Jaju’s Professional Academy

CA Foundation – Business Economics (Micro)

Mock Test 2
Time : 2 Hours Marks : 100

1. The First Order Condition for the Profit of up effective demand & in turn
a firm to be maximum? employment and income.
(a) AC=MR (c) can cause boom or recession
(b) MC=MR depending upon the policies for
(c) MR=AR reconstruction adopted by govt.
(d) AC=AR (d) None of these

2. The survival and success of any business 7. _____ is concerned with welfare
depends on sound____ proposition.
(a) Mind (a) Normative Economics
(b) Environment (b) Positive Economics
(c) Decisions (c) Both (a) and (b)
(d) None of these (d) None of these

3. In economics, the classification of the 8. Under Monopoly, selling costs are

markets is made on the basis of: incurred for:
(a) Time (a) Persuading customers for not buying
(b) Geographic area competitor’s product
(c) Both (a) and (b) (b) Informative purpose
(d) None of these (c) Promoting sales of the product
(d) None of these
4. During an expansion phase of the business
cycle, which of the following is likely to 9. Which of the following is incorrect
occur? formula?
(a) Decrease in consumer spending. (a) TC=AC×Q
(b) Increase in business bankruptcies. (b) ∑MC = TC
(c) Increase in job opportunities. (c) ∑MC = TVC
(d) Decrease in government spending. (d) ∑MC + TFC = TC

5. Which of the following phases of the 10. Diminishing returns are due to ______and
business cycle is characterized by increasing returns are due to ____.
increasing economic activity, rising (a) Internal diseconomies, Internal
employment, and growing consumer economies
spending? (b) Internal economies, Internal
(a) Expansion. diseconomies
(b) Recession. (c) External diseconomies, Internal
(c) Trough. economies
(d) Recovery. (d) Internal diseconomies, external
economies
6. Post war reconstruction:
(a) will push the economy to slow down 11. Most of the economic problems are of
because of excess external debts. _____________ nature and are affected
(b) will cause pickup in economic by ______________.
activities as the reconstruction pushes (a) Complex, Several forces
 (b) Simple, Several forces 17. After reaching the saturation point,
(c) Simple, single factor consumption of additional units of the
(d) Complex, Single factor commodity cause -.
(a) Total utility to fall and marginal utility
12. If the few sellers sells the heterogeneous to increase.
product, then such market is called as; (b) Total and marginal utility both to
(a) Full Oligopoly increase.
(b) Partial Oligopoly (c) Total utility to fall and marginal utility
(c) Perfect Oligopoly to become negative.
(d) Imperfect Oligopoly (d) Marginal utility to fall and total utility
to become negative.
13. Management of the firm
_______________ control over macro - 18. The substitution effect works to
economic factors. encourage a consumer to purchase more
(a) Has of a product when the price of that
(b) has no product is falling because-
(c) has partial (a) The consumer’s real income has
(d) None of these increased.
(b) The consumer’s real income has
14. In a planned or command economy all the decreased.
economic decisions are taken by the (c) The product is now relatively less
_________. expensive than before.
(a) Workers (d) Other products are now less expensive
(b) Consumers than before.
(c) Voters
(d) Government 19. Which of the following statements is
correct?
15. The regulatory mechanism of the market (a) When the slope of the demand curve
system is – is zero, demand is infinitely elastic
(a) Self interest and when the slope is infinite,
(b) Private property elasticity is zero.
(c) Competition (b) When the slope of the demand curve
(d) Specialization is zero, the elasticity is also zero and
when the slope is infinite, elasticity is
16. Which of the following statements is/are also infinite.
correct about mixed economic system? (c) When the slope of the demand curve
(a) Mixed economic system depends on is zero, the elasticity is unity and also
both markets and governments for when the slope i s infinite, elasticity
allocation of resources is unity.
