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 business mathematics and statistics introduction to index number introduction to index numbers index numbers applied statistics

Consumer price index indicates:

  1. Rise

  2. Fall

  3. Both (a) and (b)

  4. Neither (a) and (b)
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The Consumer Price Index (CPI) indicates the measure of the average change over time in the prices paid by consumers for a market basket of consumer goods and services.

It indicates both Rise and Fall in the price.
Multiple choice business mathematics and statistics introduction to index number introduction to index numbers index numbers applied statistics

Consumer price index numbers are obtained by:

  1. Laspeyre's formula

  2. Fisher ideal formula

  3. Marshall Edgeworth formula

  4. Paasche's formula
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

CPI figures for most countries are usually calculated by using a Laspeyre's Index or Lowe Index.


The CPI calculated via a Paasche index, helps give an idea of what today basket would have cost at yesterday prices.
Answer. (A)

Multiple choice business mathematics and statistics introduction to index number introduction to index numbers index numbers applied statistics

When the prices of rice are to be compared, we compute: 

  1. Volume index

  2. Value index

  3. Price index

  4. Aggregative index
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

$\Rightarrow$  When the prices of rice are to be compared, we compute: $Price\,Index.$

$\Rightarrow$  Price index, measure of relative price changes, consisting of a series of numbers arranged so that a comparison between the values for any two periods or places will show the average change in prices between periods or the average difference in prices between places. 
$\Rightarrow$  In most countries price indexes are used to measure inflation, each focusing on the prices of a collection of goods and services important to a particular segment of the economy.

Multiple choice business mathematics and statistics introduction to index number introduction to index numbers index numbers applied statistics

A weighted aggregate price index where the weight for each item is its base period quantity is known as the

  1. Paasche Index

  2. Consumer Price Index

  3. Producer Price Index

  4. Laspeyres Index
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

A weighted aggregate price index where the weight for each item is its base period quantity is known as the Laspeyres Index.

Multiple choice elements of business sources of business finance - 1 classification & choice of sources of funds classification of sources of finance owned funds and borrowed funds

Few sellers is a feature of ________________.

  1. monopoly

  2. perfect competition

  3. monopolistic competition

  4. oligopoly
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation
Meaning of Oligopoly:
Oligopoly refers to a market situation or a type of market organisational in which a few firms control the supply of a commodity. The competing firms are few in number but each one is large enough so as to be able to control the total industry output and a moderate. However, increase of its output or sales will reduce the sales of rival firms by a noticeable amount.
This is surely the case if three to six or even ten firms control an industry’s output, with each controlling enough to exert influence on price. Oligopoly is the most prevalent form of market organisation in the manu¬facturing sector at modern times and arises due to various reasons (such as, economies of scale, patents and trademarks, control over the sources of raw materials, government’s sanction, need of a large capital, and so on). The chief characteristic of oligopoly is the interdependence among the rival sellers.
Types of Oligopoly:
Oligopoly is of two types:
(a) Pure oligopoly
Here, the oligopolists sell practically homogeneous products. This type is found in steel, copper, cement petrol and a few other industries.
(b) Differential Oligopoly:
In such a case a few firms sell similar but not identical products under the same conditions. It is found in automobiles, tyres, electrical appliances, cigarettes, baby food and a few other industries.
Multiple choice economics consumption and investment functions keynesian law of consumption and propensity to consume ex ante and ex post concept of consumption function, saving function and investment function

 If the marginal propensity of consume is greater than marginal propensity to save, the value of the multiplier will be (Choose the correct alternative): 

  1. greater than 2

  2. less than 2

  3. equal to 2

  4. equal to 5
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

If the value of MPC IS greater than MPS, then the value of the multiplier is always more than two because the change in savings or investment will always be less than half the change in income. 

Multiple choice economics consumption and investment functions keynesian law of consumption and propensity to consume ex ante and ex post concept of consumption function, saving function and investment function

Marginal Propensity to Consume is denoted as ___________________.

  1. $MPC=\dfrac {\triangle C}{\triangle Y}$
  2. $MPC=\dfrac {\triangle C}{\triangle S}$
  3. $MPC=\dfrac {\triangle C}{\triangle I}$
  4. $MPC=\dfrac {\triangle I}{\triangle Y}$
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation
Marginal Propensity to consume refers to the percentage change in consumption for every one rupee of change in the income. It is the ratio between the change in income and corresponding change in consumption.
Marginal propensity to consume = ΔC/ΔY 
where ΔC is the Change in consumption and ΔY is the change in income in the economy.

