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 technology packaged enterprise solutions

Economic Order Quantity(EOQ) refers to

  1. Min-Max Planning

  2. Re-order point planning

  3. ATP

  4. All the above
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Economic Order Quantity (EOQ) is specifically associated with Re-order point planning in Oracle Inventory. It calculates the optimal order quantity to minimize total inventory costs. Min-Max planning uses different logic, and ATP is unrelated.

Multiple choice

Which of the following statements is false?

  1. Consumer surplus can be measured precisely.

  2. The consumer surplus derived from commodity is affected by the availability of substitutes.

  3. The concept can be accepted, only if it is assumed that utility can be measured in terms of money or otherwise.

  4. In case of necessaries, the marginal utilities of the earlier units are infinitely large. In such cases, consumer surplus is always infinite.
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Consumer surplus cannot be measured precisely because it is difficult to measure marginal utilities of different units of a commodity, consumed by a person.

Multiple choice

According to Alfred Marshal, Demand Curve slopes downward due to operation of

  1. income effect

  2. substitution effect

  3. law of diminishing marginal utility

  4. arrival of new consumer
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

According to Marshal, people will buy more quantity at lower price because they get lesser satisfaction from use of additional units of goods. So, a rationale consumer will not pay more for less satisfaction. He is induced to buy additional units in order to maximize his satisfaction. The diminishing marginal utility and equalizing it with the price is the cause for the downward sloping curve.

Multiple choice

Which of the following is an exception to the Law of Demand?

  1. Conspicuous Goods

  2. Conspicuous Necessities

  3. Speculative Goods

  4. All of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Conspicuous Goods- Articles of prestige value are demanded by only the rich and these articles become more attractive when their prices go up. Such articles do not conform to the usual Law of Demand.

Conspicuous Necessities- The demand for certain goods is affected by the demonstration effect of the consumption pattern of the social group to which an individual belongs. These goods due to their constant usage have become necessities of life. For instance, when price of TV and AC have been continuously rising, demand of these articles do not show any tendency to fall.

Speculative Goods- In speculative market, more will be demand when prices are rising and lesser will be demand when prices decline. This leads to failure of Law of Demand.

Multiple choice

Which of the following statements is false?

  1. When commodities are complementary to each other, fall in price of one (other things being equal) will cause demand of another to rise.

  2. When commodities are complementary to each other, fall in price of one (other things being equal) will cause the demand of another to fall.

  3. When goods are substitutes, fall in the price of one (other things being equal) leads to fall in the quantity demanded of its substitute.

  4. When goods are substitutes, a rise in the price of one (Other things being equal) leads to rise in the quantity demanded of its substitute.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Complementary goods are those goods, which are consumed together or simultaneously, e.g. tea & sugar, automobile & petrol. When commodities are complementary, a fall in the price of one (other things being equal) will cause the demand of the another to rise.

Multiple choice

When there is a fall in the price of a commodity, the consumer's purchasing power increases. The increase in real income induces him to buy more of that commodity. Hence, demand for that commodity increases. This is called

  1. demonstration effect

  2. substitution effect

  3. veblen effect

  4. income effect
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

When the price of a commodity falls, the consumer can buy the same quantity of the commodity with less money. This is called income effect.

Multiple choice

When goods exhibit direct price-demand relationship, they are called

  1. Complementary goods

  2. Giffen goods

  3. Competing goods

  4. Conspicuous goods
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Sir Robert Giffen, an economist, was surprised to find that as the price of bread increased, British workers purchased more bread rather than less. This was something against the law of demand. The reason given for this is when the price of bread went up, it caused such a large decline in purchasing power of the poor that they were forced to cut down the consumption of meat and other expensive eatables. Since bread, even at its highest price, was still the cheapest food article, people consumed more of it and not less when its price went up. Such goods which exhibit direct price-demand relationship are called Giffen Goods.

Multiple choice

Goods, which are consumed together, are called

  1. competing goods

  2. substitute goods

  3. complementary goods

  4. inferior goods
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Complementary goods are those goods which are consumed together. Competing goods or substitutes are those goods, which can be used with ease in place of another. There are certain commodities for which quantities demanded decrease with an increase in income. These goods are called inferior goods.

Multiple choice

Which of the following is incorrect?

  1. The cross elasticity of demand for two substitute is positive.

  2. The income elasticity of demand is the percentage change in quantity demanded of a good due to a change in the price of a substitute.

  3. The cross elasticity of demand for two complements is negative.

  4. The price elasticity of demand is always negative, except for Giffen goods.

Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Option B is incorrect because income elasticity measures responsiveness to INCOME changes, not price of substitutes. Cross elasticity (not income elasticity) measures response to substitute price changes. Options A, C, and D are correct statements: substitutes have positive cross elasticity, complements have negative cross elasticity, and price elasticity is normally negative (price up, quantity down) except Giffen goods where it's positive.