MICROECONOMICS

MOCK QUESTION PAPER SET- 2

1. A good that can be consumed simultaneously by everyone and from which no one can be excluded is a
(a) Non-rival good
(b) Private good
(c) Rival good
(d) Public good
Answer: D
2. A good for which one person’s consumption decreases the quantity available for others is a
(a) Non-excludable good
(b) Private good
(c) Non-rival good
(d) Public good
Answer: B
3. One person’s rental of the movie “Pearl Harbor” prevents someone else from renting. This is the example of
(a) Non-rival nature of consumption
(b) Public good
(c) Non-excludable good
(d) Rival nature of consumption
Answer: D
4. The free-rider problem is caused by
(a) Goods or services that are excludable and cause envy for those who do not have them
(b) Public good that people cannot excluded from consuming even if they do not pay for them
(c) Goods or services that are rival and leave some people without them
(d) Private goods or services that cause some people to want to take them for free.
Answer: B
5. A budget line
(a) Describes the limits to consumption choices, given the income of the consumer and the prices of goods
and services
(b) Keeps the budgets of all consumers in line with their needs
(c) Shows the satisfaction people get from their budget
(d) Has a positive slope
Answer: A
6. An increase in a consumer’s budget will
(a) Rotate the budget line outward around the point where it intersects the x-axis.
(b) Shift the budget line inward and not change its slope
(c) Shift the budget line outward and not change its slope
(d) Rotate the budget line inward around the point where it intersects the x-axis.
Answer: C
7. The benefit or satisfaction that a person gets from the consumption of a good or service, is called
(a) Consumer cost
(b) Marginal return
(c) Utility
(d) Opportunity cost

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 Answer: C
8. Marginal utility is the change in in total utility that results from a
(a) One-unit change in the quantity of a good consumed
(b) Increase in the price of the good
(c) Change in the budget line
(d) Decreases in the price of the goods
Answer: A
9. In order to maximise her utility, a consumer must
(a) Allocate her budget in order to buy the combination of goods that equalizes the marginal utility per
dollar spent on all goods
(b) Allocate her budget in order to buy the combination of goods that equalizes the total utility per dollar spent on
all goods
(c) Allocate her entire budget and do nothing else because when the entire budget is allocated, utility is maximised.
(d) Not allocated her entire budget
Answer: A
10. If the decrease in marginal utility is steep as the quantity of a good consumed increases, then the demand for that
good is
(a) Elastic
(b) Inelastic
(c) Unit elastic
(d) Perfectly elastic
Answer: B
11. The maximum price a consumer is willing to pay for an extra unit of a good or service when total utility is
maximised is known as
(a) Total utility
(b) Quantity demanded
(c) Marginal benefits
(d) Demand
Answer: C
12. Which of the following is an example of an explicit cost?
(a) The owners forgotten opportunity of running the business
(b) The depreciation of a bulldozer
(c) The cost of the owner’s resources
(d) The cost of the heating oil the firm burns
Answer: D
13. The long run is a time period in which
(a) The firm cannot increase its output
(b) All of the firm’s resources are variable
(c) All of the firm’s resources are fixed
(d) Some of the firm’s resources are fixed
Answer: B
14. The short-run is the time frame
(a) That is less than a year
(b) During which the quantities of some resources are fixed
(c) During which the quantities of all resources are fixed

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 (d) During which the quantities of all resources are variable
Answer: B
15. The marginal product of labour
(a) Equals in increase in cost when another worker is hired
(b) Equals the change in total product is divided by the increase in the quantity of labour
(c) Always decreases as more workers are hired
(d) Equals the total product divided by the quantity of labour
Answer: B
16. The law of decreasing returns states that as a firm uses more of a
(a) Fixed input, with a given quantity of variable inputs, the marginal product of the fixed input eventually
decreased.
(b) Variable input, output will begin to falls immediately.
(c) Variable input, with a given quantity of fixed inputs, the marginal product of the variable inputs
eventually decreases.
(d) Variable input, total output will increase indefinitely
Answer: C
17. Which of the following statements about monopolistic competition is true?
(a) The products sold under monopolistic competition are homogenous
(b) The products sold under monopolistic competition are differentiated
(c) The products sold under monopolistic competition are homogenous but supported with advertisements
(d) The products sold under monopolistic competition are differentiated but supported with advertisements
Answer: D
18. Which of the following statements about monopolistic competition is true?
(a) The products sold under monopolistic competition are homogenous
(b) The products sold under monopolistic competition are differentiated
(c) The products sold under monopolistic competition are homogenous but supported with advertisements
(d) The products sold under monopolistic competition are differentiated but supported with advertisements
Answer: B
19. Which of the following statements is true about the average revenue curve?
(a) The average revenue curve is shaped as a horizontal straight line in a perfect competition
(b) The average revenue curve is shaped as a vertical straight line in a perfect competition
(c) The average revenue curve is shaped downward to the right in a perfect competition
(d) The average revenue curve is shaped rectangular hyperbola in a perfect competition
Answer: A
20. Which of the following statements is correct?
(a) The process of charging different prices from different consumers for the same product is called price extension
(b) The process of charging different prices from different consumers for the same product is called price control
(c) The process of charging different prices from different consumers for the same product is called price
discrimination
(d) None of the above
Answer: C
21. Which of the following statements about the demand curve of a firm under monopoly is true?
(a) The demand curve of a firm under monopoly has a positive relationship between demand and price
(b) The demand curve of a firm under monopoly has an inverse relationship between demand and price
(c) The demand curve of a firm under monopoly has no relationship between demand and price

