OBJECTIVE QUESTIONS

A. Statewhether the following statements are true or false giving

reasons for yOur anSwers :
1. Economics is the science of choices.
R/ Microecononmics deals with the analysis of national income.
3. The prinmary focus of business economics economic welfare.
4. Business forecasts are extremely important aspect of business
economics.
5. Opportunity costs can always be measured in terms of money.
6 Opportunity costs arise because resources are unlimited.
7. Incrementalism and marginalism are one and the same.
8. Business decision making involves comparison between marginal
costs and marginal benefits.
9. When total values are rising, marginal values will be negative.
10. Ifa firms average cost in300 and the cost of producing an additional
unit is 400,then the firm should not be producing the additional
unit, assuming there is no change in the price of the product.
M. An exogenous variable is within an economic model.
12. Functions express relationshipbetween twoor more variables.
 18 Business Eoonomicg -I(BMS, BAF.
BAF, BFM,
BBI.:
SEM-
13. ln the equation C=a+ bY, a denotes the slope of the

curve, consumptio

14. ln case of a non-linear curve, theslope will be different at

differen
points.
Ans,
1.
True; For Reasons: Refer Section1.1.
2. False; For Reasons ; Refer Section 1.1.

3. False; For Reasons : Refer Section 1.2.

4. True; For Reasons :Refer Section 1.2.

5. False; For Reasons : Refer Section 1.3.

6. False; For Reasons : Refer Section 1.3.
7.
False; For Reasons : Refer Section 1.3.
8. True; For Reasons : Refer Section 1.3.
9. False;For Reasons: Refer Section 1.3.
:
10.
11.
12.
True; For Reasous
False;For Reasons :
Refer Section 1.3.
Refer Section1.4.
True; For Reasons :Refer Section 1.4.
13. False; For Reasous: Refer Section
1.4.
14. True; For Reasons :Refer
Section 1.4.
B. Match the columns:

Group A
Group B
1. Graphs
(a) will be sameat
2. Equations all points
3. Business (b) may not alwaysbe quantified
Economic (c)
4. Endogenous small unit change
variables (d) will differ
5.
Incrementalism from point to point
6. Slope of a (e) are
geometrical tool to study
straightline
7. functions
Opportunity cost
(t) are
transactional costs
8) mathematically
express functions

)
(h) uses

)
(k)
economic theory and
quantitative techniques
are within
are outside
an economic
model
an economic model
Measures larger
Ans:(1)-(e), change
(2) -(g),(3)
-(h),(4)-(i),(5)
-(k),(6)-
-(b)
(a), (7)
 OBJECTIVEOUESTIONS

I. State whether the following statements are true or false. Give

reasons for your answers.

1. Demand and price are inversely related.
2. Change in a non-price determinant of demand is shown by movements
along the demand curve.
3.
4.
In the equation ia -bP, a denotes AQdx /
The demand curve has a negative slope.
P.
5. Supply and price are inversely related.
 Market Demand and Supply 35
In case of a reduction in the costof
6, production, the supply curve will
shift to the right.
7. Pricealways has a tendency to move away from equilibrium.
8. When there is shortage in the market, price has a tendency to rise.
9. If,Qdx and Qsx are respectively represented by 50 - 10P,=-10 +10
P,, then equilibrium price is 25.

th
10. If,dx and x are respectively represented by 50 -10P,=-10 +10
P, theprice is? 20, then there will be shortage inthe market.
11. In case of an increase in demand, suppy remaining the same, price
an will fall.

12, Incase of a decrease in supply, demand being the

same, the price will
fall.

Ans:
1. True; For Reasons :Refer
Ph 2.
3.
False; For Reasons :
Refer Section2.2.
Section 2.2.

False; For Reasons: Refer Section 2.2.

0y 4. True; For Reasons :Refer Section 2.2.
5. False; For Reasons :Refer Section 2.3.
Us# 6. True; For Reasons :Refer Section 2.3.
7. False; For Reasons:Refer Section 2.4.
8. True; For Reasons :Refer Section 2.4.
9. False; For Reasons:Refer Section 2.4.
Ibe 10. True; For Reasons :Refer Section 2.4.
11.

