, 100, 150, 200
c) In fact the average total cost curve of the
d) 50, 90, 120, 140 optimal plant in the short run as it tries to
produce at least cost.
d) Tangent to all the curves of short-run average

67. Use the following diagram to answer the question
total cost.
given below it
71. In the long run, if a very small factory were to

expand its scale of operations, it is likely that it
would initially experience
a) an increase in pollution level.
b) diseconomies of scale.
c) economies of scale.
d) constant returns to scale.
72. A firm‘s long-run average total cost curve is.
a) Identical to its long-run marginal-cost curve as

The marginal physical product of the third unit of all factors are variable.
labour is _____, the MP of the _____ labour is
b) Also its long-run total cost curve because it
Negative
explains the relationship cost and quantity
a) Six; fourth supplied in the long run.
b) Six; third c) In fact the average total cost curve of the

optimal plant in the short run as it tries to
c) Six ; fifth
produce at least cost.
d) Six; sixth
d) Tangent to all short-run average total cost the
curves and represents the lowest average total
cost for producing each level of output.
68. In the third of the three stages of production:
a) the marginal product curve has a positive slope.

73. 73. Which of the following statements describes
b) the marginal product curve lies completely below increasing returns to scale?
the average product curve.
a) Doubling of all inputs used leads to doubling of
c) total product increases. the output.
d) marginal product is positive. b) Increasing the inputs by 50% leads to a 25%
increase in output.
69. When marginal costs are below average total c) Increasing inputs by 1/4 leads to an increase in
costs, output of 1/3.
a) average fixed costs are rising. d) None of the above.
b) average total costs are falling.
c) average total costs are rising. 74. The marginal cost for a firm of producing the
d) average total costs are minimized. 9th unit of output is ` 20. Average cost at the
same level of output is ` 15. Which of the
following must be true?
70. A firm‘s long-run average total cost curve is
a) marginal cost and average cost are both falling
a) Identical to its long-run marginal-cost curve.

b) marginal cost and average cost are both rising
c) marginal cost is rising and average cost is falling
d) it is impossible to tell if either of the curves are

rising or falling
75. Implicit cost can be defined as
a) Money payments made to the non-owners of the

firm for the self-owned factors employed in the
business and therefore not entered into books
of accounts.
b) Money not paid out to the owners of the firm

for the self-owned factors employed in a
business and therefore not entered into books a) Fixed costs are falling while total costs are
of accounts. rising at rising output.
c) Money payments which the self-owned and b) Total costs are rising and average costs are also
employed resources could have earned in their rising.
next best alternative employment and therefore
c) Marginal costs are above average variable costs
entered into books of accounts.
as output rises.
d) Money payments which the self-owned and
d) Average fixed costs are falling as output rises.
employed resources earn in their best use and
therefore entered into book of accounts.
79. Marginal cost changes due to changes in ————
76. The most important function of an entrepreneur a) Total cost

is to ____________.
b) Average cost
a) Innovate
c) Variable cost
b) Bear the sense of responsibility
d) Quantity of output
c) Finance
d) Earn profit 80. Which of the following statements is correct?

a) Fixed costs vary with change in output.
77. Economic costs of production differ from
b) If we add total variable cost and total fixed
accounting costs of production because
cost we get the average cost.
a) Economic costs include expenditures for hired
c) Marginal cost is the result of total cost divided
resources while accounting costs do not.
by number of units produced.
b) Accounting costs include opportunity costs
d) Total cost is obtained by adding up the fixed
which are deducted later to find paid out costs.
cost and total variable cost.
c) Accounting costs include expenditures for hired
resources while economic costs do not.
d) Economic costs add the opportunity cost of a
a) The LAC curve is also called the planning curve
firm which uses its own resources
of a rm.
b) Total revenue = price per unit × number of units
78. In figure below, possible reason why the average sold.
variable cost curve approaches the average total
c) Opportunity cost is also called alternative cost.
cost curve as output rises is:
d) If total revenue is divided by the number of
units sold we get marginal revenue

Chapter 7- Market and a) The firm should do nothing.

b) The firm should hire less labour.
Its Types c) The firm should increase price.
d) The firm should increase output.
1. In the table below what will be equilibrium
market price?
Price Demand (tonnes Supply (tonnes
5. Marginal Revenue is equal to:
(Rs.) per annum) per annum)
1 1000 400 a) The change in price divided by the change in
2 900 500 output.
3 800 600
b) The change in quantity divided by the change in
4 700 700
price.
5 600 800
6 500 900 c) The change in P x Q due to a one unit change in
7 400 1000 output.
8 300 1100 d) Price, but only if the firm is a price searcher
(a) 2
(b) 3
6. Suppose that a sole proprietorship is earning total
(c) 4 revenues of ` 1,00,000 and is incurring explicit costs
of ` 75,000. If the owner could work for another
(d) 5
company for ` 30,000 a year, we would conclude that
2. Assume that when price is ` 20, the quantity a) The firm is incurring an economic loss.
demanded is 9 units, and when price is ` 19, b) Implicit costs are ` 25,000.
the quantity demanded is 10 units. Based on
c) The total economic costs are ` 1,00,000.
this information, what is the marginal revenue
resulting from an increase in output from 9 d) The individual is earning an economic profit of
units to 10 units. 25,000
a) `20
b) 19 7. Which of the following is not an essential
c) 10 condition of pure competition?
d) 1 a) Large number of buyers and sellers
b) Homogeneous product
3. Assume that when price is ` 20, the quantity c) Freedom of entry

demanded is 15 units, and when price is ` 18,
d) Absence of transport cost
the quantity demanded is 16 units. Based on
this information, what is the marginal revenue
resulting from an increase in output from 15
8. What is the shape of the demand curve faced by
units to 16 units?
a firm under perfect competition?
a) 18
a) Horizontal
b) 16
b) Vertical
c) 12
c) Positively sloped
d) 28
d) Negatively sloped
a) (
4. Suppose a firm is producing a level of output

such that MR > MC, what should be firm do to
maximize its profits?

9. Which is the first order condition for the profit d) the basic decision making unit of any firm is its
of a firm to be maximum? owners.
a) AC = MR 14. Assume that consumers‘ incomes and number of

seller in the market for good A both decrease.
b) MC = MR
Based upon this information we conclude that,
c) MR = AR with certainty, that the equilibrium
d) AC = AR a) price will increase.
b) Price will decrease

10. Which of the following is not a characteristic of c) quantity will increase.
a ―price-taker‖?
d) quantity will decrease.
a) TR = P x Q
b) AR = Price
15. If supply increases in a greater proportion than
c) Negatively – sloped demand curve demand
d) Marginal Revenue = Price a) The new equilibrium price and quantity will be
greater than the original equilibrium price and
quantity.
11. Which of the following statements is false?
b) The new equilibrium price will be greater than
a) (Economic costs include the opportunity costs the original equilibrium price but equilibrium
of the resources owned by the firm. quantity will be higher.
b) Accounting costs include only explicit costs. c) The new equilibrium price and quantity will be
c) Economic profit will always be less than lower than the original equilibrium price and
accounting profit if resources owned and used quantity.
by the firm have any opportunity costs. d) The new equilibrium price will be lower than the
d) Accounting profit is equal to total revenue less original equilibrium and the new equilibrium
implicit costs. quantity will be higher.
12. With a given supply curve, a decrease in demand 16. Assume that in the market for good Z there is a
causes simultaneous increase in demand and the quantity
a) an overall decrease in price but an increase in supplied. The result will be :
equilibrium quantity. a) an increase in equilibrium price and quantity.
b) an overall increase in price but a decrease in b) a decrease in equilibrium price and quantity.
equilibrium quantity.
c) an increase in equilibrium quantity and uncertain
c) an overall decrease in price and a decrease in effect on equilibrium price.
equilibrium quantity.
d) a decrease in equilibrium price and increase in
d) No change in overall price but a decrease in equilibrium quantity.
equilibrium quantity
17. Suppose the technology for producing personal

13. It is assumed in economic theory that computers improves and, at the same time,
a) decision making within the firm is usually individuals discover new uses for personal
undertaken by managers, but never by the owners computers so that there is greater utilisation of
personal computers. Which of the following will
b) the ultimate goal of the firm is to maximize happen to equilibrium price and equilibrium
profits, regardless of firm size or type of business quantity?
organisation.
a) Price will increase; quantity cannot be
c) as the firm’s size increases, so do its goals determined.

b) Price will decrease; quantity cannot be 22. Oligopolistic industries are characterized by :
determined.
a) a few dominant firms and substantial barriers
c) Quantity will increase; price cannot be to entry.
determined.
b) a few large firms and no entry barriers.
d) Quantity will decrease; price cannot be
c) a large number of small firms and no entry
determined.
barriers.
d) one dominant firm and low entry barriers.