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 (d) None of the above
Answer: B
22. Which of the following statements about Duopoly is correct?
(a) Duopoly is a special case for the Oligopoly market structure
(b) Duopoly is a special case for the Monopsony market structure
(c) Duopoly is a special case for the Monopoly market structure
(d) Duopoly is a special case for the Imperfect Competition
Answer: A
23. Which of the following statements highlights one of the essential conditions of perfect competition?
(a) A perfect competition has a number of sellers and a few buyers
(b) A perfect competition has different levels of pricing for identical products at a particular point of time
(c) A perfect competition has the same pricing for identical products at a particular point of time
(d) None of the above
Answer: C
24. Which of these is true about marketing?
(a) Marketing is used to promote the product and services
(b) Marketing is concerned about the sales only
(c) Marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and
exchanging offerings that have value for customers, clients, partners, and society at large.
(d) Marketing considers only the needs of the organization and not the society
Answer: C
25. Which one is not a part of the 4 Ps?
(a) Product
(b) People
(c) Price
(d) Place
Answer: B
26. Who is the Father of Modern Marketing?
(a) Philip Kotler
(b) Peter F Drucker
(c) Abraham Maslow
(d) Raymond Kroc
Answer: A
27. Different price points for a different level of quality for a company's related products is a part of which pricing
strategy?
(a) Product line pricing
(b) Incremental pricing
(c) Optional product pricing
(d) By-product pricing
Answer: A
28. Which one of these is an appropriate definition of "want"?
(a) The desires of consumers
(b) Needs related to society
(c) Basic human needs
(d) Needs directed to the product

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 Answer: D
29. Which part of the consumer's income interests the marketers?
(a) Gross Income
(b) Disposable Income
(c) Inflationary Income
(d) Discretionary Income
Answer: B
30. Which of the following describes "diversification"?
(a) New products in new markets
(b) New products in existing markets
(c) Existing products in an existing market
(d) Existing products in new markets
Answer: A
31. Which of the following facts defines the break-even point?
(a) Total revenue is less than the total cost
(b) Total revenue is the same as the total cost
(c) Total profit is more than the total cost
(d) The total cost is less than the total cost
Answer: B
32. The expenses paid to workers for overtime are considered as?
(a) Fixed cost
(b) Variable cost
(c) Dependent cost
(d) Total cost
Answer: B
33. ____is achieved when customer expectations are met regarding the quality of products and services along with the
value-based price?
(a) Quality excellence
(b) Customer satisfaction
(c) Value proposition
(d) None of the above
Answer: B
34. What do you understand by brand loyalty?
(a) Consumer's emotional attachment to the brand
(b) Consumer's social attachment toward the brand
(c) Fulfilment of consumers’ needs
(d) Feel good factor when using a brand’s product
Answer: A
35. A description of people and their place in society is covered under?
(a) Geographic segmentation
(b) Demographic segmentation
(c) Income group
(d) Age group
Answer: B
36. When a firm sets high initial prices which fall with entry of competitors in the market, it is called?

