Business Economics chapter 1 MCQ

1. The most fundamental economic problem is

A. Security.
B. The fact the United States buys more goods from foreigners than we sell to foreigners.
C. Health.
D. Scarcity.

Answer D - scarcity.

2. Economics is best defined as the study of how people, businesses, governments, and societies
A. make choices to cope with scarcity.
B. Attain wealth.
C. Choose abundance over scarcity.
D. Use their infinite resources.

Answer B – Attain Wealth

3 .Which is the most accurate definition of the study of economics? Economics is the study of
A. The distribution of surplus goods to those in need.
B. Affluence in a morally bankrupt world.
C. Ways to reduce wants to eliminate the problem of scarcity.
D. The choices we make because of scarcity

Answer D - The choices we make because of scarcity

4. In broad terms the difference between microeconomics and macroeconomics is that

A. Microeconomics studies the effects of government taxes on the national unemployment rate.
B. Macroeconomics studies the effects of government regulation and taxes on the price of
individual goods and services whereas microeconomics does not.
C. They use different sets of tools and ideas.
D. Microeconomics studies decisions of individual people and firms and macroeconomics
studies the entire national economy
Answer D - microeconomics studies decisions of individual people and firms and macroeconomics
studies the entire national economy
5. Macroeconomics is the branch of economics that studies
A. Prices of individual goods.
B. Important, as opposed to trivial, issues.
C. The way individual markets work.
D. D) The economy as a whole.
Answer D The economy as a whole.
6. In economics, positive statements are about
A. Macroeconomics, not microeconomics. B) The way things are or What actually is
B. The way things ought to be. D) Microeconomics, not macroeconomics.
Answer B - the way things are or what actually is

7. Positive and normative statements differ in that

A. Normative statements depict "what is" and positive statements depict "what ought to be."
B. Positive statements can be graphed, whereas normative statements cannot.
C. Normative statements can be tested, whereas positive statements cannot.
D. Positive statements can be tested, whereas normative statements cannot.
Answer D - positive statements can be tested, whereas normative statements cannot.

8. Which of the following is an example of a positive statement?

A. Business firms ought to contribute more to charities.
B. Government should not redistribute income.
C. The foreign sector should be more tightly controlled.
D. Households are the primary source of saving.
Answer D - Households are the primary source of saving

9. Which of the following is an example of a positive statement?

A. The Federal Reserve ought to cut the interest rate.
B. Increasing the minimum wage results in more unemployment.
C. We should cut back on our use of carbon-based fuels such as coal and oil.
D. Every American should have equal access to health care.
Answer B - Increasing the minimum wage results in more unemployment.
10. Normative statements are statements about
A. What ought to be. B) Quantities.
B. What is. D) Prices.
Answer A
11. A normative statement is
A. One that does not use the ceteris paribus clause.
B. About what ought to be.
C. Always true.
D. About what is.
Answer B

12. Which of the following is a normative statement?

A. The price of candy bars is $1.25 each.
B. Popcorn and candy are sold in movie theaters.
 C. Candy bars are more expensive than newspapers.
D. You should eat less candy.
Answer D

13. Which of the following is a normative statement?

A. Low rents are good because they make apartments more affordable.
B. Low rents will restrict the supply of housing.
C. Owners of apartment buildings are free to charge whatever rent they want.
D. Housing costs are rising.
Answer A

14. An economic theory is

A. Generalization that summarizes what we understand about economic choices.
B. A positive statement that cannot use the ceteris paribus clause.
C. Usually more complex than the real world.
D. Always a mathematical, or nonverbal, model.
Answer A

16. An economic model includes

A. Only details considered essential.
B. All known details in order to increase its accuracy.
C. No use of ceteris paribus.
D. Post hoc statements.
Answer D

17. Macroeconomics is the study of ________.

A. the global economy
B. the choices that individuals and businesses make
C. the national economy
D. all aspects of scarcity
Answer C

18. Which of the following is true regarding the law of scarcity?

A. It states that the wants of a consumer will never be satisfied completely.
B. It indicates that the wants of a consumer will be satisfied in a socialistic system.
C. It is only for underdeveloped countries.
D. It is not for rich and developed countries.
Answer A

19. Which of the following does a person need to make a rational decision?
 A. Choices that don’t have trade-offs
B. Choices that never change
C. Choices that are consistent with a similar goal every time
D. Logical choices without errors
Answer C

20. Which of the following is the central problem of an economy?

A. Assigning limited resources in a way that unlimited desires and needs of the society are
satisfied
B. Ensuring a minimum income for each citizen
C. Assuring that production happens in the most effective way
D. Analyzing the demand with market economies
Answer A

21. When does an economy succeed in producing resources efficiently?

A. When goods and services are produced without resources being wasted
B. When the total number of goods manufactured is high
C. When the resources employed are the best
D. When the resources are employed for highly valued uses
Answer A

22. Which option is a disadvantage for allocating resources that are utilizing a market system?
A. Profits will be less
B. Impossible to stop the wastage of scarce resources
C. Notable unemployment may take place
D. Uneven distribution of income
Answer D

23. Which branch of economic theory is associated with the difficulty of resources allocation?
A. Econometrics
B. Microeconomic theory
C. Macroeconomic theory
D. None of the above
Answer: B

24. The creation of choice is done by _________ .

A. Scarcity of resources
B. Less choices
C. The urgency of needs
D. Abundance of resources
Answer: A
25. Which of the following is not an assumption of economics
A. Consumer have rational preference
B. Existence of non-profitable completion
C. Existence of equilibrium
D. Existence of perfect competition
Answer B
26. _______________ is that branch of economics which is objective and descriptive in natue
A. Positive approach
B. Normative approach
C. Management approach
D. Business approach

Answer A
27. Static economics is a study of factors that are not subject to change which is necessary for
equilibrium answer it can be said that there is a state of equilibrium, in static response
Answer static economics

28. In case of market economy _______________class includes those people who sell their ability
to work for a certain amount of wages or salaries
Answer working

29. Under ______________ government is responsible for setting up of target production and
revenue allocation or there is a necessary democratic ownership
Answer planned economics

30. Which of the following does not come under the scope of economics
A. Environment studies
B. health
C. social welfare
D. archaeological survey
Answer arecalogical survey