18. Which of the following is not a condition of
23. Price-taking firms, i.e., firms that operate in a
perfect competition?
perfectly competitive market, are said to be
a) A large number of firms. ―small‖ relative to the market. Which of the
following best describes this smallness?
b) Perfect mobility of factors.
a) The individual firm must have fewer than 10
c) Informative advertising to ensure that consumers
employees.
have good information.
b) The individual firm faces a downward-sloping
d) Freedom of entry and exit into and out of the
demand curve.
market.
c) The individual firm has assets of less than ` 20
19. Which of the following is not a characteristic
lakhs.
of a perfectly competitive market?
d) The individual firm is unable to affect market
a) Large number of firms in the industry price through its output decisions.
b) Outputs of the firms are perfect substitutes
for one another 24. For a price-taking firm :
c) Firms face downward-sloping demand curves. a) marginal revenue is less than price.
d) Resources are very mobile. b) marginal revenue is equal to price.
c) marginal revenue is greater than price.
20. Which of the following is not a Characteristic d) the relationship between marginal revenue and
of monopolistic competition? price is indeterminate.
a) Ease of entry into the industry.
b) Product differentiation. 25. Monopolistic competition differs from perfect

competition primarily because
c) A relatively large number of sellers.
a) in monopolistic competition, firms can
d) A homogeneous product.
differentiate their products.
b) in perfect competition, firms can differentiate

21. Monopoly may arise in a product market because their products.
a) A significantly important resource for the c) in monopolistic competition, entry into the
production of the commodity is owned by a industry is blocked.
single firm.
d) in monopolistic competition, there are relatively
b) The government has given the firm patent right few barriers to entry.
to produce the commodity.
c) The costs of production and economies of scale
26. The long-run equilibrium outcomes in monopolistic
makes production by a single producer more
competition and perfect competition are similar,
efficient.
because in both market structures
d) All the above.
a) the efficient output level will be produced in
the long run.
b) firms will be producing at minimum average cost.

c) firms will only earn a normal profit. a) Uniform
d) firms realise all economies of scale. b) Different
c) Less
27. Which of the following is the distinguishing
d) Zero
characteristic of oligopolies?
33. In the context of oligopoly, the kinked
a) A standardized product
demand hypothesis is designed to explain
b) The goal of profit maximization
a) Price and output determination
c) The interdependence among firms
b) Price rigidity
d) Downward-sloping demand curves faced by
firms. c) Price leadership
28. In which form of the market structure is the d) Collusion among rivals
degree of control over the price of its product
by a firm very large?
34. The firm in a perfectly competitive market
a) Monopoly
is a price-taker. This designation as a
b) Imperfect Competition price-taker is based on the assumption that
the firm has some, but not complete
c) Oligopoly
d) Perfect competition a) the firm has some, but not complete,
control over its product price.
b) there are so many buyers and sellers in the
29. Average revenue curve is also known as:
market that any individual firm cannot
a) Profit Curve affect the market.
b) Demand Curve c) each firm produces a homogeneous product.
c) Average Cost Curve d) there is easy entry into or exit from the
d) Indifference Curve market place.
30. Under which of the following forms of market 35. Suppose that the demand curve for the XYZ Co.
structure does a firm have no control over the slopes downward and to the right. We can
price of its product? conclude that
a) Monopoly a) the firm operates in a perfectly competitive
market.
b) Monopolistic competition
b) the firm can sell all that it wants to at the
c) Oligopoly
established market price.
d) Perfect competition
c) the XYZ Co. is not a price-taker in the market
because it must lower price to sell additional
31. Discriminating monopoly implies that the units of output.
monopolist charges different prices for his d) the XYZ Co. will not be able to maximise profits
commodity: because price and revenue are subject to
change.
a) from different groups of consumers
b) for different uses
36. If firms in the toothpaste industry have the
c) at different places
following market shares, which market
d) any of the above. structure would best describe the
32. Price discrimination will be profitable only if the industry?
elasticity of demand in different sub-markets is:

Market share (% of market)
40. When price is less than average variable cost at
Toothpaste 18.7 the profit-maximising level of output, a firm
Dentipaste 14.3 should:
Shinibright 11.6
a) produce where marginal revenue equals marginal
I can’t believe its not 9.4
toothpaste cost if it is operating in the short run.
Brighter than white 8.8 b) produce where marginal revenue equals marginal
Pastystuff 7.4 cost if it is operating is the long run.
Others 29.8
c) shutdown, since it will lose nothing in that case.
a) Perfect competition.
d) shutdown, since it cannot even cover its variable
b) Monopolistic competition. costs if it stays in business
c) Oligopoly. 41. A purely competitive firm‘s supply schedule in
d) Monopoly. the short run is determined by
a) its average revenue.

37. The kinked demand curve model of oligopoly b) its marginal revenue.
assumes that
c) its marginal utility for money curve.
a) the response (of consumers) to a price increase
d) its marginal cost curve.
is less than the response to a price decrease.
b) the response (of consumers) to a price increase
is more than the response to a price decrease. 42. One characteristic not typical of oligopolistic
industry is
c) the elasticity of demand is constant
a) horizontal demand curve.
d) the elasticity of demand is perfect decreases.
b) too much importance to non-price competition
c) price leadership.
38. A firm encounters its ―shutdown point‖
d) a small number of firms in the industry.
a) average total cost equals price at the pro-t-
maximising level of output.
b) average variable cost equals price at the pro-t- 43. The structure of the toothpaste industry in
maximising level of output. India is best described as
c) average fixed cost equals price at the pro-t- a) perfectly competitive.
maximising level of output.
b) monopolistic.
d) marginal cost equals price at the profit maximising
level of output. c) monopolistically competitive.
d) oligopolistic.
39. Suppose that, at the profit-maximizing level
of output, a firm finds that market price is
less than average total cost, but greater 44. The structure of the cold drink industry in India
than average variable cost. Which of the is best described as
following statements is correct?
a) perfectly competitive.
a) The firm should shutdown in order to minimise
b) monopolistic.
its losses.
c) monopolistically competitive.
b) The firm should raise its price enough to cover
its losses. d) oligopolistic.
c) The firm should move its resources to another

industry.
d) The firm should continue to operate in the
short run in order to minimize its losses.

45. Which of the following statements is incorrect? 50. Agricultural goods markets depict characteristics
close to
a) Even a monopolistic firm can have losses
a) perfect competition.
b) Firms in a perfectly competitive market are
price takers. b) oligopoly.
c) It is always beneficial for a firm in a perfectly c) monopoly.

competitive market to discriminate prices.
d) monopolistic competition.
d) Kinked demand curve is related to an
oligopolistic market.
a competitive market?
46. Under perfect competition, in the long run, a) There are many buyers and sellers in the
there will be no . market.
a) normal profits b) The goods offered for sales are largely the
same.
b) supernormal profits.
c) Firms generate small but positive supernormal
c) Production
profits in the long run.
d) costs.
d) Firms can freely enter or exit the market.
47. When______________, we know that the firms

