Economics · Commerce Accountancy

Microeconomics and Pricing

1,364 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

Which of the following is the basic characteristic of Oligopoly?

  1. a few sellers, one buyer

  2. a few sellers, many buyers

  3. a few sellers, a few buyers

  4. many sellers, few buyers
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

An oligopoly is a market structure characterized by a small number of large firms (sellers) dominating the market, while there are many buyers.

Multiple choice

Business firms will never price the sales at or below the marginal cost.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Explanation: The very purpose of marginal costing is to assess the risk taking capacity of a business firm. When the supply is in excess of the demand, or when a new product is launched, or when the installed capacity is not fully utilized, management of business firms would do well to sell below the total cost provided the selling price is at or below the marginal cost

Multiple choice

The '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. Move upwards parallel to Y-axis
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Indifference curves represent combinations of goods that provide equal satisfaction; they slope downward from left to right because of the trade-off between goods.

Multiple choice

Law of demand is based upon

  1. law of diminishing marginal utility

  2. law of diminishing return

  3. law of equi-marginal utility

  4. law of substitution
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The law of demand states that as price increases, quantity demanded decreases. This inverse relationship is derived from the law of diminishing marginal utility, which posits that each additional unit of a good provides less satisfaction than the previous one.

Multiple choice

National income on current prices is higher than that at constant prices because

  1. price increase is lower than increase in production.

  2. price increase is equal to increase in production.

  3. price increase is higher than increase in production.

  4. decrease in production.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

National income on current prices is higher than that at constant prices because price increase is higher than increase in production. When the value of goods and services is found out by multiplying the quantity produced during one year by the prices prevailing in that year, we call it National income at Current Prices. On the other hand, when the value of goods and services is calculated by multiplying the quantity during one year with prices of the base year, we call it National Income at Constant Prices. 

Multiple choice

Variable price strategy is followed in

  1. consumer durables

  2. necessities

  3. impulsive consumer goods

  4. None of these
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Under variable price strategy, a product is sold to similar buyers at different prices. Variable price strategy is followed in consumer durables like televisions, refrigerators, automobiles where a seller may charge lower prices from old customers and a high price from a new customer. The old or regular customers can bargain, as the profit margin in consumer durables is also high.

Multiple choice

Which strategy is also known as pattern pricing?

  1. Price lining

  2. Price discrimination

  3. Follow the leader pricing

  4. Keep out pricing
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

An industry is a group of firms. One of them controls the large share of the market that change in its supply will effect the market price. Such a dominant firm acts as a price leader and the other firms have to follow the pattern of price set up by the leader. So follow the leader pricing is also known as pattern pricing.

Multiple choice

The suppliers can be selected by____

  1. Regularity in goods supply

  2. Quality of goods

  3. Price of supply

  4. All of these

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

When selecting suppliers, businesses evaluate multiple criteria, including the consistency of supply, the quality of the goods provided, and the price. All these factors are critical for effective procurement.

Multiple choice

Market demand is affected by

  1. nature of demand

  2. size of demand

  3. changes in demand

  4. All of the above

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

Market demand is a complex concept influenced by the nature, size, and fluctuations of demand over time. All these aspects contribute to the overall understanding and analysis of market demand.

Multiple choice

The new Altis Delight, Altis Auto’s flagship electric-gas hybrid automobile, is considered so efficient by Altis that the company plans to sell the Delight to consumers for no payment other than the difference between what the consumer paid for gasoline for the past three years of driving their previous vehicle and what they will pay for gasoline while driving the Delight for the next three years. Consumers will make an initial down payment, and then pay any remaining fees after fuel costs have been assessed at the end of the three year period.

Which of the following, if true, would most significantly disadvantage Altis Auto based on their proposed payment system?

  1. Most drivers own only one automobile.

  2. Other car manufacturers are planning to introduce similar fuel-efficient vehicles.

  3. Drivers interested in the Delight tend to drive significantly more miles annually than the average driver.

  4. The price of gasoline is expected to rise dramatically over the next three years.

  5. The annual amount spent on gasoline by drivers can be accurately determined based on the number of miles driven in a specific make of automobile.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

(1) Most drivers own only one automobile.

If is is assumed that drivers own only one automobile, then it could be either Altis Delight or any other brand. Either ways there won’t be any disadvantage for Altis Auto. If they own some other brand, then there is no question of this payment plan and if the drivers own Altis Delight, then the payment plan is applicable, which could be well thought of.
(2) Other car manufacturers are planning to introduce similar fuel-efficient vehicles.
Altis Delight is already purchased, so competitor is not a problem.
(3) Drivers interested in the Delight tend to drive significantly more miles annually than the average driver.
The payment is structured around the price differential of gasoline and the price incurred on this car. So distance has no bearing on the payment system to disadvantage Altis Auto.
(4) The price of gasoline is expected to rise dramatically over the next three years.
If the price of gasoline increases, then the savings would deplete and Altis Auto will receive significantly less payment, which is a disadvantage.
(5) The annual amount spent on gasoline by drivers can be accurately determined based on the number of miles driven in a specific make of automobile. Number of miles has no bearing on the savings. So this doesn’t disadvantage Altis Auto.