103 Economic Analysis for Business Decisions mcq bhati

103- EABD Chapter-Wise - Practice Paper Compiled by: Dr. Bhati Rakesh Page | 1
MCQ
In
103 – Economic Analysis for
Business Decisions
CHAPTER-WISE
For
MASTER OF BUSINESS ADMINISTRATION
(FIRST YEAR-Semester-I)
Compiled by: Dr. Bhati Rakesh

PRACTICE PAPER : 1
1. When is a good or service scarce?
a. it is rare and hard to come by.
b. there is not enough of it available for
everybody who wants it for free.
c. there is plenty available for everyone who
wants it.
d. there is a shortage.
Answer:B
2. Human wants and desires are
a. eventually satisfied in any society
b. constant from one time period to the next
c. virtually unlimited
d. limited and scarce
Answer: C
3. Scarcity is an economic problem
a. only in capitalist economies.
b. only in command economies.
c. only in poor countries.
d. in every country and in every household.
Answer: D
4. Economic analysis would be unnecessary if
there were no
a. taxes
b. government
c. scarcity
d. money
Answer: C
5. Because resources are scarce,
a. opportunity costs are zero
b. people must make choices among
alternatives
c. all human wants and desires can be
satisfied
d. resource prices are flexible
Answer: B
6. Economics deals with the problems caused
by
a. scarce resources and unlimited wants.
b. scarce resources and limited wants.
c. abundant resources and unlimited wants.
d. abundant resources and limited wants.
Answer: A
7. Resources are divided into the following
broad categories:
a. men, money, and machines.
b. saving, spending, investment, and capital.
c. human, technological, and government.
d. land, labor, capital, and entrepreneurial
ability.
Answer: D
8. In economics, “land” refers
a. only to plots of ground on the surface of
the earth.
b. to the specific area of the earth in a
country or region.
c. to rural regions as distinguished from urban
areas.
d. to any and all natural resources.
Answer: D
9. Physical and mental human effort is defined
in economics as
a. labor
b. manpower
c. productivity
d. performance
Answer: A
10. Labor is ultimately derived from
a. capital
b. technology
c. natural resources
d. time
Answer: D
11. In economics, “capital” refers to
a. money.
b. stocks, bonds, and other financial assets.
c. the seat of government.
d. machines, buildings, and tools.
Answer:D
12. Which of the following is not an example
of “capital”?
a.the copy machine which duplicated this
exam
b. an economics professor’s knowledge of
economics
c. the building in which this class is located
d. the amount of tuition which you paid for
this class
Answer: D
13. An entrepreneur is
a. an intermediary between buyers and sellers
in the marketplace.
b. the organizer who seeks profitable
opportunities and is willing to accept risks.
UNIT– 1
UNIT -I Managerial Economics: Concept of Economy, Economics, Microeconomics,
Macroeconomics. Nature and Scope of Managerial Economics, Managerial Economics and
decision-making. Concept of Firm, Market, Objectives of Firm: Profit Maximization Model,
Economist Theory of the Firm, Cyert and March’s Behavior Theory, Marris’ Growth Maximisation
Model, Baumol’s Static and Dynamic Models, Williamson’s Managerial Discretionary Theory.

c. a business organization involved in using
inputs to produce output.
d. the administrator who runs an enterprise
without accepting any risk of financial loss.
Answer: B
14. Managerial and organizational skills are
categorized as
a. physical capital
b. technological ability
c. entrepreneurial ability
d. human labor
Answer: C
15. Payment for the use of natural resources in
a production process is called
a. rent.
b. wages.
c. interest.
d. profit.
Answer: A
16. Payment for the use of financial capital in
a production process is called
a. rent.
b. wages.
c. interest.
d. profit.
Answer: C
17. In a production process, profit is the
payment received by the
a. capital.
b. labor
c. technology.
d. entrepreneur.
Answer: D
18. Profit is also known as
a. rent
b. mark-up
c. the monetary aggregate
d. the residual claimed by the entrepreneur
Answer: D
19. Unlike a service, a good
a. is desirable
b. uses resources to satisfy wants
c. is physical and tangible
d. is abundant and free
Answer: C
20. Goods and services which are considered
free
a. are the most important topics for economic
analysis
b. are produced at no cost to society or the
the individual
c. usually involve some real opportunity cost
d. are undesirable
Answer: C
21. Households
a. own and sell resources
b. play a very minor role in the economy
c. produce goods and services
d. none of the above
Answer:A
22. Goods and services are exchanged in
a. product markets.
b. resource markets.
c. inventory markets.
d. classified markets.
Answer: A
23.The labor market is an example of a
a. government market.
b. classified market.
c. communication market.
d. resource market.
Answer: D
24. The economic behavior of individual
decision makers and the determination of
price and output in specific markets are both
studies in
a. microeconomics.
b. macroeconomics.
c. positive economics.
d. normative economics.
Answer: A
25. In macroeconomics, we analyze the
a. all of the following.
b. overall performance of the economy as a
whole.
c. arrangements through which specific
products are exchanged.
d. influences on the decision making of
particular households.
Answer: B
26. The assumption of rational self-interest
means that economic decision makers
a. have no concern for the welfare of others.
b. consider the welfare of others to be more
important than their own happiness.
c. know with certainty which choice will have
the best result.
d. make reasonable decisions based on their
expectations of results.
Answer: D
27. In economics, the term “marginal” refers
to
a. a change in an economic variable.
b. a low quality product or resource.
c. an unimportant and irrelevant economic
variable.
d. all-or-nothing economic decisions.
Answer: A
28.Rational economic decision makers will
make a change only if
a. the change is free of risk
b. there are no costs involved

c. their expectations are correct
d. expected marginal benefit exceeds
expected marginal cost
Answer: D
29.When economic choice involves
adjustment to the existing situation, marginal
analysis
a. has no practical applications or real-world
uses.
b. eliminates incorrect decisions and bad
choices.
c. means comparing the additional costs and
additional benefits of an activity before
deciding.
Answer: C
30. Economic information
a. is scarce and costly to acquire
b. is available for free to any decision maker
c. is not required for rational decision making
d. must be complete before any decision is
made
Answer: A
31. An economic model is useful only if it
a. includes every detail of reality
b. makes no unproven assumptions
c. is mathematical, and is expressed in
equations
d. makes accurate predictions
Answer:D
32. The scientific method is useful
a. only in fields of science such as chemistry
and physics
b. for testing the validity of theoretical
predictions
c. for testing the validity of a model’s
assumptions
d. when no economic variables can be
assumed to be constant
Answer: B
33. The “ceteris paribus” assumption means
a. “after all other changes have been taken
into consideration”.
b. “all economic decision makers behave
according to rational self-interest”.
c. “marginal benefit equals marginal cost”
d. “holding all other variables constant”.
Answer: D
34.A hypothesis is
a. an assumption about behavior
b. useful only if the assumptions are realistic
c. useful in microeconomics, but not in
macroeconomics
d. a prediction of what will occur, given
certain assumptions
Answer: D
35. A model which sometimes makes
incorrect predictions will be used by
economic decision makers
a. under no circumstances
b. only if its assumptions are detailed and
realistic
c. if it is mathematical and computerized
d. until a better model is developed
Answer: D
36. Economic theory is designed to
a. express normative values
b. invent an imaginative and interesting story
c. predict the behavior of a specific
economic decision maker after an economic
change
d. predict the average behavior of a group of
similar economic decision makers after an
economic change
Answer:D
37.The difference between positive economic
statements and normative economic
statements is that
a. positive statements are based on opinion
and normative statements are based on fact.
b. positive statements are true and normative
statements are often false.
c. positive statements are based on fact and
normative statements are based on opinion.
Answer: C
38. If one were to commit the association-is-
causation fallacy, one would conclude that
a. an event which follows another event was
caused by the first event.
b. an event which follows another event was
not necessarily caused by the first event.
c. the simplest model is the best predictor.
d. what is true for the individual is also true for
the group.
Answer: A
39. Economics is the study of how:
A) Best to use society's scarce
resources.
B) Society spends the income of
individuals.
C) Society purchases resources,
given its macroeconomic goals.
D) Individual market participants
decide what to produce given fixed resource
constraints.
Answer: A
40. Economics can be defined as the study of:
A) For whom resources are
allocated to increase efficiency.

B) How society spends the income
of individuals.
C) How scarce resources are
allocated to fulfill society's goals.
D) What scarce resources are used
to produce goods and services.
Answer: C
41. The fundamental problem of economics is:
A) The law of increasing
opportunity costs.
B) The scarcity of resources relative
to human wants.
C) How to get government to
operate efficiently.
D) How to create employment for
everyone.
Answer: C
42. Given that resources are scarce:
A) A "free lunch" is possible but only
for a limited number of people.
B) Opportunity costs are
experienced whenever choices are made.
C) Poor countries must make
choices but rich countries with abundant
resources do not have to make choices.
D) Some choices involve
opportunity costs while other choices do not.
Answer: B
43. A consequence of the economic problem
of scarcity is that:
A) Choices have to be made
about how resources are used.
B) There is never too much of any
good or service produced.
C) The production of goods and
services must be controlled by the
government.
Answer:A
44. Which of the following is a scarce
resource?
A) Paper used to produce textbooks.
B) Clean water.
C) Wheat given to Russia to alleviate hunger.
D) All of the above.
Answer: D
45. Factors of production are:
A) Scarce in every society.
B) Scarce only in United States.
C) Scarce only in the poorest
countries of the world.
D) Unlimited in quantity.
Answer: A
46. Which of the following is an economic
resource?
A) A worker used to build a new
highway.
B) An office building used by an
insurance company.
C) A vacant piece of land in New
York City.
D) All of the above are economic
resources.
Answer: D
47. Which of the following is the best example
of land?
A) The gasoline refined from crude
oil.
B) A factory which produces new
goods and services.
C) The river water used to float a
riverboat casino.
D) All of the above
Answer: C
48 Capital, as economists use the term, refers
to:
A) The money needed to start a
new business.
B) The costs of operating a
business.
C) Shares of stock issued by
businesses.
D) Final goods that are used to
produce other goods and services.
Answer: D
49 The role of the entrepreneur in an
economy is to:
A) Bring the factors of production
together and assume the risk of production.
B) Work with government planners
to determine what goods are produced.
C) Arrange bank financing for the
owners of new businesses.
D) Ensure full employment of labor.
Answer: A
50 Opportunity cost is:
A) Only measured in dollars and
cents.
B) The dollar cost to society of
producing the goods.
C) The difficulty associated with
using one good in place of another.
D) The alternative that must be
given up in order to get something else.
Answer:D
PRACTICE PAPER : 2

