Microeconomics Practice Paper-03

Microeconomics Practice Paper

Q1. Who wrote ‘Nature and Causes of Wealth of Nations? 

(a) Adam Smith 

(b) Alfred Marshall 

(c) Samuelson 

(d) Robbins

ANS. Adam Smith

Q2. Price theory deals with: 

(a) Product pricing 

(b) Factor pricing 

(c) Welfare economics 

(d) All of the above

ANS. All of the above 

Q3. Scarcity refers to limitation of _______in relation To_______for a commodity.

(a) Demand, Sale 

(b) Demand, supply

(c) Supply, demand. 

(d) None of these

ANS. Supply, Demand

Q4. Read the following statements: Assertion(A) and Reason (R). Choose one of the correct alternatives given below :

Assertion(A): Human wants differ in priorities.

Reason (R): For every individual, some wants are more important and urgent as compared to others.

Alternatives :

(a) Both Assertion(A) and Reason(R) are true and Reason (R) is the correct explanation of Assertion (A)

(b) Both Assertion (A) and Reason(R) are true and Reason (R) is not the correct explanation of Assertion (A).

(c) Assertion(A) is true but Reason (R) is false.

(d) Assertion(A) is false but Reason(R) is true.

ANS. Both Assertion(A) and Reason(R) are true and

Reason(R) is the correct explanation of Assertion (A).

Q5. Case Study based questions :

Traditional economic theory has developed along two lines; viz., normative and positive. Normative focuses on descriptive statements and helps establish rules aimed at attaining the specified goals of the business. Positive, on the other hand, focus on description, it aims at describing the manner In which the economic system operates without staffing how it should operate. The emphasis in Business Economics is on normative theory. Business economics seeks to establish rules which help business firms attain their goals, which indeed is also the essence of the word normative. However, if the firms are to establish valid decision rules, they must thoroughly understand their environment. This is the study of positive or descriptive theory. Thus, Business economics combines the essentials of the normative and positive economic theory, the emphasis being more on the former than the latter.

(i) _________ (Normative/ Positive) Economics remain strictly neutral with respect to ultimate ends.

ANS. Positive

(ii) Normative Economics _______________ (cannot/can) be verified with actual data.

ANS. Cannot

(iii) ________ (Positive/ Normative) focuses on prescriptive statements, while ________(Positive/Normative) focuses on descriptive statements.

ANS. Positive, Normative

Q6. Worth a rupee to a consumer is called:

(a) marginal utility of money

(b) total utility of money

(c) diminishing marginal utility of money

(d) consumer’s equilibrium


Q7. Consumer equilibrium in case of two commodities (say X and Y) is struck when:

(a) MUx/Px=Mum 

(b) MUx/Px>MUy/Py

(c) MUx/px = muy/py = Mum

(d) MUx/Px


Q8. A consumer reaches the point of equilibrium when:

(a) MRSxy>Px/Py 

(b) MRSxy

(c) MRSxy = Px/Py 

(d) none of these


Q9. Case Reena has Rs. 1000 and she goes to the market. She finds that there are only apples and oranges available in the market. The prices of apples and oranges are Rs. 10 and 20 respectively. She intends to buy these two goods in a manner that she gets maximum satisfaction after the consumption. She decides that she will spend half of the money on each of the two goods. That way she purchases 50 apples and 25 oranges.

For a change, she is of this understanding that she can accept one more apple but for that, she is ready to reduce the consumption of oranges by only one unit. This way she thinks that there will be no change in her satisfaction level from the consumption of all these goods.

Q10. Which commodity does Reena prefer more in terms of quantity?

(a) Apple 

(b) Orange

(c) Both 

(d) None of the above


Q11. What is the consumer budget in the above write-up?

(a) Rs. 10 

(b) Rs. 20

(c) Rs. 1000 

(d) None of the above


Q12. What is the value of MRSxy in the above case?

(a) -1 

(b) -2

(c) -0.5 

(d) None of the above


Q13. 10X+20Y= 1000 will be the budget equation for the situation described in the above case.

(a) True

(b) False

(c) Maybe both


Q14. What will be the slope of the budget line in the above case?

(a) -0.5 

(b) -1

(c) 2 

(d) 0


Q15. Which of the following may be a consumption bundle in the above case?

(a) (10,30) 

(b) (20,20)

(c) (10,20) 

(d) (30,30)


Q16. The bundles that the consumer can purchase by spending is entire money income at given prices is represented by

(a) budget line 

(b) budget set

(c) Consumption bundle 

(d) None of these


Q17. The slope of the budget line is

(a) marginal opportunity cost

(b) marginal rate of substitution

(c) the market rate of exchange

(d) all of these


Q18. An indifference curve is

(a) convex to the origin

(b) concave to the origin

(c) A straight line curve

(d) none of these


Q19. Which of the following is an example of complementary goods?

a) Tea & coffee

b) Coke & Pepsi

c) Rice & wheat

d) None of these


Q20. The demand for normal goods ………………………….with an increase in income of the consumer.

a) increases

b) decreases

c) remains constant

d) either increases or decreases


Q21. An increase in the price of substitute goods leads to

a) Expansion in demand

b) increase in demand

c) decrease in demand


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