Microeconomics

Demand and Supply

What does the following graph represent?

(Note: This graph is for normal goods)

A relatively elastic supply curve

A relatively inelastic supply curve

✓ Correct
Feedback:
This is an upward sloping curve. This can help you infer that it is a supply
curve. Moreover, elasticity < 1, which is termed as ‘relatively inelastic’.

A relatively elastic demand curve

A relatively inelastic demand curve

Demand and Supply

Suppose Qualcomm hiked the price of their Snapdragon chips suddenly. These chips are
used for manufacturing most major smartphones in the market.

What can you infer about the change in the equilibrium price and quantity of
smartphones that use Snapdragon chips? (Assume ceteris paribus.)

The price will increase, and the quantity will increase.

The price will decrease, and the quantity will increase.

The price will decrease, and the quantity will decrease.

The price will increase, and the quantity will decrease.

✓ Correct
Feedback:
The increase in the input costs will lead to the supply curve of smartphones shifting
leftward. The demand curve will stay the same. This leads to an increase in the price and
a decrease in the quantity.

Demand and Supply

Take a look at the following table.

Price ($) Supply Demand

10 105 942

20 190 673

30 304 452

40 490 298

Where would the equilibrium price lie?

Between $10 and $20

Between $20 and $30

Between $30 and $40

✓ Correct
Feedback:
The demand and supply curves cross each other between $30 and $40. This is where the
equilibrium price would lie.

Above $40

Market Structure
'Interdependence of firms' is a key characteristic of which of the following market
structures?

Perfect competition

Monopolistic competition
Oligopoly

✓ Correct
Feedback:
Oligopoly is a market structure that has a few large firms producing homogeneous but
differentiated products. One of the key characteristics of oligopolies is interdependence
of firms, as the decisions of each firm affects the market.

Monopoly

Market Failure and Government Intervention

Which of the following is NOT an example of market failure owing to incomplete
information?

An employer does not fully understand the capability of the employees and hires them
on a flat-rate compensation.

A car owner does not share complete information pertaining to a prior accident with the
car agent or the buyer.

A health insurance purchaser does not reveal the family history of diabetes to the
insurance provider.

The roommate of a chain smoker is prone to cancer because of passive smoking.

✓ Correct
Feedback:
This is not an example of market failure due to incomplete information. This is an
example of an externality.

Market Failure and Government Intervention

Which of the following options represent an ‘external cost’ and an ‘external benefit’,
respectively?

Burning crops and recycling

✓ Correct
Feedback:
Burning crops is an example of an external cost, as it leads to pollution, and recycling is
an example of an external benefit, as it leads to reducing pollution.

Education and tuition fees

Animal testing and environmental pollution

Cost of a product and profit made by the seller

Consumer and Producer Theory

The following figure shows three indifference curves in red and the budget line of a
consumer in blue. The x-axis represents the quantity of Good X consumed, and the y-axis
represents the quantity of Good Y consumed. Identify the correct statement based on
this information.

While moving from I2 to I3, the quantity of goods in the bundle decreases.

Any point on I1 is more preferred by the consumer than any point on I2.

A slight reduction in the consumer’s budget would make I2 unaffordable.

✓ Correct
Feedback:
I2 only meets the budget line at one point. Thus, consumers will not be able to afford it if
the budget reduces even slightly.

The quantities Qx and Qy would remain constant even if the prices of Good X and Good Y
change.

Consumer and Producer Theory

Match the following costs with their category.
 Cost:
A. Rent of the factory
B. Giving up alternate revenue streams
C. Input costs of raw material
Category:
1. Fixed cost
2. Variable cost
3. Opportunity cost

A-1, B-3, C-2

✓ Correct
Feedback:
1. Rent of a factory usually does not change based on the quantity of output the factory is
producing. It is a cost incurred irrespective of the business activites. Thus it is a fixed
cost.
2. Giving up alternate revenue streams is known as the opportunity cost.
3. Input cost of raw materials depends on the quantity of output produced, and hence is a
variable cost.

