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Dr.G.R.Damodaran College of Science

(Autonomous, affiliated to the Bharathiar University, recognized by the UGC)Reaccredited at the 'A' Grade Level by the NAAC and ISO 9001:2008 Certified
CRISL rated 'A' (TN) for MBA and MIB Programmes
I MBA[2015-2018]
Semester I
Core: Managerial Economics - 152C
Multiple Choice Questions.
1. 1. _____________ economics explains economic phenomena according to their causes and effects.
A. Positive.
B. Normative.
C. Empirical.
D. Applied.
ANSWER: A
2. Opportunity costs are a result of ______________________.
A. Scarcity
B. Overproduction.
C. Technology obsolescence.
D. Abundance of resources.
ANSWER: A
3. For a want to become a demand it must be backed by the ________________.
A. Ability to buy the product.
B. Necessity to buy the product.
C. Desire to buy the product.
D. All the above.
ANSWER: D
4. What type of relationship exists between the price and quantity demanded?
A. Direct.
B. Inverse.
C. Positive.
D. Normative.
ANSWER: B
5. 5. The demand curve slopes _____________________.
A. Downward from left to right.
B. Upward from left to right.
C. Upward from right to left.
D. Downward from right to left.
ANSWER: A
6. When the price of the petrol goes up, demand for automobiles decreases . It implies that petrol and
automobiles are _________________.
A. Complementary goods.
B. Substitute goods.
C. Inferior goods.
D. Normal goods.

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ANSWER: A
7. . In order to asses the effect of a change in price of one product on the demand for other products
which type of elasticity is often used by the firms?
A. Cross elasticity.
B. Income elasticity.
C. Price elasticity .
D. Advertisement elasticity.
ANSWER: A
8. Which of the following is not an income elastic product or service?
A. Air travel.
B. Entertainment in an amusement park.
C. Life saving drugs.
D. Meals in a costly restaurant.
ANSWER: A
9. Which of the following is not a determinant of the advertising elasticity of demand?
A. Effect of time.
B. Stages of product.
C. Advertising by competitors.
D. Income level of consumers.
ANSWER: D
10. Which of the following is the only determinant that the law of supply takes into account?
A. Technology.
B. Quality of the product.
C. Price of the product.
D. Purchasing power of sellers.
ANSWER: C
11. Typically the supply curve _______________.
A. Slopes upward.
B. Slopes downward.
C. Is horizontally straight.
D. Is vertically straight.
ANSWER: A
12. ___________ shows the quantity of products a producer or seller wishes to sell at a given price
level.
A. Supply curve.
B. Marginal product curve.
C. Average product curve.
D. Total product curve.
ANSWER: A
13. When more units of the product are supplied at a higher price, it is called ________.
A. Contraction of supply.
B. Increase in supply.
C. Change in supply.
D. Extension of supply.
ANSWER: D
14. Which of the following laws states that the more a consumer consumes of a product, the less is the

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utility he derives from the additional consumption?

A. Law of equi-Marginal utility.
B. Law of ordinal utility.
C. Law of cardinal utility.
D. Law of diminishing marginal utility.
ANSWER: D
15. ________ shows various combinations of two products that give same amount of satisfaction.
A. Isocost curve.
B. Indifference curve.
C. Marginal utility curve.
D. Isoquant.
ANSWER: B
16. Which of the following statements regarding production function is false?
A. It just shows the relationship between output and input.
B. It does not provide any information on the least-cost capital labour combination.
C. It reveals the output that yields the maximum profit.
D. Both a and c.
ANSWER: C
17. __________ shows the overall output generated at a given level of input.
A. Cost function.
B. Production function.
C. Marginal rate of technical substitution.
D. Isocost.
ANSWER: B
18. In which stage of production would a rational entrepreneur like to operate?
A. Stage 1 where MP is maximum
B. Stage 2 where both MP and AP are decreasing.
C. Stage 3 where MP is negative.
D. None of the above.
ANSWER: B
19. Law of returns to scale indicates the responsiveness of total product when all
inputs________________.
A. remain same
B. are changed drastically.
C. are changed marginally.
D. are changed proportionately.
ANSWER: D
20. . ______________ states that when labor increases with capital being the same, the marginal
productivity of labor will increase at first but start decreasing later.
A. Law of equi-marginal returns.
B. Law of diminishing returns.
C. Law of variable proportions.
D. Law of constant returns.
ANSWER: B
21. Isoquant is also known as.
A. Production indifference curve.
B. Cost indifference curve.

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C. Planning curve.
D. Indifference curve.
ANSWER: A
22. ____________ shows all combinations of inputs that can be used to produce a given level of output.
A. Expansion path .
B. Isocost .
C. Isobar .
D. Isoquant .
ANSWER: D
23. Isocost is also known as __________.
A. Cost line.
B. Production line.
C. Price line.
D. Profit line.
ANSWER: A
24. __________ includes all payment paid to factors of production and opportunity cost.
A. Implicit costs.
B. Explicit costs.
C. Economic costs.
D. Accounting costs.
ANSWER: C
25. __________ costs are important in short-term decision making of the firm to determine the output at
which at which profits can be maximized.
A. Fixed.
B. Sunk.
C. Opportunity.
D. Marginal.
ANSWER: D
26. The cost function indicates the functional relationship between total cost and _______________.
A. Total input.
B. Fixed cost.
C. Total output.
D. Variable cost.
ANSWER: C
27. Expansion of scale of operation forms a part of __________ cost function.
A. Long run.
B. Short run.
C. Fixed.
D. Both b and c.
ANSWER: A
28. In short run if the firm cannot cover its variable costs, it is advisable to _______________.
A. Shut down the firm.
B. Increase the production
C. Double the production
D. Decrease the selling price.
ANSWER: A

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29. In a perfectly competitive market ______________.

A. There are large number of buyers and a small number of sellers.
B. There are a large number of sellers and small number of buyers.
C. There are a small number of sellers and buyers.
D. There are a large number of buyers and sellers.
ANSWER: D
30. In which of the following types of market structure, do firms produce homogeneous products?
A. Monopoly.
B. Differentiated oligopoly.
C. Perfect competition.
D. Monopolistic competition.
ANSWER: C
31. Which of the following is not a characteristic of a perfectly competitive market?
A. Large number of buyers and sellers.
B. Homogeneous product.
C. Free entry and exit.
D. Presence of high transportation costs of firms.
ANSWER: D
32. Under perfect competition, the burden of a specific tax would be borne by the____________.
A. Seller.
B. Buyer.
C. Seller and buyer equally.
D. Cannot say.
ANSWER: D
33. _______________ is the measure of the market value of all final goods and service produced by
factors of production located within the boundaries of a country during a specified period of time.
A. GDP.
B. GNP.
C. National Income.
D. Personal Income.
ANSWER: C
34. When the value of the currency falls people prefer to hold _____________.
A. Real assets.
B. Cash.
C. Securities.
D. Both b and c.
ANSWER: A
35. ______________ is a systematic record of all economic transactions between a country and the rest
of the world.
A. Capital account.
B. Current account.
C. Balance of payments.
D. Balance of trade.
ANSWER: C
36. Which of the following policies is usually formulated and implemented by the central bank of a
country.
A. Monetary Policy.

