Managerial Economics

Unit1 - 4 Mark Quiz Questions

1.Identify correct answer Managerial economics is

a. A new discipline and a positive science

b. A descriptive science which highlights on normative aspects of business activities

c. A prescriptive and pragmatic science

d. A highly specialised branch and a part of traditional economics

2.Identify the incorrect answer? Managerial Economics

a. Integrates economic theories with business management decisions and practices

b. Deals with formulation and understanding of various economic theories and

principles
c. Lies mid way between economic theory and business management
d. Fills up the gap between abstract theory and managerial practice

3.Managerial Economics highlights on

a. Developing new models of thoughts in the background of changing business and

management environment
b. Application of economic models to solve business and management problems.
c. Model building and formulation of various economic theories and principles
d. Application of economic models to analyse business problems

4.Managerial Economics is a science that deals with

a. Study of micro units but analyse the influence of macro economic units
b. Study of only micro economic units without reference to macro units
c. Study of both micro economic units and macro economic units
d. Study of only macro economic units without reference to micro units
 Unit2 - 4 Mark Quiz Questions
1.Relatively elastic demand More than proportionate change in demand

Relatively inealstic supply Less than proportionate change in supply

Relatively elastic supply More than proportionate change in supply

Relatively inelastic demand Less than proportionate change in demand

2.Relatively inelsatic demand <1

Unitary elastic demand =1

Relatively elastic demand >1

Perfectly inelastic demand =0

3.total expenditure decreases with a fall in price and increases with a rise =infinite
in price
total expenditure remains constant when price either =1

total expenditure becomes indeterminate when there is very small C>1

Total expenditure increases with a fall in price and decreases =

4.Arc method of price elasticity of demand

a. Measures average elasticity over a segment of the demand curve

b. Measures small changes in price and demand
c. Measures elasticity at different points on a demand curve.
d. Measures elasticity at a point on the demand curve

5.Demand for product X changes on account of changes in prices of related goods, tastes
and preferences of consumers, nature of advertisements and income level of
consumers.This is an example for
a. Individual demand schedule
b. Law of demand
c. market demand schedule

d. Demand function.
6.Demand would become elastic when

a. Use can be postponed but it absorbs only a very small proportion of budget of
consumers
b. Purchase frequency of consumers is low and a consumer is not habituated for the

use of a product
c. It has only one use but has no substitutes
d. It has multiple use but has susbstitutes

7.Demand would become inelastic when

a. A product is essential but it has substitues

b. There is no possibility of postponing the use of a product but the product is
repairable
c. A product is demanded with other product but the consumer uses the product in
the long run
d. A product has no substitutes and consumes a very big proportion of the budget

the consumer

8.Identify the correct answer.

a. When the price of comforts rises, demand for them also would go up
b. When price of veblen goods rises by 5%, demand for that proeduct also go up

c. When the price of essential products rises, demand for them falls.
d. When price of Giffen goods falls, demand for that product rises

9.Identify the correct answer.

a. Income elasticity is zero when the product is neutral.

b. Income elasticity is negative when the product is essential
c. Income elasticity is positive when the product is luxury
d. Income elasticity is positive and greater than one when the product is normal
10.Identify the correct answer.

a. Cross elasticity is negative when goods are complemetaries

b. Cross elasticity is zero when goods are independent of each other
c. cross elasticity is very high in case of subtitutes
d. Cross elasticity is positive when goods are close substitutes

11.Identify the correct answer. What will be the nature of consumers reaction in the
following cases

a. When they expect future fall in prices, they would buy larger quantities at present
b. When they expect future rise in price, they would buy smaller quantity at present.
c. When they expect future scarcity of a product, they would buy smaller quqntity at
present
d. When they expect future scarcity, they would buy larger quantities at present

12.Identify the incrorrect answer.

a. Inspite of rise in price of a good, a consumer would buy more of it if he has to

arrange the marriage of his daughter
b. Inspite of rise in prices, consumers would buy more during festival seasons
c. Inspite of rise in the income of consumers, they will not buy more of inferior
products.
d. Inspite of fall in the quality of a product, consumers would buy more of them