1. Economics is the study of how:
A) Best to use society's scarce
resources.
B) Society spends the income of
individuals.
C) Society purchases resources, given
its macroeconomic goals.
D) Individual market participants
decide what to produce given fixed
resource constraints.
Answer: A
2. Economics can be defined as the
study of:
A) For whom resources are allocated
to increase efficiency.
B) How society spends the income of
individuals.
C) How scarce resources are allocated
to fulfill society's goals.
D) What scarce resources are used to
produce goods and services.
Answer: C
3. The fundamental problem of
economics is:
A) The law of increasing opportunity
costs.
B) The scarcity of resources relative to
human wants.
C) How to get government to operate
efficiently.
D) How to create employment for
everyone.
Answer: B
4. In economics, what does scarcity
mean?
A) That a shortage of a particular
good will cause the price to fall.
B) That a production-possibilities curve
cannot accurately represent the
tradeoff between two goods.
C) That society's desires exceed the
want-satisfying capability of the
resources available to satisfy those
desires.
D) That the market mechanism has
failed.
Answer: C
5. Given that resources are scarce:
A) A "free lunch" is possible but only for
a limited number of people.
B) Opportunity costs are experienced
whenever choices are made.
C) Poor countries must make choices
but rich countries with abundant
resources do not have to make
choices.
D) Some choices involve opportunity
costs while other choices do not.
Answer: B
6. Which of the following is the best
description of the origin of the
economic problem of scarcity?
A) Humans have limited wants for
goods and services and resources
are also limited.
B) Humans have limited wants for
are unlimited.
C) Humans have unlimited wants for
goods and services but resources
are limited.
D) Humans have unlimited wants for
are also unlimited.
Answer: C
7. A consequence of the economic
problem of scarcity is that:
A) Choices have to be made about
how resources are used.
B) There is never too much of any
good or service produced.
C) The production of goods and
services must be controlled by the
government.
D) The production-possibilities curve is
bowed outward.
Answer: A
resource?
A) Paper used to produce textbooks.
C) Clean water.
B) Wheat given to Russia to alleviate
hunger.
Answer: D
resource?
A) Land. B) Labor. C)

Entrepreneurship. D) All of the
above.
Answer: D
10. Factors of production are:
A) Scarce in every society.
B) Scarce only in United States.
C) Scarce only in the poorest countries
of the world.
D) Unlimited in quantity.
Answer: A
11. Which of the following is not a factor of
production?
A) A teacher. C) The $100,000 used to start a new business.
B) A ballpoint pen. D) Ten acres of forest.
Answer: C
12. Which of the following is an economic
resource?
A) A worker used to build a new
highway.
B) An office building used by an
insurance company.
C) A vacant piece of land in New York
City.
D) All of the above are economic
resources.
Answer: D
13. With respect to factors of production,
which of the following statements is not
true?
A) Factors of production are also
known as resources.
B) In order to produce anything, it is
necessary to have factors of
production.
C) Factors of production include land,
labor, capital, and
entrepreneurship.
D) Only those resources that are
privately owned are counted as
factors of production.
Answer: D
example of land?
A) The gasoline refined from crude oil.
B) A factory which produces new
goods and services.
C) The river water used to float a
riverboat casino.
D) A shovel.
Answer: C
15. Capital, as economists use the term,
refers to:
A) The money needed to start a new
business.
B) The costs of operating a business.
C) Shares of stock issued by businesses.
D) Final goods that are used to
produce other goods and services.
Answer: D
example of capital and no other factor
of production?
A) Clean air.
B) Money in a savings account.
C) Equipment that will be used to
produce goods.
D) The property on which a landfill has
been established.
Answer: C
17. Which of the following performs the role
of both capital and land?
A) A manufacturing plant and the
property on which it is located.
B) The equipment used to produce
goods.
C) A mine that has been vacated
because it is no longer profitable.
Answer: A
18. An entrepreneur is:
A) An innovator.
B) Someone who brings resources
together and produces a product.
C) A risk taker.
Answer: D
19. The role of the entrepreneur in an
economy is to:
A) Bring the factors of production
together and assume the risk of
production.
B) Work with government planners to
determine what goods are
produced.
C) Arrange bank financing for the
owners of new businesses.
D) Ensure full employment of labor.
Answer: A

20. Opportunity cost is:
A) Only measured in dollars and cents.
B) The dollar cost to society of
producing the goods.
C) The difficulty associated with using
one good in place of another.
D) The alternative that must be given
up in order to get something else.
Answer: D
21. Opportunity cost may be defined as
the:
A) Goods or services that are forgone
in order to obtain something else.
B) Dollar prices paid for final goods
and services.
C) Dollar cost of producing a particular
product.
D) Difference between wholesale and
retail prices.
Answer: A
22. The opportunity cost of studying for an
economics test is:
A) Negative, since it may improve your
grade.
B) Zero, because you knew when you
registered for the class that studying
would be required.
C) The money you spent on tuition for
the class.
D) The best alternative use of your
time.
Answer: D
23. The concept of opportunity cost would
become irrelevant if:
A) The market mechanism functioned
to allocate resources fairly.
B) The government allocated
resources.
C) The production-possibilities curve
bowed outward.
D) Resources were no longer scarce.
Answer: D
24. A production-possibilities curve
indicates the:
A) Combinations of goods and
services an economy is actually
producing.
B) Maximum combinations of goods
and services an economy can
produce given its available
resources and technology.
C) Maximum combinations of goods
produce given unlimited resources.
D) Average combinations of goods
produce given its available
resources and technology.
Answer: B
25. Which of the following is an assumption
under which the production-possibilities
curve is drawn?
A) There is significant unemployment.
C) The price level is changing.
B) The supply of factors of production
is fixed.
D) Technology is changing.
Answer: B
26. A point on a nation's production-
possibilities curve represents:
A) An undesirable combination of
goods and services.
B) Combinations of production that
are unattainable, given current
technology and resources.
C) Levels of production that will cause
both unemployment and inflation.
D) The full employment of resources to
achieve a particular combination of
goods and services.
Answer: D
27. Which of the following correctly
characterizes the shape of a
production-possibilities curve?
A) A straight line indicating the law of
increasing opportunity costs applies.
B) A straight line when there are
constant opportunity costs.
C) A line that curves outward when
resources are perfectly adaptable
in the production of different goods.
D) A line that curves inward when
resources are perfectly adaptable
in the production of different goods.
Answer: B
28. If an economy is producing on its
production-possibilities curve, then

producing:
A) More of one good implies
producing more of another good.
B) Less of one good implies producing
less of another good.
C) More of one good implies
producing less of another good.
D) More of one good implies shifting
the curve toward the origin.
Answer: C
29. The production-possibilities curve
illustrates:
A) The limitations that exist because of
scarce resources.
B) That there is no limit to what an
economy can produce.
C) That there is no limit to the level of
output.
D) The existence of unlimited wants
and resources.
Answer: A
30. The production-possibilities curve
illustrates that:
A) Society can always produce more
of all goods simultaneously.
B) Constant opportunity costs always
exist.
C) There are no opportunity costs in a
wealthy economy.
D) If society is efficient, it can produce
more of one good only if it reduces
output of another good.
Answer: D
31. According to the law of increasing
opportunity costs:
A) The more one is willing to pay for
resources, the larger will be the
possible level of production.
B) Increasing the production of a
particular good will cause the price
of the good to rise.
C) In order to produce additional units
of a particular good, it is necessary
for society to sacrifice increasingly
larger amounts of alternative goods.
D) Only by keeping production
constant can rising prices be
avoided.
Answer: C
32. The law of increasing opportunity costs
explains:
A) How everything becomes more
expensive as the economy grows.
B) The shape of the production-
possibilities curve.
C) Inflation.
Answer: B
33. According to the law of increasing
opportunity costs:
A) Greater production leads to greater
inefficiency.
B) Greater production means factor
prices rise.
C) Greater production of one good
requires increasingly larger sacrifices
of other goods.
D) Higher opportunity costs induce
higher output per unit of input.
Answer: C
34. If an economy experiences increasing
opportunity costs with respect to two
goods, then the production-possibilities
curve between the two goods will be:
A) Bowed outward.
C) A straight, downward-sloping line.
B) Bowed inward.
D) All of the above are possible.
Answer: A
35. The production-possibilities curve bows
outward because:
A) Resources are used inefficiently as
more of a good is produced.
B) In order to get more of a particular
good, increasing quantities of other
goods must be given up.
C) Resources move easily from the
production of one good to the
production of another.
D) Resources are scarce and choices
must be made.
Answer: B
36. Efficiency can be defined as the:
A) Maximum resources used in
producing a given output level.
B) Maximum output of a good
produced from the available
resources.

C) Minimum output of a good
produced from the available
resources.
D) Maximum output of a good
produced if all resources are
devoted to its production.
Answer: B
37. When an economy is producing
efficiently it is:
A) Producing a combination of goods
and services beyond the
production-possibilities curve.
B) Getting the most goods and
services from the available
resources.
C) Experiencing decreasing
opportunity costs.
Answer: B
38. Which of the following is true when an
economy is producing efficiently?
A) The economy is producing on the
production-possibilities curve.
B) Goods and services are being
produced using the fewest
resources.
C) The economy is getting the most
goods and services from the
available resources.
Answer: D
39. Long-run economic growth would best
be represented by a:
A) Shift outward of the production-
B) Shift inward of the production-
C) Movement from inside the
production-possibilities curve to a
point on the production-possibilities
curve.
D) Movement from the production-
possibilities curve to a point inside
the production-possibilities curve.
Answer: A
40 Which of the following is not a basic
decision that all nations must confront?
A) Should we have economic growth?
B) How should we produce goods and
services?
C) For whom should goods and
services be produced?
D) What goods and services should we
produce?
Answer: A
41. In a market economy, the question of
WHAT to produce is answered by:
A) Direct negotiations between
consumers and producers.
B) Producer profits and sales.
C) Government directives.
D) A democratic vote of all producers.
Answer: B
42. In a market economy, the question of
HOW to produce is determined by:
A) Government planners.
B) The production possibilities curve.
C) The least-cost method of
production.
D) The method of production which
uses the least amount of labor.
Answer: C
43. In a market economy, the people who
receive the goods and services that
are produced are those who:
A) Need the goods and services the
most.
C) Have the most political power.
B) Want the goods and services the
most.
D) Are willing to pay the highest price.
Answer: D
44. The market mechanism may best be
defined as:
A) Price regulation by government.
B) The use of market signals and
government directives to select
economic outcomes.
C) The process by which the
production-possibilities curve shifts
inward.
D) The use of market prices and sales
to signal desired output.
Answer: D
45. The market mechanism:
A) Allows buyers to communicate with
producers indirectly.
B) Is directed by the government in

order to promote efficiency.
C) Results in the misallocation of
resources because producers seek
to maximize profits.
D) Allocates goods in an equitable
manner.
Answer: A
46. The market mechanism:
A) Is not a very efficient means of
communicating consumer demand
to the producers of goods and
services.
B) Works through central planning by
government.
C) Eliminates market failures created
by government.
D) Works because prices serve as a
means of communication between
consumers and producers.
Answer: D
47. The invisible hand refers to:
A) Intervention in the economy by the
government bureaucrats we do not
see and over whom we have no
control.
B) Undiscovered natural resources.
C) The allocation of resources by
market forces.
D) The person who has the
responsibility to coordinate all the
markets in a market economy.
Answer: C
48. The doctrine of laissez faire is based on
the belief that:
A) Markets are likely to do a better job
of allocating resources than
government directives.
B) Government directives are likely to
do a better job of allocating
resources than markets.
C) Government failure does not exist.
D) Markets result in an unfair
distribution of income.
Answer: A
49. Which of the following would advocate
a laissez faire economic policy?
A) Karl Marx. B) Adam Smith. C)
John Maynard Keynes. D)
President Franklin Roosevelt.
Answer: B
50. Karl Marx wrote:
A) The Wealth of Nations, which
provided the rationale for centrally-
planned economies.
B) The Wealth of Nations, which
described the virtues of market-
based economies.
C) Das Kapital, which provided the
rationale for centrally-planned
economies.
D) Das Kapital, which described the
virtues of market-based economies.
Answer: C
PRACTICE PAPER : 3
1. The curve showing the possibilities of
production of desired good is known as:
(A) Indifference curve
(B) Production possibility curve
(C) Revealed preference curve
(D) None of these
Answer: B
2. Which one of the following definition of
Economics is associated with the name of
Lionel Robbins?
(A) Welfare definition
(B) Scarcity definition
(C) Growth definition
(D) Wealth definition
Answer:B
3. A hypothesis is tested by:
(A) The realism of its assumptions
(B) The lack of realism of its assumptions
(C) Its ability to predict accurately an
outcome that follows logically from the
assumptions
(D) None of these
Answer: C
4. In a free enterprise economy, the problems
of what, how and for whom to produce are
solved by :
(A) A Planning Committee
(B) The Price mechanism
(C) The Planning Commission
(D) None of these.
Answer: B
5. Who considered Political Economy as “an
enquiry into the nature and causes of the
wealth of nations”?
(A) Adam Smith (B) J.B.Say
(C) Marshall (D) Keynes
Answer: A