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B. Fiscal Policy.
C. EXIM policy.
D. Prices and incomes policy.
ANSWER: A
37. Which of the following approaches is national income measured by calculating the total value of the
final output of a country?
A. Income approach.
B. Product approach.
C. Expenditure approach.
D. No such measures exist.
ANSWER: B
38. What measures can a government take to reduce unemployment levels?
A. Fiscal measures.
B. Monetary measures.
C. Increases the imports.
D. Increase government spending on social projects
ANSWER: D
39. When the central bank buys securities, deposits with commercial banks ________.
A. Declines marginally.
B. Increases.
C. Remains unchanged.
D. Becomes almost nil.
ANSWER: A
40. If the central bank buys financial securities in the open market to increase the monetary base ,then
it is an example of ______________.
A. Lender of last resort.
B. Financial intermediation.
C. Open market operation.
D. Financial regulation.
ANSWER: C
41. Under which type of inflation does unemployment remain at the minimum in the economy?
A. Cost push inflation.
B. Demand pull inflation.
C. Demand push inflation.
D. Both b and c.
ANSWER: D
42. An increase in the salaries of the people is followed by a rise in the general price level. Which type
of inflation takes place in this situation?
A. Demand Pull inflation.
B. Profit push inflation.
C. Wage push inflation.
D. Supply shock inflation.
ANSWER: C
43. Which of the following fiscal policy measures may lead to cost push inflation in the economy?
A. Indirect tax.
B. Public expenditure.
C. Public borrowing.

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D. Direct tax.
ANSWER: A
44. Deficiency in effective demand increases the __________ in the economy.
A. Employment.
B. Unemployment.
C. Inflation.
D. Output.
ANSWER: B
45. A tight money policy leads to .
A. Increase in money supply.
B. Fall in investment spending.
C. Fall in interest rates.
D. Reduction in inflation.
ANSWER: D
46. Which of the following economic policies by governments will help maintain full employment and
reasonable price stability in the economy?
A. Monetary policy.
B. Fiscal policy.
C. Stabilization policies.
D. Both b and c.
ANSWER: A
47. . In which phase of the business cycle does the government in developed countries provide
unemployment compensation?
A. Boom.
B. Recession.
C. Peak.
D. Recovery.
ANSWER: B
48. . In an economy variation in economic activity lasting for two to ten years, with expansion and
contraction in the total national output, income and employment is called ____________.
A. Recession.
B. Business cycle.
C. Peak and trough.
D. Boom and recovery.
ANSWER: C
49. At which of the following points does the marginal cost curve meet the average variable cost curve?
A. Shut down point.
B. Break evenpoint.
C. Profit maximization point.
D. None of the above.
ANSWER: D
50. Product differentiation is a common feature in.
A. Perfect competition.
B. Monopolistic competition.
C. Oligopoly.
D. Monopoly.
ANSWER: B

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51. An entrepreneur who manages his firm has to forgo his salary, which he could have earned if he had
worked elsewhere. The foregone cost is known as ---------.
A. Implict costs.
B. Explicit costs.
C. Hidden costs.
D. Actual costs.
ANSWER: A
52. ---------- are the value of foregone opportunities that do not involve any physical cash payment.
A. Implict costs.
B. Explicit costs.
C. Hidden costs.
D. Actual costs.
ANSWER: A
53. Which of the following costs is not included in the books of account?
A. Explicit costs.
B. Manufacturing costs.
C. Taxes.
D. Implicit costs.
ANSWER: D
54. ---------- can be defined as the cost that involves actual payment to other parties.
A. Implict costs.
B. Explicit costs.
C. Hidden costs.
D. Opportunity costs.
ANSWER: B
55. Which of the following is an example of an economic cost?
A. Interest paid to the bank on the short term loan taken
B. Cost incurred on the purchase of raw materials.
C. Wages paid to laborers.
D. All the above.
ANSWER: D
56. ---------- costs are important in short term decision making of the firm to determine the output at
which profits can be maximized.
A. Fixed.
B. Sunk.
C. Opportunity.
D. Marginal.
ANSWER: D
57. ---------- cost is the total additional cost that a firm has to incur as a result of implementing a major
managerial decision.
A. Sunk.
B. Incremental.
C. Opportunity.
D. Marginal.
ANSWER: B
58. Which of the following statement is true?

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A. Marginal cost is a subset of Incremental cost.

B. Incremental cost is a subset of Marginal cost.
C. Marginal cost is a subset of Sunk cost.
D. Sunk cost is a subset of Incremental cost.
ANSWER: A
59. Which of the following statement best describes sunk costs?
A. Those costs which are incurred in the past or that have to be incurred in the future as result of a
contractual agreement.
B. The lost incurred by the firm as result of bankruptcy of one of its creditors.
C. The lost incurred by the firm as a result of the fire that broke into one of the firms godown.
D. Setting off the losses that the firm incurred in the previous years.
ANSWER: D
60. -------- cost must be paid even if the firms level of output is zero.
A. Variable.
B. Direct.
C. Incremental.
D. Fixed.
ANSWER: D
61. Which of the following is not a fixed cost?
A. Payment of interest on borrowed capital.
B. Charges for fuel and electricity.
C. Depreciation charges on equipment and buildings.
D. Contractual rent for equipment or building.
ANSWER: B
62. Cost functions are derived functions. They are derived from--------.
A. Demand Functions.
B. Supply Functions.
C. Isoquant Functions.
D. Production Functions.
ANSWER: D
63. A cost function determines the behavior of costs with change in ------------.
A. output.
B. input.
C. technology.
D. wages.
ANSWER: A
64. If the firms output level is below the short run capacity of a firm, it is ------------- its plant and
machinery.
A. Under utilizing.
B. Fully utilizing.
C. Over utilizing.
D. Exploiting.
ANSWER: A
65. Which of the following statements regarding output is false?
A. The output is under the control of the firm.
B. The magnitude of the output determined the total cost of production
C. The change in output level determines the rate of change in the total cost of production.

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D. The output has no role to play in determining the cost function.

