IIEBM - Foundation of Economics

Multiple Choices Questions: (40 questions)

1. Economic goods are goods which:

a. Obey the laws of economics c. Are tangible
b. Are scarce and limited in supply d. Are intangible

2. A demand curve shows:

a. The quantity demanded of a good at various levels of price of the good.
b. The quantity demanded of a good at various levels of income of the consumer
c. The amount of money spent by a consumer on the good at various levels of price.
d. The quantity supplied of a good at various levels of price of the good.

3. You can buy any amount of rice at Rs. 10 per kg in the local market. The supply curve
for rice is:
a. Vertical c. Upward sloping
b. Horizontal d. Downward sloping

4. If the total expenditure of the consumer increases as a result of an increase in the price
of the commodity, the elasticity of demand for the commodity is:
a. Less than one c. Infinity
b. Greater than one d. Equal to one

5. If the good has close substitutes:

a. Its demand curve will be relatively inelastic c. Its demand curve could be unit-
elastic
b. Its demand curve will be relatively elastic d. Both (a) and (c)

6. The demand schedule for the product Alpha is given below:

Price (in.Rs.) Quantity Demanded

3 20
4 16
5 12
6 8
7 4
The price elasticity of demand for an increase in the price from Rs. 5 to Rs. 6 is:
a. 0.87 c. 1.50
b. 1.67 d. 1.25
7. Which of the following is true?
a. Goods are independent if a price change for one has no effect on the demand for the other
b. Income elasticity is the ratio of percentage change in the price of a good to the percentage
change in the income.
c. The reciprocal of income elasticity is the percentage change in the per capita income to the
percentage change in the quantity demanded of a good.
d. Both (b) and (c)

8. Increase in the population of India will:

a. Increase the supply of housing.
b. Increase the demand for housing.
c. Increase the quantity supplied of housing
d. Increase the quantity demanded of housing

9. If a consumption of a product remains unaffected by the change in price of the product,

demand for the product is:
a. Perfectly inelastic c. Perfectly elastic
b. Kinked d. Unitary elastic

10. If the total expenditure (i.e. total revenue) remains the same even after a change in
price, elasticity of demand is:
a. Equal to zero c. Less than unity
b. Equal to unity d. Greater than unity

11. Which of the following economic Policies influences the total quantity of money,
interest rate and total volume of credit in the economy?
a. Fiscal Policy
b. International trade policy
c. Prices and income policies
d. Monetary policy

12. Demand and supply schedule for a product is given below, identify the equilibrium
price:
Price (Rs. Per unit) Quantity Demand Quantity Supply
10 500 320
12 450 360
14 400 400
16 350 440
18 300 480
 20 250 520

a. Rs. 14 c. Rs. 16
b. Rs. 12 d. Rs. 18

13. The market for a good consists of three individuals – Mr. X, Mr. Y and Mr. Z. The
demand schedule of the individuals is given below:

Price of the good (Rs.) Quantity Demanded

Mr. X Mr. Y Mr. Z
100 0 0 0
90 3 1 0
80 5 2 1
70 6 4 2
What is the arc price elasticity of demand for the good, when the price decreases from Rs. 90
to Rs. 80 per unit?

a. 2.58 b. 5.67 c. 4.36 d. 7.24

14. In which of the following cases the price elasticity of demand will be perfectly inelastic?
a. Longer the time period c. Durable goods
b. No close substitutes d. Luxury products

15. When people have very little time to respond to price changes, demand becomes:
a. More elastic c. Unitary elastic
b. Less elastic d. Time does not affect price elasticity

16. When per capita income increases, proportion of income spent on good X increases. It
implies that good X is:
a. Luxury Good c. Necessary Goods
b. Inferior Good d. Giffen Good

17. The monthly demand schedule for rice for a family is given below:

Price (Rs./kg) Quantity Demanded

12 21
13 18
The arc price elasticity of demand of the rice is:
a. 1.90 c. 1.80
b. 1.92 d.1.70
18. If the total expenditure of the consumer decreases as a result of an increase in the
price of the commodity, the elasticity of demand for the commodity is:
a. Greater than one c. Infinity
b. Less than one d. Equal to one

19. If the quantity changes by 4% and the demand curve is inelastic, the price changes by:
a. More than 4% c. 3%
b. 1% d. 2%

20. A demand Curve always slope downwards:

a. Yes b. No c. Can’t Say

21. The supply curve of labour is:

a. Vertical straight line. c. Backward Bending
b. Horizontal straight line d. Does not exist.

22. In economics financial year is called:

a. Accounting year c. Calendar Year
b. Fiscal Year d. Monetary Year

23. Economists have two distinct notions of profit, which are they?
a. Normal and Super-normal c. Optimum profits & Loss
b. Cost and Lost d. Both a and b

24. Which one this is the residual income of the factor of production?
a. Rent c. Interest
b. Wages d. Profits

25. The coordinating mechanism in the economy of the price system was described by
Adam Smith as :
a. Visible hand c. Both (a) and (b)
b. Invisible hand d. Neither (a) nor (b)

26. In economics, production is defined as:

a. Creation of product c. Creation of value
b. Creation of process d. Creation of firm

27. Which of the following is not an economic activity?

a. A chartered accountant filing income tax returns of his client
b. A teacher teaching in a college
c. A son looking after his ailing mother
d. A shop-keeper selling products.
28. Positive Approach concerns with :
a. What it is? c. How it is?
b. What about it? d. Who it is?

29. Normative Approach concerns with :

a. What ought to be? c. What it is to be?
b. What gone to be? d. What about to be?

30. For a want to become a demand it must be backed by the:

a. Ability to buy the product c. Desire to buy the product
b. Necessity to buy the product d. Utility of the product

31. Quantity demand and price has a:

a. Positive relationship c. Constant relationship
b. Negative relationship d. Zero relationship

32. When the central bank sells securities, deposits with commercial banks:
a. Increases marginally
b. Remains unchanged
c. Increases drastically
d. Declines

33. Which of the following is not true about perfect competition?

a. The demand curve is also the firm’s marginal revenue curve.
b. The demand curve slopes downwards.
c. Free entry and exit.
d. Perfect knowledge among buyers and sellers

34. Which of the following is false?

a) Short run is the period in which no costs are variable
b) Long run is the period in which all costs are variable
c) Total cost and total variable cost differ by a constant amount i.e. total fixed cost.
d) Capital costs are said to be fixed and materials cost, variable, in the short run.

35. Which of the following costs is not recorded in the books of a firm?
a) Out-of-pocket costs
b) Fixed costs
c) Implicit costs
d) Variable costs

36. A firm will break –even when:

 a. TR = MC
b. MR = MC
c. AR= AC
d. Price = MC

37. What is Repo Rate?

a. It is the rate at which government sells securities to commercial bank.
b. It is the rate at which RBI allows small loans in the market
c. It is the rate which is offered by Banks to the premium customers
d. It is the rate at which bank borrows rupees from RBI

38. The assumptions that there are a large number of sellers and product homogeneity, in
perfect competition it imply that all individual firms are _________:

a. Price Takers
b. Price movers
c. Price givers
d. Price offers

39. Gilt-edged market means:

a. Bullion Market
b. Market of Guns
c. Market of pure Metals
d. Market of Government Securities

40. The Balance of Payments is divided into two major accounts the:
a. Capital A/c & Current A/c
b. Trade A/c & Capital A/c
c. Current A/c & Reserve A/c
d. Current A/c & Trade A/c

Ques. Ans. Ques. Ans. Ques. Ans. Ques. Ans.

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