Business Economics MT 1

National Management College-Perundurai

                                       CA-Foundation –  Business Economics

       Max.Time:  60 minutes           Total Marks : 50

                                                     Answer all the questions

  1. During a recession, economies experience increased unemployment and a reduced level of income. How would a recession likely to affect the market demand for new cars?

(a) Demand curve will shift to the right.

(b) Demand curve will shift to the left.

(c) Demand will not shift, but the quantity of cars sold per month will decrease.

(d) Demand will not shift, but the quantity of cars sold per month will increase.


2. The average income of residents of two cities A and B and the corresponding change in demand for two goods is given in the following table. Which of the following statements is true?
City        % increase in income         % change in demand for Good X           % change in demand for Good Y
A                         12                                                      6.5                                                                   -2.3
B                         9                                                        5.6                                                                     1.6

(a) Both goods are normal goods in both cities A and B
(b) Good X is a normal good in both cities ; good Y is an inferior good in city A
(c) Good X is a normal good in both cities ; good Y is an inferior good in city B
(d) Need more information to make an accurate comment


  1. The demand curve of a normal good has shifted to the right. Which of the four events would have caused the shift?

(a) A fall in the price of a substitute with the price of the good unchanged

(b) A fall in the nominal income of the consumer and a fall in the price of the normal good

(c) A fall in the price of a complementary good with the price of the normal good unchanged

(d) A fall in the price of the normal good, other things remaining the same

4. If a short run supply curve is plotted for the following table which presents price and quantity of fighter aircrafts, what will be its shape?
Price in millions of $       Number of Aircrafts
124                                      28
140                                     28
150                                     28
160                                     28
175                                     28

(a) Horizontal straight line parallel to the quantity axis
(b) Steeply rising with elasticity less than one
(c) Vertical straight line parallel to Y axis
(d) A perfectly elastic supply curve

  1. Which of the following statements is correct?

(a) With the help of statistical tools, the demand can be forecasted with perfect accuracy

(b) The more the number of substitutes of a commodity, the more elastic is the demand.

(c) Demand for butter is perfectly elastic.

(d) Gold jewellery will have negative income elasticity.

6.Expert opinions for demand forecasting is used in

(a) Opinion Projection method (b)Controlled Experiments

(c) Delphi Method (d) None of the above

7.Which is the classical method for demand forecasting?

(a)Trend projection method (b)Graphical method

(c)Regression Method (d)Last Square method

8.Economic indicators in demand forecasting is called

(a)Trend projection method (b)Barometric method

(c)Least Square method (d)Gauge method

9.Goods which are used for final consumption –

(a) Capital Goods (b) Consumer Goods (c)Durable Goods

(d)None of the above

10.Cooking oil is an example of –

(a)Durable Producers’ goods (b)Durable consumers’ goods

(c)Non-Durable Producers’ goods (d)Non – Durable Consumers’ goods

Use the following data for the next 6 questiuons:

X,Y and z are three commodities where X and Y are complementary whereas X and Z are Substitutes.

A Shopkeeper sells commodity X at Rs.20 per piece. At this price, he is able to sell 100 pieces of X per month. After some time, he decreases the price of X to rs.10 per piece. Consequently –

  • He is able to sell 150 pieces of X per month
  • Demand for Y increases from 25 to 50 units
  • Demand for Z decreases from 75 to 50 units
  1. Price Elasticity of demand (using Arc method) when price of X Decreases from Rs.20 per piece to Rs. 10 per piece will be_

(a) 0.6 (b)1.6 (c)0.5 (d)1.5

12.What can be said about the price elasticity of demand for commodity X?

(a) Demand is unit elastic (b)Demand is highly elastic

(c) Demand is inelastic (c)Demand is perfectly elastic

13.Cross Elasticity of Demand for commodity Y when the price elasticity of X decreases from Rs.20per piece to Rs.10 per piece will be –

(a) – 1.5 (b)+1.5 (c)+1 (d)-1

14.Cross Elasticity of demand for commodity Z when the price of X decreases from Rs.20 per piece to Rs.10 per piece will be –

(a)+1.66 (b)+0.66 (c)-1.66 (d)-0.66

15.If Income of the Consumers increases by 50% and the demand for X increases by 20% what will be the Income Elasticity of Demand for X?

(a) 0.04 (b)0.4 (c)4.00 (d)-4.00

16.We can say that commodity X in economic sense is an example of –

(a)Inferior goods (b)Giffen goods (c)Normal goods (d)Luxury goods

  1. We can say that Fresh Milk in economics sense is an example of –

(a)Luxury Goods (b)Inferior goods (c)Normal good (d)None of the above

  1. The cross elasticity of demand between two perfect substitute will be –

(a) Zero (b)Infinity   (c)Very High (d)Very Low

20.What will be the slope of demand curve when it shows the cross elasticity between two complementary goods?