52. Which of the following markets would most
are earning just normal profits.
closely satisfy the requirements for a perfectly
a) AC = AR competitive market?
b) MC = AC a) Electricity
c) MC = MR b) Cable television
d) AR = MR c) Cola
d) Milk
48. When_________, we know that the firms must
be producing at the minimum point of the
53. Which of the following statements is accurate
average cost curve and so there will be
regarding a perfectly competitive firm?
productive efficiency.
a) Demand curve is downward sloping
a) AC = AR
b) The demand curve always lies above the
b) MC = AC
marginal revenue curve
c) MC = MR
c) Average revenue need not be equal to price
d) AR = MR
d) Price is given and is determined by the
49. When___________, there will be allocative equilibrium in the entire market
efficiency meaning thereby that the cost of the
last unit is exactly equal to the price consumers
54. The market for hand tools (such as hammers and
are willing to pay for it and so that the right
screwdrivers) is dominated by Draper, Stanley,
goods are being sold to the right people at the
and Craftsman. This market is best described as
right price.
a) Monopolistically competitive
a) MC = MR
b) a monopoly
b) MC = AC
c) an oligopoly
c) MC = AR
d) perfectly competitive
d) AR = MR
55. A market structure in which many firms sell

products that are similar but not identical is
a) Adam Smith
known as
b) Alfred Marshall
a) monopolistic competition
c) Pigou
b) monopoly
d) Lionel Robinson
c) perfect competition
d) oligopoly
61. Total revenue =
56. When an oligopolist individually chooses its level a) price × quantity
of production to maximize its profits, it charges b) Price x income
a price that is
c) income × quantity
a) more than the price charged by either monopoly
or a competitive market d) none of the above
b) less than the price charged by either monopoly

or a competitive market 62. Average revenue is the revenue earned
c) more than the price charged by a monopoly and a) per unit of input
less than the price charged by a competitive b) per unit of output
market
c) different units of input
d) less than the price charged by a monopoly and
more than the price charged by a competitive d) different unit of output
market.
63. AR can be symbolically written as:
57. In the long-run equilibrium of a competitive a) MR / Q

market, firms operate at b) Price x quantity
a) the intersection of the marginal cost and c) TR / Q
marginal revenue
b) their efficient scale
c) zero economic profit 64. AR is also known as:

d) all of these answers are correct a) Price
b) Income
c) revenue
a monopolistically competitive market?
a) Free entry and exit
b) Abnormal profits in the long run

65. Marginal revenue can be defined as the change
c) Many sellers in total revenue resulting from the:
d) Differentiated products a) purchase of an additional unit of a commodity
b) sales of an additional unit of a commodity
59. In a very short period market :
c) sale of subsequent units of a product
a) the supply is fixed
b) the demand is fixed
c) demand and supply are fixed
66. When e > 1 then MR is
a) zero
b) negative
60. Time element was conceived by

c) positive
d) on
73. Under monopoly, the degree of control over
price is
a) None
67. When e = 1 then MR is
b) Some
a) Positive
c) very considerable
b) Zero
c) One
d) negative 74. Generally, perishable goods like butter, eggs,
milk, vegetables etc., will have
68. When e < 1 then MR is a) regional market
a) negative b) local market
b) zero c) national market
c) positive d) none of the above
d) one
75. At price P1, the firm in the figure would

69. In Economics, the term ‗market‘ refers to a: produce
a) place where buyer and seller bargain a product
or service for a price
b) place where buyer does not bargain
c) place where seller does not bargain
70. Under perfect competition a firm is the

a) price-maker and not price-taker
b) price-taker and not price-maker
a) Zero output
c) neither price-maker nor price-taker
b) Q3.
c) Q5.
d) Q6
71. A Monopolist is a
76. Secular period is also known as
a) price-maker
a) very short period
b) price taker
b) Short period
c) price-adjuster
c) very long period
d) long period
72. Price discrimination is one of the features of 77. Stock exchange market is an example of
a) monopolistic competition a) unregulated market
b) monopoly b) regulated market
c) perfect competition c) spot market
d) oligopoly d) none of the above

a) first degree of price discrimination
78. The market for the ultimate consumers is known b) second degree of price discrimination
as
c) third degree of price discrimination
a) whole sale market
b) regulated market
c) unregulated market
84. Under___________the monopolist will fix a
d) retail market price which will take away the entire consumers‘
surplus.
a) second degree of price discrimination

79. The condition for pure competition is
b) first degree of price discrimination
a) large number of buyer and seller, free entry
and exist c) third degree of price discrimination
b) homogeneous product d) None of the above
c) both (a) and (b)
d) large number of buyer and seller, homogeneous 85. Price discrimination is related to
product, perfect knowledge about the product
a) Time
b) size of the purchase

80. Pure oligopoly is based on the
_________products c) income
a) differentiated d) any of the above
b) homogeneous
c) unrelated 86. The firm and the industry are one and the same
in
a) Perfect competition
b) Monopolistic competition
81. In oligopoly, when the industry is dominated by
one large firm which is considered as leader of c) Duopoly
the group, Then it is called: d) Monopoly
a) full oligopoly
b) collusive oligopoly 87. The demand curve of a monopoly firm
c) partial oligopoly a) Upward sloping
d) syndicated oligopoly
b) Downward sloping
c) Horizontal
82. When the products are sold through a d) Vertical
centralized body, oligopoly is known as
a) organized oligopoly
88. If the average cost is higher than the average
b) partial oligopoly revenue then the firm incurs
c) competitive oligopoly a) Normal profit
d) syndicated oligopoly b) Abnormal profit
c) Loss
83. When the monopolist divides the consumers into d) No profit, no loss
separate sub markets and charges different
prices in different sub-markets it is known as

a) Price rigidity is an important feature of
monopoly.
b) Selling costs are possible under perfect
competition.
c) Under perfect competition factors of

production do not move freely as there are legal
restrictions.
d) An industry consists of many firms.

a) Under monopoly there is no difference between
a firm and an industry.
b) A monopolist may restrict the output and raise
the price.
c) Commodities offered for sale under a perfect

competition will be heterogeneous.
d) Product differentiation is peculiar to
monopolistic competition
MY Notes

6. A variable that tends to move later than
Chapter 8- Business Cycle aggregate economic activity is called
a) a leading variable.
1. The term business cycle refers to__________
b) a coincident variable.
a) the ups and downs in production of commodities
c) a lagging variable.
b) the fluctuating levels of economic activity over a
d) a cyclical variable.
period of time
c) decline in economic activities over prolonged
period of time 7. Industries that are extremely sensitive to the
business cycle are the
d) increasing unemployment rate and diminishing
rate of savings a) Durable goods and service sectors.
b) Non-durable goods and service sectors.
2. A significant decline in general economic activity c) Capital goods and non-durable goods sectors.
extending over a period of time is______ d) Capital goods and durable goods sectors.
a) business cycle
b) contraction phase
8. A decrease in government spending would cause
c) recession
a) the aggregate demand curve to shift to the
d) recovery right.
b) the aggregate demand curve to shift to the left.
3. The trough of a business cycle occurs when hits c) a movement down and to the right along the
its lowest point. aggregate demand curve.
(a) inflation in the economy d) a movement up and to the left along the
aggregate demand curve.
(b) Money supply
(c) aggregate economic activity
9. Which of the following does not occur during an
(d) the unemployment rate
expansion?
a) Consumer purchases of all types of goods tend

4. The lowest point in the business cycle is referred
to increase.
to as the_____________
b) Employment increases as demand for labour
a) Expansion.
rises.
b) Boom.
c) Business profits and business confidence tend to
c) Peak. increase
d) Trough. d) None of the above.
5. A leading indicator is 10. Which of the following best describes a typical

business cycle?
a) a variable that tends to move along with the
level of economic activity a) Economic expansions are followed by economic
contractions.
b) a variable that tends to move in advance of
aggregate economic activity b) Inflation is followed by rising income and
unemployment.
c) a variable that tends to move consequent on the
level of aggregate economic activity c) Economic expansions are followed by economic
growth and development.
d) Stagflation is followed by inflationary economic

growth. rise, and aggregate demand to rise
11. During recession, the unemployment d) interest rates to fall, investment spending to
rate_________ and output________ fall, and aggregate demand to fall
(a) Rises; falls 17. Which of the following is not a characteristic of

business cycles
(b) Rises; rises
a) Business cycles have serious consequences on
(c) Falls; rises
the well being of the society.
(d) Falls; falls b) Business cycles occur periodically, although they
12. The four phases of the business cycle are do not exhibit the same regularity.
a) peak, recession, trough, and boom c) Business cycles have uniform characteristics
and causes.
b) peak, depression, trough, and boom
d) Business cycles are contagious and
c) peak, recession, trough, and recovery
unpredictable.
d) peak, depression, bust, and boom
18. Economic recession shares all of these
characteristics except.
13. Leading economic indicators
a) Fall in the levels of investment, employment
a) are used to forecast probable shifts in economic
b) Incomes of wage and interest earners gradually
policies
decline resulting in decreased demand for goods
b) are generally used to forecast economic and services
fluctuations
c) Investor confidence is adversely affected and
c) are indicators of stock prices existing in an new investments may not be forthcoming
economy
d) Increase in the price of inputs due to increased
d) are indicators of probable recession and demand for inputs
depression
19. The different phases of a business cycle
a) Do not have the same length and severity
14. When aggregate economic activity is declining,
the economy is said to be in b) expansion phase always last more
a) Contraction. c) last many years and are difficult to get over in

short periods
b) an expansion.
c) a trough.
20. Which of the following is not an example of
d) a turning point.
coincident indicator?
15. Peaks and troughs of the business cycle are
a) Industrial production
known collectively as
b) Inflation
a) Volatility.
c) Retail sales
b) Turning points.
d) New orders for plant and equipment
c) Equilibrium points.
21. According to _______trade cycles occur due to
d) Real business cycle events.
onset of innovations.
16. The most probable outcome of an increase in the
a) Hawtrey
money supply is
b) ADAM Smith
a) interest rates to rise, investment spending to
rise, and aggregate demand to rise c) J M Keynes
b) interest rates to rise, investment spending to d) Schumpeter

fall, and aggregate demand to fall
c) interest rates to fall, investment spending to

