MICRO ECONOMICS

Chapter 1
1.State economic terms. The allocations of scarce resources and the
distribution of the final goods and services.
Answer:
The central problem of an economy.

2.As a result of liberalisation policy, the inflow of foreign capital has increased.
What is its impact on production possibility frontier?
Answer:
PPC shifts upward as a result of the increase in the availability of capital
resources.
3.What is the shape of a production possibility curve?
(i) Convex to origin
(ii) Concave to origin
(iii) Horizontal
(iv) Vertical
Answer:
(ii) Concave to origin

4.How does a market economy solve central economic problems?

(i) Central planning
(ii) Price mechanism
(iii) Both (i) and (ii)
(iv) None of the above
Answer:
(ii) Price mechanism

5.Scarcity definition was given by:

Answer:
(i) Adam Smith
(ii) Alfred Marshall
(iii) Lionel Robbins
(iv) Samuelson
Answer:
(iii) Lionel Robbins

6.Classify the following statement into two branches of economics.

1.Indian economy grew by 9.2% GDP in the financial year 2006.
2.An unexpected lorry strike caused the price of vegetables to rise.
3.Recently the RBI reduced the Cash Reserve Ratio to 5.5%.
4.Madras Cement LTD is planning to add 40 lakh tonne to its existing
production capacity of 60 lakh tonnes.
Answer:

1. Macroeconomics
2. Microeconomics
3. Macroeconomics
4. Microeconomics

Chapter 2

Question 1.
Suppose a consumer’s preferences are monotonic. Which bundle of goods
the consumer will select over the bundle (15,15), (10,12) and (12,12).
Answer:
Consumer prefers the bundle (15,15) over the other bundles.

Question 2.
In drawing an individual demand curve, all but one of the following are
kept constant.
(a) Price of the commodity
(b) Price of other commodities
(c) Income of the consumer
(d) Taste and preference of the consumer
Answer:
(b) Price of other commodities

Question 3.
Find out economic terms.

1. Bundles that are on or below the budget line.

2. Consumer prefers the bundle which has more of the goods compared to
the other bundle.
3. A group of indifference curves.
Answer:
1. Budget set
2. Monotonic preferences
3. Indifference map
Question 4.
Slope of indifference curve shows.
(a) Price ratio (rule)
(b) DMRS
(c) DMU
(d) None of these
Answer:
(b) DMRS

Question 5.
In the case of inferior goods, the relationship between income and quantity
demanded in.
(a) negative
(b) positive
(c) constant
(d) cannot be predicted
Answer:
(a) negative

Question 6.
Elasticity in a rectangulas hyperbola is:
(a) 0
(b) a
(c) 1
(d) 0.5
Answer:
(c) 1

Question 7.
Rise in demand due to fall in price is called:
(a) Increase in demand
(b) Expansion of demand
(c) Contraction of demand
(d) Decrease in demand
Answer:
(b) Expansion of demand
Question 8.
If demand falls from 100 to 75 units due to rise in price from 10 to 15, the
value of elasticity is…
(a) 1
(b) 0.5
(c) 0
(d) 2
Answer:
(b) 0.5

Qn 9.Pick out the odd one and justify your answer. Bread and butter, Pen and
Ink, Butter and Jam, Tennis ball and Tennis racket.
Answer:
Butter and Jam. Others are complementary goods.

Chapter 3

1.When MP becomes zero, TP:

(a) increases
(b) decreases
(c) becomes maximum
(d) becomes negative
Answer:
(c) becomes maximum

2. Which among the following is not ‘u’ shape

(a) MC
(b) AC
(c) AVC
(d) AFC
Answer:
(d) AFC

3. When AC is minimum
(a) MC > AC
(b) MC = AC
(c) MC < AC
(d) None of these
Answer:
(b) MC = AC

4. All the following curves are U shaped except

(a) the AVC curve
(b) the AFC curve
(c) the AC curve
(d) the MC curve
Answer:
(b) the AFC curve

5. Categorize the following into fixed cost

(a) wages of temporary workers
(b) cost of raw materials
(c) salary of permanent staff
(d) cost of transportation
(e) cost of plant
Answer:

Fixed Cost Variable Cost

Salary of permanent staff Cost of raw materials

Cost.of acquiring land Cost of transportation

Cost of plant Wages of temporary workers

6. Identify the shapes of the following cost curves.

1. AFC
2. AC
3. TFC
4. TVC
5. TC
Answer:

1. AFC – Rectangular hyperbola

2. AC – ‘U’shape
3. TFC – Straight line parallel to X axis
4. TVC – Inverse‘S’ shape
5. TC – Inverse‘S’ shape
7. State whether the statement are true or false.