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 (a) Competitive pricing
(b) Price skimming
(c) Entry barrier
(d) Monopolistic competition
Answer: B
37. Which of the following is not a part of Barriers to Entry?
(a) Government policies
(b) Patents
(c) High capital requirements
(d) New Entrants
Answer: D
38. Who gave the concept of Five forces?
(a) Seth Godin
(b) Michael Porter
(c) Tim Ferriss
(d) None of the above
Answer: B
39. At which stage of the product life cycle do the sales slowdown and profits level off or decline?
(a) Introduction
(b) Growth
(c) Maturity
(d) Decline
Answer: D
40. "Everyone likes a Mercedes car but few can buy it."This is an example of?
(a) Demand
(b) Desire
(c) Want
(d) Need
Answer: A
41. What does demographic segmentation stand for?
(a) Geographic locations
(b) Description of people and their place in society
(c) People living in diversified areas
(d) Location of target customers
Answer: B
42. An increase in the number of restaurants serving fast-food leads to _______.
(a) Growth in the demand of fast-food meals
(b) Increase in the supply of fast-food meals
(c) Increase in the price of fast-food meals
(d) Growth in the demand for substitutes of fast-food meals
Answer: B
43. Which of the following metrics is not a constant factor while moving upwards along the supply curve?
(a) The price of the commodity
(b) The number of sellers
(c) Expected future prices

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 (d) Cost of the resources used for producing that commodity
Answer: A
44. Because of increasing marginal costs, most supply curves ________.
(a) Have a positive slope
(b) Have a negative slope
(c) Are horizontal
(d) Are vertical
Answer: A
45. If the income of a consumer increases or the price of a complementary good falls, then the __________.
(a) The demand curve for the product shifts rightward
(b) The demand curve for the product shifts leftward
(c) The supply curve for the product shifts rightward
(d) The supply curve for the product shifts leftward
Answer: A
46. If price changes by 1% and supply changes by 2%, then the supply is ______.
(a) Static
(b) Indeterminate
(c) Inelastic
(d) Elastic
Answer: D
47. ______ leads to an increase in the supply of a commodity without a change in its price.
(a) Rise in supply
(b) Contraction in supply
(c) Expansion in supply
(d) Fall in supply
Answer: A
48. A firm’s supply curve is on an upward slope because ______.
(a) The production costs of additional units of output will rise beyond a point
(b) Consumers see a positive relationship between price and quality
(c) Expansion of production leads to the use of inferior inputs
(d) None of the above
Answer: A
49. If the market supply curve for a product shifts rightwards, what is the best possible explanation for this shift?
(a) Increase in the price of raw materials
(b) Introduction of a tax on that product by the government
(c) Introduction of a new technique that makes the production of that commodity cheaper
(d) An advertising campaign that is successful in promoting the product
Answer: C
50. Which of the following scenarios will not shift the demand curve for a particular product?
(a) A change in the income of the consumers of that product
(b) Effective advertising campaign by producers of a substitute good
(c) A reduction in the price of the raw material for that product
(d) A widely publicised study that says the product is harmful to the health of consumers
Answer: C

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51. In a particular year, the farmers experienced dry weather. If all other factors remain the same, the supply curve of
wheat for farmers will shift to the ________ direction.
(a) Downward
(b) Rightward
(c) Leftward
(d) None of the above
Answer: C
52. If the elasticity of supply is greater than one, the supply curve would be _______.
(a) Touching y-axis
(b) Passing through the origin
(c) Vertical
(d) Horizontal
Answer: A
53. Would an increase in demand for a product cause the supply curve to shift in any direction?
(a) No effect on supply
(b) Change in the slope of a supply curve
(c) The supply curve will move to the right
(d) The supply curve will move to the left
Answer: A
54. In case the price of a product and the total revenue from that product move in the same direction, then the demand
is ____________.
(a) Perfectly elastic
(b) Inelastic
(c) Elastic
(d) Unrelated
Answer: B
55. When the demand for a product is perfectly inelastic, a price increase will result in __________.
(a) A decrease in quantity demanded of the product
(b) No change in the total income from a product
(c) An increase in the total income from a product
(d) A reduction in the total income from a product
Answer: C
56. Which of the following is not a cause of the shift in demand for a product?
(a) Change in the price of substitutes
(b) Change in the income of a consumer
(c) Change in the price of a product
(d) None of the above
Answer: C
57. When the elasticity of demand for a commodity is very low, it shows that the product ________.
(a) Has little importance in the total budget
(b) Is a luxury
(c) Is a necessity
(d) None of the above
Answer: C
58. When the price of a product falls by 10% and its demand rises by 30%, then the elasticity of demand is _________.

