Microeconomics-II

Question Bank 33 Pages

Mizoram University

Economics

Contributed by

Munni Doshi

II SEMESTER; DEPARTMENT OF ECONOMICS;
OBJECTIVES
NAME OF THE PAPER: MICROECONOMICS-II

SECTION –A
MULTIPLE CHOICE QUESTIONS (200X1=200)

UNIT-I

1. Of „real wages‟ and „money wages‟
a) The former is a wider concept than the latter b) The latter is a wider concept than the former
c) Both concept mean the same thing d) All of the above

2. The concept of Quasi-rent mean
a) The rent to the workers b) The rent shared by the Landlord and workers
c) The interest paid to the entrepreneur
d) The return to a factor of production which is fixed in supply in the short period

3. The return to a factor of production which is fixed in supply in the short period is called
a) Scarcity rent b) Economic rent
c) Quasi-rent d) Contractual rent
4.The marginal productivity theory of distribution was firstly formulated in its complete form by
a) Adam Smith b) J. S. Mill
c) J. B. Clark d) David Ricardo

5.The „iron law of wages‟ is
a)The wage-fund theory b)The marginal productivity theory of wages
c)Collective bargaining d)The subsistence theory of wages

6.According to Prof Knight, profit is the reward for
a) Innovation b) Capital
c) Foreseeable risks d) Uncertainty bearing
7.The uncertainty-bearing theory of profit was propounded by
a) F. H. Knight b) F. B. Hawley
c) P. A. Samuelson d) Joseph Schumpeter

8.Which of the following is not included in the assumptions of Clark‟s marginal productivity of
distribution
a) Perfect competition b) Constant population
c) Constant amount of capital d) Labour is heterogeneous

9.Marginal productivity theory is also called
a) Real theory b) Classical theory
c) Monetary theory d)None of the above

10. Subsistence theory of wages was used by
a) Karl Marx b) Robinson
c) J. S. Mill d) David Ricardo

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11.Profit is also known as
a) Contractual rent b) Residual income
c) Net income d)None of the above

12. Changes in the rate of interest affect the amount of money held for
(a) transaction motive (b) precautionary motive
(c) speculative motive ( d)Normal Motive

13. The marginal productivity theory of distribution is associated with
(a) Adam Smith (b) Lionel Robbins
(c) J. B. Clark (d) Bergson
14. Who has contributed the modem theory of interest rate determination?
(a) Paul A. Samuelson (b) Gunnar Myrdal
(c) Knut Wicksell (d) J.R. Hicks

15. Whose name is associated with the “Uncertainty-bearing theory of profit”?
(a) J. Schumpeter (b) F.H. Knight
(c) J.B. Clark (d) F.W. Watker

16. Who has sought to measure Consumer‟s Surplus with the help of indifference curve technique?
(a) Edgeworth (b) Alfred Marshall
(c) J.R. Hick (d) Pareto

17. Which among the following is NOT an assumption of Pareto optimality?
(a) Every consumer wishes to maximize his level of satisfaction.
(b) All the factors of production are used in the production of every commodity.
(c) Conditions of perfect competition exist making all the factors of production perfectly
mobile
(d) The concept of utility is cardinal and cardinal utility function of every consumer is
given.

18.When a firm‟s average revenue is equal to its average cost, it gets ________.
(a) Sub normal profit (b) Normal profit
(c) Abnormal profit (d) Super profit

19.Given the price, if the cost of production increases because of higher price of raw materials, the
supply
(a) Decrease (b) Increase
(c) Remains the same (d) Any of the above

20. Under ______, price is determined by the interaction of total demand and total supply in the
market.
(a) Perfect competition (b) Monopoly
(c) Imperfect competition (d) Monopolictic Competition

21. Standard of living of workers depends upon their
(a) Nominal wages (b) Real wages
(c) Average product (d) Govt. policy

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22. Under Marginal productivity Theory, reward for labour is determined by
(a) Owner (b) Labour
(c) Government (d) Marginal Product
23. The economist Ricardo argued that prices were _____ because land rents were _______
(a) High, High (b) Low, Low
(c) Low, High (d) High, Low

24. As for the cost of production of an individual farmer, the rent paid by him
(a) Enters into the price of his product (b) None of these
(c) Does not enter into price of his product (d) Is unjustified