6. Which of the following definitions of
Economics include the economic concept of
‘scales of Preferences’?
(A) Wealth definition
(B) Welfare definition
(C) Scarcity definition
(D) Growth definition
Answer: C
7. Which of the following embodies a more
widely accepted definition of economics?
(A) Science of material welfare
(B) Science of wealth
(C) A study of mankind in the ordinary
business of life
(D) Science of making choice.
Answer: D
8. The fundamental problem faced by an
economy is one of :
(A) Exchange
(B) Decision making by the government
(C) Economic welfare
(D) Scarcity of resources and multiplicity of
wants.
Answer: D
9. Production possibilities curve does not show:
(A) What to produce
(B) How to produce
(C) For whom to produce
(D) Productive potential under conditions of
underemployment
Answer: D
10. State whether Economics is :
(A) A positive science only
(B) Neither a positive science
(C) A science but not art
(D) A science or an art depending on who
uses Economics and for what purpose.
Answer:D
11. Who of the following emphasized the
normative aspect of Economics as a science?
(A) The English classical school
(B) Lionel Robbins
(C) The German historical school
(D) None of these.
Answer: C
12. Of the following economists who is
considered as master of partial analysis?
(A) Alfred Marshall (B) A.C.Pigou
(C) J.M.Keynes (D) J.S.Mill.
Answer: A
13. Find out the correct statement:
(A) Deductive method descends from general
to the particular
(B) Inductive method descends from general
to the particular
(B) The classical economists stood for
inductive method
(D) Deductive method depends on
experimentation.
Answer: A
14. Which of the following statements has
been drawn by inductive method?
(A) A consumer will buy from the cheapest
market
(B) All businessmen wish to buy at low price
and sell at high price
(C) A private firm will try to maximize its profits
(D) The larger the stock of money with a
person, the lower is the utility that he
derives from it.
Answer: B
15. What is true for deductive method?
(A) Abstract
(B) Realistic
(C) Economic conditions assumed to be
changing
(D) Supported by historical school.
Answer: A
16. What is true for inductive method?
(A) Hypothetical (B) Empirical
(C) Ignores experimentation (D) Static
Answer: B
17. Find out the correct statement:
(A) Prediction of economic models cannot be
refuted by empirical evidence
(B) Models transform verbal expressions in to
more scientific expressions
(C) Models make no assumptions
(D) Economic models are comprehensive and
not partial
Answer: B
18. Micro economic theory studies how a free
enterprise economy determines:
(A) The Price of goods (B) The price of services
(C) The price of resources (D) All of these.
Answer: A
19. Which aspect of taxation involves
normative economics?
(A) The incidence of the tax
(B) The fairness of the tax
(C) The effect of the tax on incentives to work
(D) All of the above
Answer: B
20. Microeconomics deals primarily with:
(A) Comparative statics, general equilibrium
and positive economics
(B) Comparative statics, partial equilibrium
and normative economics
(C) Dynamics, partial equilibrium and positive
economics
(D) Comparative statics, partial equilibrium
and positive economics.

Answer: D
21. Which of the following is incorrect?
(A) Microeconomics is concerned primarily
with the problem of what , how and for whom
to produce
(B) Microeconomics is concerned primarily
with the economic behavior of individual
decision making units when at equilibrium
(C) Microeconomics is concerned primarily
with the time path and processes by which
one equilibrium position evolves into another
(D) Microeconomics is concerned primarily
with comparative statics rather than
dynamics.
Answer: C
22. Which of the following statements is most
closely associated with general equilibrium
analysis?
(A) Everything depends on everything else (B)
The equilibrium price of a factor depends on
the balancing of the forces of demand and
supply for that factor
(C) The equilibrium price of a good or service
depends on the balancing of the
forces of demand and supply for that good or
service
(D) None of these
Answer: A
23. The meaning of the word ‘economic’ is
most closely associated with the word:
(A) Free (B) Scarce
(C) Unlimited (D) Unrestricted
Answer: B
24. The market equilibrium for a commodity is
determined by
(A) The market demand for the commodity
(B) The market supply of the commodity
(C) The balancing of the forces of demand
and supply for the commodity
(D) Any of these
Answer: C
25. Microeconomics studies the decision
making behavior of:
(A) Society as a whole (B) An individual or
household
(C) A group of individuals (D) Economy as a
whole
Answer: B
26. The word micro was first used in Economics
by:
(A) Keynes (B) Ragnar Frisch
(C) J.R.Hicks (D) Marshall
Answer:B
27. A function refers to :
(A) The demand for a commodity
(B) The supply of a commodity
(C) The demand and supply of a commodity
service or resource
(D) The relationship between one dependent
variable and one or more
independent variables.
Answer:D
28. The validity of an economic theory is
judged by its power to:
(A) Explain an economic phenomenon
(B) Predict the course of an economic
phenomenon
(C) Prove or disprove a hypothesis
(D) Reveal the economic laws
Answer:A
29. The subject matter of economics is the
study of:
(A) Wealth (B) Welfare
(C) Scarcity (D) Scarcity and Choice
Answer:D
30. To whom do you attribute the ‘growth’
definition of economics?
(A) Paul Samuelson (B) Lionel Robbins
(C) Milton Friedman (D) Alfred Marshall
Answer:A
31. The first economist who coined the terms
micro economics and macroeconomics (A)
Ragnar Frisch (B) Keynes
(C) Marshall (D) Friedman
Answer:A
32. Microeconomics deals with:
(A) The theory of factor pricing
(B) The theory of product pricing
(C) The theory of economic welfare
(D) All the above
Answer:D
33. Prof. Robbin’s definition of Economics is:
(A) Scarcity definition (B) Growth definition
(C) Welath definition (D) Welfare definition
Answer:A
34. A theory is:
(A) An assumption (B) A validated hypothesis
(C) An ‘if then’ proposition (D) A hypothesis
Answer: B
35. The book ‘Principles of Economics’ was
written by:
(A) Keynes (B) Marshall
(C) Samuelson (D) Pigou
Answer:B
37. A mixed economy:
A) Is justified by the superiority of laissez faire
over government intervention.
B) Utilizes both market and nonmarket signals
to allocate goods and services.
C) Relies on the use of central planning by
private firms rather than the government.

Answer: B
38. In the classical system, the basic
economic problems are solved by:
(A) Government (B) Price mechanism
(C) Economists (D) Central bank
Answer: B
39. Growth definition of economics was
concerned with:
(A) Scarcity (B) Welfare
(C) Wealth (D) Economic growth
Answer: D
40. When government directives do not
produce better economic outcomes, which
of the following has occurred?
A) Government failure. B) Market failure.
C) Macroeconomic failure. D) Scarcity.
Answer: A
41. Which of the following is an example of
government failure?
A) Bureaucratic delays.
B)Required use of pollution-control
technologies that are obsolete.
C) Inefficient incentives.
Answer: D
42. Macroeconomics focuses on the
performance of:
A) Individual consumers.
B) The overall economy.
C) Government agencies.
Answer: B
43. Macroeconomics focuses on the
performance of:
A) Individual consumers.
B) Specific firms.
C) Government agencies.
D) The economy as a whole.
Answer: D
44. Which of the following is a
macroeconomic statement?
A) The unemployment rate for the United
States rose to 7 percent in the last quarter.
B) The price of wheat fell to a ten year low in
July.
C) Unionized workers struck GM for higher
wages.
Answer: A
45. Which of the following are classified as
microeconomic goals?
A) Full employment, price stability, growth in
output.
B) The welfare of individual consumers and
business firms.
C) Production, pricing, and purchasing.
D) Land, labor, and capital.
Answer: B
46. The study of microeconomic theory
focuses on the:
A) Interaction of international trade and
domestic production of goods and services.
B) Operation of the entire economy.
C) Role of the banking system in the
economy.
D) Structure and performance of markets and
the operation of the price system.
Answer: D
47.Microeconomics is concerned with issues
such as:
A) The demand for CD players by individuals.
B) Maintaining a strong level of economic
growth.
C) The level of inflation in the economy.
D)All of the above.
Answer: A
48. Economic models are used by economists
to:
A) Predict economic behavior.
B) Formulate economic policy.
C) Explain economic behavior.
Answer: D
49. The Latin phrase ceteris paribus means:
A) The production-possibilities curve never
shifts.
B) Other things remain equal.
C) Laissez faire.
D) The invisible hand.
Answer: B
50. The ceteris paribus assumption:
A) Is necessary because of the complexity of
the real economy.
B) Makes it easier to formulate economic
theory and policy.
C) Increases the risk of errors in economic
predictions.
D) All of the above are correct.
Answer: D

