MCQ - Demand , Supply , Price , Revenue and Cost

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Question 1 :
What is meant by price discrimination? 


(a) Increase in price of a commodity over time
(b) A situation where the same product is sold to different consumers for different prices
(c) Subsidization of a product by the Government to sell it at a lower price
(d) General decrease in price of a commodity over time


Answer : (b)

When different consumers pay different prices for the same product, this situation is known as price discrimination.


Question 2 :
In view of the fact that kerosene is an inferior good in India, what is/are its implication(s)?

1. As households get richer, they consume less kerosene.
2. Over time there is a decline in quality of kerosene.
3. Government needs to stop subsidies on kerosene.

Select the correct answer using the code given below. 

(a) 1 only
(b) 1 and 2 only
(c) 2 and 3 only
(d) 1, 2 and 3

Answer : (a) 

Generally Kerosene is used as fuel by the poor and as they get prosper, they use little of this fuel.


Question 3 :

Brent index is associated with 

(a) crude oil prices
(b) copper future prices
(c) gold future prices
(d) shipping rate index


Answer : (a) 

Brent Crude is a major trading classification of sweet light crude oil that serves as a major benchmark price for purchases of oil worldwide. Brent Crude is extracted from the North Sea and comprises Brent Blend, Forties Blend, Oseberg and Ekofisk crudes .The Brent Crude oil marker is also known as Brent Blend, London Brent and Brent petroleum. The index represents the average price of trading in the 25 day Brent Blend, Forties, Oseberg, Ekofisk (BFOE) market in the relevant delivery month as reported and confirmed by the industry media.


Question 4 :

Which one among the following is a fixed cost to a manufacturing firm in the short run? 

(a) Insurance on buildings
(b) Overtime payment to worker
(c) Cost of energy
(d) Cost of raw materials

Answer : (a) 

In the short run insurance premium are fixed costs because they are independent of the level of production.


Question 5 :
The income elasticity of demand for inferior goods is 

(a) less than one
(b) less than zero
(c) equal to one
(d) greater than one

Answer : (b) 

Inferior goods have a negative (less than 0) income elasticity of demand meaning that demand falls as income rises.


Question 6 :

The average fixed cost curve will always be

(a) a rectangular hyperbola
(b) a downward sloping convex to the origin curve
(c) a downward sloping straight line
(d) a U-shaped curve

Answer : (a) 

Total fixed costs are constant, so the average fixed cost curve diminishes with the output. Thus, the average fixed cost curve is a rectangular hyperbola.


Question 7 :
If the average total cost is declining then

(a) the marginal cost must be less than the average total cost
(b) total cost must be constant
(c) the average fixed cost curve must be above the average variable cost curve
(d) the marginal cost must be greater than the average total cost

Answer : (a) 

When marginal cost is less than average cost, average cost must be falling. When marginal cost exceeds average cost must be rising. The marginal cost and average cost curves are related to each other.


Question 8 :
Demand for a commodity refers to


(a) Desire for that commodity
(b) Need for that commodity
(c) Quantity demanded of that commodity
(d) Quantity demanded at certain price during any particular period of time

Answer : (d) 

The demand for a commodity at a given price is the quantity that will be purchased at a unit of time and at a unit price. 
Demand has the following features -  
Demand refers to the quantity at a given price, 
Demand must be defined per unit time.


Question 9 :

An exceptional demand curve is one that slopes

(a) downward to the right
(b) upward to the right
(c) horizontally
(d) upward to the left

Answer : (b) 

When the curve slopes downwards from left to right; higher prices reduce the quantity demanded.

Question 10 :

Rise in the price of a commodity means 

(a) rise in the value of currency only
(b) fall in the value of currency only
(c) rise in the value of commodity only
(d) fall in the value of currency and rise in the value of commodity

Answer : (b) 

When the price level rises, each unit of currency buys fewer goods and services.So rise in the price of a commodity means fall in the value of currency only.

Question 11:
With reference to India, consider the following statements

1. WPI is available on a monthly basis only.
2. As compare to Consumer Price Index for the Industrial Worker (CPIIW), the WPI gives less weightage to food articles.

Which of the statements given above is/are correct?

(a) Only 1
(b) Only 2
(c) Both 1 and 2
(d) Neither 1 nor 2

Answer : (b) 

This rise in wholesale food prices was not captured by WPI as the weightage for food articles is just 14.3% compared to 65% for manufactured products in this index. On the other hand, the weightage for food is 57% in CPI items which captures the impact of food prices better. Further, wholesale prices do not take into account the substantial margins at the retail level, which tend to rise when there are shortages.


Question 12:
The base of Consumer Price Index for Industrial Workers is being shifted from 1982 to -

(a) 1995
(b) 1998
(c) 2000
(d) 2001

Answer : (d) 

The base of CPI for industrial worker is being shifted from 1982 to 2001

Question 13:



Who recommends the MSP and issue prices?

(a) Ministry of agriculture
(b) Planning commission
(c) Commission for Agricultural Costs and Prices

Answer : (c) 



CACP was set up in 1985 and recommends for MSP, issue prices as well as procurement prices.


Question 14:
Which one of the following agencies of Indian Government implements the price support scheme (PSS)?

(a) FCI
(c) Agriculture pricing agency of India
(d) None of the above

Answer : (b) 

In Order to help the farmers in getting remunerative prices for their produce with a view to encourage higher investment and as also to increase production and productivity of a commodity, the government declares Minimum Support Price (MSPs) for 25 notified agricultural commodities for each Kharif & Rabi crop season. National Agricultural cooperative Marketing Federation of India Ltd (NAFED) is one of the Central Nodal Agencies which implements PSS.

Question 15:



The price at which the Government purchase foodgrains for maintaining the public distribution system and for building up buffer stocks are known as

(a) Minimum support prices
(b) Procurement prices
(c) Issue prices
(d) Coiling prices

Answers : (b) 

The price at which the Government purchases foodgrains for maintaining the public distribution system and for building up buffer stocks are known as procurement prices. 
Minimum support price: It is a form of market Intervention by Govt. of India to insure agricultural producers against any sharp fall in farm price. M.S.P. were announced by Govt of India.
Issue price : It is the price at which shares are offered to retail investors in IPO issue.



Question 16:
The supply-side economics lays greater emphasis on the point of view of :

(a) producer
(b) global economy
(c) consumer
(d) middle-man

Answer : (a) 

Supply side economics lays greater emphasis on the point of view of the producer whereas the demand side economics lays emphasis on the interest of the consumer.

Question 17:



Devaluation usually causes the internal price to

(a) Fall
(b) Rise
(c) Remain unchanged
(d) None of these


Answer : (c) 

Devaluation is a deliberate downward adjustment to the value of a country’s currency, relative to another currency, group of currencies. Since it is relative to other currency so internal price remains unchanged. It causes a country’s exports to become less expensive and imports more expensive. Devaluation is monetary policy tool used by countries that have a fixed exchange rate or semi fixed exchange rate. It is often confused with Depreciation and is the opposite of revaluation.