Business Economics: MBA 103/ MCOM 103

Group A
Multiple Choice Questions:
1. Normally a demand curve will have the shape:
a. Horizontal
b. Vertical
c. Downward Sloping
d. Upward sloping
2. Law of demand shows relation between
a. Income and price of commodity
b. Price and quantity of a commodity
c. Income and quantity demand
d. Quantity demanded and quantity supplied
3. This is an assumption of law of demand:
a. Price of the commodity should not change
b. Quantity should not change
c. Supply should not change\
d. Income of consumer should not change
4. The following are causes of shift in demand EXCEPT the one:
a. Change in income
b. Change in price
c. Change in fashion
d. Change in prices of substitutes
5. Which one is the assumption of law of demand?
a. Price of the commodity should not change
b. Quantity demanded should not change
c. Prices of substitutes should not change
d. Demand curve must be linear
6. Which of the following is a demand function?
a. Q + 4P = 20
b. Q = 35 + 3P
c. Q - 2P - 15 = 0
d. 5P - Q = 4
7. Demand is a function of
a. price
b. Quantity
c. Supply
d. None of the above
8. Which one is increasing function of price:
a. Demand
b. Utility
c. Supply
d. Consumption
9. It describes the law of supply:
a. Supply curve
b. Supply schedule
c. Supply equation
d. All the three
10. Supply curve will shift when:
a. Price falls
b. Price rises
c. Demand shifts
d. Technology change
11. An increase in demand would cause supply curve to:
a. Shift to the left
b. Shift to the right
c. Change in slope of supply curve
d. No effect on supply
12. Microeconomics deals with the:
a. Allocation of resources of the economy as between production of different goods and services
b. Determination of prices of goods and services
c. Behaviour of industrial decision makers
d. All of the above
13. Which of the following is Microeconomics concerned with?
a. The size of national output
b. The levelof employment
c. Changes in the general level of prices
d. None of the above
14. Demand for a commodity refers to a:
a. Desire for the commodity
b. Need for the commodity
c. Quantity demanded of that commodity
d. Quantity of the commodity demanded at a certain price during any praticular period of time
15. Decrease in the number of consumers
a. Decrease in the number of consumers
b. Increase in the price of the commodity concerned
c. Increase in the prices of other goods
d. Decrease in the income of purchasers
16. All but one of the following are assumed to remain the same while drawing an individual's demand
curve for a commodity. Which one is it?
a. The preferences of the individual
b. His monetary income
c. The price of the commodity under consideration
d. The prices of other goods
17. Which of the following pairs of commodities is an example of substitutes?
a. Tea and sugar
b. Tea and coffee
c. Pen and ink
d. Shirt and trousers
18. In the case of a straight-line demand curve meeting the two axes, the price-elasticity of demand at
the mid-point of the line would be:
a. 0
b. 1
c.105
d. 2
19. The Law of Demand, assuming other things to remain constant, establishes the relationship
between:
a. Income of the consumer and the quantity of a commodity demanded by him
b. Price of a commodity and the quantity demanded
c. Price of a commodity and the demand for its substitute
d. Quantity demanded of a commodity and the relative prices of its complementary goods
20. Identify the factor which generally keeps the price-elasticity of demand for a commodity now:
a. Variety of uses for that commodity
b. Its low price
c. Close substitutes for that commodity
d. High proportion of the consumer's income spent on it

Group B

1. If quantity demanded is completely unresponsive to changes in price, demand is:

a. Inelastic
b. Unit elastic
c. Elastic
d. Perfectly inelastic
2. Other things equal, if a good has more substitutes, its price elasticity of demand is:
a. Larger
b. Smaller
c. Zero
d. Unity
3. Price of a product falls by 10% and its demand rises by 30%. The elasticity of demand is:
a. 10%
b. 30%
c. 3
d. 13
4. If elasticity of demand is very low it shows that the commodity is:
a. A necessity
b. A luxury
c. Has little importance in total budget
d. (a) and (c) above
5. When demand is perfectly inelastic, an increase in price will result in:
a. A decrease in total revenue
b. An increase in total revenue
c. No change in total revenue
d. A decrease in quantity demanded
6. If demand is unitary elastic, a 25% increases in price will result in:
a. 25% change in total revenue
b. No change in quantity demanded
c. 1% decrease in quantity demanded
d. 25% decrease in quantity demanded
7. Irrespective of price, Sofia always spends Rs. 100 a week on ice cream, we conclude that:
a. Elasticity of demand is 0
b. Elasticity of demand is 1
c. Elasticity of demand is infinite
d. The law of demand has been violated
8. When cross elasticity of demand is a large positive number, one can conclude that:

