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Economics Objective Solved Questions for exams : Micro Economics

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Economics Objective Solved Questions for exams  : Micro Economics
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1. Assertion (A): An oligopolist faces demand curve which has a kink at the level of the prevailing price.

Reason (R): The segment of the demand curve above the prevailing price level or kink is highly inelastic and the segment of the demand curve below the prevailing price level is elastic.

Codes:

(a) Both A and R are individually true and. R is the correct explanation of A

(b) Both A and It are individually true but R is not the correct explanation of A

(c) A is true but R is false

(d) A is false but R is true

Ans. (c)

2. Consider the following statements relating to marginal rate of technical substitution (MRTS).

1. The MRTS in case of an isoquant measures the rate at which one input is substituted for the other.

2. The M of input X for input Y at a point on an isoquant is equal to the positive slope of the isoquant at that point.

3. The MRTS equals to the ratio of the marginal product of input V to the marginal product of input X.

Which of the statements given above are correct?

(a) 1 and 2

(b) 2 and 3

(c) 1 and 3

(d) 1, 2 and 3

Ans. (c)

3. When is an isoquant L – shaped?

(a) When the two factors are complementary

(b) When the two factors are perfect substitutes

(c) When the two factors are used in fixed proportions

(d) When the two factors are imperfect substitutes

Ans. (c)

4. A firm’s average total cost is Its 60, its average variable cost is Rs. 55 and its output is 50 units. What is its total fixed cost?

(a) Less than Rs. 200

(b) Between Rs. 200 and Rs. 300

(c) More than Rs. 300

(d) Firm has no fixed cost

Ans. (c)

5. Under constant returns to scale, which one of the following is the nature of the long -run average cost curve?

(a) Parallel to output axis

(b) Upward rising

(c) Downward sloping

(d) Identical to short-run average cost curve

Ans. (a)

6. In the figure shown below, MN and QR are two straight line demand curves parallel to each other.

Consider the following statements

1. The slope and elasticity of demand is same on the demand curves MN and QR, at the price P0

2. The slopes are same but elasticity of demand is more on demand curve MN than demand curve QR, at price

3. Elasticities of demand are same but slope of demand curve MN is less than that of QR at the price P

Which of the statements given above is/are correct?

(a) 1 only

(b) 2 only

(c) 1 and 3

(d) 2 and 3

Ans. (b)

7. When the negative income effect is greater than substitution effect, it is the case of which one of the following?

(a) Giffen goods

(b) Inferior goods

(c) Luxury goods

(d) Normal goods

Ans. (d)

8. Which one of the following statements is correct?

Consumption possibility frontier is same as

(a) the indifference curve

(b) the budget line

(c) the production possibility frontier

(d) the demand curve

Ans. (b)

9. Which one of the following statements is not correct?

(a) Normal goods have a positive income elasticity of demand

(b) Inferior goods have a negative income elasticity of demand

(c) Necessity has an income elasticity of demand that is less than one

(d) Luxury goods have an income elasticity of demand that is equal to one

Ans. (d)

10. A firm has certain initial equilibrium price, when demand function QD = 50 — 3P and supply function is 20 + 3P. If the firm’s demand function is shifted to C = 68 — 3P, what is the initial equilibrium price and the new equilibrium price, respectively?

(a) 5 and 6

(b) 5 and 8

(c) 6and 8

(d) 8 and 5

Ans. (b)

11.Cournot model assumes which of the following?

1. There are two firms operating in the market.

2. The firms face a kinked demand curve.

3. Each firm acts on the assumption that their competitors

will not react to her decision to change output.

Select the correct answer by using the code given below

(a)

(b) 2 and 3

(c) l and 3

(d)1, 2 and 3

Ans. (c)

12. Which one of the following statements is correct?

The Sweezy mode of oligopoly assumes that price elasticity of demand

(a) is higher for a price increase than for a price decrease

(b) is lower for a price increase than for a price decrease

(c) cannot change for a price increase or price decrease

(d) cannot change for a price decrease

Ans. (a)

13. Which one of the following statements is correct?

(a) Demand for factors of production is an independent demand

(b) Demand for factors of production is a derived demand

(c) Demand for factors of production is a reciprocal demand

(d) Demand for factors of production is same as the demand for commodities

Ans. (b)

14. What is the principle which is applied to redress the imbalance between distribution and welfare, known as?

(a) Principle of taxation

(b) Compensation principle

(c) Principle of effective demand

(d) Principle of supply

Ans. (b)

15. The inconsistency of which one of the following criteria is labelled as Scitovsky Paradox?

(a) Little Criterion

(b) Pareto Criterion

(c) Bergson Criterion

(d) Kaldor Flicks Criterion

Ans. (d)

16. consider the following statements

The distribution of two commodities between two individuals is Pareto optimal if

1. one individual cannot be made better off without making the other worse off.

2. the individuals are on their consumption contract curve.

Which of the statements given above is/are correct?

