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 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.

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

Which one is not an assumption of law of diminishing marginal utility?

  1. Rational consumer

  2. Short period

  3. Cardinal utility

  4. Substitution of goods
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Substitution of goods is not an assumption under law of DMU, because if one good substitutes for another then law of DMU will not remain applicable.

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

Marginal utility (MU) curve is always ________.

  1. rising

  2. falling

  3. parallel to x-axis

  4. parallel to y-axis
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The negative slope of the marginal utility curve reflects the law of diminishing marginal utility. The marginal utility curve also can be used to derived the demand curve. 
The marginal utility curve is negatively sloped. It decreases as the number of rides increases. Each additional ride adds less utility that the preceding one.

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

Law of diminishing marginal utility states that ____________.

  1. with successive increase in consumption of additional units, marginal utility also increases

  2. with successive increase in consumption of additional units, marginal utility decreases

  3. with successive increase in consumption of additional units, marginal utility remains constant

  4. with successive increase in consumption of additional unit, marginal utility first increases then decreases
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Law of diminishing marginal utility states that with the increase in consumption, the marginal utility gets decreased .This happens because in two commodity case a consumer is willing to sacrifice less of one good for consuming an additional unit of another good.

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

Which of these is not an essential assumption of law of diminishing marginal utility concept?

  1. Different units consumed should be identical

  2. Consumers taste and preference should not change

  3. There should be some time gap between consumption

  4. The different units consumed should consist of standard unit
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

One of the assumption of law of diminishing marginal utility is that the consumption should be continuous. For example, to hold the law of diminishing marginal utility a consumer should consume ice-creams continuously at a particular point of time.

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

Law of Diminishing Marginal utility is applicable to _________.

  1. Intermediate products

  2. Capital goods

  3. Consumer goods

  4. Raw materials
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Law of diminishing marginal utility is applicable to the goods which are consumed by the consumers. The law states that as the consumption of a good increases, the marginal utility tends to decline as the consumer is willing to sacrifice much lesser amount of one good in order to consume one additional unit of another good.

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

Identify which of the following statement is correct and which is incorrect.
A. The marginal utility of a good increase, if the want of the consumer is intensified by consuming a very small quantity of it such as a very little quantity of water given to a very thirsty person.

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

  1. A correct, B correct

  2. A correct, B incorrect

  3. A incorrect, B incorrect

  4. A incorrect, B correct
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation
A)If the want of the consumer gets intensified or increased by consuming a very small quantity then the marginal utility which will be derived from the another additional unit of that commodity will increase.For example, if a very less amount of water is given to a thirsty person, then the marginal utility will rise by consuming the second glass of water as the his want gets intensified even after consuming the first glass of water.

B)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 is a limitation of law of diminishing marginal utility?

  1. Marginal utility in certain cases may increase rather than decrease, e.g. consumption of wine by a drunkard.

  2. Utility is not quantifiable, i.e., it cannot be measured.

  3. Consumer does not consume only one commodity in real life. He has to attain equilibrium by consuming a large number of goods and services.

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

  • There are various exception to the law of diminishing marginal utility like in case of money.
  • We cannot measure our satisfaction in cardinal numbers, we can only measure it as high or low depending upon the product.
  • Consumers consume various commodities, therefore even if the utility of a commodity is high the consumer can switch to some other similar product whose price is low to attend equilibrium. So the consumer anyway attains equilibrium due to feasibility to various products.