31. According to the law of ______________ customer buy a high quantity of products at lower
prices and vice versa
Answer demand

32. Law off _______________________ explain that there is positive relating between price and
quantity demanded
Answer supply
33. ___________ is a branch of economics that deals with the study of economics behavior of
individual organization on consumer in economy
Answer microeconomics

34. Which of the following is not included in the calculation of gross domestic product
A. consumer goods and service
B. gross private domestic income
C. net income from abroad
D. goods and service produced by government
Answer net income from abroad

35. Moderate inflation takes place when______________

Answer Rise in price of goods and services at a single rate annually or moderate rate

36. Moderate inflation is also knows as

Answer Creeping inflation

37. When did Galloping inflation takes place

Answer Price of goods and services at two digit or three digit rate per annum

38. Hyperinflation takes place when

Answer Rate of increase in price is extremely high or out of control

39. What is expansion phase in business cycle?

Answer Increase in demand, growth in income, rise in competition, creation of new policy etc

40. What is Peak in business cycle?

Answer High demand and supply, High revenue and market value, reduced advertising

41. Contraction in business cycle

Answer Reduce in demand, Reduce in market share, increased competition

42 Trough in business cycle

Answer Lowest income, loss of customer, heavy fall in market share
43 What are the 2 types of nature of business cycle?
Answer Cyclical nature, general native

44 What are capital intensive technique?

Answer Technique of production in which goods are produced with the help of machine and robots

45 Economics can be termed as

Answer It defines relationship between cause and effect.

46 Micro economics deals in

Answer economics behavior of individual organization

47 Macroeconomics deals in
Answer economics behavior of various units combined together

48 what is business cycle

Answer it is comprised of 4 phase – 1. Expansion, peak, contraction, trough

49 What are laws of economics?

Answer There are two basic laws of economics 1. Laws of Demand 2. Laws of supply

50 – Business economics can be taken as a part of macroeconomics.(True/false)

Answer false

BUSINESS ECONOMICS CHAPTER 2

1. How can we determine the price of a product/service and size of market ?

Ans- Demand and Supply.

2. Father of Economy (Adam Smith) mentioned the concept of demand and supply as "invisible hand".
What is the name of that book?

Ans-The Wealth of the Nations.

3. Demand and income are directly proportional to __. Demand and income are inversely proportional
to___.

Ans- normal goods, inferior goods.

4. Pencil and eraser are example of what kind of demand?

Ans-Joint Demand.

5. Which of the following determinants result in a fall in the demand of a commodity?

Ans - Fall in the price of substitute goods.

6. The demand for a particular product can decline if the price is

Ans- High

7. The law of demand states, with increase in price there is

Ans-decrease in quantity demanded.

8. The following would cause a change in the quantity demanded for a product?

Ans- Decreasing price of product.

9. Increase in demand can occur due to:

Ans-Increase in income of the consumer.

10. Violation of Law of demand occurs when:

Ans-Negative income effect is greater than substitution effect.

11. Movement along the demand curve illustrates

Ans-change in quantity demanded.

12. Increase in demand is shown by demand curve when

Ans-the curve shifts right.

13. The demand curve is always

Ans-downward sloping.

14. Which of the following is a complement product to peanut butter?

Ans-Jelly.

15. The Law of Demand is measured from the perspective of

Ans-Consumer

16. Goods for which demand goes down when income goes up are called

Ans-inferior Goods.

17. An increase in the price of a product will reduce the amount of it purchased because

Ans-consumers will substitute other products for the one whose price has risen.

18. Which of the following will not cause the demand for product K to change?

Ans-a change in the price of K.

19. Which of the following would not shift the demand curve for beef?

Ans- a reduction in the price of cattle feed.

20. A firm's supply curve is upsloping because

Ans-beyond some point the production costs of additional units of output will rise.

21. An effective ceiling price will

Ans- result in a product shortage.

22. Which of the following can lead to an increase in the supply for good X?

Ans-an improvement in technology used in production of good X.

23. An increase in the price of electricity will

Ans-increase the demand for kerosene heaters.

24. Which of the following events will cause an increase in the market demand for Guinness (a brand of
beer)?

Ans-An increase in the price of Heineken (another brand of beer).

25. _____ refers to the willingness and ability of buyers to purchase different quantities of a good at
different prices during a specific time period whereas ______ refers to a specific number of units buyers
want to buy at a specific price.

Ans-Demand and Quantity Demanded.

26. True or False: As the price of apples rises, the demand for apples falls, ceteris paribus.

Ans- False. It should be “quantity demanded” instead of “demand”.

27. The price of 1 kg apples, which was $5 last month, is $6 today.

True of False: The demand curve for apples must have shifted rightward between last month and today.

Ans-False. Change in price of the good leads to movement along the demand curve, not shift.

28. During a recession, economies experience increased unemployment and a reduced level of activity.
How would a recession be likely to affect the market demand for new cars?

Ans-Demand will shift to the left.

29. The market supply curve shows

Ans-the quantity of a good that firms would offer for sale at different prices.

30. State whether the following statement is true or false.

‘The demand for a commodity always increases with increase in the prices of other goods’.

Ans-False, it is possible only in case of substitute goods.

31. A relative price is

Ans- the ratio of one price to another.

32. If the price of a hot dog is $2 and the price of a hamburger is $4

Ans-the relative price of a hot dog is 1/2 of a hamburger.

33. The opportunity cost of good A in terms of good B is equal to the

Ans- ratio of the price of good A to the price of good B.

33. Wants, as opposed to demands

Ans-are the unlimited desires of the consumer.

34. Demands differ from wants in that

Ans-demands reflect a decision about which wants to satisfy and a plan to buy the good, while

wants are unlimited and involve no specific plan to acquire the good.

35. The quantity demanded is

Ans- amount of a good that consumers plan to purchase at a particular price.

36. The law of demand states that, other things remaining the same, the higher the price of a good, the
Ans- smaller is the quantity of the good demanded.

37. The law of demand implies that, other things remaining the same,
Ans- as the price of a cheeseburger rises, the quantity of cheeseburgers demanded will decrease.

38. Which of the following is consistent with the law of demand?

Ans-An increase in the price of a soda causes a decrease in the quantity of soda demanded.