A-2, B-1, C-3

A-3, B-1, C-2

A-2, B-3, C-1

Consumer and Producer Theory

A small marketing agency has the following cost structure.

Monthly rent on office space = $5,000

Monthly wages of each copywriter = $2,000
Here are the units of output produced per month according to the number of copywriters
hired.

No. of Copywriters No. of Units Produced Per Month

1 30

2 55

3 75

4 90

5 100

6 108

7 114

8 118
9 116

10 117

Till what number of copywriters was the firm experiencing economies of scale?

Please find below formula for your reference:

Average Total Cost = Total Cost / Number of units produced

✓ Correct
Feedback:
You have to calculate the Average Total Cost for each number of copywriters hired.

Fixed Cost Variable Cost Total Cost ATC

Copywriters No. of Units Produced
(in ₹) (in ₹) (in ₹) (in ₹)
1 30 5000 2000 7000 233.333333

2 55 5000 4000 9000 163.6363636

3 75 5000 6000 11000 146.666667

4 90 5000 8000 13000 144.444444

5 100 5000 10000 15000 150

6 108 5000 12000 17000 157.4074074

7 114 5000 14000 19000 166.666667

8 118 5000 16000 21000 177.9661017

9 116 5000 18000 23000 198.2758621

10 117 5000 20000 25000 213.6752137

You can see that the ATC is lowest at 4 copywriters.

Circular Flow of Income

Which of the following occurs if households start saving a lot of money?
There is an injection in the economy.

There is leakage from the economy.

✓ Correct
Feedback:
When households save money, there is less money circulating in the economy. This is a
way in which money 'leaks' from an economy.

The economic activity increases.

The economic activity remains unchanged.

GDP Calculation
If the GDP of an economy is $300 billion, the household consumption is $85 billion,
government spending is $140 billion, investments are $50 billion and total imports are
$100 billion, what will be the value of total exports?

$125 billion

✓ Correct
Feedback:
Correct! According to the GDP formula, GDP = C + I + G + (X-M), X stands for exports.
Based on the figures given in the question, $125 billion is the correct answer.

$75 billion

$25 billion

$50 billion

Recession
Scandia imports most of its wheat from Ukrainia. Last year, Ukrainia was hit by a
drought, affecting all its agricultural produce. Its wheat output was down by 50%,
because of which it decided to cancel all wheat exports so that it could have sufficient
wheat supply for domestic consumption. Which of the following will NOT be an
impact of this decision on Scandia’s economy?

Prices of wheat in Scandia will decrease sharply

✓ Correct
Feedback:
This is a situation of supply shock. As you learnt, when there is a supply shock, the price
of the commodity whose supply is hit increases.

Wheat imports would become expensive as Scandia looks to other alternate wheat
exporters.

Local bakery industry would take a hit.

Prices of wheat in Scandia will increase sharply.

Unemployment

Raju's father used to work as a mechanic in a car manufacturing unit. He has never used
a computer in his life. Last year, the factory got upgraded and automated, and the job of
a mechanic became redundant. Now, the factory needed only people who are skilled at
using computers to operate the machinery at the factory. So, Raju's father was asked to
leave. What type of unemployment is this?

Frictional

Structural

✓ Correct
Feedback:
Correct. Structural unemployment occurs when people lack the skills and qualifications
required for the jobs that are available in the economy.

Cyclical

Seasonal

Types of Inflation

Prices of goods and services in Scandia have been increasing consistently over the past 5
years. However, this year, the increase in prices has been lower than the increase
recorded in the past 4 years. What type of inflation is Scandia seeing this year?

Deflation

Galloping inflation
Disinflation

✓ Correct
Feedback:
Disinflation refers to a decrease in the rate of inflation in an economy, i.e., there is
inflation and it is increasing, but at a slower rate than before.

Rising inflation

Interest Rates

Over the past decade, the population of Zaldia has been decreasing steadily. This has led
to a slowdown in demand in the economy, which in turn has led to a decrease in the
demand for money. In such a situation, what will happen to the interest rates?

Interest rates will increase.

Interest rates will decrease.