13.If the quantity of commodity A demanded increases from 8 units to 12 units as a result
of an increase in the price of commodity B from Rs. 23-00 to 27-00, then the cross
elasticity of demand for A with respect to the price of B is approximately

a. 0.35 and A & B are substitutes

b. 0. 35 and A & B are complements

c. 2.5 and A & B are susbstitutes

d. 2.5 and A & B are complements
14.Mr. Kiran is the owner of an Ice-cream parlour. When he would take a decision to
increase the price of his Ice-cream

a. Demand for other brands of Ice-cream falls.

b. Demand for Ice-Cream rises but unemployment level in the city increases
c. A new brand of Ice-Cream enters in to market but its quality is low when
compared to the Ice-cream sold by Mr. Kiran
d. Price of sugar rises but demand for Ice-Cream falls

15.Point elasticity is =

point elasticity is=

a. Lower segment of the demand curve below the point /Upper segment of the
demand curve above the point
b. Lower segment of the demand curve above the point/Upper segment of the

demand curve below the point

c. Upper segment of the demand curve above the point/Lower segment of the
demand curve below the point
d. Upper segment of the demand curve above the point/Lower segment of the
demand curve below the point

16.Point method measures PED at

a. Major changes in quantity demanded

b. One point on the demand curve

c. At different points on the demand curve

d. Major changes in price.
17.Product X is a popular brand of a commodity used by common man in his day to day
life Now the price of product X falls while the prices of other products remains the same.
This would lead to

a. A positive income effect and positive susbtitution effect on X

b. A negative income effect and a negative sustitution effect on X
c. A positive income effect but a negative price effect on X
d. A positive price effect but a negative income effect on X

18.Substitution elasticity of demand=

a. % change in quantity demanded of Y/% change in price of X

b. % change in demand ratio of two goods X & Y/% change in price ratio of two

goods X & Y
c. % change in price of X/% change in quantity demanded of Y
d. % chnge in price ratio of two goods X & Y/% change in demand ratio of two
goods X & Y

19.The following is the market demand schedule for product X. Out of 4 alternatives
identify

Price is Rs A B C Total
20-00 200 300 250 750
15-00 250 400 300 950
10-00 300 500 450 1250
8-00 400 600 500 1500
5-00 600 800 700 2100

a. Helps in predicting changes in expected sales

b. A steady fall in price has no impact on the demand for the product
c. Helps in estmating expected profit percentage of sellers
d. Helps a producer to plan his production schedule.
20.Three of the following four events might reasonably responsible for shifting demand
curve for Tea, to a new position. Point out the one which would not shift demand curve.

a. A rise in the price of tea.

b. An aggressive sales promotion policy of tea growers
c. A fall in theprice of tea
d. An increase in the money income of consumers

Unit4 - 4 Mark Quiz Questions

1.Rise in price leads to fall in demand and a fall in Law of demand
price leads a rise in demand
Rise in price leads to a rise in demand and a fall in Exception to the Law of supply
price leads to a fall in demand
Rise in price leads to a rise in supply and a fall in Exception to the Law of supply
price leads to a fall in supply
Fall in price leads to a rise in supply and a rise in Exception to the law of demand
price leads to a fall in supply

1.The law of supply is not in operation when the supply curve

a. Slopes backward
b. Assumes a negative shape
c. Is a vertical straight line.
d. Slopes forward

2.When a rise in price causes a rise in supply and a fall in price causes a fall in supply it
is a case of

a. Extension or contraction of supply

b. Increase or decrease of supply
c. Rise or fall in supply
d. Exception to the law of supply
3.When more is supplied at the same price or same quantity is supplied at a lower price it
is case of

a. Extension of supply
b. Fall in supply
c. Decrease in supply

d. Increase in supply

4.When supply rises with a rise in price and falls with a fall in price what will be the
shape of the supply curve

a. Negative slope
b. Horizontal shape
c. Vertical shape

d. Positive slope

Unit5 - 4 Mark Quiz Questions

It is associated
with supply it indicates savings in cost due to production of more than one product
side changes
in output
It is associated
with increase
or decrease in it show s a change in output more than one product
scale of
production
It shows
changes in It is associated w ith demand side change in output
output of
single product
it indicates
savings in cost
owing to It is connected w ith increase or decrease in distribution to marketing
increase in
volume of
output
2.A firm encounters its shut down point when

a. Average variable cost equals price at profit maximumising level of output

b. Average total cost equals price at the profit maximising level of output
c. AFC equals price at profit maximumising level of output
d. MC equals price at profit maximising level of output