39. The law of demand implies that if nothing else changes, there is

Ans- a negative relationship between the price of a good and the quantity demanded.

40. Which of the following influences people's buying plans and varies moving along a demand curve?

Ans- the price of the good.

41. Each point on the demand curve reflects

Ans.the highest price consumers are willing and able to pay for that particular unit of a good.

42. A drop in the price of a compact disc shifts the demand curve for prerecorded tapes leftward. From
that you know compact discs and prerecorded tapes are

Ans. substitutes.

43. People buy more of good 1 when the price of good 2 rises. These goods are

Ans. substitutes

44. Which of the following pairs of goods are most likely substitutes?

Ans. Cola and Lemon lime soda.

45. The demand for a good increases when the price of a substitute ____ and also increases when

the price of a complement ____

Ans. rises, falls

46. A complement is a good

Ans. used in conjunction with another good.

47. Suppose people buy more of good 1 when the price of good 2 falls. These goods are
Ans. Complements

48. As the opportunity cost of a good decreases, people buy

Ans. more of that good and also more of its complements.
49. People come to expect that the price of a gallon of gasoline will rise next week. As a result,

Ans. today's demand for gasoline increases.

50. The demand curve for a normal good shifts leftward if income ____ or the expected future
price ____.
Ans. decreases, falls.

Chapter 4
1. From the _______ perspective, utility is the ability of a product to satisfy want.
a. Product
b. Price
c. Demand
d. Consumer

2. Marginal utility is defined as the utility derived from the additional unit of a commodity consumed
by an individual. (True/False)

3. Any change in the consumers income or the prices of commodities would result in a change in
the budget line. This phenomenon of change is called a _______ in the budget line.
a. Slope
b. Decrease
c. Shift
d. Increase

4. Any change in the consumer’s demand would result in a change in the budget Line. (True/False)
(Hint: Change in Consumer’s income/ price of a commodity)

5. _______ is an important element of consumer behaviour analysis.

a. Budget line
b. Indifference Curve (IC)
 c. Consumer’s Income
d. None of the above

6. The point at which IC is tangent to the budget line, will be the point of utility Maximisation.
(True/False)

7. An individual’s preference or indifference for one commodity over another can be applied to
another related commodity. This is referred to as _______.
a. Decisiveness
b. Transitivity
c. Non-Satiation
d. None of the above

8. Utility can be expressed as a function of the prices of different commodities consumed by an

individual. (True/False)
(Hint: Quantities of different commodities)

9. Modern economists have given the concept of _______ utility for measuring utility.
a. Cardinal
b. Rational
c. Ordinal
d. None of the above

10. The unit of measuring utility is called utils. (True/False)

11. From the _______ perspective, utility is the psychological satisfaction, happiness, well-being, etc.
a. Producer
b. Consumer
c. Product
d. Manufacturer

12. Non-satiation is not a fundamental assumption for analysing consumer behaviour as rational
consumers don’t get satiated after a certain limit. (True/False)

13. _______ economists have given cardinal utility concept to measure the utility derived from a
good.
a. Modern
b. Neo-classical
c. Classical
d. None of the above

14. Considering more than _______ commodities in _______ analysis makes the calculations more
complex.
a. one, IC
b. two, utility
c. two, IC
d. one, demand

15. If a consumer prefers a commodity, he/she would continue to demand it. This is referred to as
non-satiation. (True/False)

16. Neo-classical economist, _______ brought about significant refinement in the cardinal utility
theory
a. Alfred Marshall
 b. Karl Menger
c. Leon Walras
d. None of the above

17. Ordinal utility theory is also known as Neo-classical utility theory. (True/False)
(Hint: Cardinal Utility theory)

18. The law of diminishing marginal utility does not hold true in some cases called _______ to the
law of diminishing marginal utility.
a. indifferent
b. insignificant
c. exceptions
d. all of the above

19. According to the ordinal theory, utility is a psychological phenomenon like happiness, satisfaction,
etc. (True/false)

20. _______ approach advocates that consumer behaviour can be explained in terms of preferences
or rankings
a. Cardinal Utility
b. Ordinal Utility
c. Neo-Classical
d. Modern

21. A slope in the budget line takes place due to change in income of a consumer and the price of
commodities. (True/False)
(Hint: Shift in the budget line)

22. The change in the variables results in _______ _______ in the consumer’s budget line.
a. Right or left, shift
b. Upward or downward, shift
c. Upward or downward, slope
d. None of the above

23. When the combinations of different commodities are plotted on the graph, the resulting curve is
called _______.
a. Marginal utility curve
b. Budget line
c. Indifference curve
d. None of the above

24. When more than one indifference curve is plotted on the same graph, the family of curves is
called an indifference map. (True/False)

25. A consumer is said to be in equilibrium when he/she gets maximum satisfaction by spending his
limited income on various products and services. (True/False)

26. _______ and _______, authors of The Theory of Games and Economic Behaviour.
a. John Von Neumann, Oskar Morgenstern
b. Karl Menger, John Von Neumann
c. Oskar Morgenstern, Alfred Marshall
d. None of the above

27. The Marginal Rate of Substitution for two substitute goods X and Y defined as the quantity of
commodity X required to replace 1 unit of commodity Y and vice-versa. (True/False)
28. When an individual continues to consume more and more units of a commodity per unit of time,
the utility that he/she obtains from each successive unit continues to
a. remain constant
b. increase
c. diminish
d. none of the above

29. _______ can be defined as a measure of satisfaction received by a consumer on the consumption
of a good or service.
a. Budget line
b. Utility
c. MRS
d. Consumer equilibrium

30. When the prices of commodities change, the budget line shifts from its original position while
_______ remains unchanged.
a. slope
b. demand
c. indifference curve
d. income

31. Income effect on consumers equilibrium is the effect caused by changes in consumers income on
his/her purchases while the prices of commodities remain unchanged. (True/False)

32. _______ is the sum of the utility derived by a consumer from different units of a commodity or
service consumed at a given period of time.
a. Total utility
b. Marginal utility
c. Ordinal utility
d. Cardinal utility

33. An indifference curve is the locus of points each representing a different combination of two
substitutes, which yield the _______ level of utility to a consumer.
a. higher
b. lower
c. same
d. unidentified

