QUESTION BANK – MICRO ECONOMICS

DEMAND & ELASTICITY OF DEMAND

Q.1 If demand increases by 50%due to an increase in income by 75%, calculate income elasticity of
demand. (2)
Q.2 If the demand for ‘y’ increases as the price of ‘x’ rises, what type of goods are these? Explain their
relationship. (2)
Q.3 What are inferior goods? Explain with the help of appropriate examples. (2)
Q.4 Explain two instances where the law of demand does not hold good.
Q.5 What is increase in demand? How is it different from extension of demand? (2)
Q.6 What would be the elasticity of demand of a commodity when:
(a) Price and total expenditure move in the same direction?
(b) Price and total expenditure move in opposite directions?
Q.7 Differentiate between ex-ante and ex-post demand. (2)
Q.8Which degree of elasticity of demand is most applicable to the demand for salt and why? (2)
Q.10 Discuss two reasons for the downward slope of the demand curve. (3)
Q.11 Complete the demand schedule for commodity X:
Price(Rs./unit) Q.D by individual A Q.D by individual B Market Demand
15 50 85 ?
20 45 ? 105
25 ? 45 85
30 35 35 ?
Draw the market demand curve from the above schedule. (3)
Q.12 How is the Elasticity of demand affected by i) Availability of substitutes and
ii) nature of the product (3)
Q.13 The price of a commodity falls from Rs.50 to Rs.30, resulting in an increase in the quantity
demanded from 200 to 220 units. Calculate the price elasticity of demand. (3)
Q.14 Price elasticity of demand for a product is unity. A household buys 70 units of this product
when its price is Rs.10 per unit. If the price of the product rises to Rs.12 per unit, how much
quantity of the product will be bought by the household? (3)
Q.15 On a straight demand curve touching the two axes, show the different degrees of
elasticity of demand. (6)

CONSUMERS’ EQUILIBRIUM
Q.1 Give two assumptions of the law of diminishing marginal utility. [2]
Q.2 State the law of equi-marginal utility. [2]
Q.3 What is the reason for the shape of Indifference curve ? [2]
Q.4 Differentiate between cardinal and ordinal utility. [2]
Q.5 Explain the relation between TU and MU with the help of a diagram. [3]
Q.6 Explain how a consumer reaches his equilibrium when he is consuming one commodity. [3]
Q.7 Diagramatically explain any two properties of the Indifference curves. [3]
Q.8 With the help of a diagram prove that PX = MRSXY at the point of equilibrium. [6]
PY
 SUPPLY AND ELASTICITY OF SUPPLY

Q.1 Draw the supply curve for a perishable commodity. Give reason for the shape of the supply
curve. (2)
Q.2 Differentiate between intended and actual supply. (2)
Q.3 State the Law of supply. Discuss how change in technology affects the supply of a commodity.
(2)
Q.4 What is meant by supply function? (2)
Q.5 Explain the effect of different time periods on supply. (3)
Q.6 From hypothetical individual Supply schedule draw a market supply curve . (3)
Q.7 Draw appropriate diagrams for elasticity of supply a) equal to unity b) less than unity (3)
Q.8 Calculate elasticity of supply on any given point on a supply curve drawn at an angle of 75
degrees passing through the point of origin. (3)
Q.9 With the help of diagrams, show the shift and movement in the supply curves. (6)
Q.10 Calculate elasticity of supply of a commodity if its price rises from Rs.10 to Rs.12 and the
quantity supplied increases from 100 to 140 units. (3)

DETERMINATION OF EQUILIBRIUM PRICE

Q.1 What is meant by equilibrium price? How do the forces of demand and supply determine the
equilibrium price? [3]
Q.2 Explain the effect on equilibrium price when demand increases and supply is perfectly elastic.
[3]
Q.3 Draw the diagram to show the effect on equilibrium price when increase in demand is greater than
decrease in supply. [3]
Q.4 Draw the diagram to show the effect on equilibrium price when decrease in demand is greater than
increase in supply. [3]
Q.5 Under which condition of simultaneous change in demand and supply is there no effect on the
equilibrium price? [2]
Q.6 What is floor price? Explain the logic behind fixing it above the equilibrium price. [3]
Q.7 Explain any two negative effects of price ceiling. [3]
Q.8 Explain graphically, the impact on equilibrium price and on quantity in the
following situations:- [6]
(i) A decrease in consumers’ income.
(ii) An increase in the subsidy given by the govt.
(iii) An increase in the price of complementary goods.