ANSWER: D
66. Which of the following statement regarding the long run cost function is not true?
A. In the long run,firms adjusts factors of production to meet the market demand.
B. In the long run,firms identify a combination that gives maximum output at the lowest cost.
C. Inputs are chosen for producing a desired level of output.
D. All the inputs in the long run are fixed
ANSWER: D
67. Which of the following statements regarding short and long run cost functions is not true?
A. A variable input varies according to the quantity of output to be produced.
B. In the short run,one or more of the inputs of the production process is fixed.
C. In the long run,all the inputs are fixed.
D. In the long run there are no restrictions on the resource allocation in the production process.
ANSWER: C
68. ------------ is used to measure the effects of changes in selling prices,fixed costs,and variable costs
on the output level that is to be achieved before the firm starts earning operating profits.
A. Input-output analysis.
B. Production function.
C. Consumer surplus.
D. Break-even analysis.
ANSWER: D
69. The point where the total cost equals the total revenue is known as --------.
A. Expansion point.
B. Break-even point.
C. Shut down point.
D. Focal point.
ANSWER: B
70. At break even point,the firms --------------.
A. Profits are maximum.
B. Profits are minimum.
C. Losses are maximum.
D. Revenue equals costs.
ANSWER: D
71. Which of the following statements regarding break-even analysis is true?
A. It can be used for dealing only with the known values.
B. By specifying the levels of known variables,a required or minimum level can be found for the
unknown variable.
C. The revenue-output and cost output functions are of no relevance in break-even analysis.
D. Break-even analysis involves highly complicated technical procedures.
ANSWER: D
72. . In a graphical representation of break-even analysis,at any level of production the vertical
distances between the curves of total revenue and total cost indicates---------.
A. Break-even quantity.
B. Break-even revenue.
C. Total profit.
D. Total variable cost.
ANSWER: B

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73. In the short run, if the firm cannot cover its total variable cost -------.
A. It continues its operations.
B. It shuts down its operations temporarily.
C. It shuts down its operation forever.
D. It makes more investments to make the operation viable.
ANSWER: C
74. In the short-run,in which of the following conditions should firm shut down its operations?
A. If the firm cannot cover its total costs.
B. If the firm cannot cover its fixed costs.
C. If the firm cannot cover its variable costs.
D. If the firm covers only its variable costs.
ANSWER: C
75. In the long run,if the firm is unable to cover the average total cost then it -------.
A. Decrease the selling price.
B. Increase the lobor to increase production.
C. Decrease the labor to decrease production.
D. Moves out of business.
ANSWER: C
76. Inventory economies are a part of which of the following type of economics scale?
A. Production.
B. Selling.
C. Labor.
D. Storage and transport.
ANSWER: D
77. ___________ innovation is of more importance as it helps in increasing the standard of living in the
long run.
A. Process
B. Product
C. Plant
D. There is no relationship between innovation and standard of living
ANSWER: B
78. Which of the following is not true about labor economics?
A. Larger scale of production enables the division of labor.
B. Division of labor is not profitable at small scale of production.
C. Division of labor results in improving workers skills.
D. Division of labor is impossible in firms with large scale production.
ANSWER: D
79. Which of the following is true about labor economics?
A. Division of labor results in more time consumption in shifting from one type of work to another.
B. Larger scale of production cannot support the division of labor.
C. Division of labor is equally profitable and viable both in large and small scale of operations.
D. Division of labor is not profitable at a small scale of production.
ANSWER: D
80. ----------- economies result from the use of specialized equipment and modern techniques of
production.
A. Marketing.

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B. Selling.
C. Managerial.
D. Production.
ANSWER: D
81. Which of the following is an important ingredient of selling economies?
A. Advertising economies.
B. Inventory economies.
C. Transportation economies.
D. Storage economies.
ANSWER: A
82. Problems like managerial difficulties,low employee morale,higher input prices,etc arising out of
large scale operations lead to --------.
A. Large economies of scale.
B. Pecuniary economies of scale.
C. Real economies of scale.
D. Diseconomies of scale.
ANSWER: D
83. Manufacturers can lower their costs by producing a variety of different products on the same
equipment. The added volume helps in lowering average costs;it may also allow the firm to employ
different types of equipment that have lower variable costs. These factors lead to -------------.
A. Production economies of scale.
B. Economies of scope.
C. Pecuniary economies of scale.
D. Technical economies of scale.
ANSWER: B
84. ---------- economies are associated with the distribution of the product of a firm.
A. Manufacturing.
B. Inventory.
C. Production.
D. Selling.
ANSWER: D
85. In which of the following types of market structures, are resources assumed to be mobile?
A. Monopoly.
B. Oligopoly.
C. Perfect competition.
D. Monopolistic competition.
ANSWER: C
86. Which of the following is true about perfect competition?
A. Firms can enter freely in the market,but it is difficult to exit from the market.
B. Firms face difficulty in entering the market,but firms can freely exit from the market.
C. Entry and exit in the market is highly restricted.
D. Firms are free to enter and exit the market.
ANSWER: D
87. The assumption that there are a large number of sellers and product homogeneity,in perfect
competition implies that all individual firms in perfect competition are---------.
A. Price takers.
B. Price movers.

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C. Price givers.
D. Price offerers.
ANSWER: A
88. In a perfectly competitive market,the demand curve is ------------.
A. Relatively inelastic.
B. Unitary elastic.
C. Relatively elastic.
D. Infinitely elastic.
ANSWER: B
89. Which of the following statements regarding perfect competition is false?
A. Supply and demand forces determine the price of a commodity.
B. All buyers in the market are always in position to influence the market.
C. In the short run, the firm takes the market price as given.
D. Considering the market price, firm adjusts the level of output to maximize profits.
ANSWER: B
90. Cost of material is ______cost of production.
A. fixed.
B. variable.
C. opportunity.
D. marginal.
ANSWER: B
91. Average fixed cost _____.
A. Never becomes zero.
B. Curve never touches x axis.
C. Curve never touches y axis.
D. All the above.
ANSWER: D
92. The cost that cannot be altered by present decision is known as________.
A. sunk cost.
B. variable cost.
C. implicit cost.
D. marginal cost.
ANSWER: A
93. The cost of additional unit of production is known as ______.
A. incremental cost.
B. total cost.
C. marginal cost.
D. no cost.
ANSWER: C
94. With the expansion of scale of production benefit enjoyed by all firms are known as ___.
A. external economics.
B. internal economics.
C. business economics.
D. economics.
ANSWER: A
95. All the costs are variable in ______.