✓ Correct
Feedback:
When the demand for money decreases, interest rates decrease, as there is lesser
number of people competing for the same amount. This will push people to spend more,
which will lead to an increase in demand and thereby increase economic activity in the
country.

Interest rates will remain unchanged.

Fiscal Policy Measures

The economy of Scandia is undergoing a recession. What fiscal policy action is the
government most likely to take in such a situation?

Decrease taxes

✓ Correct
Feedback:
This will reduce the tax burden on the citizens and free up their money for spending. The
additional capital flowing in the economy owing to this will help revive economic activity
and, thus, fight the recession.

Increase taxes
 Decrease spending

Decrease financial aid for small household businesses suffering heavy losses because of
the recession

Balance of Payments

If a country has a current account deficit, it means that it ____ more than it _____.

Fill in the blanks with the correct option pair.

exports, imports

produces, consumes

imports, exports

✓ Correct
Feedback:
Current account deficit occurs when imports exceed exports.

buys, sells

CREATING CUSTOMER VALUES

Assessment 1

Natural Beauty is a new brand founded by two sisters living in LA. The line of products for
their pilot launch includes organic lipsticks, lip liners and soothing lip balms. Being a new
brand, they want to build a brand positioning statement. How should they go about doing
it?
(Arrange the following options in the correct sequence.)
1. Focus on the consumers that are looking to buy organic lip products.
2. Understand that LA and its neighbouring areas are their primary market as they are a
newly opened, localised brand.
3. Create a positioning statement that focuses on appealing to the right demographic and
organic product users.
4. Understand the market, segment it into various groups and focus on the segments that
buy the most cosmetics.

2-4-1-3

✓ Correct
Feedback:
The best way to go about creating a positioning statement would be:
1. Identify the addressable market that is the local market of LA, 2. Divide the market
 into homogeneous segments, 3. Identify the segments that are looking for organic and
eco-friendly cosmetics and 4. Create a positioning statement.

4-2-3-1

4-2-1-3

✕ Incorrect
Feedback:
Apply the STP framework in the above scenario and answer again.

2-1-4-3

Assessment 2

Porsche is one of the market leaders in the premium segment of the automotive
industry. During a market research exercise, Porsche looked at its consumer data and
classified its customers into five segments:

1. The 'top guns' profile consists of ambitious and driven individuals who care about power,
control and expect to get noticed.
2. The 'elitists' profile includes individuals that have the attitude that a car is just a vehicle
and not an expression of a person’s personality.
3. The 'proud patrons' consist of individuals who see Porsche as a trophy and the result of
hard work.
4. The 'bon vivants' profile consists of thrill-seekers using the Porsche as a means of
excitement.
5. The 'fantasists' profile of consumers see Porsche as a form of escape and do not care
about impressing others.

Identify the basis of customer segmentation.

Country and city (geographic)

Race and culture (demographic)

Age (demographic)

Personality (psychographic)

✓ Correct
Feedback:
The five segments showcase the personality of individuals such as being ambitious,
power-driven, thrill-seekers, etc. Hence, this is a personality-level segmentation and falls
under psychographic segmentation.

Assessment 3

Watch this video by Savlon.

The above advertisement is not selling a product directly but still appealing to a certain
audience. What kind of targeting strategy do you think they are implementing?

Mass-marketing strategy

✓ Correct
Feedback:
This advertisement is implementing a mass-marketing strategy which is appealing to the
emotions of the masses

Differentiated strategy

Concentrated strategy

✕ Incorrect
Feedback:
If implementing a concentrated strategy, they would only be targeting one segment of
the market.

Customised strategy

POSITIONING STATEMENT
Assessment 1

You are planning to launch a new beverage in the cola market. Which two attributes
would be the most appropriate for analysing your competitors with perceptual maps?

Colour and taste

Taste and amount of sugar

Colour and amount of sugar

Amount of sugar and amount of caffeine

✓ Correct
Feedback:
The amount of sugar and the amount of caffeine are two of the most basic attributes that
make up a soft drink.