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

Ans. (c)

17. What is maximizing the level of satisfaction with the given level of inputs and technology, called?

(a) Technical efficiency

(b) Allocative efficiency

(c) Economics of scale

(d) X- efficiency

Ans. (d)

18. Which one of the following statements is correct? An increase in money supply in Keynesian framework results in

(a) a higher level of income and a higher rate of interest

(b) a lower level of income and a lower rate of interest

(c) a higher level of income and a lower rate of interest

(d) a lower level of income and a higher rate of interest

Ans. (c)

19. Which one of the following statements is correct?

A fall in the money supply results in the

(a) rightward shift in the IS curve

(b) rightward shift in the LM curve

(c) leftward shift in both the LM curve and the IS curve

(d) leftward shift in the LM curve only

Ans. (d)

20. Which one of the following statements is correct?

The IS function indicates the

(a) locus of the money market equilibrium

(b) locus of the commodity market equilibrium

(c) locus of the labour market equilibrium

(d) locus of both money and labour market equilibrium

Ans. (b)

21. Which one of the following statements is correct? According to Keynes, fresh investment would be possible only if

(a) the marginal efficiency of capital exceeds the rate of interest

(b) the marginal efficiency of capital is less than the rate of interest

(c) the marginal efficiency of capital is positive

(d) the marginal efficiency of capital is negative

Ans. (a)

22. Which one of the following statements is correct?

Autonomous investment is

(a) functionally related to interest rate

(b) functionally related to both income and interest rate

(c) functionally related to income alone

(d) independent of income and interest rate

Ans. (d)

23. Consider the following statements

1. The MPC is higher in a poor country and lower in a rich country.

2. Higher the MPC, higher will be the value of multiplier.

3. Lower the M lower will be the value of multiplier.

Which of the statements given above are correct?

(a) 1 and 2

(b) 1 and 3

(c) 2 and 3

(d) 1 2 and 3

Ans. (a)

24. Match List-I with List-II and select the correct answer by using the code given below the lists

List – I                                                         List -II

(Economist)                                                (Concept)

A. A. C. Pigou                                      1. Liquidity Preference

B. J.M. Key                                          2. Real Balance Effect

C. J.R. Hicks-A.H. Hansen                  3. Ratchet Effect

D. J.S. Duesenberry                              4. IS-LM Analysis

Code:

A B C D

(a) 2 1 4 3

(b) 4 3 2 1

(c) 2 3 4 1

(d) 4 1 2 3

Ans. (a)

25.

In the diagram given above, which one of the following is indicated by the point A lying below the IS curve?

(a) Excess demand in the commodity market

(b) Excess supply in the money market

(c) Excess supply in the commodity market

(d) Equilibrium income and interest

Ans (a)

26. In the. permanent income hypothesis of consumption, components ‘of which one pair has a proportional relationship?

(a) Permanent income and transitory income

(b) Permanent income and transitory consumption

(c) Permanent income and permanent consumption

(d) Transitory income and transitory consumption

Ans (c)

27. Which one of the following statements is correct? Crowding our in an economy can be avoided if

(a) government finances its expenditure by new money supply

(b) government finances its expenditure by taxes

(c) government finances its expenditure by buying outstanding bonds

(d) government finances its expenditure by raising cash reserve ratio

Ans. (c)

28. Which one of the following statement is correct?

According to Say’s law of market.

(a) demand creates its own supply

(b) supply creates its own demand

(c) demand and supply are always equal

(d) demand and supply are never equal

Ans. (b)

29. Which one of the following statements in respect of the National Income Accounting is correct?

(a) Budget deficit is equal to savings-invest gap

(b) Budget deficit is more than savings-investment gap

(c) Budget deficit is less than savings-investment gap

(d) Budget deficit is always zero

Ans. (d)

30. Which of the following is/are included in National Income Accounting?

1. Purchase of shares and bonds.

2. Value of residential investment.

3. Value of production for self consumption.

4. Value of intermediate goods.

Select the correct answer by using the codes given below:

(a) l and 2

(b) 2 only

(c) 2 and 3

(d) 3 and 4

Ans. (c)

31. Consider the following statements

1. The equilibrium between the aggregate demand and aggregate supply may take place at a point of less-than-full employment in an economy.

2. The .size of deficient demand is inversely proportional to the deflationary gap.

Which of the statements given above is/are correct?

(a) 1 only

(b) 2only

(c) Both 1 and 2

(d) Neither 1 nor 2

Ans. (a)

32. Assertion (A) : Gross National Product will always be more than the Gross Domestic Product.

Reason (R): To get Gross National Product, not factor income from abroad is added to Gross Domestic product

Codes:

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

(b) Both A and R are individually true but R is not the correct explanation of A

(c) A is true but R is false

(d) A is false but R is true

Ans. (d)

33. what is the empirically fitted relationship between the rate of change of money wages and rate of unemployment, known as?

(a) Baumal’s Hypothesis

(b) Keynesian Model

(c) Friedman’s Model

(d) Phillip’s Curve

Ans. (d)

34. In the simplified version of Friedman’s quantity theory of money, velocity of circulation of money depends on which of the following?