12. False; For :

False; For Reasons :Refer Section 2.5.
Reasons Refer Section 2.5.
Choose the correct alternative:

The demand for a product is the amount that

(a) buyers purchase in the market
(b) buyers are willing to purchase at a given price
(c) and able to purchase at alternative prices
buyers are willing
ive (d) buyers are able to purchase at a specificprice
2
Demand curve shows how quantity demanded changes as the price
changes. It implies that
(a) only a change in pricecan shifta demand curve
nts
(b) everything else that affectsdemand is assumed to be constant
(c) quantity demanded is unrelated to price
(d) economists areconcerned only with money
3 The law of demand is illustratedby a demand curve that is
(a) horizontal (b) vertical

(c) upward sloping (d) downward sloping

 Business Economics - I(BMS, BAF, BFM,
BBI..: SEM -
36/

4. Studies have shown that thedemand curve for a detergent powd

has shifted over a period of five years. Which of the following
is leae

likely to be true in this case?

(a) The price per kg of the powder has changed

(b) The advertisements for the product has been successful
(c) Number of people living in the city has changed
(d) Consumers' incomelevels have changed
5. The effect of a decrease in cost of production of personal computers
b
other things remaining constant, is likely to be best represented
which of the following?
(a) a downward shift in the demand curve
(b) an upward shift in the demand curve
(c) a leftward shift in the supply curve
(d) a rightward shift in the supply
6. Given the demand and supply equations, Q = 200 - 5P, and

=-250+10 P, the equilibrium price is

(a) 45 (b) 30
(c) 40.40 (d) 30.50
Ans:(1)- (c);(2)- (b); (3) - (a); (4) - (a); (5) - (d);(6)-(b)
 Business Economics - I(BMS,
54 BAF, BFM,
in relation to
3. Explain price effect BBI.:SEM.

(a) Normalgoods
(b) Inferiorgoods
7
(c) Giffen goods
of demand different curve in
4. Explainthe nature markets.

the various determinants of

demand and show a
5. Explain
for all the above determinants, deman
function
demand and important
6. Explainthe
law of determinants of
deman
8
OBJECTIVE QUESTIONS

Choose the correct answer and rewrite the statements ,

A.
good can be defined as one
which consumers
1. A normal purchase
mo
of as
(b) prices rise
(a) prices fall
(d) incomes
(c) incomes fall
2 The income effect of aprice change

(a) is always positive

(b) always negative
is

(c) may be positive or negative

consumer tastes
(d) is caused by changes in
3. If agood is normal, then the
demand curve for that good must be
(a) downward sloping (b) upward sloping

(d) completely inelastic

(c) perfectlyelastic
4. A fall in the price of a commodity

income
increasesthe consumer's nominal
(a)

(b) increases the consumer's real income

(c) decreases the consumer's nominal income
(d) decreases the consumer's real income
5. As the price of a commodity becomes relatively cheaper tha
falls, it

other alternatives.This effect is known as

(a) Substitution effect (b)Incomeeffect

(c) Price effect (d) Snob effect
most inferiorgoods,that are not Giffen goods, the
following
6. In case of
is true

(a) Incomeeffect is always positive

(b) Substitution effect is negative
(c) There is an inverseprice-demand relationship
(d) There is a direct price-demand relationship
Demand Function 55
7. An inferiorgood
(a) can bea Giffen good, but a
Giffen good is not always inferior
(b) must be a Giffen good
(c) canbe a Giffen good but a Giffen good
must always be an inferior
good
(d) has a positively sloped demand curve
8. In case of Giffen goods,
(a) the positive substitution effect of a price change is larger than
the negative incomeeffect
(b) the negative substitution effectof a pricechange is larger than
the positive incomeeffect
(c) the positive substitution effect of a price change is same as the
negative incomeeffect
(d) the positive substitution effect of a price change is smaller than
the negative income effect
9. In the equation, Dx =a-bPx,
(a) a is the quantity of X demanded when price is zero
(b) bis the quantity of X demanded when price is zero
(c) a is the slope of the demand curve
(d) bis the elasticity of demand
10. If the demand equation is given as D>x =150 –5 Px, thern at 50 units
quantity demanded, the price will be
(a) 10 (b) 20
(c) 30 (d) 40
11. Which of the following is not an assumption of the Law of Demand ?
(a) Consumer's income does not change
(b) No change in consumer's taste and preference
(©) No change of the price of inputs
(d) No future uncertainties
12. A change in the price of a commodity, with no change in other
determinants, results in