1. TC never becomes zero.

2. AC is sum total of AFC and AVC.
3. When AC rises, AC and MC are equal
4. Real cost is the cost in money terms
5. TFC curve is U shaped
Answer:

1. True
2. True
3. False
4. False
5. False
8. When a firm increased the number of labour from 10 to 11, keeping the
capital fixed the total product increased from 120 to 130. Which of the
following statement is correct in this regard?
(a) The total product fell
(b) This is a long run production
(c) The average product is rising
(d) 10 is the marginal product of an increased unit of labour.
Answer:
(d) 10 is the marginal product of an increased unit of labour.

Chapter 4

1. Pick the odd one out.

1. 1. Homogeneous products, free entry, and exit, price maker.

2. Homogeneous product, freedom of entry and exit, large number of
buyers and sellers, product differentiation.
3. MC = MR, MR = AFC, MC cuts MR from below, P = AC.
Answer:

1. Price maker. Others are features of perfect competition.

2. Product differentiation. Others are features of perfect competition.
3. MR = AFC. Others are conditions for firm’s equilibrium under perfect
competition.
2.Pick out the odd one and justify it.
Free entry, profit maximization, perfect knowledge, price discrimination.
Answer:
Price discrimination. Others are features of perfect competition.

3.Which of the following represents normal profit?

(a) MR = MC
(b) AR = AC
(c) TR > TC
(d) AR < AC
Answer:
(b) AR = AC

4. Firm is price taker under:

(a) perfect competition
(b) monopoly
(c) monopolistic competition
(d) duopoly
Answer:
(a) perfect competition Question

5. Shut down point occurs at:

(a) rising part of
(b) following part of AVC
(c) minimum point AVC
(d) none of these
Answer:
(c) minimum point AVC

6. A firm is able to sell any quantity of the good at a given price. The firm’s
marginal revenue will be
(a) Greater than AR
(b) Less than AR
(c) Equal to AR
(d) Zero
Answer:
(c) Equal to AR

7. The short run shut-down point of a firm in a perfectly competitive firm

is.
(a) P = AVC
(b) P = AC
(c) P > AVC
(d) P < AVC
Answer:
(a) P = AVC

8 .Make pairs:
Perfect competition, price marker, oligopoly, Cournot model, price taker,
monopoly.
Answer:

Perfect competition – price taker

Monopoly – price maker
Oligopoly – Cournot model
9.
Match the following.

A B

Perfect competition TR-TC

TR Minimum point of AVC

Profit Price taker

Shutdown point Price x Quantity

Supply curve of the firm Rise in-unit tax

Shift of supply curve Rising portion of SMC

Answer:

A B

Perfect competition Price taker

TR Price x Quantity

Profit TR-TC

Shutdown point Minimum point of AVC

Supply curve of the firm Rising portion of SMC

Shift of supply curve Rise in-unit tax

Chapter 5

1. Choose the correct answer. The imposition of price ceiling below the
equilibrium price leads to ……….
Answer:
Excess demand

2. Market equilibrium of a commodity shows,

(a) excess demand
(b) quantity demanded greater than quantity supplied
(c) quantity demanded equals quantity supplied
(d) excess supply
Answer:
(c) quantity demanded equals quantity supplied

3. When there is increase in demand, the demand curve.

(a) shifts reight ward
(b) shifts leftward
(c) shifts downward
(d) remains constant
Answer:
(a) shifts reight ward

4. The government imposing upper limit on the price of a good or service is

called:
(a) price floor
(b) price ceiling
(c) equilibrium price
(d) fair price
Answer:
(b) price ceiling

5Make pairs.
Price floor, below equilibrium price, above equilibrium price, price ceiling
Answer:

• Price floor – above equilibrium price.