MARKET FORMS

Q.1. A seller is a price-taker under Perfect competition but a price-maker under Monopoly.
Discuss. (3)
Q.2. Why are the demand curves different under different market forms? Draw and explain the
reasons for the difference. (3)
Q.3.Identify the market forms of the following, giving one main feature of each-
a) Rice , b) Garments and c) Airways (3)
Q.4. What is an Oligopoly market. What is the importance of intense competition in an
oligopoly? (3)
Q.5 What is meant by price discrimination? It is an important feature of which market form and
 why? (3)
Q.6. What do you mean by product differentiation? In what ways can it be observed? (3)
Q.7. What is a monopsony market? Explain one important feature. (3)
Q.8 Differentiate between perfect competition, monopolistic competition and monopoly on the basis of –
a) control over price and b) type of product.

LAWS OF RETURNS
Q.1 What is TPP and MPP ? (2)
Q.2 State the law of constant returns to a factor. (2)
Q.3 What happens to TP when MP is zero ? (2)
Q.4 What is production function? What are its two types ? (3)
Q.5 With the help of a diagram explain the effect of TP on MP of a variable factor when TP reaches its
maximum. (3)
Q.6 State the Law of Variable proportions. Give two assumptions of this law. (3)
Q.7 Explain the relation between AP and MP. (3)
Q.8 Differentiate between returns to scale and returns to a variable factor. (3)
Q.9 According to the law of variable proportions in which stage of production will the producer operate ?
(3)
Q.10 Explain two causes each of increasing returns, diminishing returns and negative returns to a variable
factor. (6)

COST AND REVENUE

Q.1 Differentiate between-
a) Explicit and implicit cost
b) Real and money cost
c) Accounting and opportunity cost (3)
Q.2. Why are the AC and MC curves U-shaped in the short-run? Explain with the help of a diagram.
(3)
Q.3. Is it possible - while AC is falling MC is rising? Explain diagrammatically. (2)
Q.4 Can ATC and AVC curves ever intersect each other? Give reasons for your answer. (3)
Q.5 Explain the relation between MC and TFC. (3)
Q.6Explain the nature of nature of the AR and MR curves under Perfect and Imperfect
competition with the help of diagrams. (3)
Q.7 Which concept of revenue is the same as price? Why? (3)
Q.8 The cost function of a firm is given below: (6)
Output 0 1 2 3 4 5 6
Tot.Cost 40 80 110 126 128 135 180
Find the following: (i)Total fixed cost, (ii)Total variable cost, (iii) Average fixed cost,
(iv)Average variable cost, (v) Average total cost and (vi) Marginal cost.

PRODUCERS’ EQUILIBRIUM

Q.1 Is it possible to measure profits earned by a firm in the following diagram. Explain why?

MC
Cost & AR=MR
Revenue

Q (2)
Q.2 What is meant by the profit maximization goal of a firm ? (2)
Q.3 What are the two conditions that a producer must consider before deciding to carry on production in
the short run ? (3)
Q.4 With the help of a diagram show how profits are calculated through TR and TC. (6)
Q.5 With the help of a diagram explain the short-run equilibrium of a firm under perfect competition
through the MC and MR approach. (6)
Q.6 From the following schedule calculate the equilibrium of a producer’s through
MC-MR approach. Give reasons for your answer. [6]
Output Price [rs] Total Cost
1 20 26
2 20 46
3 20 72
4 20 92
5 20 115
6 20 135
7 20 165

Q.7 Explain how price is determined for a firm and an industry under perfect competition. (3)
Q.8 Differentiate between break-even and shut-down point. (2)
Q.9 Explain with the help of a well labelled diagram how a perfectly competitive firm gets more
than normal profits in short-run . (6)
Q.10 A firm can carry on production even if it is getting losses in the short run. Explain. (6)
Q.11 Explain why firms under perfect competition earn only normal profits in the long run ? (6)