(b) Mixed economy is not always a golden (d) None of these
path between capitalism and
socialism. 20. Diminishing marginal utility implies that
(c) It is very difficult to maintain a proper the
balance between private and public (a) marginal utility of a good diminishes
sectors. over time.
(d) All of the above (b) total utility is negative.
(c) last unit of a good consumed will
contribute most to the consumer’s
satisfaction.
 (d) first unit of a good consumed will 26. Demonstration effect, a term coined by
contribute most to the consumer’s _____________
satisfaction. (a) Adam Smith
(b) James Duesenberry
21. The law of diminishing marginal utility (c) Alfred Marshall
states that (d) None of these
(a) total utility is maximized when a
consumer obtain the same amount of 27. Consider the following statements and
utility per unit o f each product select the correct answer from the given
consumed options.
(b) beyond some point additional units of Assertion (A) : Demand curve is
a product will yield less and less extra vertical when elasticity of demand is
satisfaction to a consumer. zero.
(c) price must be lowered to induce firms Reason (R) : Marginal utility of a
to supply more of a product. product is increasing
(d) it will take larger and larger amounts (a) Both (A) and (R) are true and (R) is the
of resources beyond some point to correct explanation of (A)
produce successive units of a product. (b) Both (A) and (R) are true and (R) is not
the correct explanation of (A)
22. Marshallian theory of consumer’s (c) (A) is true but (R) is false
behavior is based on (d) (A) is false but (R) is true
(a) Hypothesis of additive utilities.
(b) Hypothesis of independent utilities. 28. A rise in price of a good
(c) Both (A) and (B) ___________________ consumer surplus.
(d) Weak ordering (a) Reduces
(b) Increases
23. Demand and ________ are the forces that (c) Either (A) and (B)
make market economies work. (d) Doesn’t affect
(a) Elasticity of demand
(b) Quantity demanded 29. A consumer is in equilibrium when s/he is
(c) Supply deriving ____________ satisfaction from
(d) Quantity supplied the goods.
(a) Maximum
24. Computers and computer software (b) Possible
are______ (c) maximum possible
(a) Substitute goods (d) None of these
(b) Complementary goods
(c) Independent goods 30. Which one of the following statements is
(d) Normal goods true regarding Indifference Curve?
(a) Two ICs can never be parallel to each
25. Let slope of supply curve is 0.6, calculate other
elasticity of demand when initial price is (b) Two ICs are always parallel to each
$ 30 per unit and initial quantity is 100 other
units of the commodity. (c) Two ICs may not intersect each other
(a) 0.5 (d) Two ICs may be parallel to each other
(b) 5.55
(c) (-) 0.5 31. Law of Equi-marginal Utility can be
(d) (-) 0.18 expressed as-
(a) MUX/PX = QX
 (b) PX QX = MUM (d) Price
(c) MUX/PX = MUY/PY = MUM
(d) MUX = MUM 37. Which of the following is an example of
socialist economy?
32. Consider the following statements and (a) Erstwhile U. S. S. R
select the correct answer from the given (b) North Korea
options. (c) China and Cuba
Assertion (A): Consumer surplus is the (d) All of the above
difference between the potential price
and actual price. 38. Business Economics enables application
Reason (R): There exists an inverse of economic logic and analytical tools to
relationship between the price and (a) Bridge the gap between theory and
consumer surplus. practice
(a) Both (A) and (R) are true and (R) is the (b) Increase the implementation on
correct explanation of (A) science
(b) Both (A) and (R) are true and (R) is not (c) Increase the effectiveness
the correct explanation of (A) (d) Apply tools of macro economics
(c) (A) is true but (R) is false
(d) (A) is false but (R) is true 39. A study of how increase in the corporate
income tax rate will affect the national
33. For substitutes, cross elasticity of unemployment rate is an example of ____
demand is – economics.
(a) Positive (a) Micro
(b) Negative (b) Descriptive
(c) Zero (c) Macro
(d) Always less than one (d) Normative

