Microeconomics Practice Paper-01

Microeconomics Practice Paper

Introductory Microeconomics

Q1. Since microeconomics splits up the entire economy into smaller parts for the purpose of intensive study, it is also known as

1. Bulldozer method
2. Micro- macro method
3. Slicing method
4. Micro foundation of macro method

Ans. Option 3 (Slicing method)

Q2. Robbins’s definition is superior to the earlier definitions because

1. It is more scientific
2. It takes into account all types human wants, material or non-material, as well as of all types persons whether living in society or not,
3. It widened the scope of economics
4. It is a positive science

Of these

1. I and II are correct
2. I, II, III, IV are correct
3. II and III are correct
4. II and IV are correct

Ans. Option 2. (I, II, III, IV)

Q3. Assertion (A): Positive Statements describe what was and what is the condition.

Reason (R): These statements do not pass any value judgments.

Choose the correct option from below:

1. Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).
2. Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A).
3. Assertion (A) is true, but Reason (R) is false.
4. Assertion (A) is false, but Reason (R) is true.

Ans. Option 1

Case. When a consumer consumes various goods and services, then there are some combinations, which give him exactly the same level of satisfaction. However, every higher or lower level of satisfaction can be shown on different curves. The slope of the curve depends on diminishing MRS.

Answer the following questions:

Q4. Define the curve which is mentioned in the above case.

Ans. Indifference curve: It refers to the graphical representation of the different combinations of two goods that provides an equal level of satisfaction to the consumer.

Q5. State the other two properties of the curve which are not mentioned in the paragraph.

Ans. (I) IC slopes downwards.

(II) Two ICs never intersect each other.

Q6. What will the shape of this curve have based on the MRS condition mentioned above?

Ans. The above-mentioned condition is falling MRS and due to which IC will be convex to the origin.

Q7. Why MRS always tends to decline in the above case?

Ans. There are two possible reasons for diminishing MRS.

(I) Fall in the intensity to consume: When a consumer has more of a commodity, his eagerness for consumption of it falls. Thus, when the consumer has more units of X commodity, his/her desire for additional units of X decreases. So, the consumer is willing to sacrifice less and less of Y to have successive units of Y.

(II) Goods are imperfect substitutes: Most of the goods are imperfect substitutes for one another. As more of a good is given up, the intensity of that good tends to rise with every sacrifice. So, the consumer is willing to give up less and less of good Y.

Case: Mr. X wants to consume two goods. The price of the two goods is $4 and $5 respectively. His income is $20.

Answer the following question

Q8. Write down the equation of the budget line.

Ans. The equation of the budget line is-

M = Px.Qx + Py.Qy

Q9. How many goods 1 can Mr. X consume, if he spends his entire income on that good?

Ans. Maximum no. of good 1 = M/Px = 20/4 = 5 units.

Q10. What will the intercept of this budget line be on both the axis?

Ans. Intercept on X-axis = M/Px = 20/4 = 5 units.

Intercept on Y-axis = M/Py = 20/5 = 4 units.

Q11. What is the slope of the budget line?

Ans. Slope of Budget line = Px/Py = 4/5

Q12. Administered prices refer to:

1. Prices determined by forces of demand and supply.
2. Prices determined by sellers in the market.
3. Prices determined by an external authority which is usually the government.
4. None of the above.

Ans. Option 3 (Prices are determined by an external authority which is usually the government. )

Q13. Bearing in mind the assertion that economics is a “positive” and not a “normative” science, with which of the following problems would an economist be concerned?

1. The unfairness of distribution of wealth
2. The effect on prices due to speculation in raw-materials.
3. The results of union pressure for increased wages.
4. The rights and wrongs of exaggerated advertising claims.

Of these

1. I only
2. II, III
3. I, III
4. I, II, III, IV

Ans. Option 2 (II, III)

Q14. Of the three fundamental questions in economics, the “distribution” question has to do with

1. Who will receive the output?
2. How the output will be shipped from the place of production to the consumer
3. How economic resources are distributed to producers
4. What products will be produced

Ans. Option 1 (Who will receive the output)

Q15. Which of the following statements is correct?

1. Utility is a behaviorist concept
2. Utility is not an introspective concept
3. Utility is an introspective concept and as such cannot be measured
4. Utility is an introspective concept and as such it can be measured

Ans. Option 3 (Utility is an introspective concept and as such cannot be measured)