a. The good is normal

b. The good is inferior
c. The good is a substitute
d. The good is a complement
9. If demand is inelastic, a change in the price:
a. Will change the quantity in same direction
b. Will change total revenue in same direction
c. Will change total revenue in the opposite direction
d. Will not change quantity
10. Price and demand are positively correlated in case of:
a. Necessities
b. Comforts
c. Giffen goods
d. Luxuries
11. The elasticity of demand of durable goods is:
a. Less than unity
b. Greater than unity
c. Equal to unity
d. Zero
12. The elasticity of demand of durable goods is:
a. More elastic
b. Less elastic
c. Zero elastic
d. Infinite elastic
13. Mr. Raees Ahmad bought 50 litres of petrol when his monthly income was Rs. 25,000. Now his
monthly income has risen to Rs. 50,000 and he purchases 100 litre of petrol. His income elasticity of
demand for petrol is:
a. 1
b. 100%
c. Less than one
d. More than one
14. When price elasticity of demand for normal goods is calculated, the value is always
a. Positive
b. Negative
c. Constant
d. Greater than one
15. Income elasticity of demand for normal good is always:
a. 1
b. More than one
c. Negative
d. Positive
16. If price and total revenue move in the same direction, then demand is:
a. Inelastic
b. Elastic
c. Unrelated
d. Perfectly elastic
17. What does price elasticity of demand measure?
a. Change in price caused by changes in demand
b. The rate of change of sales
c. The responsiveness of demand to price changes
d. The value of sales of a given price
18. In the case of an inferior good, the income elasticity of demand is:
a. Positive
b. Zero
c. Negative
d. Infinite
19. In respect of which of the following category of goods is consumer's surplus highest?
a. Giffen goods
b. Necessities
c. Luxuries
d. Prestige goods
20. The consumer is in equilibrium at a point where the budget line:
a. Is above an indifference curve
b. Is below an indifference curve
c. Is tangent to an indifference curve
d. Cuts an indifference curve
21. An indifference curve slopes down towards right since more of one commodity and less of another
result in:
a. Same satisfaction
b. Greater satisfaction
c. Maximum satisfaction
d. Decreasing Expenditure
22. The Revealed Preference Theory deduces the inverse price-quantity relationship from:
a. Assumption of indifference
b. Postulate of utility maximization
c. Observed behaviour of the consumer
d. Introspection
23. Which of the following statements is incorrect?
a. An indifference curve must be downward sloping to the right
b. Convexity of a curve implies that the slope of the curve diminishes as one moves from left to right
c. The elasticity of substitution between two goods to a consumer is zero
d. The total effect of a change in the price of a good on its quantity demanded is called the price effect
24. Production is a function of:
a. Profits
b. Costs
c. Inputs
d. Price
25. An ISO-product curve slopes:
a. Downward to the left
b. Downward to the right
c. Upward to the left
d. Upward to the right
26. A vertical supply curve parallel to the price axis implies that the elasticity of supply is
a. Zero
b. Infinity
c. Equal to one
d. Greater than zero but less than infinity
27. The supply of a commodity refers to:
a. Actual production of the commodity
b. Total existing stock of the commodity
c. Stock available for sale
d. Amount of the commodity offered for sale at a particular price per unit of time
28. Which cost increases continuously with the increase in production?
a. Average cost
b. Marginal cost
c. Fixed cost
d. Variable cost
29. Which of the following cost curves is never Un-shaped?
a. Average cost curve
b. Marginal cost curve
c. Average variable cost curve
d. Average fixed cost curve
30. Total costs in the short-term are classified into fixed costs and varibale costs. Which one of the
following is a variable cost?
a. Cost of raw materials
b. Cost of equipment
c. Interest payment on past borrowing
d. Payment of rent on buildings
31. In the short term, when the output of a firm increases, its average fixed cost:
a. Increase
b. Decrease
c. Remains constant
d. First declines and then rises
32. A significant property of the Cobb - Douglas production function is that the elasticity of
substitution between inputs is:
a. Equal to unity
b. More than unity
c. Less than unity
d. Zero
33. The production techniques are technically efficient:
a. Below the lower ridge line
b. Above the upper ridge line
c. Between the two ridge lines
d. On the upper ridge line
34. What is the shape of the average fixed cost (AFC) curve?
a. U-shape
b. Horizontal upto a point and then rising
c. Sloping down towards the right
d. Rectangular hyperbola
35. An increase in the supply of a commodity is caused by:
a. Improvements in its technology
b. Fall in the prices of other commodities
c. Fall in the prices of factors of production
d. All of the above
36. Elasticity of supply refers to the degree of responsiveness of supply of a commodity to changes in
its:
a. Demand
b. Price
c. Costs of production
d. State of technology
37. The cost of one thing in terms of the alternative given up is known as:
a. Production cost
b. Physical cost
c. Real cost
d. Opportunity cost
38. According to current thinking, the law of diminishing returns applies to
a. All fields of production
b. Agriculture
c. Mining
d. Manufacturing
39. Identify the correct statement:
a. The average product is at its maximum when the marginal product is equal to the average product
b. The law of increasing returns relates to the effect of changes in factor proportions
c. Economies of scale arise only because of indivisibilities of factors of production
d. The production possibility curve and the transformation curve are different curves
40. With which of the following is the concept of marginal cost closely related?
a. Variable cost
b. Fixed cost
c. Implicit cost
d. Explicit cost
41. . A monopolist is able to maximize his profit when:
a. His output is maximum
b. He charges a high price
c. His average cost is minimum
d. His maginal revenue is equal to marginal cost
42. Which of the following is not an essential condition of pure competition?
a. Large number of buyers and sellers
b. Homogeneous product
c. Freedom of entry
d. Absence of transport cost
43. What is the shape of the demand curve faced by a firm under perfect competition?
a. Horizontal
b. Vertical
c. Positively sloped
d. Negatively sloped
44. Which is the first-order condition for the profit of a firm to be maximum?
a. AC = MR
b. MC = MR
c. MR = AR
d. AC = AR
45. In which form of the market structure in the degree of control over the price of its product by a
firm very large?
a. Monopoly
b. Imperfect competition
c. Oligopoly
d. Perfect competition
46. Which is the other name that is given to the average revenue curve?
a. Profit curve
b. Demand curve
c. Average cost curve
d. Indifference curve
47. Under which of the following forms of market structure does a firm have no control over the price
of its product?
a. Monopoly
b. Monopolistic competition
c. Oligopoly
d. Perfect competition
48. Which one of the following is the condition of equilibrium for the monopolist?
a. MR = MC
b. MC = AR
c. MR = MC = Price
d. AC = AR
49. The situation of monopolistic competition is created by:
a. Small number of producers of a commodity
b. Lack of homogeneity of the product produced by different firms
c. Imperfection of the market for that product
d. All of the above
50. Discriminating monopoly implies that the monopolist charges different prices for his commodity:
a. From different groups of consumers
b. For different uses
c. At different places
d. Any of the above