34. The oldest approach to the theory of 40. Micro economics does not study
demand is _______________. (a) Consumer Behaviour
(a) the total utility approach (b) Factor Pricing
(b) the cardinal utility approach (c) General Price Level
(c) the ordinal utility approach (d) Firm Equilibrium
(d) None of these
41. If cross elasticity between Tea and Coffee
35. “Returns to a factor” refers to the effect is +2.5, then Tea and Coffee can be
on total output of changes in considered as;
(a) One factor only (a) Close Substitute
(b) Various inputs separately (b) Not Close Substitute
(c) All the inputs simultaneously (c) Close Complements
(d) Weak Complements
(d) None of the above
42. _____ the basis of demand.
36. _____ is a sector in which both the
(a) Want
government and private enterprises have (b) Need
equal access and join hands to produce (c) Utility
commodities and services leading to (d) None of the above.
establishment of joint sectors.
(a) Private sector 43. Demand is essentially expressed with
(b) Public sector reference to ___________.
(c) Combined sector (a) Price and Place
 (b) Price and Time 50. If the proportion of income spent on a
(c) Time and Place. good decreases as income increases, then
(d) None of the above. income elasticity for the good is
(a) Greater than one
44. There is a ___ relationship between the (b) Less than one
level of income of the household and (c) One
demand for Inferior goods. (d) Infinite
(a) Direct
(b) Inverse 51. If the Total expenditure spent on a good
(c) No relation decreases as Price increases, then Price
(d) None of the above elasticity for the good is
(a) Greater than one
45. Which of the following economic system (b) Less than one
has to deal with problem of scarcity? (c) One
(a) Capitalist (d) Infinite
(b) Socialist
(c) Mixed 52. If the cross elasticity between the two
(d) All of the above goods is negative, then the two goods
are;
(a) Always Substitute
46. If the Rate of Interest is more, then the
(b) May or may not be Substitute
demand for goods in general would be.
(c) Always Complementary
(a) More
(d) May or may not be Complementary
(b) Less
(c) Constant
53. A fall in demand due to unfavourable
(d) None of the above
changes in factors other than price
(a) Downward movement along the same
47. A straight line downward sloping demand
demand curve
curves implies that, as price rises; the
(b) Upward movement along the same
elasticity of demand
demand curve.
(a) Is zero
(c) Rightward shift of the demand curve.
(b) Remains same
(d) Leftward shift of the demand curve.
(c) Decreases
(d) Increases
54. If the local ice cream shop raises the
price of a ice cream cup from Rs 10 per
48. Demand for a good will tend to be more cup to Rs. 15 per cup, and the quantity
elastic if it exhibits which of the following demanded falls form 500 cups to per day
characteristics?
to 300 cups per day, the price elasticity
(a) It represent a smaller part of
of demand for ice cream is: (Use arc
consumer’s income
elasticity method)
(b) The good has many substitutes
(a) 1
available
(b) 2.5
(c) It is a necessity
(c) 2
(d) There is a little time for the consumer
(d) 1.25
to adjust to the price change
55. Indifference curve will not touch either
49. Which of the following method of Price
axes because
elasticity uses the derivative to calculate
(a) Resources are limited
elasticity?
(b) It is contrary to the assumption
(a) Arc Method
(c) It is impossible
(b) Point Method
(d) None of the above
(c) Total Outlay Method
(d) None of the above
56. Which of the following is an assumption 63. In India, mixed economy exist due to
of consumer’s equilibrium? (a) Co existence of public and private
(a) Goods are homogeneous and indivisible sector
(b) Goods are homogeneous and divisible (b) Individual forces of demand and
(c) Goods are differentiate and indivisible supply
(d) Goods are differentiate and divisible (c) Orders by government
(d) None of these
57. Calculate income elasticity for the
household when the income of this
64. If price of the Substitute is measured on
household rises by 5% and the demand for
Y-axis and Quantity of commodity is
button does not change at all
measured on X-axis, then the Curve will
(a) Infinity
be
(b) 1
(a) Horizontal
(c) 5
(b) Vertical
(d) Zero
(c) Downward sloping
(d) Upward sloping
58. If A is the point on Y-axis and Z is the point
on X-axis. B is the midpoint on demand
65. The Horizontal Supply curve parallel to X-
curve. What is the elasticity at point K.
axis implies that the elasticity of Supply
(a) AK/KZ
is
(b) KZ/AK
(a) Zero
(c) AB/BZ
(b) Infinite
(d) ZB/BA
(c) Equal to one
(d) Greater than one but less than infinity
59. There is a ___ relationship between
Supply of the commodity and Cost of
66. Which of the following will shift the
Production.
supply curve to the right
(a) Direct
(a) Increase in price of the goods
(b) Inverse
concerned
(c) No relation
(b) Decrease in the price of the goods
(d) None of the above
concerned
(c) Increase in cost of production
60. If the Rate of Interest is more, then the
(d) Decrease in cost of production
Supply for goods in general would be.
(a) More
67. The Average product of a variable input is
(b) Less
(c) Constant best described as;
(d) None of the above (a) Total product divided by the number
of units of variable input
61. When the quantity Supply changes (b) The additional output resulting from a
infinitely due to change in price, one unit increase in variable input
elasticity is termed as (c) The additional output resulting from a
(a) Inelastic one unit increase in both the variable
(b) Elastic and fixed inputs
(c) Perfectly elastic (d) The ratio of the amount of variable
(d) Perfectly inelastic input that is being used to the amount
of the fixed input that is being used
62. Supply for Perishable goods is
(a) Inelastic 68. The short run, as economist use the
(b) Elastic phrase, is characterized by;
(c) Highly inelastic (a) At least one fixed factor of production
(d) Highly elastic and firms neither leaving nor entering
the industry
 (b) A period where the law of diminishing (d) Marginal Revenue Curve
returns does not hold
(c) No variable inputs – that is all the 75. The marginal, average, and total product
factors of production are fixed curves encountered by the firm in the
(d) All inputs being variable short run exhibit all the following
relationships except;
69. If point X lies above the point Y on the
indifference curve, then point Y gives (a) When the total product is rising,
(a) Higher satisfaction average and marginal product may be
(b) Lower satisfaction either rising or falling
(c) Same satisfaction (b) When marginal product is negative,
(d) None of the above total product and average product are
falling
70. Consumer surplus is (c) When average product is at a
(a) MU-P maximum, marginal product equals
(b) P-MU average product and total product is
(c) SP-CP rising
(d) CP-SP (d) When marginal product is at a
maximum, average product equals
71. If A is a point on any indifference curve marginal product and total product is
and B is a point on any other indifference rising
curve which is towards its left, the level
of satisfaction on point B will be Use the following information to answer
(a) More as compared to point the question 76-78
(b) Less as compared to Point A Hours of Total Marginal
(c) Same satisfaction as point A labour output product
(d) No satisfaction at all 0 --- ---
1 100 100
72. A Consumer consumed three units of a 2 --- 80
product. Marginal Utilities derived from 3 240 ---
the three units are Rs. 400, Rs. 350 and
Rs. 300, respectively. If the price of the 76. What is the total output when 2 hours of
product is Rs. 300 per unit, the total labour are employed?
Consumer Surplus is – (a) 80
(a) 0
(b) 100
(b) 50
(c) 100 (c) 180
(d) 150 (d) 200