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A. short period .
B. long period.
C. average period.
D. regional period.
ANSWER: B
96. If there is a single buyer, it is called ________.
A. monopoly.
B. monopsony.
C. oligopoly.
D. duopoly.
ANSWER: B
97. If there are few sellers it is called ________.
A. oligopoly.
B. duopoly.
C. monopoly.
D. monophony.
ANSWER: A
98. The producer under monopoly is _______.
A. price taker.
B. price maker.
C. Price keeper.
D. make.
ANSWER: B
99. ______ are the example of oligopoly.
A. Petrol pumps.
B. Pumps.
C. Diesels pumps.
D. Water hoses.
ANSWER: A
100. In real life neither perfect competition nor ______ situation are found.
A. monopoly.
B. oligopoly.
C. duopoly.
D. triopoly.
ANSWER: A
101. Perfect competition is ______ concept than pure competition.
A. broader.
B. shorter.
C. longer.
D. wider.
ANSWER: A
102. Economics is a study of ______.
A. wealth.
B. science.
C. arts.
D. science and arts.
ANSWER: A

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103. Economics deals with ______.

A. micro economics.
B. macro economics.
C. micro& macro economics.
D. partially micro and partially macro.
ANSWER: C
104. What is cetris peribus?
A. Other thing remaining the same
B. Many things remaining the same.
C. Things remaining the same.
D. Things remaining different.
ANSWER: A
105. Demand function gives the relation between the____demand and the factors affecting it.
A. quality.
B. quantity.
C. price.
D. price& quality.
ANSWER: B
106. ______ is the process of finding the values for demand in future time period.
A. Demand forecasting.
B. Inventory forecasting.
C. Quality forecasting.
D. Quantity forecasting.
ANSWER: A
107. Demand is always defined with reference to _______.
A. quality.
B. price.
C. quantity.
D. quality and quantity.
ANSWER: B
108. The law of demand is portrayed graphically is called _____.
A. law of demand curve.
B. price curve.
C. quantity curve.
D. demand curve.
ANSWER: D
109. ______ is an example of Veblen goods.
A. Fruits.
B. Vegetables.
C. Matchboxes.
D. Platinum.
ANSWER: D
110. When production in expressed in terms of monetary units , it is called _____.
A. direct cost.
B. total cost.
C. money cost.

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D. indirect cost.
ANSWER: B
111. _____________is also called accounting cost.
A. Private cost.
B. Social cost.
C. Implicit cost.
D. Explicit cost.
ANSWER: D
112. Which are called holding cost?
A. Optimum cost.
B. Carrying cost.
C. Inventory cost.
D. Level cost.
ANSWER: B
113. The degree of response of demand to change in price is_____.
A. Price elasticity of demand.
B. Cross elasticity of demand.
C. Income elasticity of demand.
D. Elasticity of demand.
ANSWER: A
114. To manufacture a PC, you require a keyboard and a monitor. If the number of keyboard is
represented on X-axis and monitors on the Y-axis, the shape of the Isoquant will be _______________.
A. Convex to the origin.
B. Concave to the origin.
C. Downward sloping straight line.
D. L shaped.
ANSWER: D
115. If the amount of commodity purchased remains unchanged when the price of another commodity
changes, the cross elasticity of demand between them is ____________.
A. Negative.
B. Positive.
C. Zero.
D. One.
ANSWER: C
116. The demand for water consumption is inelastic if water charges increase, which of the following is
likely to occur?
A. Quantity demanded will fall by a relatively large amount.
B. Quantity demanded will fall by a relatively small amount.
C. Quantity demanded will rise in the short run ,but fall in the long run .
D. Quantity demanded will fall in the short run ,but rise in the long run.
ANSWER: B
117. Production differentiation in a monopolistic competition could lead to a ____________.
A. Horizontal demand curve.
B. Downward sloping demand curve.
C. Vertical demand curve.
D. Downward sloping supply curve.
ANSWER: B

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118. Which of the following describes price discrimination in a monopoly?

A. Same product selling at different prices since the costs of production are different.
B. Same product selling at different prices though the costs of production are the same.
C. Different products having the same price though the costs of production are the same.
D. Different products having different prices since the costs of production are different
ANSWER: B
119. Which of the following statements best describes the total product curve?
A. It rises initially at an increasing rate and later at a diminishing rate.
B. It rises initially at a decreasing rate and later at an increasing rate.
C. It rises at an increasing rate only.
D. It is always constant.
ANSWER: A
120. Which law states that the consumer will spend his income on different products in such a way that
the marginal utility of each product is proportional to its price/.
A. Law of diminishing marginal utility.
B. Marginal utility theory.
C. Equimarginal utility.
D. Total utility theory.
ANSWER: C
121. How will an increase in taxes on a firms output affect the firms cost functions?
A. The marginal cost curve will shift up and the average total cost curve will shift down.
B. The marginal cost curve will shift down and the average total cost curve will shift up.
C. Both the marginal and average cost curves will shift up.
D. Both the marginal and average cost curves will shift down.
ANSWER: C
122. In a perfectly competitive market the burden of a specific tax that will be borne by the consumer
(buyer) depends on ___________, given the market demand.
A. Elasticity of demand.
B. Demand for the good.
C. Price elasticity of supply.
D. Incidence of taxation.
ANSWER: C
123. Which type of elasticity helps the government in formulating the fiscal policy?
A. Income elasticity.
B. Price elasticity.
C. Cross elasticity.
D. Advertisement elasticity.
ANSWER: B
124. In the long run if the average variable cost is not less than the price ,the firm ____________.
A. Makes profit.
B. Experiences a decline in profit.
C. Decides to shut down the operations.
D. Continues with the same level of production.
ANSWER: C
125. When does the demand curve shift to the left?
A. When demand increases.

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B. When demand falls.

C. When quantity demanded increase.
D. When price falls.
ANSWER: B
126. A consumer stops consuming a product when _____________.
A. Total utility is equal to marginal utility.
B. Marginal utility reaches its maximum.
C. Marginal utility is equal to price.
D. Marginal utility becomes zero.
ANSWER: C
127. ___________ shows the maximum possible combined output of the two goods.
A. Production possibility curve.
B. Distribution possibility curve.
C. Supply curve.
D. Demand curve.
ANSWER: A
128. When price of products of a firm in a perfectly competitive market is less than its average total
cost ,then the firm__________.
A. Is incurring an economic loss.
B. Will raise its price to increase its economic profit.
C. Is earning an economic profit.
D. Will lower its price to increase its economic profit.
ANSWER: A
129. What problem do oligopoly usually face?
A. They can not produce similar goods.
B. Barriers to entry.
C. cithers are many firms to influence price.
D. The action of a firm affects the profits of another firm.
ANSWER: D
130. The behavior of the total product curve can be best described by which of the following
statements/.
A. When labor is increased ,initially the average total product curve rises ,and subsequent increase in
labor lead to a decline in the average total product curve.
B. Average total product curve rises with additional labor input.
C. With every additional labor unit the average total product curve declines.
D. The labor input has no impact on the total product curve.
ANSWER: A
131. Which of the following statements best describes the total variable cost curve?
A. It initially increases at an increasing rate, later at a decreasing rate.
B. Increases initially at a decreasing rate,later at an increasing rate.
C. Decreases initially at an increasing rate,later decreasing at a decreasing rate.
D. . Increases at a constant rate.
ANSWER: B
132. In economic terms, what does total product refer to?
A. The total output that a labourer produces in a given time period.
B. The total amount of output produced using a given quantity of a factor ,assuming other factors to
be constant.