Group C
1. Which of the following statements is incorrect?
a. Quasi-rent is a purely short-term phenomenon
b. Rent is exclusively demand determined
c. Rent can accrue to land alone
d. Rent is the excess of actual earnings over transfer earnings
2. In the context of the firm as a whole, quasi-rent is defined as the excess of the total receipts over the
total:
a. Fixed cost
b. Average cost
c. Fixed and variable cost
d. Variable cost
3. A factor of production, whose supply is fixed in the short run, may get additional earnings. These
earnings are generally referred to as:
a. Surplus value
b. Quasi-rent
c. Transfer earnings
d. Supernormal profit
4. Which of the following factors forms the basis of the Loan able Funds Theory of Interest?
a. Monetary factors
b. Psychological factors
c. Technical factors
d. Monetary and non monetary factors
5. Which of the following purposes normally does not give rise to the demand for loan able funds?
a. Consumption
b. Saving
c. Investment
d. Hoarding
6. On which of the following does the demand for money for speculative motive mainly depend?
a. Income
b. Profits
c. Rate of interest
d. General price level
7. The demand for liquidity preference is governed by:
a. Transaction motives
b. Precautionary motives
c. Speculative motives
d. All of these
8. Identify the neo-classical theory of the rate of interest:
a. Liquidity-preference theory
b. Time preference theory
c. Abstinence theory
d. Loan able funds theory
9. The classical theory explained interest as a reward for:
a. Parting with liquidity
b. Abstinence
c. Saving
d. Inconvenience
10. According to Joseph Schumpeter, profit is the reward for:
a. Innovation
b. Uncertainty-bearing
c. Risk-taking
d. Management
11. The term 'normal profit' as used in the analysis of equilibrium of the firm under perfect
competition, refers to:
a. Earnings of management
b. Reward for enterprise
c. Reward for innovation
 d. Residual income of a business
12. Who argued that pure profit can arise only in a dynamic economy?
a. F.H. Knight
b. J.B. Clark
c. Bohm Bawerk
d. Alfred Marshall

Answers

Group A Group B Group C

1.D 1.D
1.C 2.A 2.B
2.B 3.C 3.D
3.D 4.A 4.B
4.B 5.B 5.C
5.C 6.D 6.D
6.A 7.B 7.D
7.A 8.C 8.C
8. C 9.B 9.A
9.D 10. C 10. A
10. D 11. B 11. A
11. D 12. A 12. B
12. D 13. A
13. D 14. B
14. D 15. D
15. B 16. A
16. C 17. C
17. B 18. C
18. B 19. B
19. B 20. C
20. B 21. A
22. C
23. C
24. A
25. B
26. A
27. D
28. D
29. D
30. A
31. B
32. A
33. C
34. D
35. D
36. B
37. D
38. A
39. C
40. A
41. D
42. D
43. A
44. B
45. A
46. B
47. D
48. A
49. D
50. D