5. The marginal cost of the sixth unit of output
Extra Questions for Practice is……
[ICAI] Set 1 a) 133
b) 75
1. In describing a given production technology, the
c) 80
short run is best described as lasting_____
d) 450
a) up to six months from now
b) up to five years from now
6. Average Variable Cost of 4 units of output is:
c) as long as all inputs are fixed
a) 75
d) as long as at least one input is fixed
b) 135
c) 60
2. A firm encounters its ―shutdown point‖ when:
d) Insufficient data
a) average total cost equals price at the profit-
maximizing level of output
7. Suppose a department store has a sale on its
b) average variable cost equals price at the
silverware. If the price of a plate-setting is
profit-maximizing level of output
reduced from Rs. 300 toRs. 200 and the quantity
c) average fixed cost equals price at the profit- demanded increases from 3,000 plate-settings to
maximizing level of output 5,000 plate-settings, what is the price elasticity
d) marginal cost equals price at the profit- of demand for silverware?
maximizing level of output a) 8
b) 1.0
3. Under market condition, firms make c) 1.25
normal profits in the long run.
d) 1.50
a) Perfect Competition
Read the following paragraph and answer question 8-
b) Monopoly 10.
c) Oligopoly
Suppose that a sole proprietorship is earning total
d) None of the above revenues of ` 10,00,000 and is incurring explicit
costs of ` 7,50,000. The owner could work for
another company for ` 3,00,000 a year.
Use Table 1 to answer questions 4-6.
8. What will be the implicit cost of the firm?
Output Total Cost a) 3,00,000
0 240 b) 2,50,000
1 330
c) 7,50,000
2 410
3 480 d) insufficient data
4 540
9. The above mentioned firm is earning:
5 610
6 690 a) Accounting profit of `2,50,000.
4. The average fixed cost of 2 units of output is b) Economic loss of ` 50,000
a) 80 c) Both a and b are correct.
b) 85 d) None of the above is correct.
c) 120
d) 205

10. Suppose in the above mentioned question, the d) All of the above
owner had invested ` 500,000 by withdrawing
from his saving accounts on which he was 16. In monopoly, the relationship between average
earning 5% interest per annum, the economic and marginal revenue curves is as follows:
profit or loss is
a) AR curve lies above the MR curve
a) economic profit of `75,000
b) AR curve coincides with the MR curve
b) economic loss of `75,000
c) AR curve lies below the MR curve
c) economic profit of `2,50,000
d) AR curve is parallel to the MR curve
d) economic loss of `2,50, 000
17. Production may be defined as an act of ——.
a) creating utility
11. If increasing air fares increases revenues and
decreasing them decreases revenues, then the b) earning profit
demand for air travel has a price elasticity of: c) destroying utility
a) Zero d) providing services
b) Greater than zero but less than one 18. Demand for electricity is elastic because ——.
c) One a) it is very expensive
d) Greater than one b) it has a number of close substitutes
12. Which of the following is not a characteristic of c) it has alternative uses

a ―price-taker‖? d) none of the above
a) TR = P x Q 19. The opportunity cost of a good is
b) AR = Price a) The time lost in finding it
c) Negatively – sloped demand b) the quantity of other goods sacrificed to get

another unit of that good
d) Marginal Revenue = Price
c) the expenditure on the good
13. Which cost increases continuously with the
d) the loss of interest in using savings
increase in production?
20. Micro-economics is concerned with
a) Average cost
a) the economy as a whole
b) Marginal cost
b) the electronics industry
c) Fixed cost
c) the study of individual economic behaviour
d) Variable cost
d) the interactions within the entire economy
14. Suppose the demand for meals at a medium-
21. ___________ and do not directly affects
priced restaurant is elastic. If the
demand curve
management of the restaurant is considering
raising prices, it can expect a relatively: a) the price of related goods, consumer incomes
a) large fall in quantity demanded b) Consumer incomes, tastes
b) large fall in demand c) the costs of production, bank opening hours
c) small fall in quantity demanded d) the price of related goods, preference
d) small fall in demand

22. Relationship between AR, MR and Price elasticity
of demand is
15. When the perfectly competitive firm and
a) MR = AR + [e -1/e]
industry are in long run equilibrium then:
b) MR = AR x [e -1/e]
a) P = MR = SAC = LAC
c) AR = MR + [e -1/e]
b) D = MR = SMC = LMC
d) MR = AR x [e /e-1]
c) P = MR = Lowest point on the LAC curve

29. Which of the following statements about
23. The Slope of Indifference Curve indicate
markets is true?
a) Marginal Rate of Substitution of x for y
a) In competitive markets, price equals marginal
b) Prices of X and Y cost; in monopolized markets, price equals
c) Slope of the budget line marginal cost.
d) Change in prices b) In competitive markets, price exceeds
marginal cost; in monopolized markets, price
exceeds marginal cost.
24. In perfect competition the firm‘s _____
above AVC has the identical shape of c) In competitive markets, price equals marginal
the firm‘s supply curve cost; in monopolized markets, price exceeds
marginal cost.
a) Marginal revenue curve
d) In competitive markets, price exceeds
b) Marginal cost curve
marginal cost; in monopolized markets, price
c) Average cost curve equals marginal cost.
d) None of the above 30. New firms are barred from entering the market
in
25. If the demand curve for good X is downward- a) Perfect competition

sloping, an increase in the price will result in b) Oligopoly
a) A decrease in the demand for good X.
c) Monopolistic competition
b) No change in the quantity demanded for good
d) Monopoly
X.
c) A larger quantity demanded for good X.
31. If oligopolists engage in collusion and successfully
form a cartel, the market outcome is
d) A smaller quantity demanded for good X.
a) The same as if it were served by a monopoly
26. Yesterday, seller A supplied 400 units of a
good X at ` 10 per unit. Today, seller A b) The same as if it were served by competitive
supplies the same quantity of units at ` 5 per firms
unit. Based on this evidence, seller A has c) Efficient because cooperation improves
experienced a (an) efficiency
a) Decrease in supply. d) Known as Nash equilibrium
b) Increase in supply. 32. You are given the following data:
c) Increase in the quantity supplied.
Output 0 1 2 3 4 5
d) Decrease in the quantity supplied.
Total 0 15 30 45 60 75
27. Which of the following is a variable cost in the
Costs
short run?
The above data is an example of:
a) Wages paid to factory labor
a) Constant returns to scale.
b) Payment on the lease for factory equipment
b) Decreasing returns to scale.
c) Rent on the factory
c) Increasing returns to scale.
d) Interest payments on borrowed financial
capital d) Globalization
28. Price discrimination is a situation when a producer
a) In a perfectly competitive market, firms are
a) Charges different prices in different markets
price takers.
b) Charges same price
b) Microeconomics is the study of the behaviour of
c) Charges many prices the economy as a whole.
d) All of the above. c) Positive economics focuses on welfare of the