(a) Change in quantity demanded

(b) Ashift in the demand curve
(c) An increase or decrease in demand
(d) Althe above
13. If therea change in consumer's income, with no change in price o
is
statement is correct ?
other determinants. Which of the following
(a) The slope of the demand curve willchange.
This can be shown by a movement on the same demarnd
curve
(b)
56 Business Economics
- (BMS,BAF, BFM, BB..SEM-
I

-| be
(c) The demand d curve willshift but theslope will

unchanged.
but the slope will change.
(d) The demand curve willshift
Ans. (1) - (a),(2)- (c), (3)- (a), (4)- (b), (5) -(a), (6)-(c), (7) -(c), (8) -
(a),
- (a), (13)- (c)
(9) - (a), (10)- (b), (11)-(c), (12)

the following statements are true or

B. false
State whether with
reasons:
1.
Demand for acommodity is only the desire forthe commodity.
Demand refersto the quantity good purchased at a price and
2.
of a

time period.
3.
Someof the variables influencing demand are not easily quantifiable
4.
Price effect is the combined effect of incomeand substitution effects
5.
When with a fall in price, a consumers real income rises,it is known
as substitution effect.
6.
Goods can be classified on the basis of the direction of income effect

WNormal goods have negative income effect but positive substitution

effect.

Inferior goodshave negative income effect and positive substitution

effect.
9.
All inferior goods are
Giffen goods.
10. Giffen goodshave a positive but weak
substitution effect.
11. In case of Giffen goods, the positive
substitution effect is stronger
than the negative income effect.
12. =
In the equation Dx a-bPx, a denotes the
slope of the demnand curve.
13. In the equation Dx=a-bPx, a
denotes theX-intercept of the demand
Curve.
14. In the equation Dx=a-bPx,b denotes
theslopeof the demand curve.
15. The Law of Demand will not hold true in the
absence of certain
assumptions.
16. Price expectation an exception
is to the Law of Demand.
Ans.:
1.
:
False; For Reasons Refer Section 3.1.
2 True;For Reasons :Refer Section 3.1.
3. True;For Reasons :Refer Section3.4.
4
True; For Reasons :Refer Section 3.5.
5. False; For Reasons :Refer Section 3.5.
6. True; For Reasons :Refer Section 3.5.
7. FalseFor Reasons :Refer Section 3.5.
8. True; For Reasons:Refer Section 3.5.
9. False; For Reasons :Refer Section 3.5.
Demand Function

10. True; For Reasons :Refer Section 3.5.

11. False; For Reasons :Refer Section 3.5.
12. False; For :
Reasons Refer Section 3.4.
13. True; For Reasons :Refer Section 3.4.
14. :
True; For Reasons Refer Section 3.4.
15. True; For Reasons: Refer Section 3.2.
16. True; For Reasons:Refer Section 3.2.
 OBJECTIVE QUESTIONS
A. Choose the correct answer and rewrite the statements :
Price elasticityof demand is defined as
(a) the change in quantity demanded resulting
from one percentage
change in price.
(b) the percentage change in price resulting from one
unit change in
quantity demanded.
(c) the percentage change in quantity demanded resulting
from one
percentage change inprice.
(d) the change in the price of agood divided by the
resulting change
in its quantity demanded.
2. The price elasticity of demand fora particular brand of chocolate is
estimated to be -2.If quantity demanded has increased by 10
percent,
pricemust have
 ofDemand 83
Elasticity
la) fallen by 5percent 5
(b) risen by percent
by 10 percent (d) risen by 10 percent
ic fallen

e elasticity at a given price is not affected by

Price
3.
(a) availability
of substitutes

nature of thecommodity
(0)
a change in supply
(c)
of consumner's incomespent on the commodity
(d) proportion
The anc elasticity formula is used to estimate elasticity when
ia) the product thought to be inelastic
is

(b) the product is thought to be elastic

i the demand function isknown
ia) the change in one variable is due toa large change in the other
variable

5. An elasticity of -1 means that

(a) the demand curve is vertical
(b) the demand curve is horizontal

() the relative changes in priceand quantity are equal

(a) expenditure on the good would increase if price is reduced
Demand for petroleum products are relativelyprice inelasticbecause
(a) thereareno close substitutes
(b) they are essentialcommodities
(c) there is no possibilityto postpone their consumption
(d) all of the above