PRACTICE PAPER : 4
1. What Microeconomics is about?
A. Study of Business Environment
B. Study of financial position of the economy
C. Study of the Economy at Micro Level
D. None of the above
Answer: C
2. Scarcity is a condition that exists when
A) there is a fixed supply of resources.
B) there is a large demand for a product.
C) resources are not able to meet the entire
demand for a product.
Answer: C
3.Of the following statements note the one
that is not part of positive approach to
Economics.
(a) Massive production of Luxury cars is not in
the best interest of a less developed nation.
(b) Tobacco consumption reduces average
productivity of a worker.
(c) Tata Motors manufactures the INDICA cars
(d) India is a Mixed Economy.
Answer: A
4.Which of the following is the best example of
"what goods and services should be
produced?"
A) the use of a capital intensive versus a labor
intensive process of manufacturing textiles
B) the production of SUV’s versus the
production of sub-compact cars
C) the manufacturing of computer
workstations in China or in India
D) the leasing versus the purchasing of new
capital equipment
Answer:B
5. The purpose of making assumptions in
economic model building is to
(a) force the model to yield the correct
answer.
(b) minimize the amount of work an
economist must do.
(c) simplify the model while keeping important
details.
(d) express the relationship mathematically.
Answer:C
6.Economic models should have .............
(a) predictive accuracy
(b) predictive possibility
(c) Many assumptions
(d) Classes.
Answer:A
7. The scarcity (New) definition is suggested
by
a. A C Pigou b. Lionel Robbins
c. Adam Smith d. Alfred Marshall
Answer:B
8. An economic system:
a. Requires a grouping of private markets
linked to one another.
b. Is a particular set of institutional
arrangements and a coordinating
mechanism used to respond to the
economizing problem
c. Requires some sort of centralized authority
(such as government) to coordinate
economic
activity.
d. Is a plan or scheme that allows a firm to
make money at some other firm's expense
Answer:B
9.From society's point of view the economic
function of profits and losses is to:
a. Promote the equal distribution of real assets
and wealth.
b. Achieve full employment and price level
stability.
c. Contribute to a more equal distribution of
income.
d. Reallocate resources from less desired to
more desired uses.
Answer:D
10.Positive economic theory deals with
(a) What is or how the economic
problem facing the society are solved
(b) How the problem should be solved
(c) What to produce
(d) When to produce
Answer:B
11.The basic difference between
macroeconomics and microeconomics is:
A. microeconomics concentrates on
individual markets while macroeconomics
focuses primarily on international trade.
B. microeconomics concentrates on the
behaviour of individual consumers while
macroeconomics focuses on the behaviour of
firms.
C. microeconomics concentrates on the
behaviour of individual consumers and firms
while macroeconomics focuses on the
performance of the entire economy.

D. microeconomics explores the causes of
inflation while macroeconomics focuses on
the causes of unemployment.
Answer: C
12. Which of the following is /are a non -
economic resource
(a) Air (b) Water (c)
Sunlight (d) All the three
Answer:D
13.Which of the statements below best
illustrates the use of the market process in
determining the allocation of scarce
resources?
A) "Let's make this product because this is
what we know how to do best."
B) "Although we're currently making a profit on
the products we make, we should consider
shifting to products where we can earn even
more money."
C) "Everyone is opening video stores, why
don't we?"
D) "We can't stop making this product.
This product gave our company its start."
Answer: A
14. A rational person does not act unless:
a. The action is ethical
b. The action produces marginal costs that
exceed marginal benefits
c. The action produces marginal benefits that
exceed marginal costs
d. The action makes money for the person
Answer: C
15.Economists view positive statements as
a. affirmative, justifying existing economic
policy.
b. optimistic, putting the best possible
interpretation on things.
c. descriptive, making a claim about how the
world is.
d. prescriptive, making a claim about how the
world ought to be.
Answer:C
16.Which of the following is the best example
of "how goods and services should be
produced?"
A) complying with the technical specifications
in the production of an aircraft
B) the production of jet aircraft for the air
force or for a commercial airline
C) the use of additional workers versus the use
of machines in the production of goods
D) the production of a new manufacturing
facility
Answer: C
17. The best definition of economics is
A) how choices are made under conditions of
scarcity.
B) how money is used.
C) how goods and services are produced.
D) how businesses maximize profits.
Answer: A
18. Microeconomics is not concerned with the
behavior of:
a. Consumers. b. Aggregate demand.
c. Firms. d. Industries.
Answer:B
19 The famous book on economics “An
Enquiry into the Nature and Cause of Wealth
of Nation” was Written by
a. Alfred Marshall b. Adam Smith
c. J M Keynes d. A C Pigou
Answer: B
20. Macro economics is concerned with
a. The theory of firm
b. Household expenditure
c. General price level
d. Individual consumer behavior
Answer: C
21. The subject matter of economics is
concerned with
A. Production
C. Distribution and exchange
B. Consumption
D. All of the above
Answer:D
22. Who remarked " Economics is concerned
with what economists do"
(a) Jacob Viner (b) AC Pigou
(c) Robbins (d) Samuelson
Answer: A
23. Who defined economics as "a study of
economic welfare which is that part of social
welfare that can be brought Directly or
indirectly into relation with the measuring rod
of money"
(a) A C Pigou(b) JN Keynes
(c) A. Linkon (d) Samulson
Answer:A

24. By scientific method we mean
a. the use of modern electronic testing
equipment to understand the world.
b. the dispassionate development and testing
of theories about how the world works.
c. the use of controlled experiments in
understanding the way the world works.
d. finding evidence to support preconceived
theories about how the world works.
Answer: B
25. Identity the correct statement:
a) In deductive method logic proceeds from
the particular to the general
b) Micro & Macro Economics are
interdependent.
c) In a capitalist economy, the economic
problems are solved by planning commission.
d) Higher the prices lower is the quantity
demanded of a product is a normative
statement.
Answer:B
26. Find the correct match:
a) An enquiry into the nature and causes
of the wealth of the nation: A. C. pigou.
b) Science which deals with wealth:
Alfred Marshall.
c) Economics is the science, which studies
human behaviour as a relationship between
ends and scarce means which have
alternative uses: Robbins.
d) The range of our enquiry becomes
restricted to that part of social welfare that
can be brought directly or indirectly into
relation with the measuring rod of money:
Adam Smith.
Answer:C
27. The law of scarcity :
a) Does not –apply to rich, developed
countries
b) Applies only to the less developed
countries.
c) Implies that consumers want will be
satisfied in a socialistic system.
d) Implies that consumer’s wants will never
be completely satisfied.
Answer: D
28. Who expressed the view that
“Economics is neutral between ends”?
a) Robbins
b) Marshall
c) Pigou
d) Adam Smith
Answer: A
general definition of the study of
Economics?
a) Inflation and unemployment in a
growing economy.
b) Business decision making under foreign
completion.
c) Individual and social choice in the face
of scarcity.
d) The best way to invest in the stock
market.
Answer: C
30. What implication(s) dose resource
scarcity has for the satisfaction of wants?
a) Not all wants can be satisfied.
b) We will never be faced with the need
to make choices.
c) We must develop ways too decrease
our individual wants.
d) The discovery of new natural resources
is necessary to increase our ability to satisfy
wants.
Answer: A
31. Rational decision making requires that:
a) One’s choices be arrived at logically
and without error.
b) One’s choices be consistent with one’s
goals.
c) One’s choices never vary.
d) One makes choices that do not involve
trade-offs.
Answer: B
32. Economics, according to Lionel
Robbins , is a _____
a) Normative science.
b) Applied science.
c) Positive science.
d) Experimental science.
Answer: A
33. Which of the following is a normative
statement?
a) Planned economies allocate resources
via government departments.
b) Most transitional economies have
experienced problems of falling output and
rising prices over the past decade.
c) There is a greater degree of consumer
Sovereignty in market economies than
planned economies.

d) Reducing inequality should be a major
priority for mixed economies.
Answer: D
34. Macro economics is also called
economics.
a) Applied
b) Aggregate
c) Experimental
d) None of the above
Answer: B
35. An example of positive ‘economic
analysis would be:
a) An analysis of the relationship between
the price of food and the quantity purchased.
b) Determining how much income each
person should be guaranteed.
c) Determining the ‘fair’ price for food
d) Deciding how to distribute the output
of the economy.
Answer:A
36. Identity the correct statement:
a) In deductive method logic proceeds
from the particular to the general
b) Micro & Macro Economics are
interdependent.
c) In a capitalist economy, the economic
problems are solved by planning commission.
d) Higher the prices lower is the quantity
demanded of a product is a normative
statement.
Answer: B
37. A study of how increases in the
corporate income tax rate will affect the
national unemployment rate is an example of
a) Macro economics.
b) Descriptive economics.
c) Micro economics.
d) Normative economics.
Answer: A
38. Which of the following does not
suggest a macro approach for India?
a) Determining the GNP of India.
b) Finding the causes of failure of X and
co.
c) Identifying the causes of inflation in
India.
d) Analyses the causes of failure of
industry in providing large-scale employment.
Answer: B
39. Economics goods are considered
scarce resources because they
a) Cannot be increased in quantity
b) Do not exist in adequate quantity to
satisfy social requirements,
c) Are of primary important in satisfying
social requirement.
d) Are limited to man made goods
Answer: B
40. From the national point of view which
of the following indicates micro approach?
a) Per capital income of India.
b) Under employment in agricultural
sector.
c) Lock out in TELCO.
d) Total savings in India.
Answer: C
41. In a free market economy the
allocation of resources is determined by
a) Votes taken by consumers.
b) A central planning authority.
c) By consumer preference.
d) The level of profits of firms.
Answer: C
42. A capitalist economy uses…………as
the principal means of allocating resources.
a) Demand
b) Supply
c) Efficiency
d) Prices
Answer:D
43. In a free market economy, when
consumers increase their purchase of a good
and the level of ……. Exceeds………
……………. Then prices tend to rise.
a) Demand, supply
b) Supply, demand
c) Prices, demand
d) Profits, supply
Answer:A
44. Which of the following would be
considered a disadvantage of allocating
resources using a market system?
a) Income will tend to be unevenly
distributed.
b) Significant unemployment may occur.
c) It cannot prevent the wastage of
scarce economic resources.
d) Profits will tend to be low.
Answer: A
45. In a mixed economy,

a) All economic decisions are taken by
the central authority.
b) All economics decisions are taken by
private entrepreneurs.
c) Economic decisions are partly taken by
the state and partly by the private
entrepreneurs.
d) None of the above.
Answer: C
46. The central problem in economics is
that of
a) Comparing the success of command
versus market economies.
b) Guaranteeing that production occurs
in the most efficient manner.
c) Guaranteeing a minimum level of
income for every citizen.
d) Allocating scarce resources in such a
manner that society’s unlimited needs or
wants are satisfied as well as possible.
Answer: D
47. ‘Economics is what Economists do’ is
given by
a) Jacob Viner
b) Henry Smith
c) Pigou
d) Paul A. samuelson
Answer:A
48 Economics may be defined as the science
that explains …………………….
a) The choices that we make as we cope with
scarcity
b) The decisions made by politicians
c) The decisions made by households
d) All human behavior
Answer: A
49. Under inductive method , the logic
proceeds from
a) General to particular
b) Positive to normative
c) Normative to positive
d) Particular to general
Answer:D
50. Which of the following is correct?
a) Normative economics is not concerned
with value judgements .
b) A market is a process that reconciles
consumer decision, production decisions and
labour decisions.
c) A mixed economy has a certain level of
government intervention in the economy
along with private sector ownership of the
economy.
d) (b) and (c).
Answer:D
UNIT – 2
Utility & Demand Analysis: Utility – Meaning, Utility analysis, Measurement of
utility, Law of diminishing marginal utility, Indifference curve, Consumer’s equilibrium
- Budget line and Consumer surplus. Demand - Concept of Demand, Types of Demand,
Determinants of Demand, Law of Demand, Elasticity of Demand, Exceptions to Law
of Demand. Uses of the concept of elasticity. Forecasting: Introduction, Meaning
and Forecasting, Level of Demand Forecasting, Criteria for Good Demand
Forecasting, Methods of Demand Forecasting, Survey Methods, Statistical Methods,
Qualitative Methods, Demand Forecasting for a New Products. (Demand Forecasting
methods - Conceptual treatment only numericals not expected)