34. The _______ states that consumers’ preferences can be revealed by the purchases they make
under different income and price circumstances.
a. neo-classical theory
b. revealed preference theory
c. theory of game
d. classical economics theory

35. The revealed preference theory gives a more realistic assessment of consumer’s behaviour.
(True/False)

36. A _______ represents various combinations of two commodities, which can be purchased by a
consumer at the given income level and market price.
a. Marginal utility curve
b. Demand curve
c. Budget slope
 d. Budget line

37. The revealed preference theory explains the _______ on the basis of consumer’s behaviour.
a. utility
b. demand curve
c. price effect
d. none of the above

38. Marginal Rate of substitution refers to the rate at which one commodity can be substituted for
another commodity maintaining the same level of satisfaction. (True/False)

39. According to the Cardinal utility approach, utility can be measured in relative terms. (True/False)
(Hint: Ordinal utility approach)

40. When an individual substitutes one good for the other good in case of price rise in good 2, it is
called substitution effect on consumer equilibrium. (True/False)

41. A consumer reaches a state of equilibrium when he/she attains maximum _______ at the given
income level and market price of commodities.
a. marginal utility
b. total utility
c. transitivity
d. none of the above

42. The substitution effect occurs due to –

a. The relative price of a commodity changes in such a way that one product may have higher
price than the other one
b. Income level of consumer remains same but price changes
c. Both a & b
d. only a

43. Choose the correct property of IC from following –

a. ICs are negatively sloped and convex to origin
b. Higher IC represents higher satisfaction level
c. ICs do not intersect
d. All of the above

44. Indifference point “a” with combination of Y+X is 30 + 5 and Indifference point “b” with
combination of Y+X is 22 + 9. Find MRSy,x
a. -0.5
b. 2.0
c. -2.0
d. 4.0
(Hint: Ref. page 109, table 4.3)

45. From the given data in below table calculate Marginal utility –
Units of commodity X Total Utility (TUX) Marginal Utility (MUX)
1 250 250
6 150 ?
a. 100
b. -20
c. 150
d. -100
(Hint: Ref. page 100, example 1)
46. According to the Ordinal theory, utility can be measured quantitatively. (True/False)
(Hint: utility measured in relative terms)
47. If the income of consumer increases, then he will move to the _______ IC and the equilibrium
position also shift towards the _______.
a. Higher, right
b. Lower, right
c. Higher, left
d. Lower, left

48. If the income of consumer decreases, then he will move to the _______ IC and his equilibrium
position also shift _______.
a. Higher, rightward
b. Lower, rightward
c. Higher, leftward
d. Lower, leftward

49. IC represents consumers taste and budget line represents their limitations. (True/False)

50. In _______ effect, the price of only one good change and it leads to change in consumer
equilibrium.
a. income
b. price
c. substitution
d. continuity

Chapter 5

1. Which of the following is not possible base for calculating the elasticity of demand?
1. Income of the consumer
2. Variable cost to consumer
3. Price of the commodity
4. Price of related goods

2. Under _____________ market conditions, an organisation sets a low price per unit of the product
in the case of elastic demand.
a. Monopolistic
b. Duopolistic
c. Oligopolistic
d. Perfectly competitive

3. __________________ is a measure of a change in the quantity demanded for a product due to a

change in the price of the product in the market. Ans. Price elasticity of demand

4. The extent of responsiveness of demand with a change in the price remains same under every
situation. (True/False)

5. When a small change (rise or fall) in the price results in a large change (fall or rise) in the
quantity demanded, it is known as ________________. Ans. Perfectly elastic demand

6. In relatively inelastic demand, ep is ______________ than one. Ans. Less

7. Unitary elastic demand occurs when a change (rise or fall) in price results in equivalent change
(fall or rise) in demand. (True/False)

8. Which of the following method is not used for measuring the price elasticity of demand?
1. Total outlay method
2. Point method
3. Arc method
4. Division method

9. In the total outlay method, if the total outlay remains unchanged after there is a change in the
price of the good, the price elasticity equals one (ep>1). (True/False)

10. Name the method that is used to measure the elasticity at a specific point on a demand curve.
Ans . Point elasticity method

11. The arc elasticity method is used to calculate the elasticity of demand at the ______________ of
an arc on the demand curve. Ans. Midpoint

12. The need of every individual is same for the same product. (True/False)

13. If consumers spend a large sum on a product, the demand for the product would be

___________. Ans. Elastic

14. ____________ refers to charging different prices from various customers for the same product.
Ans. Price discrimination

15. Government levies high taxes on products (for producers) whose demand is elastic. (True/False)

16. In case of normal good, an increase in the income of consumers increases the demand for the
product even if the price remains constant. (True/False)

17. Percentage change in quantity demanded = ? Ans. Income elasticity of demand

Percentage change in income

18. When a proportionate change in the income of a consumer increases the demand for a product
and vice versa, the income elasticity of demand is said to be ___________ . Ans.
Positive
 19. Which of the following is not a type of positive income elasticity of demand?

a) Unitary
b) Less than unitary
c) More than unitary
d) Zero

20. Even with a rise in the income of a consumer, the demand for basic products does not change
and remain inelastic. (True/False)

21. ________________ can be defined as a measure of a proportionate change in the demand for
goods as a result of change in the price of related goods. Ans. Cross elasticity of demand

22. The cross-elasticity of demand is positive in case of complementary goods. (True/False)

23. Cross elasticity helps organisations in making ______________ by determining the expected
change in the demand for its substitutes and complementary goods. Ans. Pricing

24. The advertisement elasticity of demand is a degree of responsiveness of a change in the sales of
a product with respect to a proportionate change in _________________. Ans. Advertisement
expenditure

25. At the time of a new product launch in the market, the advertisement elasticity of demand is
greater than ___________. Ans. Unity

26. When a proportionate change in advertisement expenditure results in an equal proportionate

change in the total sales of an organisation,
a. eA =0 b. eA =1 c. eA>1 d. eA >0 but <1
27. When a proportionate change (increase/decrease) in the price of a product results in an
increase/decrease of quantity supplied, it is called as ________. Ans. Perfectly elastic supply