Assessment 2

Watch this Coca-Cola advertisement

After watching the ad, what do you think is the point of difference of Coca-Cola compared
to other colas available in the market?

Healthy drink

Energetic drink

Tasty drink

✓ Correct
Feedback:
The advertisement clearly mentions that the drink is so tasty that it can make you dance
and have fun, making it the point of difference of the drink.

Drink for youngsters

✕ Incorrect
Feedback:
In the advertisement, the drink did not affect just a certain age group but rather all ages.
Hence, it cannot be considered the point of difference.

Assessment 4

Watch this Indian Coca-Cola ad featuring an Indian celebrity and a hospitality employee.
Deduce the positioning statement behind creating the advertisement.

For individuals looking for high-quality beverages, Coca-Cola creates a positive

experience for customers when they enjoy a Coca-Cola brand drink. Unlike other
beverage options, Coca-Cola products inspire happiness and make a positive difference
in customers' lives, and the brand is intensely focused on the needs of consumers and
customers.

✓ Correct
Feedback:
As you see in the ad, the target segment of Coca-Cola is almost all individuals looking for
a beverage. The brand is focused on the cola industry, its point of difference is that it
impacts people’s lives positively and it is focused on satisfying its customers.
For youngsters looking for refreshing beverages, Coca-Cola offers a joyful experience
when they enjoy a Coca-Cola brand drink. Unlike other beverages, Coca-Cola products
inspire belongingness and a sense of community, and the brand is intensely focused on
consumers and consumers' needs.

For individuals looking for quality beverages, Coca-Cola offers a drink appropriate for an
active lifestyle and which impacts the lives of people in a very self-serving way. Coca-
Cola inspires a sense of responsibility and is intensely focused on community.

For individuals that are inspiring to others, Coca-Cola is a drink that gives them the
connection they need to feel towards others. Unlike other beverages, Coca-Cola
beverages inspire a sense of achievement, and the brand is focused towards customers
who aspire to achieve higher goals.

Assessment 1

Dell is a multinational computer technology company. In 1985, it changed its strategy

and started offering build-to-order computers. It became a major seller by using mail-
order systems and started accepting orders online. Later, it also shifted to building an
online sales platform to sell these computer systems.
In this scenario, which of the 4Ps differentiated Dell and helped it create a unique value
proposition?

Product and price

Price and promotion

Place and product

✓ Correct
Feedback:
The place was definitely shifted from offline stores to the online platform. The product
offerings were changed from pre-built SKUs to made-to-order units as per individual
customer's requirements.

Promotion and place

Product quality

Product distribution

Product differentiation

✓ Correct
Feedback:
The different colours help to distinguish between the flavours that Lay's has to offer.

Product accessibility

Product quality

Product distribution

Product differentiation

✓ Correct
Feedback:
The different colours help to distinguish between the flavours that Lay's has to offer.

Product accessibility

Assessment 3

You saw a range of potato chips offered by Lay's earlier. Suppose Lay's now introduces a
new range of chips, that is, Lay's Nachos. How will the product mix of Lay's be
impacted?

Increase in the width of the product mix

✓ Correct
Feedback:
A new variety of product would be introduced with Lay's Nachos, which would have its
own product depth. Hence, this will increase the width of the product mix.

Addition of a new product

Decrease in the length of the product line

 Increase in the depth of the product mix

MKT Place Assessment 1

Match the different KPI names which the different product’s methods to measure the
channel performance.

Description Method

1. 14,000 units of Pantene shampoo were sold in 3 months in

A. Market Share
a particular area

B.Numeric
2. Sales of Dove shampoo was 15% in the shampoo category
distribution

3. Head & Shoulders captured 35% of the market in one year C.Value-weighted
after the launch of its new product distribution

D. Stock turnover
4. L'Oréal is sold in 50% of stores in the California state
ratio

1-B, 2-C, 3-D, 4-A

1-D, 2-C, 3-A, 4-B

✓ Correct
Feedback:
The different key performance indicators used by different products are -

1. Pantene used stock turnover ratio to evaluate its channel partner performance,
2. Dove used value-weighted distribution to evaluate its channel partner performance,
3. Head & Shoulders used market share to evaluate its channel partner performance,
4. L'Oréal used numeric distribution to evaluate its channel partner performance.