PRACTICE PAPER : 1
1. Demand in economic sense means-
(a) mere desire for a commodity
(b) mere ability to pay price of the commodity
(c) mere wiling to pay the price of the commodity
(d) desire backed by ability and willingness to pay
for the commodity desired
Answer:
2. In economics, demand refers to-
(a) quantity demanded at a particular time
(b) quantity demanded backed by ability to pay
(c) quantity demanded of all goods
(d) quantity demanded at a particular price in a
given period of time
Answer:
3. The concept of demand demonstrates that-
(a) demand is always with reference to price
(b) demand is referred to in a given period of time
(c) buyer’s ability and willingness to pay
(d) all the above
Answer:
4. Demand is a
(a) flow concept Le. quantity per unit of time
(b) stock concept
(c) wealth concept
(d) none of the above
5. Demand concept explains the ________
behaviour in response to change in price of a
good.
(a) producer’s
(b) seller’s
(c) consumer’s
Answer:
6. Individual Demand is also called-
(a) industrial demand
(b) market demand
(c) household’s demand
(d) all the above
Answer:
7. ________ means quantity demanded of a good
by a single consumer at various prices per unit of
time.
(a) Market Demand
(b) Individual Demand
(c) Industrial Demand
(d) None of the above
Answer:
8. _______ means the aggregates of the quantities
demanded by all consumers in the market at
different prices per unit of time.
(a) Market Demand
(b) Individual Demand
(c) Industrial Demand
(d) Household Demand
Answer:
9. All but one are the factors which affect
individual demand. Find the odd one out.
(a) Price of related good
(b) Income of the consumer
(c) Tastes and preferences of consumer
(d) Number of consumers in the market
Answer:
10. _________ is a tabular presentation showing
different quantities demanded by buyers at
different levels of prices in a given period.
(a) Supply Schedule
(b) Demand Schedule
(c) Production Schedule
(d) Cost Schedule
Answer:
11. A demand schedule is shown as-
(a) a result of increase in the size of the family
(b) a result of change in tastes and preferences
(c) a function of price
(d) all the above
Answer:
12. Market Demand is the sum total of-
(a) all quantities that producer’s can produce
(b) all quantities actually sold in the market
(c) all quantities demanded by individual
households and consumers
(d) all the above
Answer:
13. Demand of a good of several consumers
when added together is called _______ demand.

(a) individual
(b) market
(c) joint
(d) independent
Answer:
14. When a good can be used to satisfy two or
more wants, it is said to have _______ demand.
(a) composite
(b) competitive
(c) joint
(d) market
Answer:
15. Indirect demand of a good is also known as
_______ demand.
(a) direct
(b) derived
(c) joint
(d) competitive
Answer:
16. Which of the following is a determinant of
Individual Demand?
(a) Cost of production
(b) Nature of commodity
(c) Economic Policies of the Government
(d) Tastes and Preferences of consumers
Answer:
17. Which of the following is NOT the determinant
of demand?
(a) Price of the commodity
(b) Price of related commodities
(c) Income of consumer
Answer:
18. How are APPLES and ORANGES related when
as a result of rise in price of Apples, demand for
Oranges increases?
(a) Substitute goods
(b) Complementary goods
(c) Normal goods
(d) Inferior goods
Answer:
19. If two goods are complementary then rise in
the price of one results in-
(a) rise in demand for the other
(b) fall in demand for the other
(c) rise in demand for both
(d) none of these
Answer:
20. If the demand for CNG increases as price of
petrol increases, the two goods are-
(a) Normal goods
(b) Complementary goods
(c) Substitute goods
(d) Superior goods
Answer:
21. Comforts lies between-
(a) inferior goods and necessaries
(b) luxuries and inferior goods
(c) necessaries and luxuries
22. When price of commodity rises, the demand
for it _______ .
(a) rises
(b) contracts
(c) remain constant
(d) becomes negative
Answer:
23. When the price of petrol goes up, demand for
two-wheelers will-
(a) rise
(b) fall
(c) remain same
(d) none of these
Answer:
24. An increase in the income of a consumer has
effect on demand in general.
(a) no
(b) negative
(c) opposite
(d) positive
Answer:
25. The demand for Scooter and petrol is an
example of _______ demand.
(a) joint
(b) composite
(c) competitive
(d) market
Answer:
26. _______ goods are those goods which are used
for the production of other goods.
(a) Durable
(b) Producer’s
(c) Non-Durable
(d) Consumer’s
Answer:

27. _______ goods are those which are used for
final consumption.
(a) Durable
(b) Producer’s
(c) Non-Durable
(d) Consumer’s
Answer:
28. Bread, Milk, Readymade clothes, T.V., etc. are
examples of _______ goods
(a) perishable
(b) producer’s
(c) consumer’s
(d) inferior
Answer:
29. The goods which cannot be consumed more
than once, like milk are known as _______ goods.
(a) non-durable consumer goods
(b) producer’s
(c) inferior
(d) durable consumer goods
Answer:
30. _______ goods meets only our current
demand.
(a) producers
(b) durable consumer goods
(c) non-durable consumer goods
(d) inferior
Answer:
31. The goods which can be consumed more
than once over a period of time are known as
_______ goods.
(a) non-durable consumer goods
(b) producer’s
(c) durable consumer goods
(d) inferior
Answer:
32. When demand of any good depends upon
the demand of another good, it is said to have
_______ demand.
(a) joint
(b) derived
(c) competitive
(d) direct
33. The total demand for steel in the country
denotes _______ demand.
(a) industry
(b) company
(c) both ‘a’ and ‘b’
(d) autonomous
34. If the demand for a product is independent of
the demand for other goods, it is called as _______
demand.
(a) company
(b) industry
(c) autonomous
(d) derived
35. If the construction activity in housing sector,
infrastructure, etc. rises, the demand for cement
will _______ as it has _______ demand.
(a) rise ; autonomous
(b) fall; autonomous
(c) rise ; derived
(d) none of these
36. Demand for steel produced by Tata Iron and
Steel Company is an example of _______ demand.
(a) industry
(b) company
(c) autonomous
(d) joint
37. When demand of any good reacts
immediately to price changes, income changes,
etc. it is said to have _______ demand.
(a) short-run
(b) long-run
(c) very short run
(d) very long run
38. A relative price is-
(a) price expressed in terms of money
(b) what you get paid for babysitting your cousin
(c) the ratio of one price to another
(d) equal to a money price
39. The quantity demanded of a good or service
is the amount that-
(a) consumer plan to buy during a given period at
a given price.
(b) firms are willing to sell during a given time
period at a given price.
(c) a consumer would like to buy but may not be
able to afford.
(d) is actually bought during a given period at a
given price.
40. Coca-Cola and Thumbs-Up are substitutes. A
rise in the price of Coca-Cola will _______ the
demand of Thumbs-Up and the quantity
demanded of Thumbs-Up will _______ .
(a) increase ; increase
(b) increase;decrease
(c) decrease ; decrease
(d) decrease;increase
41. If the price of Orange Juice falls, the demand
for Apple Juice will _______ .
(a) increase
(b) decrease

(c) remain the same
(d) become negative
42. The demand for consumer goods is a _______
demand.
(a) direct
(b) indirect
(c) constant
(d) company
43. If the price of inferior goods fall, the demand
for them will _______.
(a) rise
(b) fall
(c) remain constant
(d) become zero
44. The Law of Demand states _______ relation
between demand and price of a commodity.
(a) a direct
(b) positive
(c) an indirect
(d) no
45. When total demand for a commodity whose
price has fallen increases, it is due to
(a) income effect
(b) substitution effect
(c) complementary effect
(d) price effect
46. With a fall in the price of a commodity
(a) Consumer’s real income increases
(b) Consumer’s money income increases
(c) Consumer’s real income falls
(d) Consumer’s money income falls
47. When we draw a market demand curve, we
_______.
(a) do not consider tastes, incomes and all prices
(b) assume that tastes, incomes and all other
prices change in the same way price changes
(c) assume that tastes, incomes and all other
prices are irrelevant
(d) assume that tastes, incomes and all other
prices remain the same
48. All but one of the following are assumed to
remain the same while drawing individual’s
demand curve for a commodity. Which are is it?
(a) The tastes and preferences of the consumer
(b) Income of consumer
(c) The price of the commodity
(d) The prices of related commodities
49. A fall in price of a commodity leads to _______.
(a) a shift in demand curve
(b) a rise in consumer’s real income
(c) a fall in demand
50. If a fall in price of ‘y’ results in a decrease in
the sale of ‘x’, the two good appear to be-
(a) substitute goods
(b) complementary goods
(c) inferior goods
(d) neutral goods
PRACTICE PAPER : 2
51. Which of the following is not a complementary
good for pen?
(a) refills
(b) paper
(c) notebook
(d) rice
52. _______ goods are the goods which can be
used with equal case in place of each other.
(a) Neutral
(b) Normal
(c) Complementary
(d) Substitute
53. Which of the following pairs of goods are an
example of substitutes?
(a) Tea and Sugar
(b) Tea and Coffee
(c) Pen and Ink
(d) Shirt and Trouser
54. When the price of a substitute of good ‘X’ falls,
the demand for good ‘X’
(a) rises
(b) falls
(c) remains unchanged
(d) None of these
55. If the demand rises with the rise in consumer’s
real income, such a good is called _______.
(a) Normal goods
(b) Neutral goods
(c) Inferior goods
(d) Luxury goods
56. Giffen goods are-
(a) Normal goods
(b) Inferior goods
(c) Luxury goods
(d) Neutral goods
57. As the consumer’s income increases, the
demand for necessaries of life will increase
_______ to the increase in income.
(a) Less than proportionate
(b) More than proportionate
(c) Proportionate
(d) Nothing can be said

