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 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 NOT applicable for the law of diminishing marginal utility?
(i) All the units of the given commodity are heterogeneous.
(ii) The units of consumption are of unreasonable size.
(iii) The consumer is rational human being and he aims at minimization of satisfaction.

  1. (i)

  2. (ii)

  3. (iii)

  4. All of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation
Assumptions of law of diminishing marginal utility are:
1)Given commodities should be homogeneous in nature.
2)Reasonable sized units are to be consumed.
3)Consumer always want to maximize his utility with his given income and market prices of the commodities.

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 units of consumption are of reasonable size.

  2. There is no unduly long time interval between the consumption of the goods.

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

  4. All of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation
Assumptions of law of diminishing marginal utility are:
1)Given commodities should be homogeneous in nature, that is, identical commodities.
2)Reasonable sized units are to be consumed.
3)Consumption should be done continuously. No time interval will be entertained between the consumption of the goods.
Multiple choice business economics and quantitative methods consumer's behaviour consumer equilibrium laws in economics utility and law of diminishing marginal utility

The doctrine of consumer's surplus is based on _______.

  1. elasticity of demand

  2. indifference curve analysis

  3. law of substitution

  4. the law of diminishing marginal utility
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

According to the law of diminishing marginal utility as the consumption increases the marginal utility tends to fall. Consumer's surplus is a phenomenon where the marginal utility derived from a product is greater than the price per unit of that product.

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

The marginal utility(MU) of the last unit of commodity X consumed is twice the MU of the last unit of commodity Y consumed, the consumer is in equilibrium only if:

  1. The income of the consumer is doubled

  2. The price of X is equal to the price of Y

  3. The expenditure of X is equal to twice on Y

  4. The price of Y is one half of the price of X
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The Equi-Marginal Utility theory states that consumers will maximise total utility from their incomes by consuming that combination of goods where:

$\dfrac{MU _a}{MU _b} =$ $\dfrac{P _a}{P _b}$

For example, suppose bread = Re.1 and Rice = Rs.2.

  • Rice is twice as expensive as bread. Therefore, it would make sense to choose a quantity of rice, where the marginal utility of rice was twice the MU of bread. Therefore, you would tend to buy such a quantity of rice so as to make sure the marginal utility of rice justifies its higher price.
  • If rice was giving three times as much marginal utility but was only twice as expensive, it would make sense to buy more rice until the marginal utility fell to that ratio.

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

According to the law of diminishing marginal utility _______________.

  1. as the price of a given product rises, the added benefit eventually diminishes

  2. as the consumption of a given product rises, the added benefit eventually diminishes

  3. as the production cost for a given product rises, the added benefit eventually diminishes

  4. the demand curve for some product is upward-sloping
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Law of diminishing marginal utility is based on psychological law that as more and more units of a commodity is consumed, marginal utility derived from every successive unit will decline in respect to all goods with a few exception.

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

Full form of DMU is ______________.

  1. Diminishing Marginal Utility

  2. Distributive Marginal Utility

  3. Direct Marginal Utility

  4. Display Marginal Utility
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Diminishing marginal utility states that when a consumer goes on consuming a standard unit of a commodity, the additional utility in every successive unit of consumption keeps on diminishing. It is based on the assumption that the consumer needs to consume a standard unit of the commodity.

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 consurner ______

  1. Decreases; decreases

  2. Increases; decreases

  3. Decreases; Increases

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

When the commodity consumed by a customer increases it is the normal psychological affect that the satisfaction which that commodity is providing to the customer will decrease. Therefore, for every extra unit of consumption of a commodity, marginal utility derived will decrease.

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

Utility may be affected by the presence or absence of.

  1. Substitute Goods

  2. Complementary Goods

  3. Both (a) and (b)

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

The utility of a good is often dependent on the availability of substitutes (which provide alternatives) and complements (which are used together).

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

In law of diminishing marginal utility, rationality means __________.

  1. consumer is rational

  2. producer is rational

  3. firm is rational

  4. seller is rational
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

In law of diminishing marginal utility, rationality of consumers refer to the situation when consumers take decisions with reason and logic and without any bias.

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 as the consumer buys more units of a commodity _________.

  1. total utility falls

  2. marginal utility falls

  3. average utility falls

  4. both total and marginal utility falls
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Law of diminishing marginal utility states that as consumer will increase its consumption of a commodity, the marginal utility derived from every successive unit of consumption will decrease and a situation may come when marginal utility is zero or negative. 

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

Which assumption implies the consumer aims at utility maximisation?

  1. Rationality

  2. Ordinality

  3. Cardinality

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

Rationality of consumers refer to the situation when consumers take decisions with reason and logic and without any kind of bias. When the consumer takes rational decision they try to get highest satisfaction by spending least amount of money.

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

Which assumption of consumer theory states that if the consumer prefers A to B, then he will not prefer B to A in another time period?

  1. Transitivity

  2. Preference

  3. Rationality

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

According to the consistency theory, consumer will not change his preferences in another time period. So if he prefers commodity A over commodity B then he will never prefer B over A. It is one of the assumption of ordinal utility theory analysis.

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 when more and more units of a commodity are consumed, marginal utility ___________.

  1. begins to increase

  2. remains constant

  3. begins to decrease

  4. becomes zero
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Law of diminishing marginal utility states that as consumer will increase its consumption of a commodity, the marginal utility derived from every successive unit of consumption will decrease and a situation may come when marginal utility becomes zero or negative. 

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


Marginal Utility must diminish as more and more standard units of a commodity are continuously consumed.

  1. True

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

Marginal utility refers to additional utility which a consumer gets on consuming one extra unit of a commodity. So, as consumer consumes more and more of a commodity, the satisfaction at each level will diminish. This is in accordance with the law of diminishing marginal utility.