Theory of Consumer Behaviour

1. _______ shows various combinations of two products that give same amount of satisfaction:
(a) ISO cost curve (b) Indifference curve (c) Marginal utility curve (d) ISO
quant
2. Total utility is maximum when:
(a) Marginal utility is maximum (b) Marginal utility is zero (c) Average utility is maximum (d) Average
utility is zero
3. An indifference curve is always:
(a) Concave to the origin (b) Convex to the origin (c) L-shaped (d) A
vertical straight line

4. Marginal utility curve of a consumer is also his:

(a) Indifference curve (b) Total utility curve (c) Supply curve (d)
Demand curve
5. At equilibrium, the slope of the indifference curve is:
(a) Equal to the slope of budget line (b) Greater than the slope of budget line
(c) Smaller than the slope of budget line (d) None
6. The law of equi marginal utility considers price of money as:
(a) Zero (b) less than one (c) more than one (d) one
7. Marginal utility approach was given by:
(a) J.R. Hicks (b) Alfred Marshall (c) Robbins (d) A.C.Pigou
8. Indifference curves between income and leisure for an individual are generally:
(a) Concave to the origin (b) Convex to the origin (c) Negatively sloped straight lines (d) Positively sloped
straight lines
9. Incase of a right angled indifference curve the gods are:
(a) Perfect complements (b) Perfect substitutes (c) Inferior goods (d) Giffen good
10. Indifference curves never intersect each other due to:
(a) Different levels of satisfaction (b) Same levels of satisfaction (c) Convex to origin (d) Concave to
origin
11. A budget constraints line is a result of:
(a) Market price of commodity X (b) Market price of commodity Y (c) Income of the consumer (d) All of
these
12. The difference between what a consumer is ready to pay and what he actually pays is:
(a) Consumer Surplus (b) Consumer deficit (c) Both (d) None
13. If total utility of a commodity is 5 and marginally utility is 1, a person consumes 3 units. What is the
consumer surplus?
(a ) 4 (b) 3 (c) 6 (d) 2
14. A consumer buys two commodities X and Y, he would be in equilibrium when:
MUx MUy MUx MUx MUy px
(a) = (b) = MUm (c) ) = (d) ) Py = MUm
Px Py MUy Px Px
15. The slope of I.C. curve is always
(a) Down ward (b) Upward (c) Straight line (d) Can be all
above
16. Which economist said that money is the measuring rod of utility?
(a) A.C. Pigou (b) Marshall (c) Adam Smith (d) Robbins
17. Marginal utility is a _________ concept
(a) Cardinal (b) Ordinal (c) Both (d) None
18. Indifference Curves are
(a) Convex to Origin (b) Concave (c) Neither ‘a’ nor ‘b’ (d) None
19. Consumer Surplus is based on which concept?
 (a) Diminishing Marginal Utility (b) Law of Demand (c) Indifference Curve approach (d) None
20. Indifference Curve is based on:
(a) Cardinal Analysis (b) Ordinal Analysis (c) Both (a) and (b) (d) None of
above
21. Cardinal approach is related to:
(a) Indifference curve (b) Equi-marginal utility (c) Law of diminishing returns (d) None of these
22. The substitution effect of fall in the price of the commodity will lead to:
(a) Upward movement in indifference curve (b) Downward movement in indifference curve
(c) Movement from lower IC to a higher one (d) None
23. The satisfaction which a consumer derives in the consumption of a commodity is equal to Rs.320. The
price of that commodity is Rs.180. What will be his consumer surplus?
(a) 180 (b) 200 (c) 140 (d) 500
24. The law of equi marginal utility is one of the laws within whose parameters Marginal Utility Analysis is
framed. The other one is:
(a) Law of diminishing marginal utility (b) Law of proportions (c) Law of consumer surplus (d) Law of
increasing returns
25. When indifference curve is L – shaped then two goods will be ________
(a) Complimentary goods (b) Substitute goods (c) Perfect substitute goods (d) Perfect
complimentary goods
26. On which approach, indifference curve analysis is based?
(a) cardinal approach (b) ordinal approach (c) cardinal and ordinal both (d) None of the
above
27. Indifference curves are convex to the origin because they are based on:
(a) Increasing marginal rate of substitution (b) Diminishing marginal rate of substitution
(c) Constant marginal rate of substitution (d) Zero marginal rate of substitution