58. As the consumer’s income increases, the
demand for comforts and luxuries will increase
_______ to the increase in income.
(a) Less than proportionate
(b) More than proportionate
(c) Proportionate
(d) Nothing can be said
59. During boom period in economy, the demand
for goods in general _______.
(a) rises
(b) falls
(c) remains same
(d) none of these
60. Larger the size of population of a country
_______ is the demand for goods and services in
general.
(a) lower
(b) ineffective
(c) neutral
(d) higher
61. In case the consumer expects a steep rise in
price of Potatoes in future, his current demand for
it will _______.
(a) remain same
(b) fall
(c) rise
62. All but one of the good’s demand is not
affected by changes in weather conditions-
(a) Ice-cream
(b) Woollen clothes
(c) Cold drinks
(d) Wheat
63. If the government increase the rate of indirect
taxes on goods and services, the demand for
then will _______ in general.
(a) rise
(b) fall
(c) remain neutral
(d) be ineffective
64. If the government reduces the tax on any pro-
duct, the demand for the product _______ in the
short run.
(a) rises
(b) falls
(c) remain unchanged
(d) tax has nothing to do with the demand of any
product
65. If the demand for petrol remains unchanged
with rise in its price, it means petrol is a _______
(a) Normal good
(b) Necessity
(c) Luxury good
(d) Inferior good
66. If quantity demanded of good ‘X’ is plotted
against the price of its substitute good ‘Y’, the
demand curve will be-
(a) Vertical Straight line
(b) Positively sloped
(c) Horizontal Straight line
(d) Negatively sloped
67. Consider the following figure:
In the above figure, RS part of the demand curve
represents-
(a) Superior good
(b) Inferior good
(c) Normal good
(d) Giffen’s good
68. In case of normal goods the income effect is
_______
(a) zero
(b) negative
(c) positive
(d) constant
69. Income effect on demand of a good is
_______.
(a) positive for normal goods
(b) always positive
(c) negative for normal goods
(d) always negative
70. The Law of Demand is explained by-
(a) Cardinal approach
(b) Ordinal approach
(c) Both ‘a’ and ‘b’
(d) Neither ‘a’ nor ‘b’
71. The Law of Demand refers to functional
relation between-
(a) Price & Supply
(b) Price & Cost
(c) Price & Income
(d) Price & Demand
72. The term “Ceteris Paribus” in the Law of
Demand means-
(a) All factors except one remain constant

(b) All factors remain constant
(c) All factors are variable
73. Which of the following is a variable and
influencing factor in the Law of Demand?
(a) Consumer’s Income
(b) Consumer’s Tastes and Preferences
(c) Price of related goods
(d) Price of the good
74. The phrase “Other things being equal” in the
Law of Demand means-
(a) Income of the consumer remain unchanged
(b) Price of related goods remain unchanged
(c) Tastes and Preferences of consumer remain
unchanged
(d) All the above
75. The total effect of price change of a good is-
(a) Substitution Effect + Income Effect
(b) Substitution Effect + Price Effect
(c) Substitution Effect + Demonstration Effect
(d) Demonstration Effect + Veblen Effect
76. Substitution Effect subscribe to the inverse
relation between Px and Qx in case of-
(a) normal goods only
(b) inferior goods only
(c) normal and inferior goods both
77. Income Effect does not subscribe to the
inverse relation between Px and Qx in case of-
(a) both normal and inferior goods
(b) inferior goods
(c) normal goods
78. The Law of Demand will fail in case of inferior
goods only if-
(a) Substitution Effect is greater than Income
Effect
(b) Income Effect is greater than’Substitution
Effect
79. The Law of Demand is a _______ statement.
(a) Positive
(b) Normative
(c) Descriptive
(d) Both ‘a’ and ‘c’
80. _______ refers to the effect of change in the
price of a product on the consumer’s purchasing
power.
(a) Real Income Effect
(b) Substitution Effect
(c) Consumer’s Surplus
81. When the price of Thumbs-up falls, other things
being constant, buyers substitute Thumbs-up for
Coca-Cola. This is called-
(a) Price Effect
(b) Substitution Effect
(c) Income Effect
(d) Veblen Effect
82. _______ refers to the buyer’s reaction to a
change in the relative prices of two products,
keeping the total utility constant.
(a) Consumer’s Surplus
(b) Income Effect
(c) Substitution Effect
83. The Law of Demand can be explained by-
(a) The Law of Diminishing Marginal Utility
(b) Indifference Curves
84. Consumers buy a good till Px = MUx. If the
price falls, the consumer will reach equilibrium-
(a) at a lower quantity
(b) at a higher quantity
(c) at zero quantity level
(d) all the above
85. “Petrol is becoming cheaper, yet the demand
for cars is not rising”. This statement indicates that-
(a) The Law of Demand is not operative for cars
(b) The Law of Demand is operative for petrol
(c) The Demand Curve for cars will shift
(d) All the above
86. Downward slope of the demand curve shows-
(a) positive relationship between price and
quantity demanded
(b) inverse relationship between price and
quantity demanded
(c) no relationship between price and quantity
demanded
87. In case of NORMAL GOODS, demand curve
shows:
(a) a negative slope
(b) a positive slope
(c) zero slope
(d) none of these
88. Law of Demand fails in case of –
(a) normal goods
(b) Giffen goods
(c) inferior goods
(d) both ‘b’ and ‘c’
89. In case of Giffen’s Paradox, the slope of the
demand curve is-
(a) parallel to X-axis

(b) positive
(c) negative
(d) parallel to Y-axis
90. A Giffen good is one for which a small change
in price results in-
(a) zero income effect out weighted by a positive
substitution effect
(b) zero income effect being equal to zero
substitution effect
(c) negative income effect out weighed by a
positive substitution effect
(d) none of these
91. The Law of Demand indicates the
(a) direction of change in demand of a
commodity
(b) magnitude/amount of change in demand of
a commodity
(c) both ‘a’ and ‘b’
(d) elasticity of demand
92. In case of Giffen goods, demand varies
_______ with the price.
(a) inversely
(b) directly
(c) proportionately
(d) none of these
93. Analysis of the relationship between demand
of a commodity and prices of related
commodities is-
(a) Price Demand analysis
(b) Income Demand analysis
(c) Cross Demand analysis
(d) Market Demand analysis
94. _______ observed that when the price of
inferior goods fall, the demand for such goods
also fall.
(a) Adam Smith
(b) Dr. Alfred Marshall
(c) Ragnar Frisch
(d) Sir Robert Giffens
95. The Law of Demand was propounded by
_______ in his book ‘Principles of Economics’.
(a) Lord Keyens
(b) Adam Smith
(c) Dr. Alfred Marshall
(d) Ragnar
96. The tendency of low income group to imitate
the consumption pattern of high income group is
known as _______ effect.
(a) Demonstration
(b) Copy
(c) Prestige
(d) Veblen
97. The Law of Demand is applicable for _______.
(a) Giffen’s Goods
(b) Prestige Goods
(c) Necessary Goods
(d) Normal Goods
98. When price changes and proportionate
change in market demand is more than
proportionate change in individual demand
implies that the market demand curve is _______
than the individual demand curves.
(a) Steeper
(b) Flatter
(c) Vertical
99. A positively sloped demand curve implies
(a) Violation of the law of demand
(b) Giffen good
(c) Income effect is negative and greater than
substitution effect
(d) All the above
100. An increase in consumer’s income will
increase demand for a _______ but decrease
demand for a _______.
(a) substitute good; inferior good
(b) normal good ; inferior good
(c) substitute good ; complementary
PRACTICE PAPER : 3
101. When the quantity of a good that a buyer
demands rises when there is growth of purchases
by other individuals, such an effect is called
_______
(a) Bandwagon Effect
(b) Snob Effect
(c) Veblen Effect
102. When the quantity of a commodity that an
individual buyer demand falls in response to the
growth of purchases by other buyers, such an
effect is called _______
(b) Snob Effect
(c) Veblen Effect
103. Some buyer’s demand more of certain
commodities at a higher price, such an effect is
called _______.
(b) Snob Effect
(c) Veblen Effect
104. The market demand curve in case of Veblen
Effect is _______.
(a) steeper

(b) flatter
(c) vertical
(d) horizontal
105. The market demand curve in case of
Bandwagon Effect is _______.
(a) less elastic
(b) steeper
(c) flatter
(d) horizontal
106. The market demand curve in case of Snob
Effect is _______.
(a) flatter
(b) steeper
(c) less elastic
(d) both ‘b’ and ‘c’
107. A downward sloping Engel Curve shows –
(a) Normal goods
(b) Inferior goods
(c) Substitute goods
(d) Complementary goods
108. Assume that the market demand curve for
Dinshaw Ice cream is known and given to us. With
summer setting in, price remaining the same the
consumers would –
(a) shift to a lower demand curve leftward
(b) move upward along the same demand curve
(c) shift to a higher demand curve rightward
(d) move downward along the same demand
curve
109. An exceptional demand curve is one that
slopes-
(a) upward to the right
(b) downward to the right
(c) upward to the left
(d) horizontal
110. What will be the impact on the demand
curve of CARS when the price of petrol rises?
(a) There will be downward movement on
demand curve
(b) Demand curve will shift to left
(c) There will be an upward movement on
demand curve
(d) Demand curve will shift to right
curve of DESKTOP COMPUTERS when the price of
LAPTOPS increase?
(a) There will be downward movement on
demand curve
(b) Demand curve will shift to left
(c) There will be an upward movement on
demand curve
(d) Demand curve will shift to right
curve of SUGAR with increase in its price?
(a) Downward movement along the demand
curve
(b) Leftward shift of the demand curve
(c) An upward movement along the demand
curve
(d) Rightward shift of the demand curve
113. The demand for TROUSERS will lead to _______
due to change in the preference in favour of
JEANS.
(a) Extension in Demand of trousers
(b) Increase in Demand of trousers
(c) Contraction in Demand of trousers
(d) Decrease in Demand in trousers
114. The demand curve for BAJRA will when a
poor person’s income rises.
(a) shift to the right
(b) shift to the left
(c) be downward sloping
115. Match the following—
116. If more is demanded at the same price or the
same quantity is demanded at a higher price, it is
known as-
(a) Extension of Demand
(b) Contraction of Demand
(c) Increase in Demand
(d) Decrease in Demand
117. A downward movement along the same
demand curve means –
(a) more is demanded when the price of good
falls
(b) more is demanded at the same price
(c) less is demanded at the same price
(d) less is demanded when the price of good rises
118. A leftward shift of the demand curve shows-
(a) more is demanded at the same price
(b) less is demanded when the price of good rises
(c) less is demanded at the same price

(d) more is demanded when the price of good
falls
119. When same quantity of a good is demanded
at a lower price, it is known as-
(a) Extension of Demand
(b) Increase in Demand
(c) Contraction of Demand
(d) Decrease in Demand
120. When less quantity is demanded as the price
of good rises, there is ________.
(a) Downward movement along the demand
curve
(b) Leftward shift of the demand curve
(c) An upward movement along the demand
curve
(d) Rightward shift of the demand curve
For Q. Nos. 121 to 124 refer the following demand
equation Q = 180 – 6p
121. At what price no one would be willing to buy
the commodity?
(a) Rs. 20
(b) Rs. 30
(c) Rs. 40
(d) Rs. 15
122. If the commodity is given free Le. if the
demand is autonomous, what is the quantity
demanded?
(a) 180
(b) 160
(c) 140
(d) 120
123. If the price of the commodity falls down to Rs.
1, by how much will the quantity demanded
change?
(a) 6
(b) 5
(c) 12
(d) 10
124. The total quantity demanded when the price
is Rs. 1 p.u. is-
(a) 180
(b) 174
(c) 190
(d) 186
For Q. Nos. 125 to 127 refer the following demand
equation
Qx = 12 – 2 Px
125. What would be the quantity demanded at a
price of Rs. 3?
(a) 4 units
(b) 5 units
(c) 6 units
(d) 8 units
126. What would be the price when quantity
demanded is zero?
(a) Rs. 8
(b) Rs. 4
(c) Rs. 5
(d) Rs. 6
127. What would be the quantity demanded
when the price is zero?
(a) 12 units
(b) 10 units
(c) 22 units
(d) 20 units
128. The demand function of a commodity ‘X’ is
given by Qx = 20 – 3 Px. What would be he value
of Px when the corresponding value of Qx = 14.
(a) Rs. 5
(b) Rs. 4
(c) Rs. 3
(d) Rs. 2
129. At a price of Rs. 10 p.u. the market demand
of a commodity is 58 units, out of which consumer
‘A’ has purchased 20 units and consumer ‘B’ has
purchased 10 units. How much quantity consumer
‘C’ has purchased?
(a) 28 units
(b) 26 units
(c) 24 units
(d) 22 units
130. The linear demand function is given as- Q =
80 – 20 P. Derive the market demand function
when there are 100 consumers in the market.
(a) Q = 8000 – 20 P
(b) Q = 80 – 2000 P
(c) Q = 8000 – 2000 P
131. All but one can be referred as Variations in
Demand. Which one is not variation in demand?
(a) Movement along the same demand curve
(b) Shifting of demand curve
(c) Changes in the Quantity Demanded
(d) Expansion and Contraction of Demand
132. In case of Expansion and Contraction of
Demand, the demand curve-
(a) shifts to the right
(b) shifts to the left
(c) remains the same
133. A movement along the demand curve
means-
(a) expansion of demand
(b) contraction of demand