25. He presented a theory of rent
(a) Malthus (b) Prof. Knight
(c) Ricardo (d) Marshall

26. The following affect rent EXCEPT
(a) Better location (b) Fertility of land
(c) Cleverness of landlords (d) Scarcity of land

27. These are kinds of rent EXCEPT
(a) Differential rent (b) Scarcity rent
(c) Mobility rent (d) Location rent

28. This is capital:
(a) Money (b) Forests
(c) Machinery (d) Trademarks

29. According to Keynes interest is a payment for
(a) Consumer's preference (b) Producer's preference
(c) Liquidity preference (d) State Bank's preference

30. Interest is paid because
(a) Capital is scarce (b) Capital is productive
(c) Capital is attractive (d) Capital is surplus

31. With decrease in price of bonds, rate of interest:
(a) Decreases b) Increases
(c) Does not change (d) None of the above

32. Every factor of production gets reward equal to its:
(a) Cost (b) Marginal product
(c) Price (d) Increasing return

33. According to Keynes, interest is a payment for:
(a) Use of durable goods (b) Use of capital
(c) Use of money (d) Use of land

34. In economics capital refers to:
(a) Money (b) High quality goods
(c) Trade mark (d) Machinery and factories
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35. Professor Knight is famous for his theory of:
(a) Rent (b) Profit
(c) Population (d) Wages

36. Profits:
(a) Are residual payment (b) Are pre-determined
(c) Are fixed contract (d) Are always higher than wages

37. Profits:
(a) Are lower in the long run than in the short run (b) Can be negative
(c) Are less in perfect competition than in monopoly (d) All of the above

38. Profits arise because an entrepreneur:
(a) Prepares plan (b) Innovates
(c) Lends money (d) Both (a) and (b)

39. Gross profit does NOT include:
(a) Rent of land owned by the firm (b) Pure profit
(c) Interest on capital owned by firm (d) Taxes

40. Some economists say that profit earner is a kind of:
(a) Wage earner (b) Rent receiver
(c) Interest receiver (d) Govt. officer

41. Risks in the business arise because of:
(a) Introduction of the new products (b) Uncertain policy of rival firms
(c) Changes in tastes (d) All the above

42. According to Professor Knight risks are of _____ kinds:
(a) two (b) three
(c) four (d) many

43. This is not a function of the entrepreneur:
(a) Supervise (b) Innovate
(c) Lend money (d) Prepare plan

44. According to Modern Theory of Rent, rent accrues to
(a) Land only (b) Any factor
(c) Capital only (d) Labour only

45. An increase in the wage rate:
(a) Will usually lead to more people employed
(b) Will decrease total earnings of employees if the demand for labour is wage elastic
(c) Is illegal in a free market
(d) Will cause a shift in the demand for labour
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46. A decrease in the supply of labour is likely to lead to:
(a) A lower equilibrium wage and lower quantity of labour employed
(b) A lower equilibrium wage and higher quantity of labour employed
(c) A higher equilibrium wage and higher quantity of labour employed
(d) A higher equilibrium wage and lower quantity of labour employed

UNIT-II

47. In order to maximize profits, a firm should produce at the output level for which
(a) Average cost is minimised (b) Marginal cost equals marginal revenue
(c) marginal cost is minimised (d) All of the above

48. A market system where there is only one buyer, is known as.
a) Monopoly b) Monopolistic competition
c) Monopsony d) Monopsonistic competition

49.The market, where the services of factor of production are bought and sold is, is
a) Product market b) Factor market
c) Commodity market d) Monopoly market

50.Factor prices are determined in the market under forces of
a) Elasticity of demand b) Elasticity of supply
c) Elasticity and supply d)None of the above

51.The firm is in equilibrium in the factor market when it employs units of labour upto the point where
a)The marginal revenue product of labour is equal to its marginal cost
b) The marginal revenue product of labour is more than its marginal cost
c) The marginal revenue product of labour is less than its marginal cost

52. A market system, where there is only one seller is known as
a) Monopoly b) Monopolistic competition
c) Oligopoly d) Monopsony

53.Equilibrium in the factor market achieved at the factor price and factor quantity is given by
a) The intersection of the factor demand curve and the factor supply curve
b) The sum total of the elasticities of demand and supply
c) The product of the elasticities of demand and supply

54.Monopsony means
a) A single seller b) A single buyer
c) Large number of buyers d)None of the above
55.Monopoly means
a) A single seller b) A single buyer
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c) Large number of buyers d)None of the above