Multiple choice economics consumption and investment functions keynesian law of consumption and propensity to consume ex ante and ex post concept of consumption function, saving function and investment function

How is marginal propensity to consumed expressed mathematically?

  1. C = c (Y 0) = c.Y

  2. C = c (Y 0) = I-K

  3. C = c (I Y) = c.Y

  4. C = c (Y 0) k
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Marginal Propensity to consume refers to the percentage change in consumption for every one rupee of change in the income. It is the ratio between the change in income and corresponding change in consumption.

Mathematically, 

Consumption function (C) = c+ bY where c=autonomous consumption, b= marginal propensity to consume, and Y= income.

Therefore, marginal propensity to consume is expressed as a product with the income earned by the economy. 


Multiple choice business economics and quantitative methods consumer's behaviour consumer equilibrium laws in economics utility and law of diminishing marginal utility

The concept of marginal utility plays a central role in ________.

  1. supply analysis

  2. stock analysis

  3. demand analysis

  4. security analysis
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Marginal utility refers to the utility derived from the consumption of an additional unit of a commodity. It is of utmost importance in demand analysis of the consumers. The utility refers to the power of satisfying consumer's wants.

Multiple choice business economics and quantitative methods consumer's behaviour consumer equilibrium laws in economics utility and law of diminishing marginal utility

Which of the following assumption is applicable for the law of diminishing marginal utility?

  1. The consumer is rational human being and he aims at minimization of satisfaction.

  2. The units of consumption are of reasonable size.

  3. All the units of the given commodity are heterogeneous.

  4. There is long time interval between the consumption of the goods.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

To uphold the law of marginal utility, the reasonable sized units are to be consumed. The law of marginal utility states that as consumption increases, the marginal utility derived from each successive units tends to decline.

Multiple choice business economics and quantitative methods consumer's behaviour consumer equilibrium laws in economics utility and law of diminishing marginal utility

The law of diminishing marginal utility states that as the stock of a commodity with the consumer ____, its marginal utility to the consumer _____.

  1. decreases; decreases

  2. increases; decreases

  3. decreases; remains unchanged

  4. increases; increases
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The law of diminishing marginal utility states that as the consumption increases the marginal utility derived from the each successive units tends to decline. The consumer is less willing to sacrifice one good to consume one more additional unit of another good at a higher level of consumption.

Multiple choice business economics and quantitative methods consumer's behaviour consumer equilibrium laws in economics utility and law of diminishing marginal utility

The law of diminishing marginal utility states that as the stock of a commodity increases with the consumer, its ________ to the consumer decreases.

  1. utility

  2. supply

  3. marginal utility

  4. average utility
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The law of diminishing marginal utility states that as the consumption increases the marginal utility derived from the each successive units tends to decline. The consumer is less willing to sacrifice one good to consume one more additional unit of another good at a higher level of consumption.

Multiple choice business economics and quantitative methods consumer's behaviour consumer equilibrium laws in economics utility and law of diminishing marginal utility

_______ states that as the stock of a commodity increases with the consumer, its marginal utility to the consumer decreases.

  1. The law of demand

  2. The law of diminishing marginal rate of substitution

  3. The law of diminishing marginal utility

  4. The law of equi-marginal utility
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The law of diminishing marginal utility states that as the consumption increases the marginal utility derived from the each successive units tends to decline. The consumer is less willing to sacrifice one good to consume one more additional unit of another good at a higher level of consumption.

Multiple choice business economics and quantitative methods consumer's behaviour consumer equilibrium laws in economics utility and law of diminishing marginal utility

Which of the following assumptions is applicable under the Marshallian approach of consumer behaviour?

  1. Law of diminishing utility (DMU) holds true.

  2. Marginal utility of money keeps changing.

  3. Utility is ordinally measurable.

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

The Law of Diminishing Marginal Utility was given by Alfred Marshall. According to the theory, the marginal utility of a consumer goes on falling as he/she consumes more and more of  a product.

Marginal utility is the additional satisfaction a consumer gains from consuming one more unit of a good or service.

The assumptions of this Marshallian approach of consumer behaviour are:

1. Marginal utility of money is constant.

2. Utility is cardinally measurable which means that the utility or satisfaction of a consumer can be measured in terms of cardinal numbers.

3. The consumer is a rational human being.