(c) changes in the quantity demanded
(d) all the above
134. Change in the demand of a commodity due
to the factors other than price is known as-
(a) Increase and Decrease in Demand
(b) Changes in Demand
(c) Shift in Demand
(d) All the above
135. Increase in demand leads to-
(a) Leftward shift of the demand curve
(b) Rightward shift of the demand curve
(c) Upward movement on the same demand
curve
(d) Downward movement on the same demand
curve
136. Which of the following would result in the
shifting of the demand curve?
(a) Increase in the tax on shoes
(b) Growth in the size of population
(c) Changes in weather conditions
(d) All the above
137. Shift in demand does not take place due to-
(a) Change in consumer’s tastes and preferences
(b) Advertisement
(c) Trade conditions
(d) Change in the price of the commodity
138. A rightward shift in the demand curve for
Bread would be predicted from-
(a) A decrease in the number of breakfast eaters
(b) A change in tastes
(c) A fall in the price of Bread
(d) A rise in the price of Corn Flakes
139. Consider the following demand curve-
State whether-
(a) The two goods are complementary
(b) The two goods are substitutes
(c) The two goods are not related
140. Consider the following figure-
It shows-
(a) Inferior goods
(b) Giffen goods
(c) Normal or Superior goods
(d) All the above
Demand
It shows demand curve for-
(a) Necessities
(b) Comforts and Luxuries
(c) Inferior Goods
(a) Necessities
(c) Inferior Goods
(a) Necessities

(c) Inferior Goods
144. Which of the following is shown in the figure?
(a) An increase in demand
(b) Indifference Curve
(c) Supply Curve
145. Other things being equal a decrease in
demand can be caused by-
(a) A rise in the price of the commodity
(b) A rise in the income of the commodity
(c) A fall in the price of the commodity
(d) A fall in the income of the consumer
146. A rational consumer is a person who
(a) behaves judiciously all the time
(b) is not influenced by the advertisement
(c) knows the prices of goods in different markets
and buy the cheapest
(d) has perfect knowledge of the market
147. A normal demand curve of a commodity-
(a) is vertical straight line curve
(b) has a negative slope
(c) is horizontal straight line curve
(d) has a positive slope
148. If the quantity demanded of a commodity is
plotted against the price of a substitute goods
ceteris paribus the curve is expected to be-
(a) Vertical
(b) Negatively sloped
(c) Horizontal
(d) Positively sloped
149. Income effect operates when there is an-
(a) increase in real income due to fall in price of
the commodity
(b) increase in real income due to rise in price of
the commodity
(c) increase in real income due to rise in demand
of the commodity
(d) increase in money income due to fall in the
price of the commodity
150. Who explained the abnormal shape of
demand curve for diamonds through the doctrine
of conspicuous consumption?
(a) Thorstein Veblen
(b) Robert Giffen
(c) David Ricardo
(d) Alfred Marshall
PRACTICE PAPER : 4
151. Conspicuous good are also known as -
(a) prestige goods
(b) snob goods
(c) Veblen goods
(d) all the above
152. Elasticity of demand is defined as the
responsiveness of the quantity demanded of a
good to changes in
(a) price of the commodity
(b) price of related goods
(c) income of the consumer
(d) all the above
153. ________ was the economist to formulate the
concept of price elasticity of demand.
(a) Alfred Marshall
(b) Adam Smith
(c) Paul Samuelson
(d) Edwin Cannon
154. The concept of Elasticity of Demand
whenever referred unless otherwise specified
always means-
(a) Price Elasticity of Demand
(b) Income Elasticity of Demand
(c) Cross Elasticity of Demand
(d) All the above
155. The concept of price elasticity of demand
analyses-
(a) direction of change in response to change in
(b) degree of change in response to change in
(c) absolute change in response to change in
(d) none of these
156. When there is no change in quantity
demanded in response to any change in price, it
is a situation of-
(a) infinite price elasticity
(b) unitary price elasticity
(c) zero price elasticity
(d) high price elasticity
157. Price Elasticity of Demand is defined as-
(a) Change in quantity demanded ÷ Change in
Price
(b) % Change in quantity demanded ÷ % Change
in Price
(c) Change in quantity demanded ÷ % Change in
Price

(d) % Change in quantity demanded ÷ Change in
Price
158. Price Elasticity of Demand is given by-
159. When percentage change demand is less
than percentage change in price, demand is-
(a) perfectly elastic
(b) perfectly inelastic
(c) less than unitary elastic
(d) more than unitary elastic
160. When percentage change in demand is
equal to percentage change in price, demand is-
(b) unitary elastic
(c) perfectly inelastic
(d) more elastic
161. Price Elasticity of demand is always because
of relationship between price and quantity
demanded
(a) negative ; inverse
(b) positive ; direct
(c) negative ; positive
(d) positive ; inverse
162. Coefficient of price elasticity of demand
ranges from to
(a) one ; infinity
(b) zero ; infinity
(c) zero ; one
163. When there is an infinite demand at a
particular price and demand becomes zero with
a slight rise in the price then
(a) demand by commodity is perfectly elastic
(b) Ed = ∞
(c) demand curve is horizontal straight line
parallel to X-axis
(d) all the above
164. When percentage in quantity demanded is
more than percentage change in price then
(a) demand of commodity is highly elastic
(b) Ed > 1 and demand curve is flatter
(c) Ed < 1 and demand curve is steeper
(d) Only ‘a’ and ‘b’ 1
165. When demand curve is parallel to X-axis,
elasticity of demand is-
(a) unity
(b) zero
(c) greater than unity
(d) infinity
166. Which curve is called rectangular hyperbola?
(a) Highly Elastic Demand Curve
(b) Less Elastic Demand Curve
(c) Unitary Elastic Demand Curve
167. When demand curve is parallel to Y-axis,
(a) unity
(b) zero
(c) less than unity
(d) more than unity
168. As the demand curve becomes flatter and
flatter, the elasticity of demand becomes-
(a) higher
(b) lower
(c) equal to infinity
(d) equal to zero
169. When the demand for a commodity does not
change with the increase in its price from Rs. 2 to
Rs. 5, then elasticity of demand is
(a) E = ∞
(b) Ed = 0
(c) Ed < 1
(d) Ed > 1
170. Slope of perfectly elastic demand curve is
equal to ________
(a) 0
(b) 1
(c) 2
(d) 3
171. On all points of a rectangular hyperbola
demand curve, elasticity of demand is –
(a) equal to one
(b) zero
(c) more than one
(d) less than one
172. When slope of demand curve = 0, the
(a) 0
(b) 1
(c) oo
173. To say that the demand for a commodity is
elastic means-
(a) That the demand curve slopes downward to
the right
(b) That more is sold at a lower price
(c) That a rise in price will increase total revenue
(d) That the change in quantity sold is
proportionately greater than the change in price

174. A demand curve is perfectly inelastic if-
(a) a rise in price causes a fall in quantity
demanded
(b) a fall in price causes rise in sellers total receipts
(c) the commodity in question is very perishable
(d) a change in price does not change quantity
demanded
175. When the demand curve is vertical straight
line, demapd is-
(b) perfectly inelastic
(c) relatively elastic
(d) relatively inelastic
176. For goods with perfectly inelastic demand-
(a) ∆q = 0
(b) ∆q < ∆p
(c) ∆q = ∆p
(d) ∆p = 0
177. For goods with less elastic demand-
(a) ∆q > ∆p
( b) ∆q = ∆p
(c) ∆q < ∆p
178. If the demand of a commodity is less elastic
the demand curve will be-
(a) Horizontal line
(b) Vertical line
(c) Downward sloping to the right, flatter
(d) Downward sloping to the right, steeper
179. Rectangular hyperbola is also called-
(a) Equilateral Hyperbola
(b) Vertical Line
(c) Square
(d) Horizontal Line
180. The factor which generally keeps the price
elasticity of demand for a good low is-
(a) Variety of uses of that good
(b) Its low price
(c) Close – substitutes for that good
(d) High proportion of the consumer’s income
spent on it
181. If you spend more on rent than on soap, your
price elasticity of demand for housing is likely to
be-
(a) greater than your price elasticity of demand
for soap
(b) less than your price elasticity of demand for
soap
(c) equal to your price elasticity of demand for
soap
182. The demand for common salt has low price
elasticity because-
(a) it has no close substitute
(b) it is necessity
(c) it constitutes only a small proportion of
consumer’s expenditure
(d) all the above
183. The devaluation of currency would increase
the export earnings only when demand for the
nation’s exports in foreign market is-
(a) Elastic
(b) Inelastic
(c) Perfectly Inelastic
(d) Unitary Elastic
184. The demand for sugar and tea is usually:
(a) Elastic
(b) Inelastic
(c) Perfectly elastic
(d) Perfectly inelastic
185. Availability of close substitutes makes the
demand-
(a) Less elastic
(b) More elastic
(c) Perfectly elastic
(d) Perfectly inelastic
186. Elasticity is greater than unity for-
(a) necessaries
(b) luxuries
(c) complementary goods
(d) inferior goods
187. Complementary goods exhibit ________
elasticity of demand.
(a) low
(b) high
(c) unitary
188. All but one of the following commodities has
elastic demand. Which one has inelastic
demand?
(a) Coca-Cola
(b) Butter for poor person
(c) Cigarettes
(d) Electricity
189. Demand is ________ in the long period than in
the short period.
(a) less elastic
(b) perfectly elastic
(c) perfectly inelastic
(d) more elastic
190. The demand for necessities is ________
(a) Highly elastic
(b) Highly inelastic
(c) Slightly elastic
(d) Slightly inelastic