56.Factor prices are determined in the factor market under the forces of
a) Marginal productivity b) Elasticity of demand
c) Elasticity of supply d) Demand and supply

57.The labour market equilibrium determines the wage rate and
a) Investment b) Employment
c) Savings d) Profits

58.Equilibrium conditions for factor market is
(a)Demand for factors is equal to supply of factors
(b) Demand for factors is less than supply of factors
(c) Demand for factors is more than supply of factors
(d) None of the above

59. Demand for factor of production is
a) Supplementary demand b) Intermediate goods
c) Derived demand d) Complementary demand

60. Factor market will be in equilibrium when
a) Demand for factors is less than its supply
b) Demand for factors is equal to supply of factors
c) Supply of factors is less than for it
d) All of the above

61. Which of the following is not a factor of production?
a) Land b) Labour
c) Money d) Capital

62. A monopolist maximizes profit by producing the quantity at which
a) marginal revenue equals marginal cost. b) marginal revenue equals price.
c) marginal cost equals price. d) marginal cost equals demand.

63. The supply of a good refers to:
a) Stock available for sale
b) Total stock in the warehouse
c) Actual Production of the good
d) Quantity of the good offered for sale at a particular price per unit of time

64 The cost of one thing in terms of the alternative given up is called:
a) Real cost b) opportunity cost
c) Production cost d) Physical cost

65. The producer‟s demand for a factor of production is governed by the ___ of that factor.
a) Price b) Marginal Productivity
c) Availability d) Profitability

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66.Under conditions of perfect competition in the product market:
a) MRP=VMP b) MRP > VMP
c) VMP > MRP d) None of the above

67. In a perfectly competitive market a firm in the long run will be in equilibrium when:
a) AC =MC b) AR = MR
c) MR = MC d) Price=AR=MR=AC=MC

68. Which of the following is a characteristic of capital as a factor of production?
a) It is fixed in supply b) It never depreciates
c) It is a passive factor of production d) It is an active factor of production
69. On which law of consumption the concept of consumer‟s surplus is based?
a) Engel‟s law b) Law of demand
c) First law of Gossen d) Second law of Gossen

70. The relation that the law of demand for factor defines is.
a) Income and quantity demanded of a factor b) Price and quantity of a factor
c) Income and price of a factor d) Quantity demanded and quantity supplied of a factor

71. Union leaders are in a better position to bargain for higher wages if demand for labour is
a) Elasti b) Inelastic
c) Very larg d) Permanent

72. Sometimes the supply curve of labour ends:
a) Downward b) Upward
c) Backward d) Firstly upward and then downward

73. A firm maximizes profit if:
a) MRP = Wage rate b) MRP is rising
c) MRP = ARP d) None of these

74. The opportunity cost of a machine which can produce only one product is:
a) Low b) Infinite
c) High d) Medium

75. When price is below equilibrium level, there will be:
a) Surplus commodity in the market b) Supply curve will shift
c) Demand curve will shift d) Shortage of commodity in the market

76. If equilibrium price rises but equilibrium quantity remains unchanged, the cause is:
a) Supply and demand both decrease equally b) Supply and demand both increase equally
c) Supply decreases and demand increases d) Supply increases and demand decreases

77. A decrease in demand causes the equilibrium price to:
a) Rise b) Fall
c) Remain constant d) Indeterminate

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78. Price of a product is determined in a free market:
a) By demand for the product b) By supply of the product
c) By both demand and supply d) By the government

79. In market equilibrium, supply is vertical line. The downward sloping demand curve shifts to the
rights. Then
a) Price will rise b) Quantity rises
c) Price remains same d) Price will fall

80. A rise in supply and demand in equal proportion will result in:
a) Increase in equilibrium price and decrease in equilibrium quantity
b) Decrease in equilibrium price and increase in equilibrium quantity
c) No change in equilibrium price and increase in equilibrium quantity
d) Increase in equilibrium price and no change in equilibrium quantity

81. Every factor of production gets reward equal to:
a) Value of average product b) Value of marginal product
c) Value of total product d) Total revenue

82. Under perfect competition, demand for a factor is its:
a) MRP curve b) ARP curve
c) TRP curve d) TR – TC

83. We should employ units of a factor to a point where:
a) MR is negative b) MP is equal to price of the factor
c) MP is positive d) MP is rising