people of a society 38. If a fisherman must sell all of his daily catch
d) None of the above before it spoils for whatever price he is
ouered, once the fish are caught the
fisherman‘s price elasticity of supply for fresh
a) Unlike normative economics, positive economics fish is ______________.
is based on objective analysis of economic
a) zero.
issues.
b) infinite.
b) The opportunity cost of a good is the quantity
of other goods sacrificed to get another unit c) one.
of good.
d) Unable to be determined from this information.
c) Microeconomics emphasizes interactions in the
39. Which of the following statements is normative?
economy as a whole.
a) Large government deficits cause an economy
to grow more slowly.
b) People work harder if the wage is higher.
35. A rational person does not act unless__________
c) The unemployment rate should be less.
a) the action is ethical.
d) Printing too much money causes inflation.
b) the action produces marginal costs that
40. Total utility is maximum when:
exceeds marginal benefits.
a) marginal utility is zero
c) he action produces marginal benefits that
exceed marginal costs. b) marginal utility is at its highest point
d) the action makes money for the person. c) marginal utility is equal to average utility
36. Suppose you find ` 100. If you choose to d) average utility is maximum
use ` 100 to go to a football match, your
41. An indifference curve slopes down towards
opportunity cost of going to the game is
right since more of one commodity and less
.
of another result in:
a) nothing, because you found the money.
a) same satisfaction
b) 100 (because you could have used ` 100 to buy
b) greater satisfaction
other things) plus the value of your time spent
at the game c) maximum satisfaction
c) 100 (because you could have used the `100 to d) decreasing expenditure
buy other things) plus the value of your time
spent at the game, plus the cost of the dinner
42. The consumer is in equilibrium when
you purchased at the game.
a)MUx / MUy > Px / Py
d) 100 (because you could have used the `100 to
buy other things). b) MUx / MUy < Px / Py
37. If consumers always spend 15 percent of c)MUx / MUy = Px / Py

their income on food, then the income d) None of the above
elasticity of demand for food is .
43. In case of Giffen goods Demand Curve will be
a) 1.50
a) Horizontal
b) 1.15
b) Downward sloping towards right
c) 1.00
c) Upward sloping towards right
d) 0.15
d) Vertical
44. In short run, when output of the firm increases,
it average fixed cost______
a) Increase
b) Decrease

c) Remains constant 51. Which of the following is a property of the
d) First declines and then rises indifference curve ?
a) Indifference curves are convex to t
45. In the short run, when the output of a firm
increases, its average fixed cost: b) Indifference curves slope downwards from left
to right
a) increases
c) No two indifference curves can cut each other
b) decreases
d) All of the above are the properties of
c) remains constant
Indifference curves.
d) first declines and then rises
52. The structure of the cold drink industry in
46. In the case of an inferior good the income India is best described as:
elasticity of demand is:
a) Perfectly competitive
a) positive
b) Monopolistic
b) zero
c) Oligopolistic
c) negative
d) Monopolistically competitive
d) infinite
53. If a seller realizes ` 10,000 after selling
100 units and ` 14,000 after selling 120
47. The elasticity of substitution between two units. What is the marginal revenue here?
perfect substitutes is: a) Rs. 4000
a) zero b) Rs. 450
b) greater than zero c) R s . 200
c) less than infinity d) Rs. 100
d) infinite
48. Elasticity of supply refers to the degree of 54. In economics, what a consumer is ready to pay
responsiveness of supply of a good to changes in minus what he actually pays, is termed as:
its: a) Consumer’s equilibrium
a) Demand b) Consumer’s surplus
b) Price c) Consumer’s expenditure
c) costs of production d) None of the above
d) state of technology 55. What is the shape of the demand curve faced
49. An isoquant slopes : by a firm under perfect competition?
a) downward to the left a) Horizontal
b) downward to the right b) Vertical
c) upward to the left c) Positively sloped
d) upward to the right d) Negatively sloped
50. The income of a household rises by 20 per 56. The second glass of lemonade gives lesser
cent, the demand for computer rises by satisfaction to a thirsty boy, this is a clear
25 per cent, this means computer (in case of:
Economics) is a/an a) Law of demand
a) inferior good b) Law of diminishing returns
b) luxury good c) Law of diminishing marginal utility
c) necessity d) Law of supply
d) can’t say

57. In the case of a straight line demand curve Extra Questions for
meeting the two axes the price – elasticity of
demand at the mid-point of the line would be : Practice [ICAI] Set 2
a) 0 1. At shut down point :
b) 1 a) Price is equal to AVC
c) 1.5 b) Total revenue is equal to TVC
d) 2 c) Total loss of the firm is equal to TFC
58. All of the following are determinants of demand d) All of the above
except
2. The LAC curve
a) tastes and preferences
a) Falls when the LMC curve falls
b) quantity supplied
b) Rises when the LMC curve rises
c) income
c) Goes through the lowest point of the LMC
d) price of related goods
curve
59. Which of the following cost curves in never ‗U‘
d) Falls when LMC < LAC and rises when LMC >
shaped?
LAC
a) Average cost curve
3. If the price of Pepsi decreases relative to the
b) Marginal cost curve price of Coke and Slice, the demand for:
c) Average variable cost curve a) Coke will rise
d) Average fixed cost curve b) Slice will decrease
60. When aggregate economic activity is increasing, c) Coke and Slice will increase
the economy is said to be in d) Coke and Slice will decrease
a) an expansion. 4. The indifference curve approach does not
b) a contraction. assume:
c) a peak. a) Rationality on the parts of consumer

d) a turning point. b) Ordinal measurement of satisfaction
c) Consistent consumption pattern behavior of
consumers
d) Cardinal measurement of utility

5. The marginal cost curve intersects the
a) Maximum
b) Minimum
c) Raising
d) Falling
6. In long run equilibrium the pure monopolist can

make pure profit because of
a) Blocked entry
b) The high price he charges
c) The low LAC costs
d) Advertising

7. The demand for a factor of production 13. The demand curve facing an industrial firm under
monopoly is
a) It is a function of the profitability of an
a) horizontal straight line
enterprise
b) It depends on the supply of complementary b) indeterminate
factors c) downward sloping
c) Its stems from the demand for the final d) Upward sloping
product 14. Price discrimination is not possible:
d) It arises out of means being scarce in relation a) under monopoly situation
to wants.
b) under any market form
8. Consumer stops purchasing the additional units
c) under monopolistic competition
of the commodity when
d) under perfect competition
a) marginal utility starts declining
b) marginal utility become zero 15. In short run, a firm in monopolistic competition
c) marginal utility is equal to marginal utility of a) always earns profits
money
b) incurs losses
d) total utility is increasing
c) earns normal profit only
d) may earn normal profit, supernormal profit or
9. The ‗substitution effect‘ takes place due to
incur losses
change in
a) income of the consumer

16. In the case of two perfect substitutes, the
b) prices of the commodity indifference curve will be :
c) relative prices of the commodities a) Straight line
d) all of the above b) L-shaped
10. Under income effect, consumer c) U-shaped
a) moves along the original indifference curve d) C-shaped
b) moves to higher or lower indifference curve 17. In case of inferior goods, income elasticity is :
c) always purchases higher quantities of both a) zero

the commodities b) positive
d) none of the above c) negative
11. Under the perfect competition a firm will be in d) none
Equilibrium when :
a) MC = MR 18. Cross elasticity of demand between tea and

coffee is:
b) MC cuts the MR from below
a) positive
c) MC is rising when it cuts the MR
b) negative
d) All of the above
c) zero
12. A perfectly competitive firm has control over d) infinity
a) price 19. If all inputs are trebled and the resultant

output is doubled, this is a case of:
b) production as well as price
a) constant returns to scale
c) production, price and consumers
b) increasing returns to scale

c) diminishing returns to scale A competitive firm sells as much as of its product it
chooses at a market price of ` 100 per unit. Its
d) negative returns to scale
fixed cost is ` 300 and its variable costs (in rupees)
for different levels of production are shown in the
following table. Use Table 1 to answer questions
20. In the case of monopoly:
26-29.
a) MR curve cannot be defined Qty. VC FC TC AVC ATC MC
b) AR curve cannot be defined 0 0 - - - - -
5 270
c) the short run supply curve cannot be defined
10 490
d) none of the above 15 720
21. If the income elasticity is greater than one the 20 1000
commodity is 25 1370
30 1870
a) Necessity 35 2540
b) Luxury 40 3420
45 4550
c) Inferior goods
50 5970
d) None of these
26. When production is 35 units, the average
22. Full capacity is utilized only when there is variable cost is:
a) Monopoly a) 7.25
b) Perfect competition b) `72.25
c) Price discrimination c) `72.57
d) Oligopoly d) `85.50
23. Which of the following falls under Micro 27. In the table marginal cost per unit that
Economics ? corresponds to 25 units of production is
a) National Income a) `3.50
b) General Price level b) `74
c) Factor Pricing
c) `450
d) National Saving and Investment
d) 370
28. To maximize output, the firm should produce
24. If a point on a demand curve of any
commodity lies on X Axis then price a) 30
elasticity of demand of that commodity
b) 35
at that point will be :
c) 45
a) Infinite
d) 50
b) More than zero
29. If the market price drops from ` 100 to 74,
c) Less than zero
the firm short run response should be:
d) Zero __________
25. One characteristic not typical of oligo a) Continue to produce the same nu
a) Too much importance to non-price b) Produce 10 units
competition
c) Produce 20 units
b) Price leadership
d) Produce 25 units
c) Horizontal demand curve
d) A small number of firms in the industry