28. Total utility derived from the consumption of a commodity is equal to Rs.5. Marginal utility is equal to 1
and consumer has bought 3 units. What will be his consumer surplus?
(a) Rs. 2 (b) Rs.2.5 (c) Rs.3 (d) Rs.4

KEY
1 B 8 D 15 A 22 C
2 B 9 A 16 A 23 C
3 B 10 A 17 A 24 A
4 D 11 D 18 A 25 D
5 A 12 A 19 A 26 B
6 D 13 D 20 B 27 B
7 B 14 A 21 B 28 A
MARKET
Unit - 1: Market

1. Which of the following is not an essential condition of pure competition?

(a) Large number of buyers and sellers (b) Homogeneous product
(c) Freedom of entry (d) Absence of transport cost
2. Under which of the following forms of market structure does a firm has no control over the price of its
product:
 (a) Monopoly (b) Oligopoly (c) Monopolistic competition (d) Perfect
competition
1
3. Given the relation MR = P (1 − ) if e > 1, then:
𝑒
(a) MR > 0 (b) MR < 0 (c) MR = 0 (d) None
4. Profits of the firm will be more at:
(a) MR = MC (b) Additionla revenue from extra unit equals its additional cost
(c) Both of above (d) None
5. What should firm do when Marginal revenue is greater than marginal cost?
(a) Firm should expand output (b) Effect should be made to make them equal
(c) Prices should be covered down (d) All of these
6. Under monopoly price discrimination depends upon:
(a) Elasticity of demand for commodity (b) Elasticity of supply for commodity (c) Size of market (d) All
of the above
7. Firms in a monopolistic market are price _________
(a) Takers (b) Givers (c) Makers (d) Acceptors

8. Market which have two firms are known as:

(a) Oligopoly (b) Duopoly (c) Monopsony (d) Oligopsony
9. Monopolist can determine:
(a) Price (b) Output (c) Either price or output (d) None
10. MR of n th unit is given by:
(a) TR n /TR n−1 (b)TR n + TR n−1 (c) TR n − TR n−1 (d) All of these
11. The market structure in which the number of sellers is small and there is inter dependence in decision
making by the firms is known as:
(a) Perfect competition (b) Oligopoly (c) Monopoly (d) Monopolistic
competition
12. In perfect competition, since the firm is a price taker, the _______ curve is a straight line:
(a) Marginal cost (b) Total cost (c) Total revenue (d) Marginal
revenue

KEY
1 D 5 A 9 C
2 D 6 A 10 C
3 A 7 C 11 B
4 C 8 B 12 D

CHAPTER (4) – MARKET

Unit – 2: Determination of Price

1. For maximum profit, the condition is:

(a) AR = AC (b) MR = MC (c) MR = AR (d) MC = AC
2. Equilibrium price may be determined through:
(a) Only demand (b) Only supply (c) Both demand & supply (d) none
3. If price is forced to stay below equilibrium price:
(a) Excess supply exists (b) Excess demand exists (c) Either (a) or (b) (d) Neither (a) or
(b)
4. An increase in supply with unchanged demand leads to:
 (a) Rise in price and fall in quantity (b) Fall in both price and quantity
(c) Rise in both price and quantity (d) Fall in price and rise in quantity
5. In the long run:
(a) Only demand can change (b) Only supply can change
(c) Both demand and supply can change (d) None of these
6. Condition for producer equilibrium is:
(a) TR = TVC (b) MC = MR (c) TC = TSC (d) None of these
7. An increase in supply with demand remaining the same, brings about
(a) An increase in equilibrium quantity and decrease in equilibrium price
(b) An increase in equilibrium price and decrease in equilibrium quantity
(c) Decrease in both equilibrium price and quantity (d) None of these