3.If one unit of labor and one unit of capital give 200 units of output, two units of labor
and 2 units of capital give 400 units of output 5 units of labor and 5 units capital of lap
give 1000 units of output ,then it will be a case of

a. Dimining returns to scale

b. Increasing returns to scale
c. Constant returns to scale

d. constant returns
4.Hours of Labour Total output in units Marginal product in units
0 0 0
1 100 100
2 80
3 240 -

What is the total output when 2 hrs of labor are employed?

a. 100

b. 180
c. 200
d. 80
5.Hours of Labour Total output in units Marginal product in units
0 0 0
1 100 100
2 80
3 240 -
What is the marginal product of the third Hrs of labor?
a. 100
b. 240

c. 60
d. 80

6.Hours of Labour Total output in units Marginal product in units

0 0 0
1 100 100
2 80
3 240 -
What is the average product of first hr of labor?

a. 80

b. 100
c. 240
d. 60
7.Hours of Labour Total Output in units Marginal product in units
0 0 0
1 100 100
2 80
3 240 -
What is the average product of the first 3 hrs of labor?

a. 240
b. 100

c. 80
d. 60
8.Combination Factor X Factor Y
A 15 1
B 11 2
C 8 3
D 6 4
E 5 5

The MRTS X for Y for the C combination is?

a. 2
b. 1

c. 3
d. 4

9.Combination Factor X Factor Y

A 15 1
B 11 2
C 8 3
D 6 4
E 5 5
The MRTS of X for Y for the D combination is?

a. 3
b. 4

c. 2
d. 1
 10.Combination Factory X Factor Y
A 15 1
B 11 2
C 8 3
D 6 4
E 5 5
The MRTS of X for Y for the B combination is ?

a. 3

b. 4
c. 1
d. 2

11.Combination Factor X Factor Y

A 15 1
B 11 2
C 8 3
D 6 4
E 5 5
The MRTS of X for Y for the E combination is?
a. 11

b. 1
c. 2
d. 3

12.The II phase of the law of variable proportion is described as the most economic
region because of the following reasons except

a. Total output is highest even before the marginal product is zero

b. Represents the range of rational production decision
c. Total output is highest when marginal product zero
d. The producer is employing the most ideal factor combinations.
13.The law of diminishing returns applies to

a. The long run, but not the short run

b. The short run,but not the long run

c. Neither the short run nor long run.
d. Both the short run and the long run

14.The main difference between the short run and long for economists is that

a. In the short run all inputs are fixed while in the long run all inputs are variable

b. In the short run,atleast one of the firms input level is fixed

c. In the short run the firm varies all of its inputs to find the least cost combination
of inputs
d. In the long run, the firm is making a constrained decision about how to use
existing plant and equipment efficiently

15.The marginal, average and total product curves encountered by the producer
producing in the short run exhibit all the following relationship except

a. When marginal product is negative, total is negative total and average products
are falling
b. when total product is rising average and marginal products may be either rising
or falling
c. When marginal product is at a maximum average equals marginal product and

total product is rising

d. When average product is at a maximum, marginal product equals average product
and total product is rising

16.The short run, as economists use the phrase is characterised by

a. Atleast one fixed input and firms neither leaving nor entering the industry
b. All factor inputs are fixed
c. A period where the law of diminishing returns this does not hold good
d. All factor inputs are variable
 Unit6 - 4 Mark Quiz Questions

1.According to Cyert and March it the actual perfermance and achievements of a firms is
much lower than expected aspirations and targets in that case

a. There will be a downward revision in the demands of various groups

b. There will be a negative revision in the demands of various groups
c. There will be upwards revision in the demands of various groups
d. There will be a normal revision in the demands of various groups

2.According to Cyert and March which of the following statements is incorrect ?

a. There is need for harmonious and balanced blending of different objectives of an

organisation and multiple objectives of different groups
b. Making satisfactory levels or proifit rather than maximum profits has become the
slogan of the day.
c. The management has to acccomodate as little as possible the demands of different

groups with out sacrificing its own basic objective of making profits
d. Model highlights on satisfactory level of performance and achievements of its
multiple objectives as maximisation of different goals are not possible in a
competitive world