Read the following data and answer Questions Number b) 0.4
30-35.
c) 1.25
XYZ are three commodities where X and Y are
complements whereas X and Z are substitutes. A
d) 1.35
shopkeeper sells commodity X at Rs. 40 per piece. At this
price he is able to sell 100 pieces of X per month. After 35. We can say that commodity X in economics is
some time he decreases the price of X to Rs. 20. a/an
Following the price decrease : He is able to sell 150 a) luxury good
pieces of X per month The demand for Y increases
from 25 units to 50 units. The demand for commodity b) Inferior goods
Z decreases from 150 to 75 units. c) normal Good
30. The price elasticity of demand when the price of d) none of the above
X decreases from ` 40 per piece to ` 20 per piece
will be equal to: 36. 36. If the total cost of manufacturing commodity ‗X‘
is ` 1,50,000. Out of this implicit cost is ` 80,000
a) 1.5 what will be explicit cost:
b) 1.0 a) 95,000
c) 1.66 b) 1,25,000
d) 0.6 c) 80,000
d) 70,000
31. The cross elasticity of monthly demand for
37. Which of the following statements is co
Y when the price of X decrease from ` 40
to `20 is equal to: a) Employment and economic growth are studied
in micro-economics.
a) 1
b) Micro economics deals with balance of trade
b) –1
c) –1.5 c) Economic condition of a section of the people
is studied in micro-economics
d) +1.5
d) External value of money is dealt with in
32. The cross-elasticity of Z when the price of X micro-economics
decreases from 40 to 20 is equal to:
38. Suppose income of the consumers increases
a) –0.6 by 50% and the demand for commodity X
b) +0.6 increases by 20% what will be the income
elasticity of demand for commodity X?
c) –1
a) 0.04
d) +1
b) 0.4
33. What can be said about price elasticity of
demand for X? c) 4.00
a) Demand is unit elastic d) -4.00
b) Demand is highly elastic 39. If the demand for a good is inelastic, an

increase in its price will cause the total
c) Demand is perfectly elastic expenditure of the consumers of the
d) Demand is inelastic good to:
34. Suppose income of the residents of locality a) Remain the same

increase by 50% and the quantity of X
b) Increase
commodity increases by 20%. What is income
elasticity of demand for commodity X? c) Decrease
a) 0.6 d) Any of these

40. The price of hot dogs increases by 22% and d) indifference curve
the quantity of hot dog demanded falls by
25%. This indicates that demand for hot dog
is 46. The kinked demand curve model of oligopoly
assumes that:
a) Elastic
a) response (of consumers) to a price increase is
b) Inelastic less than the response to a price decrease
c) unitarily elastic b) response (of consumers) to a price increase is

more than the response to a price decrease
d) perfectly elastic.
41. A firm‘s average fixed cost is ` 20 c) elasticity of demand is constant regardless of
at 6 units of output. What will it whether price increases or decreases
be at 4 units of output? d) elasticity of demand is perfectly elastic if
a) 60 price increases and perfectly inelastic if price
decreases
b) `30
47. Diminishing marginal returns imply
c) `40
a) decreasing average variable costs
d) `20
b) decreasing marginal costs
42. The kinked demand hypothesis is designed to
explain in the context of oligopoly c) increasing marginal costs
a) Price and output determination d) decreasing average fixed costs
b) Price rigidity 48. Which of the following is an example of an

―explicit cost‖?
c) Price leadership
a) The wages a proprietor could have made by
d) Collusion among rivals working as an employee of a large firm
43. The structure of the tooth paste industry in b) The income that could have been earned in
India is best described as: alternative uses by the resources owned by the
a) Perfectly firm
competitive c) The payment of wages by the firm
b) Monopolistic d) The normal profit earned by a firm
c) Monopolisticall 49. Marginal cost is defined as :
y competitive
a) the change in total cost due to one unit
d) Oligopolistic change in output
44. When we know that the firm b) total cost divided by output
are earning just normal profits:
c) the change in output due to a one unit change
a) AC = AR in an input
b) MC = MR d) total product divided by the quantity of input

c) MC = AC
d) AR=MR 50. The law of scarcity
45. Which is the other name that is given the long a) does not apply to rich developed countries
run average cost curve? b) applies only to the less developed countries
a) profit curve c) implies that consumers wants will be satisfied
b) planning curve in a socialistic system
c) demand curve d) implies that consumers wants will never be

completely satisfied

d) cannot be determined because the price of
51. Which of the following statement is incorrect? the good may rise or fall.
a) Even monopolist can earn losses

57. Which of the following involve a trade-off?
b) Firms in a perfectly competitive market are
price-takers a) Taking a nap
c) It is always beneficial for a firm in the b) All of these answers involve trade-offs.
perfectly competitive market to discriminate
c) Watching a football game on Saturday
prices
afternoon
d) Economic laws are less exact than the laws of
d) Going to university
physical sciences
58. A firm‘s production function:
52. The producer is in equilibrium at a point
where the cost line is: a) Shows how much output and the level of input
required for the firm to maximize profits
a) above the isoquant
b) Establishes the minimum level of output that
b) below the isoquant
can be produced using the available resources
c) cutting the isoquant
c) Shows the maximum output that can be
d) tangent to isoquant produced with a given amount of inputs with
available technology
53. Which of the following is not an economic d) Shows labour force which is employed
activity?
59. In the short run if a perfectly competitive firm
a) A son looking after his ailing mother finds itself operating at a loss, it will:
b) A chartered accountant doing his own practice a) Reduce the size of its plant to lower fixed
costs.
c) A soldier serving at the border
b) Raise the price of its product.
d) A farmer growing millets
54. Contraction of demand is the result of c) Shutdown.
a) decrease in the number of consumers d) Continue to operate as long as it covers its
variable cost
b) increase in the price of the good concerned
60. Which of the following is not a variable in the
c) increase in the prices of other goods
index of leading indicators?
d) decrease in the income of purchasers
a) New consumer goods orders
b) Delayed deliveries
land? c) New building permits
a) its supply for the economy is limited d) Prime rate
b) it is immobile
c) its usefulness depends on human efforts
d) it is produced by our forefathers
56. If a competitive firm doubles its output, its
total revenue:
a) doubles.
b) more than doubles.
c) less than doubles.

Extra Questions for (a) 2.5
(b) 0.4
Practice [ICAI] Set 3
(c) -2.5
1. The implication that resource scarcity have
(d) -0.4
for the satisfaction of wants are-
a) Not all wants can be satisfied
6. The consumer is in equilibrium at a point
b) We will never be faced with the need to where the budget line-
make choices
(a) Is above an indifference curve
c) We must develop ways to decrease our
individual wants (b) Is below an indifference curve
(c) Is tangent to an indifference curve
d) The discovery of new natural resources is
necessary to increase our ability to satisfy (d) Cuts an indifference curve
wants
2. A normative economic statement is- 7. The second glass of water gives lesser
satisfaction to a thirsty boy. This is a clear
(a) Unemployment rate decreases with
case of-
industrialization
(a) Law of demand.
(b) Economics is a social science that studies
human behaviour (b) Law of diminishing returns.
(c) The minimum wage should be raised to ` (c) Law of diminishing utility.
200/- per day
(d) Law of supply.
(d) India spends a huge amount of money on
national defence 8. When the price of commodity increases by
40% and its quantity demanded falls from
3. Administered prices refer to- 150 to 120 units , then the price elasticity
(a) Price determined by forces of demand and of demand for a commodity is-
supply
(a) -0.8%
(b) Price determined by sellers in the market (b) 0.8%
(c) Prices determined by an external
(c) 0.5%
authority which is usually the government
(d) -0.5%
(d) None of the above
9. If the consumer consumes only one

4. A downward movement along a demand curve commodity X , he will be in equilibrium
indicate- when-
(a) Increase in demand
(a) MUx > Px
(b) Decrease in demand
(b) MUx< Px
(c) Contraction of demand
(c) MUx= Px
(d) Expansion of Demand
(d) None of these
5. If price of automobiles increases by 10%