7.
The most important determinant of price elasticity is

(a) the slope of the demand curve

(b) the availability of substitutes

(c) the price of other goods
(d) the income of the consumer
Which of the following will not bea determinant of the price
elasticity
of demand for a
commodity ?
(a) Availabilityof substitute for the good
(b) The range of price
change
(c) The cost of producing the
commodity
The length of time period to which the demand
(a)
9. If cuvepertains
theincome
elasticity of demand is + 3
(a) the good is
an inferior good
(b) the good is an inelasticnormal good
()the good is an elastic normal good
() the good is anelastic inferior good
 84 Business Economics - I(BMS, BAF, BFM, BBI.: SEM.1

10. If TR increases due to a fall in the price of the product, then

(a) price elasticity is equal to one
(b) priceelasticity is less than one
(c) price elasticity is zero
(d) price elasticity is greater than one
11. Ifarise in price increases TR, the producer is operating on
(a) the segment below the mid-pint of the demand curve
(b) the segment above the mid-pint of the demand curve
(c) the mid-point of the demand curve
(d) the Y-intercept of the demand curve
12. When demand is relatively inelastic, price and total revenue changes
take place in the. direction.

(a) same (b) opposite

(c) negative
13. When TR is increasing with every fall in price, the price elasticity of

demand is
(a) equal to one (b) greater than one
(c) less than one (d) equal tozero
14. Cross elasticity of demand for complementary goods is
(a) negative (b) positive
(c) zero (d) one
15. revenue is total saleof certainamountof commodity at a given
time.

(a) Total (b) Average

(c) Marginal (d) Incremental
16. Average revenueequal to theis per unit of output.
(a) Marginal Revenue (b) Price
(c) Cost (d) Incremental Income
Ans:(1) - (c);(2) -(a);(3) - (c); (4)- (d);: (5) - (c); (6) -(d); (7)-
(b); (8) - (c);
(9)- (c);(10)- (d); (11) - (a); (12) - (a);(13) - (b);(14) -
(a), (15) - (a),
(16)- (b)
B. State whether the following statements are true or false, giving
reasons foryour answers:
1. Elasticity of demand measures the absolute change in one variable
caused due to the absolutechange in another variable.
2. Price elasticity of demand will be negative for most normal
commodities.
3. advisableto use the point method tomeasure
It is elasticity of demand
in case of large price changes.
 85
of/Demand
Elasticity
are method ensures that price elasticity is the same
4.
Using the
of the direction of movement on the demand curve.
regardless
of demand may differ at different points on the same
The clasticity
5.
demand curve.
When the demand for a product is perfectly elastic, the elasticity
6.
is 0.

. coefficient

Unitary elasticity is represented by a demand curve that is a

rectangular hyperbola.
.Relatively inelasticdemand vertical demand curve.
is represented bya
TR move in the same direction
0 When demand is elastic, price and
0 When demand isunitary elastic, TR remains unchanged even as the
price is changed.
of demand for necessary commodities is less than one.
11. Price elasticity

12 The largerand closer the substitutes available,lower will be the price

elasticity of demand for a commodity.

In the short run, demand by and large remains

inelastic.
13,
of demand.
14. Extent of price change affectsthe elasticity
15. Income elasticity of demand for normal goods is be negative.
16. Income elasticity for normalgoods will always be greater than one.
17. Cross elasticity of demand for substitutes is positive.
18. The cross elasticity of demand between car and petrol will be positive.

19/ Promotional to determine theeffectiveness of

elasticity helps
expenditureon advertisements and sales promotion.
If taxes are imposed on goods with elastic demand,they can
20. increase

government's revenue significantly.

21. Ifthe demand for a country's imports are inelastic, then the
expenditure for imports will increase even if the prices of theimports
rise in the international market.

22. Agricultural pricingpolicy determination is based on price and income

elasticity of demand.
Ans.
1.
False; For Reasons :Refer Section 4.1.
2.
True; ForReasons :Refer Section 4.2.
3
False; For Reasons : Refer Section 4.2.

ForReasons :
4.
True; Refer Section 4.2.

For Reasons :
5.
True; Refer Section 4.2.
6.
False; For Reasons: Refer Section 4.2.

8
1. True;For Reasons
False;
:Refer Section
For Reasons: Refer Section
4.2.

