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

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.

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

Consumer equilibrium can be determined only if the law of diminishing marginal utility holds good.

  1. True

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

Consumer equilibrium will be achieved only when MU diminishes as more units of a commodity are consumed. In case MU tends to rise, consumption of a commodity will never reach to an end. Thus, determination of equilibrium will never be possible.

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 equi- marginal utility explains equilibrium of the _______.

  1. consumer

  2. producer

  3. economy

  4. state
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation
  • The law of equi-marginal utility is an extension of law of DMU. It states that with the limited that a person has, he aims to spend it on different commodities and earn maximum and equal satisfaction from them. 
  • He should such a combination of goods so that the utility derived from the last unit of the goods are the same. 
  • Thus, it aims to establish equilibrium at that point where the consumers gets maximum satisfaction by consuming a particular combination of goods. 
Multiple choice business economics and quantitative methods consumer's behaviour consumer equilibrium laws in economics utility and law of diminishing marginal utility

_______ states that consumer distributes his expenditure between different goods in such a way that the marginal utility derived from the last rupee spent on each good is the same.

  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
D Correct answer
Explanation

The law of equi-marginal utility is based on the law of diminishing marginal utility. The equi-marginal principle states that a consumer will be maximizing his total utility when he allocates his fixed money income in such a way that the utility derived from the last unit of money spent on each good is equal.

 A rational consumer substitutes some units of the commodity of greater utility to some units of the commodity of less utility. The result of this substitution will be that the marginal utility of the former (commodity with greater utility) will fall and that of the latter will rise, till the two marginal utilities are equalized.

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

Consumer is said to be in equilibrium, maximizing his total utility, when

  1. the marginal utilities of the two goods consumed are equal.

  2. the proportions of the marginal utilities and respective prices are equal.

  3. the consumer gets full satisfaction from the consumption.

  4. the consumer feels satisfied with his expenditure on the various goods.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

According to the law of equi-marginal utility, a consumer is said to be in equilibrium when the ratio of the marginal utilities of the two commodities and their respective prices are equal. This means that the MU of the last rupee spent on each commodity is the same.

The equation it should satisfy is: MUX /PX = MUY/PY

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 can be treated as limitation of the law of equi-marginal utility?

  1. Assumption of rationality is not practicable.

  2. Consumers ignorance is a potent factor that always results in other than equilibrium position.

  3. The assumption that the goods on which the consumer spends his money are perfectly divisible, i.e., goods can be bought even in extremely small quantities does not hold true at times.

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

In real life, consumers do not act rationally while measuring the utility of the product which they are purchasing. Consumers ignore to compare the price and utility of different commodities, due to which they cannot make a rational decision. Moreover, the law of equi-marginal utility does not hold good in case of indivisible goods because comparison is not possible.

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

___________ law is unrealistic in nature.

  1. Law of DMU

  2. Law of equi-marginal utility

  3. Both a & b

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

In real life situation, Law of equal marginal utility is very unrealistic because it is very irrational on the part of the consumer to measure his satisfaction in cardinal number to find the utility he is deriving from a product and then comparing it to the price of the product.

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

As per the law of equal marginal utility consumer considers __________.

  1. prices

  2. marginal utilities

  3. availability of goods

  4. Both a & b
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

In equal marginal utility case the consumer tries to match the utility which he is getting from a standard unit of a commodity with the price that is prevalent in the market with other factors remaining constant to achieve equilibrium.

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

When price of both the commodities is same, the consumer attains maximum satisfaction where ________.

  1. $\displaystyle \frac{MU _X}{MU _Y} > \frac{P _X}{P _Y}$
  2. $\displaystyle \frac{MU _X}{P _X} < \frac{MU _Y}{P _Y}$
  3. $\displaystyle \frac{MU _X}{P _X} > \frac{MU _Y}{P _Y}$
  4. $MU _X = MU _Y$
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

When consumer consumes two commodities and their prices are the same, then equilibrium is achieved when consumer equates marginal utility derived from one commodity with the marginal utility derived from another commodity.