3.Which of the following measure is adopted to over come conflicts of different groups
and ensure smooth working of the organisation by Cyert and March

a. The management may follow the policy of sequential hearing of demand

b. All the three methods

c. Demands of each group may be seperated and separate attempts are made to
fulfill them
d. The management may tackle the problem by deentrialising the decision making
process
 Unit7 - 4 Mark Quiz Questions
1.A firm is selling 6 units of the output at the price of Rs.20 per unit. Now if it wants to
sell 7 units the price of the product fall toRs.18. or if it wants to sell 8 units the price will
fall to Rs.15. what the firm should do?

a. The firm should continue to sell the same quantity.

b. The firm can increase its sales to 8 units.
c. The firm should reduce its sales.

d. The firm can increase its sales to 7 units.

2.If a demand curve shows unitary elasticity throughout its length the corresponding MR
will be

a. Very high.
b. Same.

c. Zero throughout.
d. Very low.

3.Suppose that the price of a commodity is Rs.20 and the elasticity coefficient at that
price is 1, MR will be

a. 0.
b. 2.
c. 1.
d. 10.

4.The slope of the TR curve is measured by

a. AC.
b. TC.
c. AR.

d. MR.
 Unit9 - 4 Mark Quiz Questions
1.Consumers' surplus helps the government to grant subsidy to private entrepreneurs

a. If the amount of gain to people due to subsidy is greater than the financial loss to

the government on account of grant of subsidy

b. If the amount of gain to people due to subsidy is equal to the financial loss to the
government on account of grant of subsidy
c. If the financial loss to the governement is greater than benefit to the people.
d. If the amount of gain to people due to subsidy is lower than the financial loss to
the government on account of grant of subsidy

2.Consumers' surplus helps to decide introduction of a new product in to the market when

a. Benefits from new product is equal to the new product

b. Benefits form old product is not equal to new product.
c. Benefits from the old product is greater than new product

d. Benefits from new product is greater than old product

3.Consumers' surplus helps to decide the taxation policy of the government is good when

a. The loss to the government due to tax collection is lower than gain to consumers.
b. "c. The gain to the government due to tax collection is lower than gain to
consumers due to tax payment"
c. "b. The loss to the government due to tax collection is greater than the gain to
consumers due to tax payment"
d. "a. The gain to the government due to tax collection is greater than the loss to the

consumers due to tax payment"

4.Welfare of the people will be greater in those economies where

a. Prices fall and cosnumers' surplus rise

b. Prices rise and cosnumers' surplus rise.
c. Prices rise and consumers' surplus fall
d. Prices fall and consumers' surplus fall
 Unit10 - 4 Mark Quiz Questions
1.It is a quantity measured at a particular point of time Independent Variable

It is a quantity which can be measured during a given period Ratio Variable

of time
Expresses the quantitative relationship between two different Stock Variable
variables at a cetain time"
Change in one variable cause changes in another variable Flow Variable

2.It refers to the actual results obtained Ex- Post

it is a position where the forces operating in the system are not in Equilibrium
balance"
It is position where two opposing forces tend to balance with each Ex- Ante
other
It refers to the expected results Disequilibrium

3.The value of a quantity does not change Parameter

It is a quantity which when varies affects the value of another Dependent Variable
variable
The value of one variable varies as a result of variations in the Functions
vlaue of some other variables
t suggests the value of some thing depends on the value other Constant

4.Realised result capital

Creation of new capital assets Ex-post

Anticipated result Ex- ante

All man-made aids that helps in the production of wealth Investment

 Unit11 - 4 Mark Quiz Questions
1.As income increases consumption expenditure

a. Increases proportionately.
b. Increase progressively.

c. Progressively diminishes.
d. Will remain the same.

2.Investment which varies with the changes in the level of national income is called

a. Autonomous investment.
b. Ex post investment.
c. Ex ante investment.
d. Net investment.

3.One of the remedial measures suggested by Keynes to overcome unemployment is to

a. Increase the propensity to consume.

b. Reduce the rate of interest.
c. Increase the level of investment.
d. Provide subsidies to investors.

