BAPU COMPOSITE PU COLLEGE Somashekhar
PART-A: INTRODUCTORY MICRO ECONOMICS
CHAPTER–1: INTRODUCTION
I. Choose the correct answer.(Each question carries 1mark)
1. The scarce resources of an economy have
a) Competing usages b) Single usage c) Unlimited usages d) Limited Usages
2. Central problems of an economy include
a) What to produce b) How to produce c) For whom to produce d) All of the above
3. Which of the following is an example of microeconomics?
a) National income b) Consumer behaviour c)Unemployment d)Foreign trade
4. Traditionally, the subject matter of economics has been studied under the following
branches.
a) Micro and Macro Economics b) Positive and Normative economics
b) Deductive and Inductive method d) Market and Mixed Economy
II. Fill in the blanks. (Each question carries 1 mark)
1. Scarcity of resources gives rise to Problem of Choice
2. In a centrally planned economy all important decisions are made by Government
3. Market Economy is a set of arrangements where economic agents can freely exchange
their endowments or products with each other.
4. In reality, all economies are Mixed Economies
III.Match the following. (Each question carries 1mark)
A B
1) Market economy a) Government
2) Service of Teachers b) Private ownership
3) Centrally planned economy c) Skill
4) Positive economics d) Evaluation of Mechanism
5) Normative economics e) Functioning of Mechanism
Answer: 1) b 2) c 3) a 4) e 5) d
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IV. Answer the following questions in a sentence or word. (Each question carries 1mark)
1. Why does the problem of choice arise?
The problem of choice arises because we have to satisfy unlimited wants, out of limited
resources having alternative uses.
2. Give an example for market economy.
USA, UK, Japan etc…
3. What do you mean by Production Possibility Set?
Production possibility set shows all the possible combination of two goods that can be
produced with the help of available resources and technology at a given period of time.
4. What does a combination below the Production Possibility Frontier indicate?
A combination below the production possibility Frontier indicates under or inefficient
utilization of resources.
5. Give the meaning of Micro economics.
The study of the economic behaviour of individual agents, such as particular price,
particular demand ,supply, individual savings etc… is called micro economics.
V. Answer the following questions in about 4 sentences. (Each question carries 2marks)
1. Mention the Central problems of an economy.
1. What to produce?
2. How to produce?
3. For whom to produced?
2. List out the basic economic activities.
1. Consumption
2. Production
3. Distribution
4. Exchange
3. What is Production Possibility Frontier?
A graphical representation of all the possible combinations of two goods that can be
produced with the given resources and technology is called production possibility frontier.
4. What do you mean by mixed economy? Give an example.
A mixed economy is an system that combines elements of both capitalism and socialism.
For examples: India, Pakistan, Nepal etc…
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5. Distinguish between Positive and Normative economics.
Positive Economics Normative Economics
1. It explains causes and effects. 1. It provides right solutions to the
2. Functioning of mechanism. economic problems.
3. It explains without moral judgements. 2. Evaluate the mechanism.
4. It is a Narrow scope 3. It explains with moral judgements.
4. It is a Wider scope
6. State the difference between Micro and Macroeconomics.
Micro Economics Macro Economics
1. Micro Economics is mainly concerned 1. Macro Economics studies the
with the study of the behaviour of behaviour of aggregates of the
individual economic units of the economy as a whole.
economy.
2. It is an income and employment
2. It is a price theory.
3. Micro Economics studies the partial theory.
equilibrium in the economy. 3. Macro Economics studies the
4. It is a Traditional method. general equilibrium in the economy.
4. It is a Modern method.
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CHAPTER –2: THEORY OF CONSUMER BEHAVIOUR
I. Choose the correct answer. (Each question carries 1mark)
1. Utility is
a) Objective b) Subjective c)Active d) Passive
2. When TU is constant MU becomes
a) Zero b) Maximum c) Negative d) Positive
3. Ordinal utility analysis expresses utility in
a) Numbers b)Returns c) Ranks d) Ratios
4. The shape of an indifference curve is normally
a) Convex to origin b) Concave to origin c)Horizontal d)Vertical
5. The consumption bundles that are available to the consumer’s income depend on
a) Colour and shape b) Price and income c)Income and quality d)Price and demand
6. The equation of budget line is
a) px+p1x1=M b) M = p0x0 + px c) p1x1+p2x2=M d)Y=Mx+C
7. The demand for these goods increase as income of the consumer increases
a) Inferior goods b) Normal goods c)Giffen goods d) Substitute goods
8. A vertical demand curve represents
a) Perfect elasticity b) Perfect inelasticity c)Unitary elasticity d)More elasticity
9. At the midpoint of the demand curve, the elasticity is
a) Equal to one b) Less than one c) More than one d) Equal to zero
10. The value of Elasticity of demand at different points on a linear demand curve lies
between
a) 0 and ∞ b)1 and10 c)10 and 100 d) 5and 10
II. Fill in the blanks. (Each question carries 1 mark)
1. Want satisfying capacity of a commodity is Utility
2. Two indifference curves never Intersect each other.
3. As the consumer’s income increases, the demand curve for inferior goods shifts
towards Leftward.