28. Supply is said to be ____________ when e < 1. Ans. Relatively inelastic supply

29. “Elasticity of demand may be defined as the ratio of percentage change in demand to the
percentage change in the price.” – identify the speaker of these words.

a) Lipsey
b) Prof. Boulding
c) Alfred Marshall
d) Mrs. Jone Robinson

CHAPTER 6 - DEMAND FORECASTING

Q1) _____ is a process of predicting the demand for an organisation's products or services in a specified
time period in the future.
A) Qualitative forecasting
B) Demand forecasting
C) Sales forecasting
D) Quantitative forecasting

Q2) _____ forecasting is done for coordinating routine activities such as formulating pricing policy and
developing an appopriate sales strategy.
A) Long-Term
B) Quantitative
C) Short-Term
D) Sales

Q3) Long Term forecasting does not include _____

A) Planning a new project
B) Formulating pricing policy
C) Explansion
D) Upgradation of production plant

Q4) Demand forcasting is also referred to as _____ forecasting as it involves anticipating the future sales
figures of an organisation.
A) Sales
B) Short-Term
C) Quantitative
D) Qualitative

Q5) _____ level is not one of the the level's of demand forecasting.
A) Firm
B) Industry
C) Barometric
D) Economy

Q6) Short-Term forecasting involves anticipating demand for a period not exceeding _____.
A) Two years
B) One month
C) Six months
D) One year

Q7) Long-Term forecasting is related to _____.

A) Making promotional strategies
B) Replacing machinery
C) Arranging finance
D) Formulating production policies

Q8) The goods that are meant for final consumption by end users are called _____.
A) Capital goods
B) Public goods
C) Consumer goods
D) Private goods

Q9) Consumer goods have _____ demand.

A) Direct
B) Cross
C) Joint
D) Indirect

Q10) The demand forecasting of _____ goods depends on the demand for consumer goods.
A) Public
B) Private
C) Common
D) Capital
Q11) Capital goods have _____ demand.
A) Cross
B) Direct
C) Indirect
D) Joint

Q12) Demand forecasting enables an organisation to _____ business risks and make effective business
decisions.
A) Diminish
B) Mitigate
C) Increase
D) Nullify

Q13) _____ is not the need for forecasting demand.

A) Forecasting sales figures
B) Better Control
C) Ensuring stability
D) Collecting and analysing data

Q14) _____ factor is an influencer for demand forecasting.

A) Import-Export policies
B) Inventory
C) Stability
D) Manpower requirement

Q15) _____ is the first step of demand forecasting.

A) Collecting and analysing data
B) Specifying the objective
C) Interpreting outcomes
D) Determining the time perspective

Q16) _____ step of demand forecasting is performed immediately after determination of the time
perspective
A) Determining the time perspective
B) Selecting method for forecasting
C) Interpreting outcomes
D) Specifying the objective

Q17) Qualitative techniques are specially useful in situations where _____ is not available.
A) Historical
B) Modern
C) Quantitative
D) Numeric

Q18) _____ method relies on the future purchase plans of consumers and their intensions to anticipate
demand.
A) Test marketing
B) Sample Survey
C) Delphi method
D) Survey

Q19) Complete enumeration method is also referred as to as _____ method of demand forecasting.
A) Delphi
B) Census
C) Survey
D) Poll

Q20) A portion of the total population is known as _____

A) Specimen
B) Variety
C) Sample
D) Illustration

Q21) The method of selecting samples from a population is known as _____

A) Sampling
B) Assortment
C) Example
D) Selection

Q22) _____ method is not one of the commonly used opinion polls methods.
A) Sales force composite
B) Test marketing
C) Delphi
D) Secular trend

Q23) _____ method of demand forecasting is used by companies at the time of new product launch.
A) Cyclical variations
B) Test marketing
C) Sales force composite
D) Irregular variations

Q24) Quantitative techniques for demand forecasting usually make use of _____
A) Statistical tools
B) Trend Projections
C) Econometric methods
D) Market research

Q25) Unlike survey methods, statistical methods are _____

A) Reliable and expensive
B) Economic and reliable
C) Cost effective and reliable
D) Expensive and unreliable

Q26) The term _____ refers to a sequential order of values of a variable (called trend) at equal time
intervals.
A) Cyclical variation
B) Random variable
C) Trend variation
D) Time series

Q27) Secular trend does not include _____.

A) Increase in population
B) Irregular variation
C) Level of employment
D) Stock prices data
Q28) _____ is not a part of cyclical variation.
A) Idea generation
B) Recession
C) Peak
D) Recovery

Q29) _____ are short-term fluctuations that occur within the period of one year on continiuous and
repeating basis.
A) Cyclical variations
B) Irregular variations
C) Secular Trend
D) Seasonal variations

Q30) Irregular variations are also known as _____.

A) Irregular variations
B) Seasonal variations
C) Residual variations
D) Cyclical variations

Q31) _____ techniques are used to eliminate a random variable from the hisorical demand.
A) Smoothing
B) Delphi
C) Test marketing
D) Sample survey

Q32) Moving Average ( for N period ) = _____

A)N+1/Aggregate value for N period
B) Aggregate value for N period/N
C) N/Aggregate value for N period
D) Aggregate value for N period -1/N

Q33) The value of weights lies between _____ and their total must be equal to 1.
A) 1 and 2
B) 1 and 5
C) 0 and -1
D) 0 and 1

Q34) _____ is also known as leading indicators approach to demand forecasting.

A) Survey Method
B) Test Marketing
C) Barometric method
D) Delphi Method

Q35) _____ indicator is not one of the indicators of Barometric Methods

A) Impact
B) Leading
C) Coincident
D) Lagging

Q36) The forecasts made using _____ methods are much more reliable than any other demand
forecasting method.
A) Delphi
B) Econometric
C) Barometric
D) Regression

Q37) The value of regression lies between _____

A) 0 and 3
B) 1 and 2
C) 0 and 1
D) 1 and -3
Q38) _____ method explaines the relationship between an independent variable with one or multiple
variales.
A) Barometric
B) Test marketing
C) Multiple linear regression
D) Simple linear regression

Q39) _____ method is used to determine the relationship of two or more independent variables with
one dependent variable.
A) Test marketing
B) Multiple linear regression
C) Simple linear regression
D) Barometric

Q40) _____ is an limitation of demand forecasting.