10. Identify the coefficient of price-
and supply increases by 25%. The elasticity
elasticity of demand when the percentage
of supply is-

increase in the quantity of a good
15. The slope of consumer’s budget line is –
demanded is smaller than the percentage
fall in its price- (a) Positive and constant
(a) Equal to one (b) Negative and decreasing
(b) Greater than one (c) Negative and constant
(c) Smaller than one (d) Positive and increasing
(d) Zero
16. Demand for water is –
11. If a good is a luxury, its income elasticity (a) Elastic

of demand is- (b) Inelastic
(a) positive and less than 1 (c) Perfectly elastic
(b) negative but greater than -1 (d) Relatively elastic
(c) positive and greater than 1
(d) Zero 17. Inferior goods are those goods whose income
effect is-
12. A consumer demands 5 units of a (a) Negative

commodity at the price of Rs. 4 per unit. (b) Positive
He demands 10 units when the price falls
(c) Zero
to Rs 3 per unit. Price elasticity of demand
is equal to- (d) None of these
(a) 3
18. Suppose income elasticity of bread is 0.25,
(b) 2 its means that bread is-
(c) 1.5 (a) Inferior goods
(d) 4 (b) Luxury goods
(c) Normal goods

13. Availability of close substitutes makes the
demand- (d) Can’t say
(a) Less elastic

19. The supply curve shifts to the right because
(b) More elastic of-
(c) Parallel to X axis (a) Improved technology
(d) Parallel to Y axis (b) Increased price of factors of production
(c) Increased excise duty
14. The supply curve for perishable
(d) All of the above
commodities is-
(a) elastic
20. If the demand is more than supply, then the
(b) inelastic pressure on price will be-
(c) perfectly elastic (a) Upward
(d) perfectly inelastic (b) Downward
(c) Constant

(d) None of the above 26. In the third phase of Law of variable
proportions, MP becomes-
21. Which of the following goods has inelastic (a) Zero

demand- (b) Negative
(a) Salt (c) Positive
(b) Food grains (d) None of these
(c) Medicines
(d) All of the above 27. Law of variable proportion is related to-
(a) Short-run
22. Demand for pepsi is elastic because- (b) Long-run
(a) Its falls under luxuries (c) Both a and b
(b) Its consumption can be postponed (d) Very short run
(c) Its substitutes are available in the market
(d) It is a multiple use product 28. When Marginal product is zero, then Total
product is –
23. A good which cannot be consumed more than (a) Zero

once is known as- (b) Falling
(a) durable good (c) Rising
(b) non-durable good (d) Maximum
(c) producer good
(d) none of the above 29. Long run production function related to-
(a) Returns to a factor
24. A consumer of two goods X and Y is in (b) Returns to scale
equilibrium. The price of good X is Rs.
(c) Both a and b
10 and price of the good Y is Rs. 20
respectively. If the MUX is 60 utils , then (d) None of these
the MUy is-
(a) 30 utils 30. Diminishing returns occur-
(b) 20 utils (a) When units of a variable input are added

to a fixed input and total product falls
(c) 60 utils
(b) When units of a variable input are added
(d) 6 utils to a fixed input and marginal product
falls
25. The slope of indifference curve is given by- (c) When the size of the plant is increased in
(a) Budget line the long run.
(b) Marginal rate of transformation (d) When the quantity of the fixed input is
increased and returns to the variable input
(c) Marginal rate of substitution
falls
(d) None of these
31. In the production of wheat, all of the
following are variable factors that are used

by the farmer except-
(a) The seed and fertilizer used when the crop 36. Total costs is the vertical summation of –
is planted
(a) TFC and TVC
(b) The field that has been cleared of trees
(b) AFC and AVC
and in which the crop is planted
(c) TVC and AVC
(c) The tractor used by the farmer in planting
and cultivating not only wheat but also corn (d) None of these
and barley
(d) The number of hours that the farmer 37. Example of Fixed cost is-
spends in cultivating the wheat fields (a) Electricity bill
(b) Interest on loans
32. When total product is 200units and units of
(c) Expenses on raw material
variable factor are 8, average product will
be – (d) Wages of daily workers
(a) 25
38. TVC can be calculate as-
(b) 1600
(c) 96 (a) AVC/Q
(d) 60 (b) TC-TFC

(c) AC-AFC
33. Economic costs includes- (d) None of these
(a) Accounting costs
39. The long run average cost curve is also
(b) Implicit costs
called –
(c) Both a and b
(a) Envelope curve
(d) None of above
(b) Plant curve
(c) Both a and b
34. Which of the following cost curve is termed
as a rectangular hyperbola- (d) None of these
(a) TVC curve

40. Economies of scale exist because as a firm
(b) AVC Curve
increases its size in the long run-
(c) TFC curve
(a) Labour and management can specialize in
(d) AFC curve their activities more
(b) As a larger input buyer, the firm can
35. The total cost of producing 30 units of get finance at lower cost and purchase
output is Rs. 300. If average fixed cost inputs at a lower per unit cost.
at this level of output is Rs. 7, then the
(c) The firm can afford to employ more
total variable cost will be –
sophisticated technology in production
(a) Rs. 160
(d) All of these
(b) Rs. 140
(c) Rs. 90 41. Example of variable cost is –
(d) Rs. 120 (a) Salary of permanent staff

(b) Rent of premises (d) Monopolistic competition
(c) License fees

(d) Wages 47. A market induces cartel is –
(a) Perfect competition
42. When average revenue is Rs.30 and output is (b) Monopoly
equal to 50 units total revenue will be –
(c) Oligopoly
(a) 2500
(d) None of these
(b) 1500
(c) 1800 48. In the context of oligopoly, the kinked
demand hypothesis is designed to explain -
(d) 2000
(a) Price and output determination
43. The Average revenue and price are always (b) Price rigidity
equal under-
(c) Price leadership
(a) Monopoly
(d) Collusion among rivals
(b) Monopolistic competition
(c) Perfect competition
49. A combination of monopoly market and a
(d) All market forms monopsony market is known as-
(a) Duopoly
44. If total revenue of a firm increases by
(b) Monopsony
Rs 65025 due to an increase in sale of
good X from 60 units to 75 units , then (c) Oligopsony
marginal revenue will be – (d) Bilateral monopoly
(a) 3000
(b) 4335 50. A firm encounters its ―shutdown point‖ when-

(c) 4000 (a) Average total cost equals price at the
(d) 3335 profit-maximising level of output
(b) Average variable cost equals price at the
profit-maximising level of output
45. Which of the following is not an essential
condition of pure competition? (c) Average fixed cost equals price at the
(a) Large number of buyers and sellers profit-maximising level of output
(b) Homogeneous product (d) Marginal cost equals price at the profit-
maximising level of output
(c) Freedom of entry
(d) Absence of transport cost

51. Homogeneous product are sold under-
(a) Collusive oligopoly

46. Product differentiation is a key feature of-
(b) Non-collusive oligopoly
(a) Perfect competition
(c) Perfect oligopoly
(b) Oligopoly
(d) Imperfect oligopoly
(c) Monopoly

52. A market structure in which many firms sell (a) Lagging indicator
products that are similar but not identical is
(b) Coincident indicator
known as-
(c) Leading indicator
(a) Monopolistic competition
(d) None of these
(b) Monopoly
(c) Perfect competition
58. Example of Lagging indicator is-
(d) Oligopoly
(a) Corporate profits
(b) Interest rates

53. In a very short period market-
(c) Consumer price index
(a) The supply is fixed
(d) All of these
(b) The demand is fixed
(c) Demand and supply are fixed

59. “Trade cycle is a purely monetary
(d) None of the above phenomenon‖, according to-
(a) Pigou
54. A monopolist is a-
(b) Hawtrey
(a) Price maker
(c) Keynes
(b) Price –taker
(d) Schumpeter
(c) Price adjuster
(d) None of the above 60. When aggregate economic activity is

declining, the economy is said to be in-
55. The term business cycle refers to- (a) Contraction
(a) The ups and downs in production of (b) An Expansion
commodities
(c) Trough
(b) The fluctuation levels of economic activity
(d) Turning point
over a period of time
(c) Decline in economic activities over
prolonged period of time
(d) Increasing unemployment rate and
diminishing rate of savings
56. The lowest point in the business cycle is

referred as the –
(a) Expansion
(b) Boom
(c) Peak
(d) Trough
57. A indicator which occur simultaneously with

the business cycle movements is-

Chapter 1- Introduction to Business Economics [ 35 MCQs]
1. (d) 2 (d) 3 (b) 4. (a) 5. (d) 6. (a)
7. (b) 8. (a) 9. (a) 10. (b) 11. (d) 12. (d)
13. (d) 14. (a) 15. (d) 16. (c) 17. (c) 18. (b)
19. (d) 20. (c) 21. (b) 22. (c) 23. (d) 24. (a)
25. (d) 26. (c) 27. (d) 28. (b) 29. (b) 30. (b)
31. (b) 32. (b) 33. (b) 34. (a) 35. (c)
Chapter 2,3,4 – Utility, Demand and Supply [108 MCQs]