4.2.
9.
False; For Reasons :Refer Section 4.6.
86
BusinessEconomics -1(BMS,BAF, BEM, BBL:SEM.
10. True; For Reasons Refer: Section4.6.
11. True;For Reasons: Refer
Section 4.2.
12.
13.
False; For Reasons :Refer Section 4.2.
True; For Reasons:Refer
14.
15.
True; For Reasons : Section
Refer Section 4.2.
False; For Reasons: Refer Section
4.2.

4.3.
16. False; For Reasons: Refer Section 4.3.
17.
:
True; For Reasons Refer Section 4.4.
18. False; For Reasons:Refer Section 4.4.
19. True; For Reasons :Refer Section 4.5.
20. False; For Reasons :Refer Section 4.7.
21. True; For Reasons :Refer Section 4.7.
22. True; For Reasons :Refer Section 4.7.
 OBJECTIVE QUESTIONS

A. Choose the correct answer and rewrite the statements :

1. Which of the following methods are often used to make short-term
forecasts when quantitative dataarenot available?
(a) Consumer Surveys (b) Regression Analysis
(c) Trend Method (d) Moving Averages
2. Under which of the following methods, all potential consumers are
asked about the amount of the commodity they would like to buy ?
 and Forecasting 105
Estimation
Demand (b) End-use
(a)
Delphi
Complete enumeration (d) Consumer clinic
(c) is not
ofthe following feature of the Sample Survey
a
Which method?
3. may occur r in largesize samples
errors
(a)
Consumers are included inthe
(b) all potential survey
(c)

(d)
useful
|
possibility of
to detect
consumer bias
changes in consumer tastes and preferences
methods makes use
Which
of the following historical data and
of

4.
demand determinants to forecast demand ?
(b) Consumer survey
(a) Market experiments
End-use (d) Statistical
(c)

5 Which the following methods

of is used to bridge the opinions given
by different experts ?
(a) Experts' Opinion (b) Trend Analysis
() Delphi (d) Sample Survey
6. The method uses time series data.

(a) trend (b) end-use

() sample survey (d) Delphi
7. Which is not a feature of market experiment method of demand
forecast?

(a) Use of consumer clinics

(b) Actual market situations are created

(c) Forecast is based on past statistical data
(d) Based on observed consumer behaviour
Ans. (1) - (a), (2)- (c), (3) - (6),(4) - (d),(5) - (c), (6) - (a),(7) -
(c)
B. State whether the following statements are true or false
with
reasons:

l. Demand forecastsare essential to plan future

production.
Very small firms do not need to
forecast demand.
D. Demand forecasting is not
* Passive forecaststake into necessary for inventory planning.
account future changes.
3. Long
term forecasts are
6. required for capitalinvestments.
Choice of
method is an
1. important factor in demand forecasting.
Thee
expert opinion method
8. generates accurate demand forecast.
The Delphi
9. method is a variant of the expert opinion method.
10, Sample survey method
undertakes survey of all consumers.
There can be
11. limitations of the
Resültssof
samplesurvey method.
stimulated marketcexperiments are better than actual market
experiments.
106 Business Economics - (BMS,BAF, BFM, BBI.: SEM.
I

12. The graphical method is acrude version of the trend method.

13. Knowledge of economic theory is not necessary to forecast demand
through the regressionmethod.
14. Regression co-efficients are components of the relevant elasticity of
demand.
15. Regression method forecasts demand accurately.
Ans.:
1. True;For Reasons :
Refer Section5.2.
2. :
False;For Reasons Refer Section5.2.
3.
4.
False;For :
Reasons Refer Section 5.2.
False; For Reasons: Refer
Section 5.3.
5. :
True;For Reasons Refer Section 5.3.
6.
:
True; For Reasons Refer Section 5.4.
7. False; For Reasons :Refer Section
5.5.
8.
:
True; For Reasons Refer Section
5.5.
9.
:
False; For Reasons Refer Section
5.5.
10. True; For Reasons:Refer
Section 5.5.
:
11. False; For Reasons Refer Section
5.5.
:
12. True;For Reasons Refer Section
5.5.
13. False; :
For Reasons Refer Section 5.5.
14. :
True;For Reasons Refer Section 5.5.
15. :
False; For Reasons Refer Section 5.5.