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 (a) 13
(b) 3
(c) 10
(d) 30
Answer: B
59. If the quantity demanded of a commodity is unresponsive to change in prices, then the demand of that commodity
is ________.
(a) Perfectly inelastic
(b) Elastic
(c) Unit elastic
(d) Inelastic
Answer: A
60. Law of demand shows a relation between the ___________.
(a) Quantity demand and quantity supply of a commodity
(b) Income and quantity demand of a commodity
(c) Price and quantity of a commodity
(d) Income and price of a commodity
Answer: C
61. The elasticity for the demand of durable goods is __________.
(a) Zero
(b) Equal to unity
(c) Greater than unity
(d) Less than unity
Answer: C
62. Which of the following is an assumption made while drawing the demand curve?
(a) The demand curve must be linear
(b) The price of substitutes should not change
(c) The quantity demanded should not change
(d) The price of the commodity should not change
Answer: B
63. Normally the demand curve will have a _______________ shape.
(a) Upward sloping
(b) Downward sloping
(c) Vertical
(d) Horizontal
Answer: B
64. The minimum price which can be charged bounded by the product cost is known as
(a) Price floor
(b) Price fixation
(c) Price ceiling
(d) Basic price
Answer: A
65. Which is an external factor in the pricing policy?
(a) Organization factors
(b) Marketing mix

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 (c) Product differentiation
(d) Cost of a product
(e) Product demand
Answer: E
66. Two or more complementary products offered together in a single price, is called
(a) Bundle pricing
(b) Transfer pricing
(c) Full cost pricing
(d) Going rate pricing
Answer: A
67. Which of the following is also referred as the Mark-up pricing?
(a) Cost price
(b) Cost plus pricing
(c) Marginal pricing
(d) Discount pricing
Answer: B
68. Which of the following is the most common method of pricing?
(a) Full cost pricing
(b) Marginal cost pricing
(c) Going rate pricing
(d) Promotional pricing
(e) Competitive pricing
Answer: A
69. A game is said to be fair if
(a) both upper and lower values of the game are the same and zero
(b) upper and lower values of the game are not equal
(c) upper value is more than the lower value of the game
(d) none of these
Answer: A
70. Game theory models are classified by the
(a) number of players
(b) sum of all payoffs
(c) number of strategies
(d) all of these
Answer: D
71. A two-person zero-sum game means that the
(a) the sum of losses to one player is equal to the sum of gains to other
(b) the sum of losses to one player is not equal to the sum of gains to other
(c) no any player gains or losses
(d) none of these
Answer: A
72. What happens when maximin and minimax values of the game are same?
(a) no solution exists
(b) solution is mixed
(c) saddle point exists

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 (d) none of these
Answer: C
73. A mixed strategy game can be solved by
(a) algebraic method
(b) matrix method
(c) graphical method
(d) all of these
Answer: D
74. The size of the payoff matrix of a game can be reduced by using the principle of
(a) game inversion
(b) rotation reduction
(c) dominance
(d) game transpose
Answer: C
75. The payoff value for which each player in a game always selects the same strategy is called the
(a) saddle point
(b) equilibrium point
(c) both (a) and (b)
(d) none of these
Answer: A
76. Games which involve more than two players are called
(a) conflicting games
(b) negotiable games
(c) N-person games
(d) all of these
Answer: C
77. People who choose not to participate in fair gambles are called
(a) risk takers.
(b) risk averse.
(c) Risk neutral.
Answer: B
78. Expected value is defined as
(a) the profit on a fair bet.
(b) the most likely outcome of a given experiment
(c) the outcome that will occur on average for a given experiment.
(d) the relative frequency with which an event will occur.
Answer: C
79. A gamble can be described as “fair” if the expected value of the gamble (including any costs of play) is
(a) positive.
(b) zero.
(c) Negative
Answer: B
80. An individual will never buy complete insurance if
(a) he or she is risk averse.
(b) he or she is a risk taker.

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 (c) insurance premiums are fair.
(d) under any circumstances.
Answer: B
81. With moral hazard, fair insurance contracts are not viable because
(a) individuals’ aversion to risk is reduced.
(b) insurance company’s administrative costs are increased.
(c) individuals fear unscrupulous agents.
(d) probabilities of loss are increased over what is expected.
Answer: C
82. Risk averse individuals will diversify their investments because this will
(a) increase their expected returns.
(b) \provide them with some much-needed variety.
(c) reduce the variability of their returns.
(d) reduce their transactions costs.
Answer: C
83. Which of the following is a point of difference between perfect and monopolistic competition?
(a) In perfect competition, the firms produce goods that are identical in all aspects, but under monopolistic
competition, the goods are not identical
(b) There are many barriers to entry in perfect competition but monopolistic competition does not have any such
problems
(c) There are many barriers to entry in monopolistic competition but perfect competition does not have any such
problems
(d) Under perfect competition, there are many firms of relatively smaller size, but that is not the case for
monopolistic competition
Answer: A
84. The market type which is known as perfect competition is __________.
(a) Highly competitive and companies find it challenging to earn economic profits in the long run
(b) Almost free from competition and companies earn large profits
(c) Marked by firms continuously trying to upgrade their products so that buyers prefer their products to that of
their competitors’
(d) Dominated by fierce advertising campaigns
Answer: A
85. Which of the following factors is not a characteristic of perfect competition?
(a) A large number of buyers and sellers
(b) Well-informed buyers and sellers about product prices
(c) Individual firms spend a considerable amount on advertising
(d) No restrictions on entry into or exit from the industry
Answer: C
86. Which of the following markets have the fewest number of firms?
(a) Monopoly
(b) Perfect competition
(c) Oligopoly
(d) Monopolistic competition
Answer: A

