Economics · Commerce Accountancy

Microeconomics and Pricing

1,413 Questions

Microeconomics and pricing analyze market structures, consumer utility, marginal cost, and strategic pricing models like predatory pricing. These foundational economic concepts are regularly featured in civil services and state administrative examinations. Solve these practice questions to understand market equilibrium, demand elasticity, and competitive firm behavior.

Market equilibrium pricingIncome elasticity of demandMarginal cost conceptsUtility functions analysisPredatory pricing strategiesOligopoly market structures

Microeconomics and Pricing Questions

Multiple choice

If income is below equilibrium, then _____.

  1. stocks to unsold goods would tend to increase

  2. prices would fall

  3. investments would fall

  4. income would tend to rise
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

When income is below equilibrium, aggregate demand exceeds supply, creating incentives for increased production. This adjustment process pushes income back toward equilibrium. The other options describe outcomes that would occur with income above equilibrium, not below it.

Multiple choice

The price of potatoes falls from Rs. 30 to Rs. 20 and potato growers supply the same amount to the shops. The price elasticity of supply is

  1. perfectly inelastic

  2. less elastic

  3. unitary elastic

  4. impossible to calculate

  5. highly elastic
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

When the supply does not change with the change in price, PES is perfectly inelastic or zero. In the question, supply of potatoes is not changing with the change in price. Hence, it is the right answer.

Multiple choice

A local grocery storekeeper orders 100 cans of soya milk every week and sells them at the price of Rs. 60 per can. At the end of first week, he has sold only 50 cans. What economic situation is the storekeeper facing and what will be the effect of this situation on the price in order to attain equilibrium?

  1. Shortage; price will rise

  2. Surplus; price will fall

  3. Shortage; price will fall

  4. Surplus; price will rise

  5. Equilibrium; no changes in price
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

This answer is right because in the question, there is remaining stock, which is yet to be sold.

Multiple choice

When the price of good X rises, demand for good Y rises. X and Y are

  1. inferior goods

  2. complementary goods

  3. substitute goods

  4. normal goods

  5. branded goods
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Substitutes are those goods which can be used with ease in place of one another. For example, tea and coffee, ink pen and ball pen, are substitutes for each other and can be used in place of one another easily. When goods are substitutes, a fall in the price of one leads to a fall in the quantity demanded of its substitutes. They have positive cross elasticity of demand. This is the correct answer.

Multiple choice

Yesterday, price of petrol was Rs. 20 per litre and Vishal was willing to purchase 10 litres for his bike.Today, price of petrol has gone up to Rs. 25 and now Vishal is willing to purchase 8 litres. What is Vishal's elasticity of demand?

  1. Inelastic

  2. Unitary elastic

  3. Perfectly inelastic

  4. Perfectly elastic demand

  5. Diminishing marginal utility
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

% change in quantity demanded = (8 - 10)/10 = -0.20 = -20% % change in price = (25-20)/20 = 0.25 = 25% Elasticity = |( -20%)/(25% )| = |-0.8| = 0.8  

Multiple choice

You are using a branded shampoo for a long time and you noticed that there is a sudden rise in the price of that shampoo. What can be the reason for this rise in price?

  1. Decrease in cost of production of that particular shampoo

  2. Few people may be buying this brand

  3. Increase in price of other similar shampoos

  4. Increase in price of conditioner

  5. None of these
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

An increase in the price of other shampoos must have increased the demand for the given shampoo. An increase in demand will lead to increase in the price of shampoo to attain equilibrium. Hence, this is the correct answer.

Multiple choice

Which of the following predictions is not made by supply and demand theory?

  1. If there is excess demand, price will rise.

  2. If there is excess supply, price will fall.

  3. If there is no excessive demand or supply, market will be in equilibrium stage.

  4. A market which is out of equilibrium will always move rapidly towards the equilibrium.

  5. If price increases, demand falls.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

This is not a prediction of demand or supply theory.

Multiple choice

If buyers expect a rise in price of gold in future, this will lead to

  1. unchanged demand

  2. negative demand

  3. a decrease in demand today

  4. an increase in demand today

  5. unitary elastic demand
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

This answer is correct because an increase in future price will lead the consumers to buy more in the present time. This leads to an increase in demand.

Multiple choice

In a market, prices are determined by

  1. board of directors

  2. government bureaucrats

  3. legal advisors of the company

  4. seasonal demand

  5. supply and demand
Reveal answer Fill a bubble to check yourself
E Correct answer
Explanation

Price is calculated on the basis of quantity of goods demanded and the quantity of goods supplied. This is the correct answer.

Multiple choice

The supermarket ___ their prices last week.

  1. rose

  2. raised

  3. has risen
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

'Raise' is a transitive verb that needs an object (here: 'their prices'), and its past tense is 'raised' (regular). 'Rise' is intransitive (no object) and its past tense is 'rose'. Since the supermarket raised prices, we need the transitive verb with its regular past form. 'Has risen' would mean the prices rose themselves, which changes the meaning.

Multiple choice

Indifference Curve moves

  1. From left to right and down-wards

  2. From left to right and upwards

  3. From left to right but parallel to Y-axis

  4. Nove upwards parallel to Y-axis
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Indifference curves are convex to the origin and slope downward from left to right. This negative slope represents the trade-off between two goods - as you consume more of one good, you must consume less of another to maintain the same level of satisfaction. They cannot slope upward (which would imply more of both goods gives same utility) or be vertical/horizontal.