1-C, 2-D, 3-B, 4-A

1-B, 2-A, 3-C, 4-D

Assessment 2

Which of the following channel partners are able to service a retailer with a good
assortment mix of a product in the best possible manner?

Manufacturer

Wholesaler
✓ Correct
Feedback:
A wholesaler would be able to service a retailer with a good assortment mix of a product
in the best possible manner.

Distributor

Storage

Assessment 3

Consider a milk supplier who sells to ABC corporation that packs the milk. ABC
corporation then sells the packed milk to retailers who further help sell the milk to
households.
Assume you are the milk supplier. Identify the end consumer.

Individual households

Retailers

Milk farmers

Corporation that packs the milk

✓ Correct
Feedback:
The end customer for a milk supplier is the bottler or the corporation that will further
process and pack the milk and then sell it further as they deem fit.

Assessment 1

Many organisations, such as Microsoft, make donations to charities, which brings a lot of
goodwill to the corporation when publicised. This form of promotion of the corporation
can best be classified as which of the following?

Advertising

Public relations

✓ Correct
Feedback:
These donations, when publicised through media outlets, intend to create a healthy
relationship between the organisation and the public.
Direct selling

Sales promotion

Assessment 2

Match the following with the right type of promotional strategy.

Scenario Strategy

1.Jeep has huge billboards on various highways to promote their A.Above the
new car Jeep Compass line

2.Mercedes Benz has newspaper advertisements and also promote B.Below the
their particular cars instore line

3.Ferrari promotional idea is through event sponsorship like C.Through the

Formula 1 racing. line

1-c, 2-b, 3-a

1-a, 2-c, 3-b

✓ Correct
Feedback:
Different promotional strategies used by the above brands are as follows -
Jeep Compass billboards are un-targeted ads on the highway hence, it is above the line
strategy.
Ferrari sponsors only certain events and therefore only promotes towards certain
audiences. Hence, it is below the line strategy
Mercedes Benz promotes instore that is below the line strategy and also uses print ads
that are above the line strategy hence they follow through the line strategy.

1-a, 2-b, 3-c

1-b, 2-a, 3-c

Assessment 3

Suppose you are the marketing manager of Frito-Lay, which has produced a new variant
of healthy nacho chips. Which of the following promotional tools would not be relevant
for the launch?

Advertisements
Direct and digital marketing

Building public relations

Personal selling

✓ Correct
Feedback:
Sampling in public shopping areas and malls is essential to driving trials for a new food
brand but these cannot be considered as personal selling.

Assessment 3

Suppose you are the marketing manager of Frito-Lay, which has produced a new variant
of healthy nacho chips. Which of the following promotional tools would not be relevant
for the launch?

Advertisements

Direct and digital marketing

Building public relations

Personal selling

✓ Correct
Feedback:
Sampling in public shopping areas and malls is essential to driving trials for a new food
brand but these cannot be considered as personal selling.

Assessment 2

Match the following with the right type of promotional strategy.

Scenario Strategy

1.Jeep has huge billboards on various highways to promote their A.Above the
new car Jeep Compass line

2.Mercedes Benz has newspaper advertisements and also promote B.Below the
their particular cars instore line

3.Ferrari promotional idea is through event sponsorship like C.Through the

Formula 1 racing. line
1-c, 2-b, 3-a

1-a, 2-c, 3-b

✓ Correct
Feedback:
Different promotional strategies used by the above brands are as follows -
Jeep Compass billboards are un-targeted ads on the highway hence, it is above the line
strategy.
Ferrari sponsors only certain events and therefore only promotes towards certain
audiences. Hence, it is below the line strategy
Mercedes Benz promotes instore that is below the line strategy and also uses print ads
that are above the line strategy hence they follow through the line strategy.

1-a, 2-b, 3-c

1-b, 2-a, 3-c