A) Change in fashion
B) Collecting and analysing data
C) Interpreting outcomes
D) Specifying the objective

Q41) _____ is the most significant criteria to select demand forecasting method
A) Durability of outcomes
B) Reliability
C) Accuracy
D) Easy of use

Chapter 7

1. What is the process of Converting Inputs into Output?

-Production.

2. Profit = Revenue-Cost.

3. The main Factor of production for an organisation are …

-Land, Capital, Labour & Enterprises.

4. PPC Stands For:

-Profit Possibility Curve

5. PPC is what to origin?

-concave

6. Production Function assumed Technology is –

-Fixed
7. The Formula to calculated AP is –
-Total Product/Variable Inputs Employed.

8. The Law of Production studied Short-Run production is called the…

-Law of variable proportions

9. If MPL >APLthen the Production stage is-

-Increasing returns

10. Below what is not Tangible assets.

a. Raw Martial
b. Land
c. Capital
d. Knowledge
11. In short term production which factors are Fixed-
-Land, Building.

12. In short term production which factors are Variable-

-Labour
13. What is the Production?
-Production is an Art of Creating Value that satisfies the wants of the Individuals.
14. What is the Main Aim of Production?
-To produce Maximum output with Given Input.

15. The Return of land is called –

-Rent
16. The Return of land is called-
-Wages & Salary
17. The Return of land is called-
-Interest
18. Who is Entrepreneur-
-A person who creates an Enterprise.

19. PPF Stands For-

Production Possibility Frontier.

20. MRT Stands For-

-Marginal Rate of Transformation.

21. Convex Curves Means-

A curve that extended Outwards.

22. Concave Curves Means-

A curve that extended Inwards.

23. The Long Run Production Function Equation:

Q=f (LB,L,K,M,T,t)

LB- Land & Building

L – Labour
K- Capital
M- Raw material
T-Technology
t- Time

24. The Short Run Production Function Equation:

Q=f(L,K)
L= Labour, which is variable
K=Capital, Which is Constant

25. MPL full From-

Marginal Product.

26. MPL Equation is-

MPL= Q / L

27. Law of Diminishing Returns-

Q=f(L),K
Q=Total production
L= Labour, which is variable
 K=Capital, Which is Constant

28. For Calculated MRP-

-MR*MPL

29. MRTS full From-

-Marginal Rate of Technical Substitution
30. For Calculated MRTS -
MRTS= - K / L

31. Leontief Production Function evolved by-

-W. Wassily Leontif
32. Leontief Production Function also known by-
-Fixed Proportion Production Function.

Chapter 8
1. What are all the important for effective decision making in a business?
● Cost concept
● Revenue analysis
● Capital investments
● All of the above

2. What did CIMA define cost as?

● The amount of expenditure (actual or notional)incurred on, or attributed to, as
specified thing or activity.
● Cost refers to the number of resources required for the production of commodities and
services.
● Cost is the expenditure of the organisation to sustain the business.
● None of the above

3. What is the other name of opportunity cost?

● Substitute cost
● Alternative cost
● Replacement
● None of the above

4. What is the opportunity cost of this firm with two options of investment one being a raw
material vending machine that yields are 40K/annum and the second being raw material
Grinding Machine that yields 60k/annum?
● 20K
● 60K
● 40K
● 100K

5. What is Referred to as Actual cost?

● Implicit Cost
● Economic Cost
● Full Cost
● Explicit Cost

6. How are Explicit Cost referred in the accounting books ____________ ?

● Ans - Separate Cost

7. Implicit costs are not added to explicit costs to establish a true estimate (T/F).
8. Depreciation Expenses are included in the account books (T/F).
● (explanation ) Depreciation expenses(implicit cost) are added along with all the explicit
costs in the account books

9. What cost does the economic cost include?

● Accounting Cost (Explicit Cost) and Opportunity Cost (Implicit Cost)
● Accounting Cost (Explicit Cost) and Economic Cost
● Both option 1 and option 2
● None of the Above

10. Business Costs are used to calculate the profit and loss (T/F)?
● Explanation - Business Costs comprises all payments and contractual obligations by the
business.
11. What all costs comprise a Full Cost?
● Business Cost and normal profit
● Opportunity Cost and normal profit
● All of the above
● None of the above
12. If the time period is under consideration is long enough, fixed costs still remain
unchanged (T/F).
● Explanation - Fixed cost may vary, as the firm makes alterations according to its
capacity.

13. Total Costs of a Firm can be obtained by?

● Variable cost + Full cost
● Full Cost + Fixed Cost
● Fixed cost + Variable Cost
● Full Costs + Accounting Cost
14. Additional Costs resulting due to a change in nature of the level of business activity falls
under which type of cost?
● Incremental Cost
● Avoidable Cost
● Escapable Cost
● All of the above (Explanation - Incremental costs AKA Avoidable and Escapable costs)

15. An amusement park is being built in your locality how are social costs calculated?
● Real costs and Private costs
● Private and external costs (Explanation - Private =salary of workers, maintenance etc;
external = noise, air pollution, loss of landscape)
● Real costs and business costs
● None of the above
16. What is the replacement cost of this activity, firm purchases new machinery worth 50
Lakhs and same time sell its old machinery for a price 10Lakhs?
● 60 Lakhs
● 10 Lakhs
● 40 Lakhs ( Replacement cost is calculated by deducting sale proceeds from old
machinery)
● 50 Lakhs

17. Short -Run Total cost is calculated which two variable costs?
● Partial Fixed cost and partial variable cost
● Total real cost + Partial Fixed Cost
● Total fixed cost and total variable cost
● None of the above

18. Identify the correct formula for calculating Short - Run Average Cost (SRAC)?
● (Total fixed cost + Total variable cost)/ Quantity produced
● (Total fixed cost + Total variable cost)/ Total Fixed Cost
● (Total fixed cost + Total variable cost)/ Change if the quantity
● None of the above

19. Short-run Marginal Cost is equal to the change in SRTC (short-run total cost) which
further means it is equal to change in TVC (Total Variable Cost) (T/F)
● Explanation - SRMC = ΔSRTC/ΔQ (change in quality( ΔQ) is 1)

20. _____________ refers to the change in the short-run total cost due to the change in the
firms’s output. (Ans - Short-run marginal cost).