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C. The product which is ready for sale.

D. The product which comprises small components, where each component is itself a small product.
ANSWER: B
133. Which of the following is the shape of the marginal revenue curve of a firm operating in a perfectly
competitive market?
A. Upward-sloping.
B. Parallel to x-axis.
C. U-shaped.
D. Downward sloping.
ANSWER: B
134. The marginal product of labour in aproduction process equals ____________.
A. Total output divided by total labour.
B. Sum of total output and the total capital stock.
C. The change in total output as a result of a change in the labour.
D. Total output produced by labour.
ANSWER: C
135. in a production possibility curve, at which point does the economy operate at its full productive
capacity, that is, all the factors of production are fully employed?
A. All the points on the production possibility curve.
B. Point where the total cost of production is minimised.
C. Point anywhere outside the production possibility curve.
D. Point anywhere inside or on the production possibility curve.
ANSWER: A
136. Indifference curve indicates___________.
A. The various combinations of two products or services to which the customer is indifferent at a
particular level of income.
B. The various combinations of two goods or services that the consumer can buy.
C. A point where the consumers prefers one combination over the other.
D. A point where the budget line and the indifference curve intersect.
ANSWER: A
137. Which statement best represents the characteristic of long run production?
A. No factors of production can be adjusted according to the production level.
B. A few factors of production can be adjusted according to the production level.
C. All factors of production including capital can be adjusted according to the production level.
D. All factors of production excluding capital can be adjusted according to the production level.
ANSWER: C
138. When the slope of the isocost is equal to the slope of the isoquant, it represents______________.
A. The point at which the firm starts making profit.
B. The best combination of variable and fixed cost.
C. The least cost input combination.
D. The point at which the firm has to shut down its operations.
ANSWER: C
139. If output increases in the short run, total cost will.
A. Increase due to an increase in fixed costs only.
B. Increase due to an increase in variable costs only.
C. Increase due to an increase in both fixed and variable costs.
D. Decrease if the firm is in the region of diminishing returns.

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ANSWER: B
140. Which of the following statements describes increasing returns to scale?
A. Doubling the inputs used results in more than double the output.
B. Increasing the inputs by 50 percent leads to a 25 percent increase in output.
C. Increasing inputs by one by fourth leads to an increase in output of one by third.
D. None of the above.
ANSWER: A
141. Which characteristic best describes a monopolically competitive market.
A. Firms spend a lot on advertising and promotion.
B. Product differentiation is not easy.
C. Number of firms in the market is limited.
D. Firms spend very little on advertising and promotion.
ANSWER: A
142. Which of the following is not a determinant of the firms cost functions?
A. The production function.
B. The price of labour.
C. Taxes.
D. The price of the firms output.
ANSWER: D
143. In the short run ,firm will have to shut down.
A. If the firm cannot cover its variable costs.
B. If the firm cannot cover its fixed costs.
C. If the firm cannot cover its total costs.
D. If the firm cannot cover its explicit and implicit costs.
ANSWER: A
144. Which type of demand curve can be seen in a firm operating in a perfectly competitive market?
A. Upward sloping.
B. Downward sloping.
C. A vertical line.
D. A horizontal line.
ANSWER: D
145. If the average total cost is Rs30 for 5 units of output and Rs32 for 6 units of output ,the marginal
cost of producing the 6 th unit is ___.
A. 2.
B. 42.
C. 32.
D. 12.
ANSWER: B
146. Demand elasticity measures the impact of a price change on total revenue. What will be the
elasticity of demand for necessity goods and luxury goods?
A. Demand is highly elastic for necessity goods and inelastic for luxury goods.
B. Demand is inelastic or necessity goods and perfectly elastic for luxury
C. Elasticity of demand for necessity goods will be high and for luxury goods will be low.
D. Demand is elastic for both necessity goods and luxury goods.
ANSWER: B
147. . What changes will take place in an aggregate demand curve when government reduces the tax

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and increases the purchase of goods and services in the economy?

A. Aggregate demand curve remains the same.
B. Aggregate demand curve moves towards the right.
C. Aggregate demand curve moves toward left.
D. Both b and c.
ANSWER: B
148. A firm achieves least-cost in production by substituting the factors until
A. The marginal physical product to the factor price ratio is equal for all factor inputs.
B. Their marginal physical products are equal.
C. Their marginal physical products are equal to their factor prices.
D. Their marginal physical products are equal to zero.
ANSWER: A
149. Which of the following is a character of collusive oligopoly?
A. Firms produce different products and sell in different markets.
B. Product differentiation.
C. Firms decisions are not influenced by any external factor.
D. Firms cooperate with one another and jointly set their prices or outputs.
ANSWER: D
150. What will happen to the demand curve if there is a reduction in the shipments of petroleum
products due to a war or war-like situation in the Middle East?
A. The supply curve will shift to the right.
B. Quantity demanded will increase.
C. The demand curve will shift to the left.
D. Quantity demanded will decrease.
ANSWER: D
151. Which of the following is a variable cost for a firm?
A. The interest payments made on loans.
B. Payment of wages and salaries of temporary staff.
C. The monthly rent on office space that it leased for a year.
D. The annual pollution clearance fee.
ANSWER: B
152. Under collusion through price leadership, the price leader sets his price_________.
A. By equating the marginal revenue and average revenue.
B. By equating the marginal cost and average cost.
C. By equating the marginal revenue and marginal cost.
D. By equating the average variable cost and marginal cost .
ANSWER: C
153. What does a higher consumer surplus in an economy indicate?
A. Economy is stable.
B. Economy is reaching its equilibrium.
C. Higher inequality in the economy.
D. Though economy is functioning efficiently ,financially it is not sound.
ANSWER: A
154. In the formulation of the short-run production function __________.
A. The capital investment can be varied.
B. The quantity of capital employed is assumed to be fixed.
C. The quantity of both labour and capital employed are assumed to be fixed.

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D. The quantity of output is usually fixed.