• Price ceiling – below equilibrium price.
6. Point out the consequences of price ceiling.
Answer:

1. Black marketing
2. Malpractices by fair price shops
3. Sale of inferior quality goods.
7. Match the following.

A B
Price lower than equilibrium price Excess demand

Equilibrium price Excess supply

Price higher than equilibrium price Demand = Supply

Answer:

A B

Price lowerthan equilibrium price Excess supply

Equilibrium price Demand = Supply

Price higher than equilibrium price Excess demand

8. Complete the following statements.

1. Long-run price under perfect competition will be equal to ……….

2. Minimum price fixed by government for a product is known as ……….
3. Maximum price fixed by government for a product is known as ………
Answer:

1. average cost
2. floor price
3. price ceiling
9. Mention the impact of the following.

1. Imposition of price ceiling below equilibrium price

2. Imposition of price floor above the equilibrium price
Answer:
1. Imposition of price ceiling below equilibrium price leads to excess
demand.
2. Imposition of price floor above the equilibrium price leads to an excess
supply

Chapter 6
1. The form of the market having only 2 sellers is called:
(a) monopoly
(b) duopoly
(c) oligopoly
(d) monopolistic competition
Answer:
(b) duopoly
2. Differentiated products is a characteristic of
(a) Monopolistic competition only
(b) Oligopoly only
(c) Both Monopolistic competition & Oligopoly
(d) Monopoly
Answer:
(c) Both Monopolistic competition & Oligopoly
3. Suppose there are only two firms manufacturing cars in India, namely,
Maruti and Hyundai. What market form is this?
Answer:
This market form is known as duopoly market. Duopoly is a market
structure in which there are only two firms producing a product.
4.Suggest any 2 examples of a monopolistically competitive market.
Answer:

1. Soap industry
2. Toothpaste industry.
5.The features of firms under different market structure is given below. Classify
them into perfect competition and oligopoly.
(a) Collusion
(b) Free entry and exit
(c) Intertdependance
(d) Firms are price takers
Answer:
a & c Oligopoly, b & d Perfect competition
6.Choose the correct answer
a. In monopoly:
1. There are many producers
2. There is no seller
3. There is no buyer
4. There is single seller
b. When two commodities are complementary to one another

1. They may be jointly demanded

2. They may be complementary goods
3. They may be substitutes
4. None of the above
c. Generally government fix control price

1. Equal to equilibrium price

2. Less than equilibrium price
3. More than equilibrium price
4. None of these
Answer:
a. 4. There is single seller
b. 1. They may be jointly demanded
c. 2. Less than equilibrium price

7. State whether the followirig satements are true or false.

1. The seller in a monopoly is a price maker.

2. Price leadership is an important feature of oligopoly.
3. Selling cost is the cost of producing the commodity.
Answer:

1. True
2. True
3. False. Selling cost is the cost of selling a Product.
8. Consider the commodities given below. Identify the most likely market
situation in which they are produced. Substantiate.

1. Airline industry.
2. Potatoes.
3. Toilet soap.
Answer:

1. Oligopoly – only a few producers

2. Perfecly Competitive Market – large number of producers
3. Monopolistic Competition – Many sellers producing differentiated
products
9.
Find odd one out.

1. Single seller, price maker, selling cost, control over supply

2. Fairly large number of firms, product differentiation, selling cost, price
maker
3. A few firms, interdependence between firms, no transport cost,
indeterminate demand curve
4. Tata steel, Reliance industries, Post and Telegraph
Answer:

1. Selling cost. Others are features of monopoly

2. Price maker. Others are features of monopolistic competition
3. No transport cost. Others are features of oligopoly
4. Post and Telegraph. Others are private sector companies.
10. Categorize the following into different market forms.

1. Indian Railways
2. Toothpaste
3. Hero Honda
4. KSEB
Answer:

1. Indian Railways – monopoly

2. Toothpaste – monopolistic competition
3. Hero Honda – oligopoly
4. KSEB – monopoly
11. Make pairs.
Price maker, Price leadership, Monopoly, Monopsonist, single buyer,
Oligopoly, monopolistic competition, selling cost.
Answer:

• Price maker – Monopoly

• Price leadership – Oligopoly
• Single buyer – Monopsonist
• Selling cost – Monopolistic competition.