KEY
1 B 2 C 3 B 4 D 5 C 6 B 7 A

CHAPTER (4) – MARKET

Unit – 3: Price and Output Determination

1. A competitive firm in the short run incur losses. The firm continues production, if:
(a) P > AVC (b) P = AVC (c) P < AVC (d) P<+AVC
2. Under ________ market condition, firms make normal profits in the long run:
(a) Perfect competition (b) Monopoly (c) Oligopoly (d) None
3. A monopolist is able to maximize his profits when:
(a) His output is maximum (b) He charges a high price
(c) His average cost is minimum (d) His marginal cost is equal to marginal revenue
4. Under which market structure, average revenue of a firm is equal to its marginal revenue:
(a) Oligopoly (b) Monopoly (c) Perfect competition (d) Monopolistic
competition
5. Under Monopolistic competition the cross elasticity of demand for the product of a single firm would be:
(a) Infinite (b) Highly elastic (c) Highly inelastic (d) Zero
6. When AR = Rs. 10 and AC = Rs.8 the firm makes __________
(a) Normal profit (b) Net profit (c) Gross profit (d) Supernormal profit
7. What are the conditions for the long run equilibrium of the competitive firm?
(a) LMC = LAC = P (b) SMC = SAC = LMC (c) P + MR (d) All of these
8. Kinked demand curve hypothesis is given by:
(a) Alfred marshal (b) A.C. Pigou (c) Sweezy (d) Hicks & Allen
9. Supernormal profits occur, when:
(a) Total revenue is equal to total cost (b) Total revenue is equal to variable cost
(c) Average revenue is more than average cost (d) Average revenue is equal to average cost
10. If under perfect competition, the price line lies below the average cost curve, the firm would:
 (a) Make only Normal profits (b) Incur losses (c) Make abnormal profit (d) Profit cannot
determined
11. The MR curve cuts the horizontal line between Y axis and demand curve into:
(a) Two unequal parts (b) Two equal parts (c) May be equal or unequal parts (d) None of these
12. The kinked demand curve is observed in:
(a) Duopoly market (b) Monopoly (c) Oligopoly (d) Competitive market
13. Competitive firms in the long run earn:
(a) Super normal profit (b) Normal profit (c) Losses (d) None
14. For a monopolist, the necessary condition for equilibrium is:
(a) P = MC (b) P = MR = AR (c) MR = MC (d) none
15. A firm will shut down in the short run if:
(a) If is suffering a loss (b) Fixed costs exceeds revenue
(c) Variable costs exceed revenues (d) Total costs exceed revenues
16. ________ is the price at which demand for a commodity is equal to its supply
(a) Normal Price (b) Equilibrium Price (c) Short run Price (d) Secular Price
17. OPEC is an example of:
(a) Monopoly (b) Duopoly (c) Oligopoly (d) Monopolistic
Competition
18. ___________is a ideal Market
(a) Monopoly (b) Monopolistic (c) Perfect Competition (d) Oligopoly
19. Under which Market Situation demand
(a) Perfect Competition (b) Monopoly (c) Monopolistic Competition (d) Oligopoly
20. Which market have characteristic of product differentiation?
(a) Perfect Competition (b) Monopoly (c) Monopolistic Competition (d) Oligopoly
21. Which of these are characteristics of Perfect Competition.
(a) Many sellers & Buyers (b) Homogeneous Product (c) Free Entry and exist (d) All of the above
22. __________ type of curve is found in oligopoly.
(a) Horizontal (b) Vertical (c) Kinked (d) Negativity sloped
23. MR Curve = AR = Demand Curve is a feature of which kind of Market?
(a) Perfect Competition (b) Monopoly (c) monopolistic (d) Oligopoly
24. In the long-run monopolist can
(a) Incur losses (b) Must earn super normal profits (c) Wants to shut-down (d) Earns only
normal profits
25. The demand curve of the firm and industry will be same in which form of market
(a) Monopolistic Competition (b) Perfect Competition (c) Monopoly (d) Oligopoly