73. If two goods were perfect substitutes of 77. What is the marginal product of the third
each other, it means that the Indifference hour of labour?
Curve relating to the two goods (a) 60
(a) Will be curvilinear.
(b) 80
(b) Will be linear.
(c) Will be divided into two segments (c) 100
which meet at a right angle. (d) 240
(d) Will be convex to the origin.
78. What is the average product of the first
74. _____ depicts complete picture of three hours of labour?
consumer’s tastes and preferences. (a) 60
(a) Budget Line
(b) 80
(b) Average Cost Curve
(c) Indifference Map (c) 100
 (d) 240 85. MC curve cuts AVC curve
(a) At its falling point
79. Which of the following is referred to as (b) At its minimum point
law of diminishing returns (c) At its rising point
(a) Stage I (d) At different points
(b) Stage II
(c) Stage III 86. Fixed cost are the function of
(d) Stage IV (a) Output
(b) Capacity
80. If the distribution of income is (c) Neither (a) nor (b)
uneven/unequal then the propensity to (d) None of the above
consume of the country will be
(a) Relatively high
87. When average cost is minimum, marginal
(b) Relatively low
(c) High cost is ______ to the average cost.
(d) Low (a) Less
(b) More
81. _____ refers to the work area where (c) Equal
surplus man power is employed out of (d) None of the above
which some individuals have zero or
almost zero marginal productivity such 88. The slope of the AFC curve is
that if they are removed, the total level (a) Positive
of output remains unchanged. (b) Negative
(a) Voluntary (c) Both
(b) Disguised
(d) None
(c) Structural
(d) Technological
89. Economic cost means
82. In case of straight line demand curve (a) Accounting cost + Implicit cost
meeting the two axes, the price elasticity (b) Accounting cost + Marginal cost
of demand between mid-point and point (c) Cash cost + Opportunity cost
of Y axis. (d) Implicit cost
(a) 0
(b) 1 90. A firm has been producing 10 units of
(c) Greater than one
(d) Less than one output has an average total cost of Rs.
200 and has to pay Rs. 500 to its fixed
83. The supply of land for the firm is ____ factors of production whether it produces
(a) Elastic or not. How much of the average total
(b) Inelastic cost is made up of variable cost?
(c) Perfectly elastic (a) 200
(d) Perfectly inelastic (b) 150
(c) 300
84. Singing of song is (d) None of the above
(a) Not production
(b) Production if sung before friends 91. At shut down point
(c) Production if sung for money (a) Price is equal to AVC
(d) Production if well sung by the singer (b) Total revenue is equal to TVC
(c) Total loss of the firm is equal to TFC
 (d) All of the above (c) Both
(d) None
92. With which of the following is the concept
97. Price Discrimination can be for any of the
of marginal cost closely related?
following reasons except;
(a) Variable cost (a) Difference in time
(b) Fixed cost (b) Difference in place
(c) Opportunity cost (c) Difference in market
(d) Economic cost (d) Difference in cost

93. The distinction between fixed cost and 98. The central problem in every economic
variable cost is made in; society is:
(a) To ensure a minimum level of income
(a) Short run
for every individual.
(b) Long run
(b) To allocate scarce resources in such a
(c) Both
manner that societies unlimited wants
(d) None are satisfied in the best possible
manner.
94. A firm under perfect competition will be (c) To ensure that production occurs in
making minimum losses (in short run) at a most efficient manner.
point where (d) To provide job to every job seeker.
(a) MC>MR
(b) MR>MC
99. If the size of the population is large, then
(c) MC=MR
the demand for goods in general would
(d) AC=AR
be.
(a) More
95. In the long run, normal profits are
(b) Less
included in the____ curve
(c) Constant
(a) LAC
(d) None of the above
(b) LMC
(c) AFC
100. When Strategic Interdependence is
(d) SAC
ignored in oligopoly then price and output
is determined by;
96. In Cournot Model, _______ is the control
(a) Principle of Marginalism
variable.
(b) Reaction pattern of competitor
(a) Price
(c) Common interest
(b) Output
(d) None of the above