84. If marginal product of labour rises because of new technology:
a) Wages will rise b) Wages will fall
c) Wages will be unaffected d) May rise or fall

85. Increasing the minimum wage for workers will:
a) Sole the unemployment problem b) Result in scarcity of workers
c) Cause a substitution of capital for labour d) Decrease the MP of those workers

86. The price of capital is
(a) money (b) Interest
(c) profits (d) wages

87. If MRP > Price of the factor: firm should hire
(a) less factors (b) more factors
(c) the same factors (d) All of the above

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88. If MRP = Price of the factor: firm should _______ at the unit of factor
(a) less factors (b) more factors
(c) stop hiring more (d) All of the above

89. If MRP < P of the factor, firm should hire
(a) less factors (b) more factors
(c) the same factors (d) All of the above

90. The labor market equilibrium determines the wage rate and
(a) market (b) employment
(c) money (d) interest

91. Union leaders are in a worse position to bargain for higher wages if demand for labour is
a) perfectly Elastic b) perfectly Inelastic
c) Very larg d) Permanent

UNIT-III

92. The concept of social optimum was introduced in Welfare Economics by
a) Vilfredo Pareto b) A. C. Pigou
c) Adam Smith d) A. Marshall

93. An ethical or value judgement must be made in order to derive the
a) Transformation curve b) Grand utility possibly curve
c) Consumption contract curve d) Social welfare function

94.According to Kaldor-Hicks compensation criteria, the proposed change will increase the social
welfare if
a) The gains are equal to the losses b) The gains are greater than the losses
c) The losses are greater than the gains d)None of the above

95.The concept of Social Welfare function was firstly introduced by
a) Pareto b)Kaldor
c) Bergson d) Samuelson

96. The first condition of which economist states that welfare is said to increase when national income
increases
a) Kaldor-Hicks b) Adam Smith
c) A. C. Pigou d) Prof . Bergson

97.Compensation criterion principle is associated with the name of
a)Kaldor-Hicks b)Vilfredo Pareto
c) A. C. Pigou d) Prof . Bergson

98.Who proclaimed the „doctrine of invisible hand‟?
a) Adam Smith b) A. C. Pigou
c)Kaldor-Hicks d) V. Pareto

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99.Social Welfare function is a function of
a) All the individuals constituting the society b) All consumers excluding producers
c) Only sample of individuals in society (d) None of the above

100. “Social welfare increases when transfer of real income from the rich to poor increases” is a
atement given by
a)Kaldor-Hicks b) A. C. Pigou
c) Pareto d) Prof . Bergson

101.Bergson‟s name is associated with
(a) Social welfare function (b) Pareto Optimality criterion
(c) Compensation criterion (d) Welfare maximization criterion
102. Which among the following is NOT a correct statement?
(a) Welfare economics is based on value judgements.
(b) Welfare economics is also called „economics with a heart‟.
(c) Welfare economics focuses on questions about equity as well as efficiency.
(d) The founder of Welfare economics was Alfred Marshall.
103. The statement "The unemployment rate for teens is higher than that for adults" is
(a) A normative statement. (b) A positive statement
(c) A political statement. (d) An ethical statement.

104. When the allocation of resources is Pareto efficient
(a) society is providing the greatest good to the greatest number.
(b) no consumer would prefer someone else's consumption bundle to his or her own.
(c) it is not feasible to make someone better off without making someone worse off.
(d) it is feasible to make someone better off without making someone worse off.

105. If some allocation of resources is Pareto efficient, then that allocation satisfies:
a) allocative efficiency and productive efficiency.
b) allocative efficiency and distributive efficiency.
c) productive efficiency and distributive efficiency.
d) allocative efficiency, productive efficiency, and distributive efficiency.
106. When two commodities X and Y must be allocated among consumers, a necessary condition for
distributive efficiency is that:
a) all firms be price takers.
b) all firms minimize cost.
c) commodity X must be allocated to the consumers with the largest values of MRS
XY

d) the marginal rates of substitution MRS
XY
for all consumers must be equal.

107. The necessary condition for allocative efficiency is that each commodity be produced in an
amount that makes the marginal benefit to society of the last unit produced equal to the marginal cost
to society of that last unit. The satisfaction of this condition in a market economy relies on the
assumptions of:
a) utility maximization, profit maximization, and perfect competition.
b) utility maximization and profit maximization, but not perfect competition.
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Microeconomics-II

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