(a)Negative     (b)Positive    (c)Horizontal (d)None of the above

21.The Income of a Household rises by 20%, the demand for computer rises by 25%, this means computer(in economics) is a/an

(a)Inferior goods (b)Luxury goods (c)Necessity   (d)None of the above

22.For _____ goods increase in income leads to increase in demand.

(a)Abnormal (b)Normal     (c)Inferior (d)Superior

23.Income elasticity of demand is given by_

(a)di/dq x q/i (b)di/dq x i/q (c)dq/di x q/i (d)dq/di x i/q

24 The elasticity at a given point on a demand curve is known as

(a) Point elasticity (b)Income elasticity (c)Arc elasticity (d)Cross elasticity

25.Horizontal Demand curve, parallel to x- axis indicates, that the elasticity of demand is-

(a)Zero (b)Infinite (c)>1 (d)<1

26.If the demand for the good is more elastic, the demand curve will be-

(a)Horizontal line (b)Vertical line (c)Downward sloping to the right, flatter

(d) Downward sloping to the right, steeper.

27.In case of straight line demand curve meeting two axes, the price elasticity of demand at a point where the curve meets x-axis would be

(a)1         (b)infinity            (c)0         (d)>1

28.Rectangular Hyperbola is also called-

(a)Equilateral Hyperbola           (b)Vertical line           (c)Square

(d)Horizontal line

29.For goods with perfectly inelastic demand-

(a)dp>dq          (b)dp=dq        (c)dp=0      (d)dq=0

30.Goods which have fewer substitutes are

(a)Less elastic    (b)Unit elastic    (c)More elastic      (d)Zero elastic

31.Changes in demand due to changes in price is known as __

(a) Change in demand        (b)change in quantity demanded

(c) Income demand           (d)Cross demand

32.Expansion and contraction of demand for a good occurs as a result of –

(a)Change in price of the commodity        (b)Change in quality of the commodity        (c)Availability of cheaper substitutes       (d)Increase in consumer income

33.A movement along the demand curve for soft drinks is best described as-

(a)Increase in demand      (b)Decrease in demand       (c)Change in quantity demanded         (d)Change in demand

34.If Income levels increase, and the demand for goods increase by more than proportionate extent, such goods will be-

(a) Inferior goods       (b)Necessary goods        (c)Luxury goods       (d)Nothing

35.Which of the following pairs of goods in an example of substitute?

(a)Tea & sugar       (b)Tea & coffee      (c)Tea & Ball pen    (d)Tea & shirt

  1. Which of these is not a complementary good for pen?

(a) Refills         (b)Paper        (c)Notebooks        (d)Wheat

37.The demand for factors of production is demand

(a)Fundamentals       (b)Derived       (c)Market       (d)Joint

38.Demand arises in respect of

(a) Agricultural commodities only      (b)Industrial goods only

(c)Both (a) &(b)      (d)Neither (a) nor (b)

39.Individual demand is also called__

(a)Industrial demand        (b)Market demand      (c)Household demand

(d)All of the above

40.Purchasing power of the money fall when

(a) Price level increases       (b)Price level decreases          (c)Income level increases       (d)money supply falls

41.In India, areas like Atomic Energy, Defence ,etc. Are in the hands of –

(a)Private sector     (b)Public sector        (c)Joint sector       (d)All of the above

42.Demerits of capitalistic economy includes –

(a) Low cost of production      (b)Pre dominance of bureaucracy

(c)Economic inequality       (d)No incentive for hard work

43.Socialist economy is also known as ____ economy

(a)Mixed       (b)Planned        (c)Capitalist       (d)None of the above

44.Freedom of choice is an advantage of

(a) Capitalist economy      (b)Mixed economy      (c)Socialist economy

(d)Communist economy

45.Production of capital goods vs consumer goods relates to the problem of

(a)What to produce      (b)How to produce       (c)For whom to produce

(d)How to provide for growth

46.Free market economy driving force is__

(a)Profit motive     (b)Welfare of the people      (c)Rising incomes and level of living      (d)None of the above

47.An economy can spend all its present resources on current consumption only

(a)True     (b)False    (c)Partially True     (d)Cannot be commented at all.

48.Scarcity in economics is an _

(a)Absolute concept      (b)Relative concept      (c)Irrelevant concept

(d)Not a concept at all.

49.Business Economics has a Pragmatic Approach which means it is not-

(a)Practical      (b)Realistic      (c)Abstract     (d)All of the above

50.Normative science explains –

(a)”What was”     (b)”What is”      (c)”What ought to be”     (d)”What will”



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