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Business Economics V1
SECTION A:
QUESTIONS
Answer any three questions .
1 State and explain Circular Flow of Income and Expenditure.
2 What is Elasticity of Demand ? Explain various types of Elasticity of De
mand.
3 State and Explain Types of Cost.
4 Describe the Price and Output Determination under Monopoly.
5 Critically examine the Liquidity Preference Theory of Interest.
6 Describe Price and Output Determination under Monopolistic Competition.
7 State and explain the Law of Demand and explain determinants of Demand.
8 Write short notes : (any four)
(a) The Law of Supply
(b) Opportunity Cost
(c) Dynamic Theory of Profit
(d) Modern Theory of Rent
(e) Trade Unions and Collective Bargaining
(f) Scope of Business Economics
SECTION B :
CASE STUDY :
U.S. Economy: Is Recession A Panacea?
Since the end of the Second World War in 1945, consumption propensity in the Uni
ted States started to increase significantly. Domestic savings remained too low
for the country compared to other industrialised and developed nations throughou
t the 20th century. The gap between the US and other developed nations in terms
of personal savings rate has widened since the beginning of the 21st century. Th
e astonishingly high consumption demand had a dual impact over the economy. Whil
e it contributed significantly to economic growth, at the same time it led to hu
ge current account deficits. It was argued that high spending sprees and the low
personal savings rate were hidden threats and the country might face difficulti
es in the long run. As past experiences proved that consumer spending reduced du
ring recessions, a section of analysts advocated in favour of recession in order
to eradicate the economic imbalance in the US. As another recession was looming
large in the US, in 2008, economists were wondering whether the Federal Reserve
should allow recession instead of preventing it.
QUESTION 1: To highlight the distinctive characteristics of United States consum
erism.
QUESTION 2:To depict the United States economic scenario along with its high ext
ernal borrowing.
QUESTION 3: To analysis the impact and role of recession on the US economy.

SECTION C:

Question 1
The kinked demand curve explains?
 Price rigidity
Price flexibility
Demand rigidity
Demand flexibility
Question 2
Imperfect competition was introduced by ____?
Marshall
Chamberlin
Keynes
None
Question 3

A situation in which the number of competing firms is relatively small is known

as?
Incorrect
Perfect competition
Monopsony
Oligopoly
Question 4
Demand is a function of ?
Price
Firm
Product
Cost

Question 5
The term group equilibrium is related to
Monopolistic competition
Oligopoly
Duopoly
Perfect competition
Question 6
Price effect in indifference curve analysis arises?
 When the consumer becomes either better off or worse off because price c
hange is not compensated by income change.
When the consumer is betler off due to a change in income and price
When income and price change
None of the above
Question 7
A situation where there is only one buyer is called
Monopoly
Oligopoly
Monopsony
Perfect competition

Question 8
Elasticity of demand measures the
Sensitivity of sales to changes in a particular causal factor
Sensitivity of production to changes in a particular cost
Value of price and cost
Volume of product
Question 9
Factors responsible for creating conditions for emergence and growth of monopoly
are
Control over strategic raw materials
Patents
Licensing

All of the above

Question 10
"In the case of an inferior good, the income effect"
Partially offsets the substitution effect
Is equal to the substitution effect
Reinforces the substitution effect
More than offsets the substitution effect
Question 11
A market in which only two firms exist is
Oligopoly
Duopoly
Duopsony
Oligopsony
Question 12
Value maximization theory fails to address the problem of
self-serving management.
risk
uncertainty
sluggish growth.

Question 13
Selling costs have to be incurred in case of
Perfect competition
Monopolistic competition
Imperfect competition
None
Question 14
Which type of competition leads to exploitation of consumer?
Oligopoly
Monopolistic competition
Monopoly

All of the above

Question 15
The equilibrium is unstable and indeterminate under
Edgeworth model
Cournot Model
Sweezy Model
Pareto Model
Question 16
Demand curve is related to?
MU curve
Marginal revenue
Both a and b
None of these
Question 17
Market with one buyer and one seller is called
Monopsony
Monopoly
Bilateral Monopoly
None of the above

Question 18
The upper portion of the kinked demand curve is relatively
More inelastic
More elastic
Less elastic
Inelastic
Question 19
Which of the following is an important dynamic variable?
Superior's style and behaviour
Organisational nature
The task structure

Cultural variables
Question 20
How many sellers are present in duopoly?
One
two
Three
four
Question 21
Efficient allocation of resources is achieved to greatest extent under ?
Monopoly
Perfect competition
Oligopoly
Monopolistic competition
Question 22
"For maximisation of profit in the short run, the condition is"
AR = AC
MR = MC
MR = AR
MC = AC

Question 23
Study of collusive agreement is
Collusive oligopoly
Non-Collusive oligopoly
Monopoly
All of the above
Question 24
"Under perfect competition, price of the product"
Can be controlled
Cannot be controlled
Can be controlled within certain limit

None of the above

Question 25
"If the demand curve confronting an individual firm is perfectly elastic, then f
irm is"
Price taker
Adjust output
Adjust price
All of these
Question 26
Cartels is a form of
Collusive oligopoly
Monopoly
Non-Collusive oligopoly
None of these
Question 27
Which one is not normally possible in case of monopoly?
MC = MR
AC = AR
MR = AR

MR = PR
Question 28
A firm's marginal revenue?
is always negative
can be positive
is always positive
is positive at point at which the total revenue is maximum
Question 29
"In a monopoly market, an upward shift in the market demand results in a new equ
ilibrium with"
A higher quantity and a lower price
A higher quantity and the same price

A higher quantity and higher price

All of the above
Question 30
Demand Analysis includes:
Demand Forecasting
Demand Differentials
Demand Determinations
All of the above
Question 31
In the case of monopolistic competition
MR curve cannot be defined
AR curve cannot be defined
The short run supply curve cannot be defined
None of the above
Question 32
Which economist stated the positive impact of monopoly?
Marshall
Adam Smith
Joseph Schumpeter

Pigou
Question 33
Average revenue is calculated by
TRn - TRn-1
P x Q
TR / MR
TR/Q
Question 34
Cross elasticity of demand between two perfect substitutes will be
low
high

zero
infinity
Question 35
"At elasticity of one, marginal revenue is equal to"
one
zero
infinity
none
Question 36
Shifts in demand curve include
Increase in Demand (Upward shift)
Extention in demand
Contraction in demand
None of the above
Question 37
An indifference curve is always
A vertical straight line
Convex to the origin
Concave to the origin

A horizontal straight line

Question 38

Price elasticity of demand provides?

"A measure of the responsiveness of the quantity demanded to changes in
the price of the product, holding constant.the values of all other variables in
the demand function."
A technical change in the goodwill of the firm
A technical change in the cost of product
Technical change in the value
Question 39
Given: Epx = Percentage change in Qy / Percentage change in Px. The above relat
ionship is :

Arc Cross Price Elasticity

Cost Output

Cost Profit
Capital Budgeting
Question 40
In the calculation of elasticity, there is error in case of
 Arc elasticity
Point elasticity
Both (a) and (b)
None

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