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87. Under perfect competition, a business has to make different types of decisions, both for the short run and the long
run. Which of the following is a short run decision?
(a) Whether to enter or exit an industry
(b) The price to charge buyers for a product
(c) Spending on advertising and sales promotion
(d) The levels of output that can maximise profits
Answer: D
88. If many sellers are selling an identical product, what is the implication of this scenario?
(a) Significant losses for all the sellers
(b) The market supply curve is horizontal
(c) Chaos in the market
(d) The sellers do not have the power to change the price of a product
Answer: D
89. Which of the following is true if the demand for a seller’s product is perfectly elastic?
(a) The seller will not be able to sell any output if they try to price their product above the market price
(b) The market has many substitutes for a seller’s product
(c) The seller has zero incentive to sell their product below the market price
(d) All of the above
Answer: D
90. Which of the following is true about a price-taking firm?
(a) It is in contact with rival firms to fix the best price that all of them can charge
(b) It is unable to influence the price of the product that it sells
(c) It is asking the government to set a fixed price for its product
(d) It can set the price of a product at any level that it wants
Answer: B
91. Which of the following is a barrier to entry?
(a) A government regulation that restricts a monopoly firm from earning an economic profit
(b) A rule or regulation that protects a firm from new competitors arriving in the market
(c) The presence of firms within a market that are incurring economic losses, something that deters new companies
from entering
(d) Anything that establishes a barrier to the expanding of output within a market
Answer: B
92. Which of the following will create a natural monopoly in the market?
(a) A technology that helps a firm to produce at a lower average cost than two or more firms
(b) A requirement for a government license before a firm can sell the product or service
(c) The ownership of all available units that are required for the raw materials
(d) Any exclusive right granted to a firm for supplying a product or service
Answer: A
93. Elasticity of demand is a ______.
(a) Qualitative statement
(b) Quantitative statement
(c) Both a and b are correct
(d) Both a and b are incorrect
Answer: B
94. When the price of coffee rises, the demand for tea _____.

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 (a) Falls
(b) Rises
(c) Stays the same
(d) None of the above
Answer: B
95. The Law of Demand is a _______.
(a) Qualitative statement
(b) Quantitative statement
(c) Both a and b are correct
(d) Both a and b are incorrect
Answer: A
96. Which of the following statements is correct?
(a) Goods that can be used alternatively to each other are known as substitute goods
(b) Goods that can be used alternatively to each other are known as comfort goods
(c) Goods that can be used alternatively to each other are known as complementary goods
(d) All of the above
Answer: A
97. Which of the following statements about demand is correct?
(a) The main factor that affects the demand for a product or a service is its price
(b) The main factor that affects the demand for a product or a service is the change in income levels of the consumer
(c) The main factor that affects the demand for a product or a service is the taste of a consumer
(d) All of the above
Answer: D
98. Which of the following statements is true?
(a) In the case of necessity goods, the fall in prices does not lead to an increase in demand
(b) In the case of comfort goods, the fall in prices does not lead to an increase in demand
(c) In the case of luxury goods, the fall in prices does not lead to an increase in demand
(d) None of the above
Answer: A
99. Which of the following statements about the demand curve is true?
(a) The slope of the demand curve is upward from left to right
(b) The slope of the demand curve is downward from left to right
(c) The slope of the demand curve is parallel to the X-axis
(d) The slope of the demand curve is parallel to the Y-axis
Answer: B
100. Which of the following is true about the relationship between total utility and marginal utility?
(a) The total utility of a product or service is maximum when the marginal utility is negative
(b) The total utility of a product or service decreases when the marginal utility is negative
(c) The total utility of a product or service increases at a decreasing rate when the marginal utility is negative
(d) None of the above
Answer: B

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