Chapter 5,6 – Production , cost and Revenue [81]
1. a 2. a 3. d 4. b 5. b 6. b
7. c 8. a 9. d 10. c 11. c 12. a
13. b 14. c 15. a 16. b 17. d 18. d
19. a 20. b 21. a 22. d 23. a 24. c
25. c 26. a 27. c 28. c 29. c 30. a
31. c 32. d 33. d 34. c 35. b 36. c
37. d 38. a 39. d 40. d 41. a 42. b
43. a 44. d 45. d 46. c 47. b 48. c
49. a 50. a 51. a 52. d 53. c 54. d
55. d 56. b 57. b 58. b 59. d 60. b
61. c 62. d 63. a 64. b 65. b 66. d
67. d 68. b 69. b 70. d 71. c 72. d
73. c 74. b 75. b 76. a 77. d 78. d
79. c 80. d 81. d
Chapter 7- Market
1. c 2. c 3. c 4. d 5. c 6. a
7. d 8. a 9. b 10. c 11. d 12. c
13. b 14. d 15. d 16. c 17. c 18. c
19. c 20. d 21. d 22. a 23. d 24. b
25. a 26. c 27. c 28. a 29. b 30. d
31. d 32. b 33. b 34. b 35. c 36. c
37. b 38. b 39. d 40. d 41. d 42. a
43. c 44. d 45. c 46. b 47. a 48. b
49 c 50. a 51. c. 52. d 53. d 54. c
55. a 56. d 57. d 58. b 59. a 60. b
61. a 62. b 63. c 64. a 65. b 66. c
67. b 68. a 69. a 70. b 71. a 72. b
73. c 74. b 75. a 76. c 77. b 78. d
79. c 80. b 81. c 82. d 83. c 84 b
85. d 86. d 87. b 88. c 89. d 90. c

Chapter 8- Business Cycle
1 2 3 4 5 6 7 8 9 10 11
B C C D B C D B D A A
12 13 14 15 16 17 18 19 20 21
C B A B C C D A D D
ICAI Extra Set 1

1 (d) 11 b) 21 (c) 31 (a) 41 (a) 51 (d)
2 (b) 12 (c) 22 (b) 32 (a) 42 (c) 52 (c)
3 (a) 13 (d) 23 (a) 33 (a) 43 (c) 53 (c)
4 (c) 14 (a) 24 (b) 34 (c) 44 (d) 54 (b)
5 (c) 15 (d) 25 (d) 35 (c) 45 (b) 55 (a)
6 (a) 16 (a) 26 (b) 36 (b) 46 (c) 56 (c)
7 (c) 17 (a) 27 (a) 37 (c) 47 (d) 57 (b)
8 (a) 18 (c) 28 (a) 38 (a) 48 (b) 58 (b)
9 (c) 19 (b) 29 (c) 39 (c) 49 (b) 59 (d)
10 (b) 20 (c) 30 (d) 40 (a) 50 (b) 60 (a)
ICAI Extra Set 2

1 (d) 11 (d) 21 (b) 31 (b) 41 (b) 51 (c)
2 (d) 12 (d) 22 (b) 32 (d) 42 (b) 52 (d)
3 (d) 13 (c) 23 (c) 33 (d) 43 (c) 53 (a)
4 (d) 14 (d) 24 (d) 34 (b) 44 (a) 54 (b)
5 (b) 15 (d) 25 (c) 35 (c) 45 (b) 55 (d)
6 (a) 16 (a) 26 (c) 36 (d) 46 (b) 56 (a)
7 (c) 17 (c) 27 (b) 37 (c) 47 (c) 57 (b)
8 (c) 18 (a) 28 (a) 38 (b) 48 (c) 58 (c)
9 (c) 19 (c) 29 (d) 39 (b) 49 (a) 59 (d)
10 (b) 20 (c) 30 (d) 40 (a) 50 (d) 60 (d)

ICAI Extra Set 3
1. a 11. c 21. d 31. b 41. d 51. c
2. c 12. d 22. c 32. a 42. b 52. a
3. c 13. b 23. b 33. c 43. d 53. a
4. d 14. d 24. a 34. d 44. b 54. a
5. a 15. c 25. c 35. c 45. d 55. b
6. c 16. b 26. b 36. a 46. d 56. d
7. c 17. a 27 a 37. b 47. c 57. b
8. d 18. c 28. d 38. b 48. b 58. d
9. c 19. a 29. b 39. a 49. d 59. b
10. c 20. a 30. b 40. d 50. b 60. a

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CA Foundation- All ICAI MCQ

necessary to increase our ability to satisfy

Introduction to 5. Which of the following is a normative

3. In Economics, we use the term scarcity to mean;

d) Scarcity caused on account of excessive

4. What implication(s) does resource scarcity have

d) The discovery of new natural resources is

CA ADITYA SHARMA 7887788707 V SMART ACADEMY Page 1

15. Which of the following is not the subject matter

11. In this conversation, the normative statement is

b) A mythical economy where everybody is a

d) None of the above. c) The effect of an increasing inflation rate on

d) The effect of an increase in the price of

c) The quantity of mangoes produced for the

CA ADITYA SHARMA 7887788707 V SMART ACADEMY Page 2

a) Positive Economics explains the performance of a) voting done by consumers

24. Which of the following is considered as a

20. Which of the

21. Economic goods are considered scarce

CA ADITYA SHARMA 7887788707 V SMART ACADEMY Page 3

29. Which of the following is not one of c) Mixed Economy

a) Who produces what? 35. Administered prices refer to:

b) When are goods produced? a) Price determined by forces of Market Demand

31. The economic system in which

CA ADITYA SHARMA 7887788707 V SMART ACADEMY Page 4

a) income of the consumer and the quantity of a

c) Close substitutes for that good.

c) Price of the commodity. 9. In the case of an inferior good, the income

5. In the case of a straight line demand curve a) remain the same.

c) 1.5 11. If regardless of changes in its price, the

CA ADITYA SHARMA 7887788707 V SMART ACADEMY Page 5

13. All of the following are determinants of demand

b) A decrease in demand. a) Price elasticity of supply is a measure of how

CA ADITYA SHARMA 7887788707 V SMART ACADEMY Page 6

a) Quantity demanded will fall by a relatively large

a) 0.5 d) Quantity demanded will fall in the short run, but

b) A restaurant is considering lowering the price of

d) 3.0 a) the percentage change in quantity demanded is

CA ADITYA SHARMA 7887788707 V SMART ACADEMY Page 7

CA ADITYA SHARMA 7887788707 V SMART ACADEMY Page 8

a) horizontal. d) amount of the good ordered for sale at a

43. Which of the following is a property of an indi- c) cost of production.

c) marginal utility is constant as you move along a) zero.

a) the demand for the good. a) decrease in the number of producers.

a) negative income elasticity of demand.

CA ADITYA SHARMA 7887788707 V SMART ACADEMY Page 9

b) negative income elasticity of demand.

b) income elasticity of demand is one.

a) low income elasticity of demand d) a complement.

b) high income elasticity of demand

a) increase or decrease but the demand curve for

a) Represents a combination of goods which costs

CA ADITYA SHARMA 7887788707 V SMART ACADEMY Page 10

d) people are willing to buy during a given time

a) consumer’s real income increases. d) Willingness to produce a good if the technology

b) a decrease in the price of the book.

CA ADITYA SHARMA 7887788707 V SMART ACADEMY Page 11

a) increase the number of cameras bought. b) responsiveness of the quantity supplied of a

84. Elasticity of supply is measured by dividing the

d) increases and the price rises.

b) luxuries and inferior goods. c) imperfectly elastic supply.

c) necessaries and luxuries. d) none of the above.

d) none of the above.