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 equilibrium of a firm shifts in demand and supply producer's equilibrium income-output determination liquidity preference and profit

When price of commodity rise,the demand for it _____ .

  1. rises

  2. falls

  3. remain

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

According to the law of demand, there is an inverse relationship between price and quantity demanded; therefore, if the price rises, the quantity demanded falls.

Multiple choice business economics and quantitative methods equilibrium of a firm shifts in demand and supply producer's equilibrium income-output determination liquidity preference and profit

The market for hand tools (Such as hammers and screwdrivers) is dominated by Draper, Stanley, and Craftsman. This market is best described as

  1. Monopolistically competitive

  2. a monopoly

  3. an oligopoly

  4. perfectly competitive
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

An oligopoly is a market structure dominated by a small number of large firms. Since the hand tool market is dominated by only three major companies, it fits this definition.

Multiple choice business economics and quantitative methods equilibrium of a firm shifts in demand and supply producer's equilibrium income-output determination liquidity preference and profit

Consumer stops purchasing the additional units of the commodity when ______________________.

  1. marginal utility starts declining

  2. marginal utility become zero

  3. marginal utility is equal to marginal utility of money

  4. total utility is increasing
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

According to the law of diminishing marginal utility, a rational consumer will stop consuming additional units when the marginal utility of the last unit consumed becomes zero, as consuming more would then decrease total utility.

Multiple choice business economics and quantitative methods equilibrium of a firm shifts in demand and supply producer's equilibrium income-output determination liquidity preference and profit

Marginal utility of a commodity dependson its quantity and is_______.

  1. inversely proportional to its quantity

  2. not proportional to its quantity

  3. independent of its quantity

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

The law of diminishing marginal utility states that as more units of a commodity are consumed, the additional satisfaction (marginal utility) derived from each subsequent unit decreases, meaning it is inversely related to the quantity consumed.

Multiple choice business economics and quantitative methods equilibrium of a firm shifts in demand and supply producer's equilibrium income-output determination liquidity preference and profit

The point of intersection between aggregate demand curve and aggregate supply curve is called _________________.

  1. aggregate demand

  2. market demand

  3. effective demand

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

Aggregate supply refers to the desired level of output in the economy during an accounting year. It is through this output only that the producer sector generates income. 

Aggregate Demand refers to the desired level of expenditure in the economy during an accounting year. It is what people wish to spend on the purchase of goods and services during an accounting year.

Therefore, the point of  intersection between aggregate demand curve and aggregate supply curve is called effective demand as at this point all the output produced in the economy is used by the consumers of the economy owing to full employment. 

Multiple choice business economics and quantitative methods equilibrium of a firm shifts in demand and supply producer's equilibrium income-output determination liquidity preference and profit

Marginal Productivity Theory is based on the assumption of ___________________.

  1. perfect competition

  2. monopoly

  3. oligopoly

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

The Marginal Productivity Theory of distribution assumes perfect competition in both the product and factor markets to determine the prices of factors of production.

Multiple choice business economics and quantitative methods equilibrium of a firm shifts in demand and supply producer's equilibrium income-output determination liquidity preference and profit

Effective demand depends on ______.

  1. capital-output ratio

  2. output-capital ratio

  3. total expenditure

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

Effective demand depends on supply price. Effective demand refers to that point where aggrgate demand is equal to aggregate supply. Therefore, supply price and demand price are independent.

Multiple choice business economics and quantitative methods equilibrium of a firm shifts in demand and supply producer's equilibrium income-output determination liquidity preference and profit

When demand curve shifts to the right, the ________. 

  1. equilibrium quantity and price increase

  2. equilibrium quantity and price decrease

  3. equilibrium quantity increases and price decreases

  4. equilibrium quantity decreases and price increases
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

A rightward shift in the demand curve indicates an increase in demand. With a stable supply curve, this leads to both a higher equilibrium price and a higher equilibrium quantity.

Multiple choice business economics and quantitative methods equilibrium of a firm shifts in demand and supply producer's equilibrium income-output determination liquidity preference and profit

When demand curve shifts to the right, What happens to the new equilibrium?

  1. Higher than original

  2. Lower than original

  3. Same as original

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

When the demand curve shifts to the right, the new equilibrium point is reached at a higher price and quantity compared to the original equilibrium.

Multiple choice business economics and quantitative methods equilibrium of a firm shifts in demand and supply producer's equilibrium income-output determination liquidity preference and profit

When the price of petrol goes up, demand for cars will _____ . 

  1. rise

  2. fall

  3. not changes

  4. remain unchanged
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Petrol and cars are complementary goods. When the price of a complement (petrol) rises, the demand for the associated good (cars) falls.

Multiple choice business economics and quantitative methods equilibrium of a firm shifts in demand and supply producer's equilibrium income-output determination liquidity preference and profit

Indirect demand is also known as ______ demand.

  1. derived

  2. direct

  3. composite

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

Indirect demand, or derived demand, occurs when the demand for a good or service is a consequence of the demand for something else (e.g., demand for labor is derived from the demand for the product the labor produces).

Multiple choice business economics and quantitative methods equilibrium of a firm shifts in demand and supply producer's equilibrium income-output determination liquidity preference and profit

In the case of unitary elastic demand, the total outlay of the consumer before the price change and after the price change will ______ . 

  1. become more

  2. become less

  3. remain the same

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

In the case of unitary elastic demand, the total outlay of the consumer before the price change and after the price change will remain the same. This is a hypothetical case as there is no real life examples for the same. 

Multiple choice business economics and quantitative methods equilibrium of a firm shifts in demand and supply producer's equilibrium income-output determination liquidity preference and profit

The life saving medicines have inelastic demand. 

  1. True

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

True. Life saving medicines have inelastic demand. By inelastic we mean when the price changes that consumer buying habit remains the same. The consumer will not reduce the consumption of a life saving drug is the price increase and vice versa. 

Multiple choice business economics and quantitative methods equilibrium of a firm shifts in demand and supply producer's equilibrium income-output determination liquidity preference and profit

If the demand is less than unitary elastic , the total outlay of the consumers will change in the opposite direction of change in price.

  1. True

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

False. If the demand is less than unitary elastic, the total outlay of the consumers will change in the same direction of change in price. In this case when the total expenditure rises with a rise in price and decreases with a fall in price elasticity will be less than 1.