26. Oligopoly haring identical products is:

(a) Pure oligopoly (b) Imperfect oligopoly (c) Price leadership (d)
Collusion
27. The demand curve of oligopoly is:
(a) Horizontal (b) Vertical (c) Kinked (d)
Rising left to right
28. Demand curve is equal to M. R. curve in which market?
(a) Oligopoly (b) Monopoly (c) Monopolistic Competition (d)
Perfect Competition
29. Kinked demand hypothesis is designed to explain _____ in context of oligopoly.
(a) Price and Output Determination (b) Price Rigidity (c) Collusion between Firm (d) All of
the above
30. Price discrimination can take place only in _________
(a) Monopolistic Competition (b) Oligopoly (c) Perfect competition (d)
Monopoly
31. In oligopoly, the kink on the demand curve is more due to __________
 (a) Discontinuity in MR (b) Discontinuity in A.R
(c) Fulfillment of the assumption that a price cut is followed by others and a price increase by a firm is not
followed by others. (d) Price war amongst the firms
32. Price Discrimination is possible only when.
(a) Seller is alone (b) Goods are homogeneous (c) Market is controlled by the govt. (d)
None of the above
33. Which of the following is not the feature of an imperfect competition?
(a) Product differentiation (b) few sellers (c) Homogeneous products (d)
Price warns
34. Price taker firms ____
(a) Do not advertise their product because it misleads the customers
(b) Advertise their products to boost the level of demand
(c) Do not advertise but give gifts along with the sold items to attract customers
(d) Do not advertise because they can sell as much as they wish at the prevailing price
35. Price rigidity is a situation found in which of the following market forms?
(a) Perfec5t competition (b) Monopoly (c) Monopolistic competition (d) Oligopoly
36. When elasticity of demand is Equal to one in monopoly, marginal Revenue will be __________
(a) Equal to one (b) Greater than one (c) Less than one (d) zero
37. Which one of the following statement is incorrect?
(a) Competitive firms are price takers and not price makers
(b) Price discrimination is possible in monopoly only
(c) Duopoly may lead to monopoly (d) Competitive firm always seeks to discriminate prices
38. Under which of the following market structure AR of the firm will be equal to MR?
(a) Monopoly (b) Monopolistic Competition (c) Oligopoly (d) Perfect
Competition
39. Tooth paste industry is an example of ___________
(a) Monopoly (b) Monopolistic competition (c) Oligopoly (d) Perfect
competition
40. OPEC is an example of:
(a) Monopolistic Competition (b) Monopoly (c) Oligopoly (d) Duopoly
41. Monopolistic Competitive firms _______
(a) Are small in size (b) Have small share in total market (c) Are very large in size (d) Both (A) and
(B)
42. The price discrimination under monopoly will be possible under which of the following conditions?
(a) The seller has no control over the supply of his product (b) The market has the same
condition all over
(c) The price elasticity of demand is different in different markets (d) The price elasticity of demand
is uniform

KEY
1 D 11 B 21 D 31 C 41 D
2 A 12 C 22 C 32 A 42 C
3 D 13 B 23 A 33 C
4 C 14 C 24 B 34 D
5 D 15 C 25 C 35 D
6 D 16 B 26 A 36 D
7 A 17 C 27 C 37 D
8 C 18 C 28 D 38 D
9 C 19 A 29 D 39 B
10 B 20 C 30 D 40 C
 : National Income

1. The difference between value of output and value added is:

(a) Depreciation (b) Intermediate consumption (c) Net indirect taxes
(d) NFIA
2. Product method of calculating national income is also known as:
(a) Income method (b) value added method (c) expenditure method (d)
Distribution method
3. Transfer payments refer to payments, which are made:
(a) Without any exchange of goods and services (b) To workers on transfer from one job to
another
(c) As compensation to employees (d) None
4. National Income differs from Net National Product at market price by the amount of:
(a) Current transfers from rest of the world (b) Net Indirect Taxes (c) National debt interest (d) It
does not differ
5. GDPMP = GDPFC + __________
(a) Depreciation (b) NIFA (c) Net indirect TAX (d) Subsidies
6. GNP = GDP + ___________
(a) Depreciation (b) Indirect taxes (c) NFIA (d) Subsidies
7. National Income doesn’t include:
(a) Interest on unproductive national debt (b) Income for
government expenditure
(c) The payments by the household to firm for the purchase of goods and services (d) Undistributed
profit
8. Which of the following is not correct?
(a) NNPMP = GNPMP - depreciation (b) NNPMP = NNPFC + net indirect taxes
(C) GDPMP = GNPMP + NFIA (d) NDPFC = GDPFC
9. Net national product at factor cost is also known as:
(a) Net Domestic product (b) Gross National Product (c) National Income (d)
Personal Income
10. In GNP calculation which of the following should be excluded?
(a) Rental incomes (b) Interest payments (c) Dividends (d) Govt.
Transfer payment
11. The most important problem of estimating National Income is.
(a) Unorganized Market (b) Double Counting (c) Population rise (d) Income
Inequalities
12. Goods and services for final consumption are:
(a) Produced goods (b) Consumer goods (c) Griffin goods (d) None of
these
13. Real National Income means national income measured at:
(a) Constant Prices (b) Current Prices (c) Wholesale Prices (d) Retail
Prices
14. Which one of the following is correct?
(a)NNPFC = NNPMP - NIT (b)NNPMP = NNPFC - NIT
(c) NNPMP = NNPFC + Depreciation (d)NNPMP = NNPFC + Depreciation
15. The most important problem is estimating GNP is:
(a) Double Counting (b) Smuggling (c) Black marketing (d) Unorganized
market
16. Green Revolution was started in _________
(a) 1996 (b) 1966 (c) 1977 (d) 1965
17. GDP + ________ = GNP
 (a) Depreciation (b) N.F.I.A (c) N.I.T. (d) None of the
above
18. Which of the following represents National Income?
(a) G D P at factor cost (b) N D P at factor cost (c) N N P at market price (d) N N P at
factor cost
19. GDP at factor cost is equal to GDP at market price minus ______ plus subsidies.
(a) Direct taxes (b) Indirect taxes (c) Foreign loans (d) Depreciation
20. Transfer payments are.
(a) Payments transferred from Central Govt. account to State. Govt. account
(b) Payments made to factors of production by the organizer
(c) Payments made for no return service (d) None of the above
21. Real national income means the national income measured in terms of:
(a) Constant Prices (b) Current prices (c) Wholesale prices (d) Retail prices
22. GNP is equal to ___________ plus Net foreign income from abroad.
(a) NNP at factor cost (b) GDP (c) NNP at market price (d) National
Income
23. Personal disposable income means:
(a) Personal income – personal direct taxes ` (b) Personal income - Net Indirect taxes
(c) Personal income + Personal direct taxes (d) Personal income + Net indirect taxes
24. National Income estimation in India is done by:
(a) Reserve Bank of India (b) Planning Commission (c) Central Statistical Organization (d) Ministry of
Finance
25. The most important problem in Estimating GNP is:
(a) Double counting (b) Smuggling (c) Black marketing (d) Unorganized
market