4.Rise in incomes in most advanced countries because of declining MPC take the
economy to a stage which Keynes calls as

a. Stagflation.
b. Disinflation.
c. Suppressed inflation.

d. Secular stagnation.
5.Suppose total income increases from Rs. 1000 crores to Rs. 2000 crores and the total
consumption increases from Rs. 800 crores to Rs. 1400 crores what is the marginal
propensity to consume

a. 50 %.

b. 60 %.
c. 40 %.
d. 45 %.

Unit12 - 4 Mark Quiz Questions

1.Restrictive fiscal measures and monetary tightening are designed to be a platform for
successful

a. Monetary policy.
b. Physical policy.
c. Administrative policy.

d. Long run growth and reform.

2.To check cyclical fluctuations, smoothen production and distribution, prevent artificial
scarcity and to check inflated rise in prices what should be the objective of monetary
policy

a. Control credit expansion.

b. Debt management

c. Price stability.
d. Monetary equilibrium.

3.To curb inflation through contraction of credit central bank may resort to
a. Open market sale of foreign exchange reserves.
b. Open market purchase of securities.

c. Open market sale of securities.

d. Open market sale of gold.
4.To encourage the flow of short term capital into the country the central bank may

a. Maintain stable bank rate.

b. Raise the bank rate.

c. Reduce the lending rates.
d. Reduce the bank rate.

5.When high degree of fluctuations are caused in overall economic activity because of
inflation or deflation the objective of monetary policy should be

a. Full employment.
b. Price stability.
c. Restricting the supply of money and credit.

d. Control of trade cycle.

Unit13 - 4 Mark Quiz Questions

1.At which stage low wages, low interest rates, low production costs induce business
people to take more risks and invest more

a. Depression.
b. Recession.

c. Revival.
d. Contraction.

2.Dislocation and disturbances in the normal working of the economy caused by low
prices, low profits, low output and unemployment can be cured by

a. Increase in private investment.

b. Decrease in the rate of interest.
c. Expansion in the supply of money.

d. Increase in government expenditure.

3.There will be a decline in the level of investment in stocks, this reduces the deposits
with the banks and other financial institutions leading to a contraction in bank credit
during

a. Depression.
b. Recession.
c. Revival.
d. Contraction.

4.Trade cycles cause more fluctuations in

a. Rent.
b. Interest.

c. Profits.
d. Wages.

5.When the new product loses its novelty with the introduction of many competing
verities of the product in the market

a. Prices get stabilized.

b. Abnormal profits are competed away.

c. Market shrinks.
d. Normal profits exist.

Unit14 - 4 Mark Quiz Questions

1."The inflationary gap is the amount by which aggregate expenditure would exceed
aggregate output at the full employment level of income". According to

a. Kemmerer.
b. Hansen.

c. Lipsey.
d. J.M.Keynes.
2.A rate of inflation of 10% to 20% which affects poor and middle class adversely
requires strong monetary and fiscal measures to control it otherwise it leads to

a. Ruinous inflation.
b. Distructing inflation.
c. Running inflation.

d. Hyper inflation.

3.Demand pull inflation is the result of

a. Increase in money supply.

b. Increase in production.
c. Increase in the cost of production.
d. Increase in the supply of goods.

4.If the net disposable income with the community is Rs.15000 crores and the
government expenditure to meet the war requirements is Rs.9000 crores the inflationary
gap would be
a. Rs.1000 crores.

b. Rs.6000 crores.
c. Rs.9000 crores.
d. Rs.10000 crores.

5.Inflation rate of 3% to 7% which serves as a warning signal for the government to

control it before it turns into running inflation is called

a. Walking inflation.
b. Signaling inflation.
c. Creeping inflation.
d. Latent inflation.
6.Inflationary gap can be wiped out more efficiently by

a. Curtailing the demand.

b. Increasing in the prices.
c. Increase in the output.

d. Raising the tax rates.

Unit15 - 4 Mark Quiz Questions

1.Optimum economic efficienly in resource allocation to produce different goods and
services is possible when

a. MPB + MPC

b. MEB+ MEC
c. MEB + MPC
d. MPC + MEC
e. MPC + MEC
f. MPB + MEB
g. MPB + MEC
h. MPB + MEB

2.There will be optimum economic efficiency in resource allocation to produce different

goods and service when

a. MSC > MSB

b. MSC
c. MSB
d. MSB > MSC
e. MSB < MSC