(a) Rate of interest and rate of price change

(b) Rate of interest and rate of change of income

(c) Rate of change of money supply and rate of change of consumption

(d) Rate of change of price and rate of: change of investment

Ans. (b)

35. Consider the following assets

1. Cash held by public

2. Equity shares of banks

3. Deposits of banks

4. RBI bonds

Which of the above assets are considered as part of money supply?

(a) 1 and 2

(b) 1 and 3

(c) 2 and 3

(d) 1, 3 and 4

Ans. (b)

36. which one of the following is stated by the quantity theory of money?

(a) An increase in the nominal money supply causes a proportional increase in the price level

(b) An increase in the real money supply causes a proportional increase in the price level

(c) An increase in the nominal money supply causes a proportional increase in real GNP

(d) An increase in the real money supply causes a proportional increase in real GNP

Ans. (a)

37. Consider the following statements

1. Bond price and interest rate are positively related.

2. Bond price and interest rate are negatively related.

3. Credit creation varies directly with Cash Reserve Ratio (CER).

4. Credit creation varies inversely with Cash Reserve Ratio (CRR).

Which of the statements given above are correct?

(a) 1 and 2

(b) 1 and 4

(c) 2 and 3

(d) 2 and 4

Ans. (d)

38. Suppose, due to an open market purchase of government securities, reserves in the commercial banks increase by Rs. 1,000. If the reserve ratio is 20 percent, what will be the increase in money supply?

(a) Its. 5,000

(b) Rs. 4,000

(c) Rs. 2,000

(d) Rs. 1,000

Ans. (c)

39. Which one of the following is not a component of demand-pull inflation?

(a) An increase in government expenditure with no change in tax rate

(b) A downward shift h savings function

(c) A rise in the money wage rate

(d) An upward shift of investment function

Ans. (c)

40. Assertion (A) Indirect taxes promote inequality in the distribution of income.

Reason (R): Poor bear more burden of indirect taxes.

Codes:

(a) Both A and Rare individually true and R is the correct explanation of A

(b) Both A and R are individually true but R is not the correct explanation of A

(c) A is true but R is false

(d) A is false but R is true

Ans. (a)

41. which one of the following statements is correct?

According to Peacock and Wiseman, public expenditure grows

(a) steadily over a period of time

(b) at a. constant rate in relation to GNP

(c) in a step by step manner

(d) at a lower rate in relation to GNP

Ans. (c)

42. As compared to traditional budgeting, in case of Performance and Programme Budgeting System (PPBS), which one of the following statements is correct?

(a) It stresses on outcome only

(b) It stresses on expenditure allocation only

(c) It stresses more on outcome and less on expenditure allocation

(d) It stresses less on outcome and more on expenditure allocation

Ans. (c)

43. Which one of the following statements is coned?

Zero-base budgeting implies that

(a) it emphasizes physical targets rather than financial targets

(b) spending on all programmes is re-examined and justified each year rather than following add-on every year

(c) it is purely an evaluation of existing budget and there is nothing new in it

(d) it focuses on centralization of expenditure

Ans. (b)

44. Which one of the following statements is correct?

The revenue from the imposition of an advolarem tax and that of a unit tax in a perfectly competitive market which results in the same price rise, are

(a) more for advolarem tax

(b) more for unit tax

(c) equal for both the taxes

(d) zero for both the taxes

Ans. (c)

45. in which one of the following groups of taxes, do impact and incidence of tax coincide?

(a) Income tax and corporation tax

(b) Income tax and excise duties

(c) Corporation tax and custom duties

(d) Excise duties and sales tax

Ans. (a)

46. The concept of optional taxation, based on whatever criteria, has to. cover decision-making at which of the following levels?

1. The aggregate amount of taxations and its division between direct and indirect taxations.

2. The composition and rate schedules of direct and indirect taxes.

3. The composition and revenue schedules of indirect taxes.

4. The composition and revenue schedules of direct taxes.

Select the correct answer by using the code given below:

(a) 1 and 4

(b) 1 and 3

(c) 1 and 2

(d) 2, 3 and 4

Ans. (c)

47. According to Cohn Clark, what is taxable capacity?

(a) 20 percent of National income

(b) 25 percent of National Income

(c) 30 percent of National Income

(d) 35 percent of National Income

Ans. (b)

48. Which one of the following is not the Canon of taxation as stated by Adam Smith?

(a) Canon of equality

(c) Canon of convenience

(b) Canon of certainty

(d) Canon of productivity

Ans. (d)

49. Which curve shows that how much of its import commodity is required by a nation in exchange for various quantities of its export commodity?

(a) Offer curve

(b) indifference curve

(c) Demand curve

(d) Production possibility curve

Ans. (a)

50. Which of the following is/are correct in respect of opportunity cost theory?

1. A straight line production possibility curve indicates constant opportunity cost.

2; The production possibility curve under increasing cost would be concave to the origin.

Select the correct answer by using the code given below:

(a) l only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

Ans. (c)

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