ANSWER: B
155. Demand is more elastic in the long period because of
A. Increase in income.
B. Availability of substitutes.
C. Change in government policy.
D. Availability of goods.
ANSWER: B
156. In the short run, when does a firm operating in a perfectly competitive market earn economic
profit?
A. When the price of its products is greater than marginal cost.
B. When the price of its products is equal to average total cost.
C. When the price of its products is greater than average total cost.
D. When the price of its products is equal to marginal cost.
ANSWER: C
157. Keeping the total utility constant , a consumers reaction to a change in the relative prices of two
products is known as _______________.
A. Income effect.
B. Substitution effect.
C. Price effect.
D. Effect of taxation.
ANSWER: B
158. Which of the following statements explains the behavior of the short-run marginal cost of a firm?
A. It increases as the level of output produced increases.
B. It shows the change in total variable cost that results when an additional; unit of output is
produced.
C. It includes the cost of the firms fixed costs.
D. It is the cost of inputs like labour and raw materials.
ANSWER: B
159. In which form of price discrimination are the prices based on the quantities of output purchased by
individual consumers?
A. First degree price discrimination.
B. Second degree price discrimination.
C. Third degree price discrimination.
D. Both in second and third degree price discrimination.
ANSWER: B
160. The supply curve is a vertical line when the supply is _____________.
A. Perfectly elastic.
B. Unitary elastic.
C. Perfectly inelastic.
D. Relatively inelastic.
ANSWER: C
161. The maximum price a buyer will pay for another unit of a good is called _________.
A. The marginal benefit of the good.
B. The marginal cost of the good.
C. The average cost of the good.
D. The average variable cost of the good.

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ANSWER: A
162. ______________ plays a significant role in the decision-making process at the individual level
where the individual as to choose between alternatives.
A. Opportunity cost.
B. Production possibilities.
C. Economic growth.
D. Market mechanism.
ANSWER: A
163. A firm in a perfectly competitive market maximizes its profits when ___________.
A. Demand is equal to supply.
B. Marginal revenue is equal to marginal cost.
C. Marginal revenue is equal to average cost.
D. Average revenue is equal to average cost.
ANSWER: B
164. For ____________ the demand for goods and services decreases as the income increases.
A. Luxury goods.
B. Complementary goods.
C. Inferior goods.
D. Normal goods.
ANSWER: C
165. The Law of diminishing returns is applicable in ___________.
A. The short run.
B. The long run.
C. Both the short run and the long run.
D. Neither in the short run nor in the long run.
ANSWER: A
166. Reduction in prices (discounts)on raw materials given by suppliers to large purchasers is an
example of _____.
A. Managerial economies of scale.
B. Pecuniary economies of scale.
C. Selling economies of scale.
D. Production economies of scale.
ANSWER: B
167. . If a 5 percent increase in income leads to a 12 percent increase in the quantity demanded for
mobile phones ,cetris paribus,the income elasticity of demand for mobile phones is a _______.
A. 2. 4 and mobile phones area normal good.
B. 0. 42 and mobile phones are a normal good.
C. 2. 4 and mobile phones are an inferior good.
D. 0,42 and mobile phones are an inferior good.
ANSWER: A
168. Which of the following industry in India resembles monopoly to a large extent?
A. Domestic airlines.
B. Car industry.
C. Railways.
D. Internet service providers.
ANSWER: C

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169. The difference between the gross and the net aggregate value of capital equipment is known as
____________.
A. Depreciation.
B. Appreciation.
C. Revenue.
D. Deficit.
ANSWER: A
170. What is the impact of technological advancement on the total product curve?
A. It remains constant.
B. It declines.
C. It rises upwards
D. It rises initially and starts declining later.
ANSWER: C
171. Which of the following statements is true of a monopolist?
A. Spends heavily on advertising.
B. Tries to differentiate the product.
C. Leads to cartel formation.
D. Spends very little on advertising.
ANSWER: D
172. What is the shape of the long run average cost curve when derived from short run average cost
curves?
A. Parabola.
B. Hyperbola.
C. Envelope.
D. Straight line
ANSWER: C
173. Which of the following is an example of sunk cost?
A. The increase in total costs if a firm hires more labour to expand output.
B. Interest that could have been earned if the firm had deposited capital in the bank.
C. The cost of a piece of capital purchased three years ago that is now obsolete due to technological
advances,and has a scrap value of zero.
D. The additional cost a firm has to pay as a result of increase in property tax.
ANSWER: C
174. Which of the following is false with reference to indifference curve?
A. Every point on the curve yields exactly the same level of satisfaction to a given consumer.
B. It is a curve whose axes measure the amount of goods consumed.
C. It can be used to explain the downward sloping demand curve.
D. The consumer is indifferent to the price of the consumption along the curve.
ANSWER: D
175. A rational consumer stops consuming a product when his __________.
A. TU = MU.
B. MU reaches its maximum.
C. MU= Price.
D. MU becomes zero.
ANSWER: C
176. If a company breaks even at 500 units, at a fixed cost of Rs2,00,000 and the average variable cost
is Rs 50. At what price is the company selling the product?

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A. 400.
B. 350.
C. 500.
D. 450 .
ANSWER: D
177. A multi brand clothes showroom sold 100 shirts per day when the average income level of its
customers was Rs 4,000. When the income level increased to Rs 6,000 the demand for shirts increased
to 120. What is the nature of the particular shirt?
A. Necessity.
B. Luxury.
C. Inferior good.
D. Substitute.
ANSWER: A
178. Which of the following involves the study of the overall economy of a country?
A. Micro economics
B. Macro economics.
C. Home economics.
D. General economics.
ANSWER: B
179. The concept of product pricing is covered in __________.
A. Wage theory.
B. Theory of interest.
C. Macro economic theory.
D. Micro economic theory.
ANSWER: D
180. . Under which of the following market conditions can each firm operating in a market influence the
prices of goods even when the goods are homogeneous?
A. Monopoly.
B. Monopolistic.
C. Oligopoly.
D. Homogeneous.
ANSWER: C
181. Land,Labour,Capital and entrepreneurship together are referred as _____________.
A. Production factors.
B. Factors of production.
C. Factor terms.
D. Production contributors.
ANSWER: B
182. What is the nature of demand for factors of production?
A. Direct demand.
B. Dependable demand.
C. Independent demand.
D. Derived demand.
ANSWER: D
183. Which of the following economists propounded the real theory of interest?
A. Marshall and Fisher.
B. Keynes.

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C. Schumpeter.
D. Walker.
ANSWER: A
184. Which of the following best defines net interest?
A. Compensation for borrowing capital only.
B. Compensation for management of loan.
C. Compensation for taking risk of money lending.
D. Compensation for inconvenience of investment.
ANSWER: A
185. The process of predicting the trends in the economic conditions of a country is known as
_______________.
A. Demand forecasting.
B. Business forecasting.
C. Economic forecasting.
D. Market forecasting.
ANSWER: C
186. Roy recently bought a shirt worth Rs1500. Eventually ,Roy bought five more shirts at the same
price and then he decided not to buy any more. Why?
A. The law of diminishing marginal utility starts operating.
B. The supply curve for shirt is downward sloping.
C. He minimizes his satisfaction within the 5th shirt.
D. Because of budget constraint.
ANSWER: A
187. In India ,the credit card market is dominated by two major companies Visa and Mastercard. This is
an example of which type of market structure.
A. Monopolistic competition.
B. Monopoly.
C. Duopoly.
D. Perfect competition.
ANSWER: C
188. Which type of economics explains economic phenomena according to their cause and effects?
A. Normative.
B. Positive.
C. Macro.
D. Micro.
ANSWER: B
189. Why cant new firms enter the perfectly competitive market in the short run?
A. Average total cost is high.
B. Marginal cost is higher than marginal revenue.
C. Factors of production are fixed.
D. Average total cost is low.
ANSWER: C
190. In the service industry ,it takes less time to take a decision compared to a manufacturing industry
because of ______________.
A. Large fixed investment.
B. Low productivity cost.
C. Less capital equipment.

