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 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.


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).