191. If the demand for a commodity is ________,
the entire burden of indirect tax will fall on the
consumer.
(a) Relatively inelastic
(b) Perfectly inelastic
(c) Relatively elastic
(d) Perfectly elastic
192. Which of the following helps the manager to
estimate the demand of a commodity?
(a) Price of the commodity
(b) Price of the substitute commodities
(c) Elasticity of the commodity
(d) All the above
193. The price elasticity of demand for a face
cream is estimated to be ONE, no matter what
the price or quantity demanded. In this case-
(a) a 1096 increase in price will result in 1096
increase in quantity demanded
(b) a 1096 increase in price will result in 1096 fall in
quantity demanded
(c) an increase in price will increase the seller’s
revenue
194. If demand is ________ then price cuts will
________ spending.
(a) perfectly inelastic ; increase
(b) elastic; increase
(c) elastic; decrease
195. Suppose the demand for Dosa at Dosa Plaza
is elastic. If the owner of the restaurant is
consid¬ering raising the price, it can expect
relatively-
(a) large fall in quantity demanded
(b) large fall in demand
(c) small fall in quantity demanded
(d) small fall in demand
196. If a 1096 rise in the price of a commodity
causes the demand to fall by 2096
(a) demand was inelastic
(b) demand was infinitely elastic
(c) demand was elastic
197. On typical straight line demand curve, the
elasticity of demand at a point where it meets the
price axis is-
(a) 2
(b) 0.75
(c) 1
(d) infinite
198. On a straight line demand curve the elasticity
of demand at the mid-point of the curve is-
(a) 1/2
(b) 2
(c) 0
(d) 1
199. To measure price elasticity over large
changes in price we use ________
(a) point elasticity method
(b) arc elasticity method
(c) income elasticity method
200. If the demand for a good is elastic, an
increase in its price will cause the total
expenditure of the consumers of the good to
(a) Remain the same
(b) Increase
(c) Decrease
(d) None of these
PRACTICE PAPER : 5
201. When the price of Good ‘X’ goes up by 1096
its demand falls from 800 units to 600 units. What is
the price elasticity of Good ‘X?
(a) – 2.5 with flatter demand curve
(b) 2.5 with flatter demand curve
(c) – 1.5 with steeper demand curve
(d) 1.5 with steeper demand curve
202. The demand by a consumer for a commodity
falls by 1096 when its price increases from Rs. 5 to
Rs. 6 per unit. What is the price elasticity of
demand?
(a) unitary elastic
(b) 0.5
(c) .8
(d) 1.5
203. 30 units of a commodity is purchased by a
consumer at the price of Rs. 46 per unit. When the
price rises to Rs. 50 per unit, he buy 15 units only.
The co-efficient of elasticity do demand is –
(a) 4.75
(b) 5
(c) 5.75
(d) 6
204. A consumer spends Rs. 40 on a good at a
price of Rs. 1 per unit and Rs. 60 at a price of Rs. 2
per unit. The elasticity of demand is-
(a) 0.25
(b) 2.5
(c) .35
(d) 3.5
205. A consumer buy 20 units of a good at ? Rs. 10
p.u. The price elasticity of demand of this good is -
1. How much quantity would be demanded by

the consumer when the PRICE FALLS to Rs.8 p.u.?
(a) 21 units
(b) 22 units
(c) 23 units
(d) 24 units
206. A consumer buy 40 units of a commodity at
Rs. 5 per unit. Its Ed = -3. How much demand of
quantity he will buy at Rs. 6 per unit?
(a) 15 units
(b) 16 units
(c) 17 units
(d) 18 units
207. The market demand of a commodity at Rs. 4
per unit is 100 units. The price RISES and as a result
its market demand falls to 75 units. If Ed = -1, find
out its new price.
(a) Rs. 5
(b) Rs. 6
(c) Rs. 7
(d) Rs. 8
208. A consumer buy 80 units of a commodity at
Rs. 4 per unit. When the price FALLS, he buy 100
units. If Ed = -1, the new price will be-
(a) Rs. 3.5
(b) Rs. 3
(c) Rs. 2.5
(d) Rs. 2
209. Demand for good ‘X’ is perfectly inelastic.
What will be the change in demand if price falls
from Rs. 10 per unit to Rs. 5 per unit?
(a) No change in demand
(b) Large change in demand
(c) Medium change in demand
210. What happens to total expenditure on a
commodity when its price falls and its demand is
price elastic?
(a) Total expenditure will remain constant
(b) Total expenditure will fall
(c) Total expenditure will increase
211. As the price of a product falls by 7%, the total
expenditure on it has gone up by 3.5%. The
elasticity of demand of this product is-
(a) Ed = 0
(b) Ed > l
(c) Ed < 1
(d) Ed = 1
212. Let Qx = 1400/p Find, total expenditure on
good ‘X’ when Px falls from Rs. 6 to Rs. 1 ; derive
the value of Ed and what shape the demand
curve will take?
(a) Rs. 1400 ; Ed = 1 and rectangular hyperbola
(b) Rs. 1400 ; Ed < 1 and steep demand curve
(c) Rs. 1400 ; Ed > 1 and flatter demand curve
(d) Rs. 2800 ; Ed = 1 and rectangular hyperbola
213. The demand of a commodity was 100 units
initially. With the rise in price by Rs. 5, the quantity
demanded falls by 5 units. Elasticity of demand is
1.2. Find out the price BEFORE the change in
demand.
(a) Rs. 100
(b) Rs. 140
(c) Rs. 120
(d) Rs. 160
214. Regardless of changes in its price, if the
quantity demanded of a good remains constant,
then the demand curve for the good will be-
(a) horizontal
(b) vertical
(c) positively sloped
(d) negatively sloped
215. The total revenue of the seller will increase
with a fall in price if-
(a) demand is unitary
(b) the percentage change in quantity
demand¬ed is less than percentage in price
(c) demand is inelastic
(d) the percentage in quantity demanded is
greater than the percentage change in price
216. Point elasticity is useful for which of the
following situations?
(a) A restaurant is considering increasing the price
of dosa from Rs. 100 to Rs. 200
(b) Lakme is considering lowering the price of its
lipsticks by 50%
(c) Maruti Car Ltd. lower the price of Alto 800 by
Rs. 1,000
217. If there are finite change in price and
quantity demanded over a stretch on the
demand curve, it is called-
(a) Arc elasticity
(b) Point elasticity
(c) Average elasticity
(d) Both ‘a’ and ‘c’
218. The formula used in the Arc Elasticity method
is-

219. When price elasticity at a single point on a
demand curve is measured, we use ____
(a) Proportionate Method
(b) Geometric Method
(c) Total Expenditure Method
(d) Arc Elasticity
220. The exact and precise co-efficient of
elasticity cannot be found by _____ method.
(d) Arc Elasticity
221. ____ method only classifies elasticity into
elastic, inelastic or unitary elastic.
(d) Arc Elasticity
222. Slope of a demand curve may remain
constant but elasticity still can does change. This
is-
(a) Absolutely correct as slope of a curve and its
elasticity are not the same thing
(b) Absolutely incorrect as slope of a curve and its
elasticity are same thing
(c) Partly correct and partly incorrect
223. Let slope of demand curve = -0.5. The
elasticity of demand will be ____ if initial price is Rs.
20 per unit and initial quantity is 50 units of the
commodity
(a) – 0.6
(b) – 0.7
(c) – 0.8
(d) – 0.9
For Q. Nos. 224 to 226 refer the following
information. Given –
2
24. What is the price of the commodity when
Quantity Demanded is 20 units ?
(a) Rs. 4
(b) Rs. 5
(c) Rs. 6
(d) Rs. 7
225. What is the price of the commodity when the
Quantity Demanded is 30 units?
(a) Rs. 4
(b) Rs. 5
(c) Rs. 6
(d) Rs. 7
226. Using percentage method, the price
(a) 1.5
(b) 2.0
(c) 2.5
(d) 3.0
227. Life saving drugs has ____ demand.
(a) inelastic
(b) elastic
(c) perfectly elastic
(d) perfectly inelastic
228. The price elasticity of demand is 0.5. The
percentage change in quantity is 4. What is the
percentage in price?
(a) 6
(b) 8
(c) 10
(d) 12
229. When price of a commodity gets doubled, its
quantity demanded is reduced to half. The
coefficient of price elasticity of demand will be-
(a) – 1
(b) – 0.5
(c) – 1.5
(d) – 2
230. Calculate the price elasticity of demand-
Price Total Expenditure ( Rs.)
50 5000
60 6000
(a) – 1
(b) – 2
(c) – 2.5
(d) – 1.5

231. The price elasticity of demand for good ‘X’ is
twice that of good ‘Y’. Price of ‘X’ falls by 5%
while that of good ‘Y’ rises by 5%. The percentage
change in the quantities demanded of X and Y
will be
(a) 10% and 5%
(b) 5% and 10%
(c) 10% and 15%
(d) 15% and 20%
232. A consumer buys a certain quantity of a
good at a price of Rs. 10 per unit. When the price
falls to Rs. 8 per unit, he buys 40% more quantity.
The price elasticity of demand will be-
(a) 8
(b) 6
(c) 4
(d) 2
Consider the following diagram to answer
questions from 233 to 234
233. At a price of OP the total expenditure of the
consumer is-
(a) OC RP1
(b) OBTP
(c) BCRT
234. At a price of OP1 the total expenditure of the
consumer is-
(d) OC RP1
(b) OBTP
(c) BCRT
235. All demand curves but one indicate same
elasticity of demand at all their points-
(a) Horizontal Straight Line Demand Curve
(b) Vertical Straight Line Demand Curve
(c) Relatively Elastic Demand Curve
(d) Rectangular Hyperbola
236. The point where the downward sloping
straight line demand curve intercept the
horizontal axis, price elasticity of demand is ____
because price at the point is ____
(a) zero ; zero
(b) = 1; zero
(c) > 1 ; zero
(d) < 1 ; zero
237. If the price elasticity of demand is ZERO, it
means expenditure on the commodity may ____
with the change in price of the commodity.
(a) increase
(b) decrease
(c) increase or decrease
(d) remain constant
238. The price elasticity of demand is higher, when
the price of the commodity is-
(a) higher
(b) lower
(c) constant
(d) zero
239. If 10% increase in price of good ‘X’ causes a
10% increase in expenditure on good ‘X’, elasticity
of demand is equal to ____
(a) 2
(b) 3
(c) 1
(d) zero
240. Price of the commodity increases from Rs. 10
to Rs. 12 per unit and expenditure on the
commodity increases by 20%, elasticity of
demand would be-
(a) 3
(b) zero
(c) 2
(d) 1
241. The income elasticity of demand in case of
an inferior good is-
(a) positive
(b) zero
(c) negative
(d) infinite
242. If a good is a luxury, its income elasticity of
demand is-
(a) positive & less than one
(b) negative but greater than one
(c) positive and greater than one
(d) zero
243. When a given change in income does not
lead to any change in the quantity demanded, it
is called as-
(a) negative income elasticity of demand
(b) income elasticity of demand less than one
(c) zero income elasticity of demand
(d) income elasticity of demand is greater than
one
244. The goods having zero income elasticity of
demand are called goods.
(a) luxury
(b) comfort
(c) necessity
(d) neutral

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