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D. High variable cost.

ANSWER: C
191. According to the law of diminishing returns, if more labor is employed, capital remaining the same
A. The marginal productivity of labor is zero.
B. The marginal productivity of labor decreases initially but starts increasing after reaching a high.
C. The marginal productivity of labor is negative.
D. The marginal productivity of labor will increase initially but start decreasing after reaching a high.
ANSWER: D
192. Which of the following reveals the consumers reaction to a change in the relative prices of two
products, keeping the total utility constant?
A. Consumer surplus.
B. Income effect.
C. Substitution effect.
D. Marginal rate of substitution.
ANSWER: C
193. At what point does total utility start diminishing?
A. When marginal utility is positive.
B. When marginal utility is increasing.
C. When marginal utility is negative.
D. When marginal utility remains constant.
ANSWER: C
194. In a perfectly competitive market, when does a firm reach its equilibrium point?
A. When marginal cost is equal to marginal revenue.
B. When economic profit becomes zero.
C. When abnormal profit is not there.
D. When economic profit is equal to normal profit. Answer: A
ANSWER: A
195. Which of the following explains the effect of a change in price on the consumption of
goods/services?
A. Shift in demand.
B. Increase in demand.
C. Change in demand.
D. Extension in demand.
ANSWER: C
196. __________ represents the tabular form of quantity demanded of a particular product during a
given period of time.
A. Law of demand.
B. Demand schedule.
C. Demand curve.
D. Market demand.
ANSWER: B
197. Why do cartel agreements usually fail?
A. Cartels lead to decline in the supply.
B. Cartels are illegal throughout the world.
C. Cartels are not looked upon with respect throughout the world.
D. Each member can maximize profits by reducing the price and increasing sales.
ANSWER: D

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198. ____________ is the difference between the time a new or an improved product is introduced in
one country, and the time when consumers in the other country start demanding it.
A. Supply lag.
B. Demand lag.
C. Imitation gap.
D. Technological gap.
ANSWER: B
199. According to the law of diminishing marginal returns,___________.
A. Additional labor always yields negative output.
B. Additional labor always yields extra output.
C. Additional labor leads to lower average total cost.
D. After a point any addition in the labor causes a reduction in total output.
ANSWER: A
200. Which of the following helps the manager to decide the demand for a product?
A. Price of the product.
B. Price of the substitute product.
C. Elasticity of the product.
D. All the above.
ANSWER: D
201. Which of the following is not a selective credit control method?
A. Rationing of credit.
B. Direct action.
C. Changes in margin requirements.
D. Reserve requirement changes.
ANSWER: D
202. The time taken by the central bank in recognizing that there is a need to alter monetary policy is
known as_______?
A. Action lag.
B. Recognition lag.
C. Reaction lag.
D. Outside lag.
ANSWER: B
203. Which of the following is not true about monetary policy in the Indian context?
A. The monetary policy aims at price stability and growth.
B. The monetary policy measures in India were never influenced by the fiscal policy.
C. The monetary policy has been primarily acting through the availability of credit.
D. The cost of credit has been adjusted upward in the past to meet inflationary situation.
ANSWER: B
204. Which of the following types of monetary policies requires countries to align its monetary policy
with that of other countries?
A. Fixed.
B. Floating.
C. Variable.
D. Both 1 and 2.
ANSWER: A
205. Which of the following institution acts as the government arm in the international financial

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market?
A. Ministry of Commerce.
B. Ministry of Finance.
C. Public sector Banks.
D. Central Bank.
ANSWER: D
206. Which of the following is the common feature among monetary policy and fiscal policy?
A. Both deal and interest rates.
B. Both deal and tax rates.
C. Both deal and foreign exchange.
D. Both deal and regulatory mechanism.
ANSWER: D
207. Which deficit financing increases, the RBI _______ to curb the excess liquidity?
A. Increases CRR.
B. Decreases Bank Rate.
C. Raises tax rate.
D. Resorts to open market purchases.
ANSWER: A
208. When banks finance small scale industry, small businesses etc. , it is called __________?
A. Commercial lending.
B. Priority sector lending.
C. Structural lending.
D. Industrial lending.
ANSWER: B
209. Which of the following is not a flow variable?
A. GDP.
B. Inflation.
C. Exports.
D. Consumer price index.
ANSWER: D
210. . _________ method of measuring national expenditure aggregates all the money spend by private
citizens, firms and government with in a given year?
A. Income.
B. Expenditure.
C. Savings.
D. Inputs.
ANSWER: B
211. Which of the following statements best describes the GDP deflator?
A. Real GNP to nominal GNP.
B. Nominal GNP to real GNP.
C. Nominal GDP to real GDP.
D. Nominal GNP to real GDP.
ANSWER: C
212. A current account deficit implies _______?
A. A debit balance in the merchandise account
B. A credit balance in the merchandise account.
C. Foreign exchange outflow on account import of goods and services and gifts made.

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D. Decrease in foreign exchange reserves.

ANSWER: C
213. When planned saving is greater than planned investment _______?
A. Output should increase.
B. Output should decrease.
C. Output should not change.
D. Inventory decreases.
ANSWER: B
214. Which of the following sectors is not included in the whole sale price index?
A. Primary articles.
B. Manufactured products.
C. Fuel light and lubricants.
D. Services and non-tradable commodities.
ANSWER: D
215. Which type of inflation takes place in an economy when a firm charges higher prices than the
actual cost of production?
A. Demand pull inflation.
B. Profit push inflation.
C. Wage push inflation.
D. Supply shock inflation.
ANSWER: B
216. An increase in the salaries of people is followed by a raise in the general price level. Which type of
inflation takes place in this situation?
A. Demand pull inflation.
B. Profit push inflation.
C. Wage push inflation.
D. Supply shock inflation.
ANSWER: B
217. Inflation has its negative and positive impact on the economy. Which class(es) of people is/are
going to be badly affected by running inflation?
A. Creditors.
B. Fixed income security investors.
C. Pensioners.
D. All the above.
ANSWER: D
218. In an economy when do people have tendency to hoard and indulge in black marketing?
A. When there is deflation in the economy.
B. When there is creeping inflation in the economy.
C. When there is moderate inflation in the economy.
D. When there is hyper inflation in the economy.
ANSWER: D
219. When an economy faces a situation of high inflation along with a high rate of unemployment, then
it is called ______?
A. Hyper inflation.
B. Stagflation.
C. Running inflation.
D. Cyclic unemployment.

