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1.

Explain the two basic elements of an index number.

Answer» (i) Base year :- It acts as the reference about which we wish to find the change in the value of the variable.
(ii) Price relative :- Price relative is obtained by expressing the price of each commodity in a given year as a percent of the price of the commodity in the base year.
Discussion
2.

Identify the market forms of the two sellers of goods A and B, given the following information. Give reasons for your answer: `{:("Output Sold","Price of X","Price of Y"),(" (Units)"," (Rs)"," (Rs)"),(" "10," "5," "5),(" "20," "5," "4),(" "30," "5," "3"):}`

Answer» `cdot` The market of seller A is pefectly competitive market because in this market a firm can sell any quantity at a given price.
`cdot` The market of seller B is imperfectly competitive or monopoly, because in such a market a firm can sell more only by lowering the price.
Discussion
3.

Explain the implications of the follwing in oligopoly market: (a) Barriers to entry of new firms (b) A few or a few big sellers

Answer» (a) The main implication of barriers to entry is that such barriers allow only a limited number of firms into oligopoly industries. Such barriers may be in the form of huge capital requirements, patent rights, availability of crucial raw material etc.
(b)A few or few big sellers has the implications that each big seller contributes a fairly large share of total output. This gives an individual seller the power of influencing the market price by changing own output.
Discussion
4.

Explain the implications of the following in an oligopoly market: (i) Interdependence between firms (ii) Barriers to the entry of new firms

Answer» (i) when there are only a few firms in a market, it is likely that each has some knowledge as to how its rivals operate. Each firms expect reaction from its rival firms. Therefore each firms, in deciding price and output, takes into account the expected reactions by its rivals. In this way firms are interdependent on each other.
(ii) The main reason why the number of firms is small is that there are barriers which prevent entry of firms into industry. Patents, large capital requirement, control over crucial raw materials, etc prevent new firms from entering into industry. Such barriers make an industry oligopoly.
Discussion
5.

If MRS is lower than the ratio of the prices of the two goods the consumer consumes. Explain the reaction of the consumer to this situation.

Answer» MRS = `MU_x`/`MU_y`
If MRS is less than the price ratio, then the consumer should increase the consumption of good Y and reduce the consumption of good X so that MRS increases upto the point where it becomes equal to the price ratio.
Discussion
6.

A consumer consumes only two goods. If price of one of the good falls, the Indifference Curve :A. Shifts upwardsB. Shifts downwardsC. Can shift both upwards and downwardsD. Does not shift

Answer» Correct Answer - D
Discussion
7.

There is inverse realtion between price and demand for the product of a under :A. Monopoly onlyB. Monopolistic competition onlyC. Both under monopoly and monopolistic competitionD. Perfect competition only

Answer» Correct Answer - C
Discussion
8.

A consumer consumes only two goods X and Y. Let P = price and m = income. Which of the following equation is budget constraint equation? (Choose the correct alternative)A. `P_(x) .X+P_(y) .Y =m`B. `P_(x) .X+P_(y) .Y gem`C. `P_(x) .X+P_(y) .Y lem`D. None of the above

Answer» Correct Answer - C
Discussion
9.

Suppose total revenue is rising at a constant rate as more and more units of a commodity are sold,marginal revenue would be :A. Greater than average revenueB. Equal to average revenueC. Less than average revenueD. Rising

Answer» Correct Answer - B
Discussion
10.

Marginal revenue of a firm is constant throughout under :A. Perfect competitionB. Monopolistic competitionC. OligopolyD. All of these

Answer» Correct Answer - A
Discussion
11.

In a commodity market excess demand exists when :A. Market price is greater than equilibrium price .B. Equilibrium price is greater than market price .C. Equilibrium price is not equal to market price.D. Government fixes the price.

Answer» Correct Answer - B
Discussion
12.

Price = Average Revenue" in a market where a firm: (Choose the correct alternative):A. can sell more only by lowering the price.B. can sell more at the given market price.C. Both (a) and (b)D. None of the above

Answer» Correct Answer - C
Discussion
13.

If with the rise in price of good Y, demand for good X rises, the two good are :A. SubstitutesB. ComplementsC. Not relatedD. Jointly demanded

Answer» Correct Answer - A
Discussion
14.

When actual price of a commodity is less than equilibrium price, its price :A. Starts risingB. Starts fallingC. Starts fluctuatingD. Remains constant

Answer» Correct Answer - A
Discussion
15.

Which of the following is same as Median:A. First quartileB. Second quartileC. Third quartileD. None of the above

Answer» Correct Answer - B
Discussion
16.

When income of the consumer falls, the impact on price-demand curve of an inferior good is :A. Shifts to the rightB. Shifts to the leftC. There is upward movement along the curve.D. There is downward movement along the curve

Answer» Correct Answer - A
Discussion