KEY
1 B 9 C 17 B 25 D
2 B 10 D 18 D
3 A 11 B 19 B
4 B 12 B 20 C
5 C 13 B 21 A
6 C 14 D 22 B
7 A 15 B 23 A
8 C 16 C 24 C
Inflation

1. When prices are falling continuously, the phenomenon is called:

(a) Inflation (b) Stagflation (c) Deflation (d) Reflation
2. When too much money chases too few goods, the resulting Inflation is called:
(a) Deflation (b) Demand-pull Inflation (c) Cost push inflation (d) Stagflation
3. Cause of Inflation in India is /are:
(a) Deficit financing (b) Erratic agriculture growth (c) Inadequate rise in industrial production (d) All of
the above
4. Stagflation means:
(a) Inflation with stagnation (b) Recession with stagnation
(c) Inflation galloping like stag (d) Inflation & Increasing output
5. Which is the most effective quantitative method to control inflation in the economy?
 (a) Bank rate policy (b) Selective credit control (c) Cash reserve ratio (d) Both (a) and
(b)
6. The maximum inflation at _______ was recorded for the year 1966-67.
(a) 12.1 (b) 13.9 (c) 8.0 (d) 10
7. Inflation rate as per April’07 was:
(a) 6.39% (b) 6% (c) 6.79% (d) 4.7%
8. Which measures are followed by the government for handling inflation?
(a) Monetary measures (b) Fiscal measures (c) Controlling Investments (d) All of
these
9. Inflation is measured on the basis of:
(a) Wholesale price index (b) Consumer price index (c) Marshall’s index (d) All of
these
10. When price increases due to increase in factor prices it is _________
(a) Demand pull inflation (b) Cost pull inflation (c) Stagflation (d) None of the
above
11. Inflation occurs when:
(a) Money supply increases (b) Increase in public expenditure (c) Both (a) and (b) (d)
None
12. In India, inflation is measured by:
(a) Consumer price index (b) Agriculture index (c) Industrial index (d) Whole sale price
index
13. When there is inflation i.e. increase in general price level, due to increase in cost of production, such
inflation is called.
(a) Stagflation (b) Demand – Pull inflation (c) Cost – Push inflation (d) None of these
14. Inflation resulting from increased money expenditure is called:
(a) Cost push inflation (b) Demand pull inflation (c) Stagflation (d) None of the
above
15. A situation under which a low rate of growth combines with the rise in general price level is known as:
(a) Inflation (b) Deflation (c) Stagflation (d) Demand-pull
inflation
16. Fiscal policy refers to the policy relating to:
(a) Public Revenue (b) Public Expenditure (c) Public debt (d) All of the
above

KEY
1 C 5 C 9 B 13 C
2 B 6 B 10 B 14 B
3 D 7 A 11 C 15 C
4 A 8 D 12 D 16 D