21. The negative slope of the LRAC (long-run average cost) depicts economies (cost saving
for the firm ) (T/F).

22. ______________ is the slope of long run total cost.

● Ans - Long run Marginal Cost.

23. Select the right meaning of economies scale.

● Firm which expands production capacity with increase in efficiency of production
resulting in high average total cost.
● Firm which cuts down production capacity resulting in low average total cost.
● Firm which expands production capacity with increase in efficiency of production
resulting in low average total cost.
● None of the above

24. Managerial and labour inefficiency occur in the case of Internal Economies (T/F)
● Explanation - Occurs in Internal diseconomies (distubances due to the growth of firm
itself)

25. The profit earned by the company can be increased by which of the options?
● Increase the revenue
● Decrease the cost of production
● All of the above
● None of the above

26. How is average revenue calculated ?

● Total Revenue / Total number of units sold
● Quality * price
● Change in total revenue / Change in number of units sold
● None of the above

27. Marginal Revenue is defined as the revenue earned by selling of more than one additional
units of commodity (T/F)
● Explanation - It is the revenue generated by seeling one additional unit of product.

28. How is marginal revenue calculated, select the correct formula.

● ΔTR
● ΔMR/ΔTR
● ΔTR/ΔQ (Change in total revenue by change in number of units)
● ΔTR/ΔMR

29. Marginal Revenue if it is greater than zero state the behaviour of sales (total revenue) of
additional units?
● Decreases
● Increases
● No change
● None of the above
 30. Marginal revenue is less than Average revenue occurs when the firm sells in a monopoly
market (T/F)
● Explanation - since the business faces market control (one frim selling to several
customer)

31. Monopoly market shows which type of demand curve?

● Positively - sloped demand cuve
● Positively -curved demand curve
● Negatively-sloped demand curve
● Negatively -curved demand curve

Chapter 9 : Market Structure

1) Market is a set of buyers and sellers who may be geographically separated from each other, but still
able to make successful transactions through various means of communication.
a. True
b. False

2) A perfectly competitive market constitutes of small number of buyers and sellers engaged in
transaction of the homogenous products.
a. True
b. False

3) Market Structure is classified in how many categories ?

a. 2
b. 3
c. 4
d. 5

4) Name the place where both demand and supply of a product are limited to a small area ??
a. Local Market
b. National Market
c. Region Market
d. International Market
5) In imperfect market buyers and sellers have complete knowledge about the prices of products.
a. True
b. False

6) Which of the following is not a characteristic of Perfect Competition?

a. Homogenous Product
b. Perfect Knowledge
c. Existence of few sellers
d. Ease of entry and exit from market

7) Individual firm demand curve under perfect competition is?

a. Parallel to Y axis
b. Perpendicular to X axis
c. Parallel to X axis
d. Perpendicular to Y axis

8) How many types of imperfect competition are there?

a. 5
b. 4
c. 2
d. 3
9) Monopolistic competition is a type of imperfect competition, wherein a large number of sellers are
engaged in offering homogenous products for sales to buyers.
a. True
b. False

10) Which of the following is not a characteristic of monopolistic competition?

a. Large number of sellers and buyers
b. Homogenous product
c. Heterogeneous product
d. Ease of entry and exit

11) Under monopolistic market product are close substitutes of each other.
a. True
b. False

12) In which market organisation do not have control over the price of the product?
a. Perfect
b. Monopolistic
c. Oligopoly
d. Monopoly

13) Any organisation produce homogenous product, it is said to be ??

a. Pure Monopoly
b. Pure Oligopoly
c. Pure Monopolistic
d. Pure Perfect
14) How many characteristic are there in Oligopoly Market?
a. 4
b. 5
c. 6
d. 7

15) In which market organisation can’t make independent decision?

a. Oligopoly
b. Monopoly
c. Monopolistic
d. Perfect
16) How many countries are member of OPEC Cartel ?
a. 12
b. 11
c. 13
d. 10

17) Organisations having total market power are known as

a. Price Maker
b. Price Taker
c. Price Giver

18) Organisations are known as Price Takers in which market?

a. Perfect Competition
b. Monopolistic
c. Oligopoly
d. Monopoly

19) How many types of Concentration ratios are there?

a. 2
b. 3
c. 4
d. 1

20) Which of the following is a concentration ratio?

a. Four firm concentration ratio
b. Five Firm Concentration ratio
c. Three Firm Concentration ratio
d. Three Firm Concentration ratio

21) Where a 0 percent concentration ratio is an indication of a highly competitive market.

a. True
b. False

22) How many types of concentration are there ?

a. 1
b. 2
c. 3
d. 4

23) Government regulators fall under which type of concentration?

 a. Low
b. Medium
c. High
d. Ultra High

24) A concentration ratio falls between 0 and 50 is called?

a. Low
b. Medium
c. High
d. Ultra High

25) HHI comes close to zero in a __________ market.

a. Perfect competitive
b. Oligopoly
c. Monopoly
d. Monopolistic

26) HHI is calculated by ______ the market share for each firm and then ______ the squares.
a. Squaring , Adding
b. Adding, Squaring
c. Subtracting, Multiply
d. Multiplying, Adding
27) If the demand of a product is inelastic, in an area the ______ charges higher price.
a. Monopolistic
b. Oligopoly
c. Monopoly
d. Oligopolistic

28) The Policy of charging different prices by a monopolist is known as price discrimination.
a. True
b. False

29) How many types of Price discrimination are there?

a. 2
b. 3
c. 4
d. 5

30) Total Profit = _____

a. TR – TC
b. TR + TC
c. TR X TC
d. AR – TC

31) Profit Maximisation has how many conditions to be fulfilled ?

a. 2
b. 3
c. 4
d. 1

32) In first order condition _______.

 a. MR = MC
b. MR + MC
c. MR – MC
d. MR / MC

33) Under first order condition the first derivative of profit must be equal to _____ .
a. 0
b. 1
c. Infinite
d. -1

34) In profit maximisation under imperfect competition demand curve is _______ to average cost
equalising price and average cost.
a. Parallel
b. Perpendicular
c. Tangent
d. Intersecting

35) Indian Railway is an example of _______ market.