4. The demand for a good moves in the Opposite direction of its price.
5. Method of adding two individual demand curves is called Horizontal summation.
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III. Match the following. (Each question carries 1mark)
A B
1) Demand curve a) d(p) =a-bp
2) Liner demand curve b) Downward sloping
3) Unitary elasticity of demand c) Pen and Ink
4) Complementary goods d) A family of indifference curves
5) Indifference Map e) |eD|=1
Ans: 1) b 2) a 3) e 4) c 5) d
IV. Answer the following questions in a sentence or word. (Each question carries 1mark)
1. Give the meaning of Marginal utility.
The utility derived from the consumption of an additional unit of commodity is called
marginal utility analysis.
2. Suppose, to a consumer 4 oranges give 28 units of total utility and 5 oranges give 30
units of total utility, calculate the marginal utility. 20 - 28=0
MU = Tun-Tun-1
= 30 – 28 = 2
3. What is Budget line?
A graphical representation of all possible combinations of two goods which can be
purchased with given income and given prices is called budget line.
4. MRS - Expand.
Marginal Rate of Substitution.
5. What do you mean by Indifference curve?
The graphical representation of various alternative combinations of goods which
provide the same level of satisfaction to the consumer is called Indifference Curve.
6. What is Demand?
The quantity of a good that a consumer purchases in a market at a particular price, at a
particular time is called Demand.
7. Give the meaning of Demand function
The functional relationship between the quantity of demand and its determinants.
is called demand function.
8. If the demand curves of two consumers are d,(p) =10 – p and d₂(p) =15-p
respectively. Find out the Market demand.
Qd =d1 (p) +d 2(p)
Qd =10-p +15-p
Qd =25 – 2p
V. Answer the following questions in about 4 sentences. (Each question carries 2marks)
1. Mention two approaches which explain consumer behaviour.
1) Cardinal Utility Analysis
2) Ordinal Utility Analysis
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2. What is Monotonic preference?
A rational consumer always prefers more of a commodity as it offers him a higher level
of satisfaction is called monotonic preference.
3. What are the differences between Budget line and Budget set?
Budget Line Budget Set
1. A graphical representation of all possible 1. Budget set include all the possible bundles
combinations of two goods which can be which cost less than or equal to consumer
purchased with given income and given prices money income.
is called budget line. 2. Budget set consists of all bundles that the
2. Budget line consists of all bundles which consumer can buy with his income at the
costs equal to the consumer income. prevailing market price.
3. It is expressed as an equation PX+P₂X = M 3. It is expressed as an equation PX+PX ≤ M
4. List out the factors that determine the optimal choice of a consumer.
1. Income of the consumer
2. The prices of two goods
5. Name the two effects that explain the negative slope of the demand curve.
1. Income effect
2. Substitution effect
6. State the Law of demand.
The law of demand states that other things remaining constant, when the price of a good
decreases, the demand for good increases and when the price increases, the demand for the
good decreases. There is a negative relationship between quantity of demand and price.
7. What do you mean by Inferior goods? Give an example.
A good for which, the demand decreases with increase in the income of the consumer is
called inferior goods.
For example: Pearl millet (Sajje), finger millet (Ragi) Fox tail millet (Navane) Kode millet
(Araka) etc. These are also called Giffen goods.
8. What do you mean by Price Elasticity of demand? Write its formula.
The percentage change in demand for the good divided by the percentage change in its
price is called price elasticity of demand.
Ped = ∆Q X P
∆P Q
9. Mention any two types of Price Elasticity of demand.
1. Perfectly elastic 2.Perfectly inelastic 3.Unitary elastic 4.More elastic 5.Less elastic
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10. Write any two factors that determine Price Elasticity of demand for a good.
1. Availability of substitutes
2. Nature of the goods
11. Suppose the Price Elasticity of demand for a good is -0.2. How will the expenditure
on the good be affected if there is a 10% increase in the price of the good?
Now the percentage change in Qd = -0.2x10 = -2. (Cross multiply). Here the elasticity of
demand is less than the change in price i.e., |Ed|<1 and it is less elastic. So the expenditure on
the good increases.
(Total Expenditure = Price x Quantity = 10 x 2 = 20. The total Expenditure will increase by
20%)
VI. Assignment and Project Oriented Question. (5 Marks)
1. A consumer wants to consume two goods; the price of good X1 is Rs.10 and the price
of good X2is Rs.20. The consumer’s income is Rs.100.Answer the following.
a) How many X1goods a consumer can consume if the entire income is spent on that
good?
b) How many X2 goods a consumer can consume if the entire income is spent on that
good?
c) Is the slope of budget line downward or upward?
d) Are the bundles on the budget line equal to the consumer income or not?
e) If consumer wants to have more of X1 good, X2 good has to be given up.Is it true?
ANS:
a) 100/10 = 10 X1goods
b) 100/20 = 5 X2goods
c) The slope of budget line downward
d) Yes, the bundles on the budget line equal to the consumer income
e) True
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