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ANSWER: B
220. Which is the most effective quantitative method to control the inflation in an economy?
A. Bank rate policy.
B. Selective credit control.
C. Cash reserve ratio.
D. Both 1 and 2.
ANSWER: C
221. Which of the following is not a quantitative credit control measure to control inflation in an
economy?
A. Bank rate policy.
B. Open market operations.
C. Cash reserve ratio.
D. Selective credit control.
ANSWER: D
222. . Which of the following anti-inflationary fiscal policies has a negative impact on the economy,
when the economy is facing high inflation?
A. Public expenditure.
B. Taxes.
C. Deficit financing.
D. Public borrowing.
ANSWER: C
223. How can a country rectify disequilibrium in the balance of payment?
A. Through the exchange rate movement.
B. By controlling capital markets.
C. By raising interest rates.
D. By controlling inflation rates.
ANSWER: A
224. What is the fundamental rule of balance of payment account?
A. The sum of current account and capital account should be equal to zero.
B. Current account should be greater than capital account.
C. Capital account should be greater than current account.
D. The sum of current account and capital account should be greater than one.
ANSWER: A
225. ________ exists when the aggregate demand for products exceeds the productive capacity of the
economy?
A. Cost pull inflation.
B. Demand pull inflation.
C. Cost push inflation.
D. Demand push inflation.
ANSWER: B
226. The RBI during high inflationary period, would _______?
A. Sells government securities through open market operations.
B. Reduce reserve ratio.
C. Encourage commercial banks to increase lending.
D. Lower bank rates to encourage usage of refinance facility of banks. Answer: A
ANSWER: A

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227. How should the government respond when the economy is facing a depression?
A. Increase public expenditure.
B. Reduce public expenditure.
C. Increase direct tax.
D. Increase indirect tax.
ANSWER: A
228. Which one of the following is a record of countries monetary transaction with the rest of the world
during a specified period of time?
A. International trade.
B. Balance of trade.
C. Balance of payment.
D. Current account.
ANSWER: C
229. When a country enters into international trade, what record is maintained on the basis of double
entry book keeping?
A. Balance of payment.
B. Balance sheet.
C. International trade.
D. Profit and loss account.
ANSWER: A
230. What refers to a countries trade in visible items with other countries?
A. Capital account.
B. Balance of payment.
C. Balance of trade.
D. Current account.
ANSWER: C
231. Which of the following helps the government frame its monetary and fiscal policies to enhance the
economic growth of economy and achieve a favorable foreign exchange rate?
A. Balance of payment.
B. Balance sheet.
C. Capital account.
D. Current account. Answer: A
ANSWER: A
232. The _________ of the balance of payment depicts a countries real and short term transactions?
A. Capital account.
B. Current account.
C. Financial transaction.
D. Monetary transaction.
ANSWER: B
233. How can the government of a country reduce its deficit in balance of payment by arresting imports
and stimulating exports?
A. Depreciation.
B. Devaluation.
C. Deflation.
D. Inflation.
ANSWER: B
234. In a monopolistic competition, the long run equilibrium price will be equal to?

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A. Marginal revenue.
B. Average cost.
C. Marginal cost.
D. Both 1 and 2.
ANSWER: A
235. Which of the following represents the marginal rate of technical substitution (MRTS)?
A. Slope of the isocost curve.
B. Slope of the indifference curve.
C. Slope of the isoquant curve.
D. Slope of the budget line.
ANSWER: B
236. What depicts the total resource gap between the total government expenditure and the revenue
generates by the government?
A. Surplus finance.
B. Monetary deficit.
C. Primary deficit.
D. Fiscal deficit.
ANSWER: C
237. What is the most visible sign of recession in an economy?
A. Fall in the price level.
B. Rise in the unemployment level.
C. Weakening stock market.
D. Rise in inventory cost.
ANSWER: C
238. In which phase of the business cycle do banks lending activity decline?
A. Recovery.
B. Boom.
C. Recession.
D. Prosperity.
ANSWER: A
239. In which phase of the business cycle do producers try to sell out their inventories?
A. Recovery.
B. Boom.
C. Recession.
D. Prosperity.
ANSWER: A
240. . In which of the following market conditions, is a firm maximizes its profit when its marginal
revenue is equal to marginal cost?
A. Perfect competition.
B. Monopoly.
C. Monopolistic competition.
D. All the above.
ANSWER: D
241. What is the most comprehensive measure of the value of economic activity in an economy?
A. GNP.
B. GDP.
C. NNP.

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D. GNI.
ANSWER: B
242. A rapid increase in the price level during a period of recession or high unemployment is
called___________.
A. Deflation.
B. Inflation.
C. Stagflation.
D. Slump.
ANSWER: C
243. What is the most visible sign of recession in an economy
A. Fall in the price level.
B. Rise in the unemployment level.
C. Weakening stock market.
D. Rise in inventory cost.
ANSWER: C
244. In which phase of the business cycle do banks lending activity decline?
A. Recovery.
B. Boom.
C. Recession.
D. Prosperity.
ANSWER: C
245. In which phase of the business cycle do producers try to sell out their inventories?
A. Recovery.
B. Boom.
C. Recession.
D. Prosperity.
ANSWER: C
246. In which of the following market conditions, do only two players supply products to the same
market?
A. Perfect competition
B. Monopoly.
C. Duopoly.
D. All the above.
ANSWER: C
247. Which of the following is not a characteristic feature of monopolistic competition?
A. Many buyers and sellers.
B. Identical products.
C. Easy entry and exit of firms.
D. Firms take other firms prices as given.
ANSWER: B
248. Which of the following is not a characteristic feature common to both of monopolistic competition
and perfect competition?
A. Many buyers and sellers.
B. Identical products.
C. Easy entry and exit of firms.
D. Firms take other firms prices as given
ANSWER: B

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249. Which of the following statement best describes a cartel?

A. An organization of independent firms producing similar products that work together to raise prices
and restrict output.
B. An organization of independent firms producing different products that work together raise prices
and restrict output.
C. An organization of interdependent firms producing similar products that work together to raise
prices and restrict output.
D. An independent body setup by the government against oligopolistic firms.
ANSWER: A
250. OPEC stands for ________________.
A. Organisation for political and economic co-operation
B. Organisation of Petroleum Exporting Countries
C. Organisation of people economic council
D. Oil and Petroleum Exporting countries
ANSWER: B

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