a. Monopolistic
b. Monopoly
c. Oligopoly
d. Perfect

Answers

1. True
2. False
3. 2
4. Local Market
5. False
6. Existence of few sellers
7. Parallel to X axis
8. 3
9. False
10. Homogeneous
11. True
12. Monopolistic
13. Pure Oligopoly
14. 6
15. Oligopoly
16. 12
17. Price Maker
18. Perfect competition
19. 2
20. Four firm concentration ratio
21. True
22. 3
23. High
24. Low
25. Perfect competitive
26. Squaring , Adding
27. Monopoly
28. True
 29. 3
30. TR – TC
31. 2
32. MR = MC
33. 0
34. Tangent
35. Monopoly

Chapter no -10
Questions and Answers
1. Which occurs mainly due to inefficient allocation of goods and services in the free market.
A. Market power
B. Market failure
C. Market sustence
D. Buyers control

2. Producer surplus + consumer surplus equals:

A. Social efficiency
B. Profit maxmization
C. Community surplus
D. Marginal social cost

3. When examining the topic of market failure, the supply curve can be referred to as the:
A. Marginal social benefit
B. Community surplus
C. Marginal social cost
D. Producer surplus

4. The marginal social benefit is represented by the ________________.

A. Opportunity cost
B. Supply curve
C. Community surplus
D. Demand curve
5.Which are the government measure dictating the quantities of a commodity to be sold at specific price
both in retail marketplace and at other stage in the production ground
A. Price regulations
B. Markets are determined by supply and demand concerns.
C. Profit maximization is always the goal.
D. There are free market economic policies in most developed countries.

6. When community surplus is not maximised there is:

A. Market failure
B. Loss of government revenue
C. Loss of consumer surplus, but not producer surplus
D. Loss of producer surplus, but not consumer surplus

7. When market failure occurs governments may intervene in order to:

A. Restore market equilibrium
B. Reduce company profits, and increase producer surplus
C. Move towards the optimal allocation of resources
D. Increase consumer surplus, but not producer surplus

8. Which of the following is not a reason why markets fail?

A. Lack of Public Goods
B. Under Supply of Merit Goods
C. The existence of externalities
D. Perfect competition

9. Which of the following is an example of imperfect competition?

A. Monopolists restricting output in order to push up prices
B. Firms engaging in formal and tacit collusion and price fixing using cartels
C. Oligopolistic market structure
D. All of the above
10. When are profits maximized?
A. When AR = MC
B. WhenMC=MR
C. When MR=AR.
D. When MC=MPC

11. When community surplus falls from the maximum we say that there has been a
A. Welfare loss
B. Producer loss only
C. Consumer loss only
D. Declining sales

12. In order to reduce or restrict market share, governments may:

A. Outlaw oligopoly market structures
B. Stop mergers or takeovers that give an individual firm more than a certain percentage of the market.
C. Implement anti trust laws
D. Impose additional taxes on large firms

13. Many countries have a monopoly commission's or a monopoly watchdog.in us this called
A. The US Competition and Consumer Commission
B. The US Fair Trade Commission
C. Federal Trade Commission
D. The Consumer Affairs Bureau

14. Public goods are

A. Goods and services which are provided by the public and private sectors.
B. Goods and services which are are not provided by the free market.
C. Lacking in a free market situation. An example of market failure.
D. Options band c

15. An example of a quasi public good that could be supplied by the free market is:
A. National defence
B. Street lights
C. Customs and border security
D. Immigration services

16. The reasons why public goods will not be provided in a free market is that they are:
A. Non-excludable
B. Non- rivalrous
C. Characterized by inelastic demand
D.Options a and b

17. A good is said to be non-excludable if it is ____________________ to stop other peopleconsuming it

once it has been provided.
A. Possible
B. Reasonable
C. Acceptable
D. Impossible

18. A good is non-rivalrous when:

A. One person consuming it does not prevent another person from consuming it as well.
B. One person consuming it does prevent another person from consuming it at the same time.
C. One person using the product or service trys to stop somebody else from using the product.
D. It does not suffer from the free rider problem

19. Most public goods are funded by:

A. Community donations
B. Taxpayers
C. Corporate taxes
D. Income taxes
20. Merits good are characterized by:
A. Positive externalities.
B.Underestimation of the benefits of the product or service
C .Private and government providers in most cases.
D.All of the above

21. In a pure free market, there would be under consumption and under supply of merit goods because:
A. Government subsidies may be reduced
B.People would have to pay the full coat for their services
C. They are normally unpopular with consumers
D. All citizens would have private coverage and insurance

22. If the social costs of providing a product exceed the private costs, then there is a case for imposing
taxes or looking for other ways of restricting output
A.True
B False
23.A 'natural monopoly' refers to monopoly power in the provision of natural resources.
A.True
B.False

24.A benefit of nationalisation is that it encourages wider share ownership.

A.True
B.False

25.If regulation can be shown to result in a net welfare loss, then this may be used as an argument in
favour of deregulation.
A.True
B.False
26.A pure public good is non-excludable and non-exhaustible.
A.True
B.False

27.Which one of the following refers to a situation in which the minimum efficient size for firm output is
greater than the current output of the industry?
A.Natural monopoly
B.Negative externalities
C Positive externality
D.Public good

28.The Shortage Created By Price Cellings Can be resolved through Govt. control of production.
A.True
b.Fals
29.In The case of positive externality A producer does not like to invest in the activity unless govt.aids
him with a subcity
A.True
B.False.

30.A Price Cap Regulation is used to set a maximum allowed price for specific product .
A.True
B.False

31.Which two of the following are problems which often confront regulators of particular industries?
A.Encouraging competition.
B.Restricting competition
C.Setting the price floor
D.Setting the price cap.

32.Which one of the following comes closest to being a 'pure' public good?
A.Education
B.Electricity supply
C.Defence
 D.Health service

33.Which one of the following refers to a situation in which those who purchase a product are less able
to appreciate its quality than those who supply it?
A.Positive externality
B.Natural monopoly
C Asymmetric information.
D Public good
34. Name the method that consider the firm size to evaluate a reasonable level of profit form is capita
based.
A.Public Goods .
B.Market Falliure
C.Price Regulation.
D.Rate of Return.