Question

1. The shift of the budget line will be parallel if :

(A) Price ratios remain the same and there is a change in income

(B) Price ratios vary

(C) Income and price ratios both vary

(D) Income and price of one commodity changes.

2. If the two commodities are perfect substitutes, the relevant indifference curve will be :

(A) Negatively sloped and convex to the origin

(B) Negatively sloped and concave to the origin

(C) Negatively sloped straight line

(D) Positively sloped.

3. Price elasticity of demand at the mid point of a linear demand curve is :

(A) Elastic (B) Inelastic

(C) Unitary elastic (D) Perfectly inelastic.

4. When average product (AP) of a factor rises, the marginal product (MP) of the factor will be :

(A) Greater than AP (B) Equal to AP

(C) Less than AP (D) Positive and increasing.

5. If the price of the commodity alone increases, what will be its impact on consumer surplus?

(A) Consumer surplus will increase (B) Consumer surplus will decrease

(C) Consumer surplus will remain unchanged (D) Cannot be determined.

6. The shape of the Average Fixed Cost (AFC) curve will be :

(A) Rectangular Hyperbola (B) Horizontal

(C) Positively sloped (D) ‘U’ shaped.

7. At the point of equilibrium, the marginal cost curve of a perfectly competitive firm will be :

(A) Negatively sloped (B) Vertical

(C) Horizontal (D) Positively sloped. (solve any five)​

Answer 1

Answer:

price ratio remains the same and there os no change in income

Answer 2

1. (A)
2. (C)
3. (C)
4. (A)
5. (B)
6. (A)
7. (D)

1. The shift of the budget line will be parallel if :  Price ratios remain the same and there is a change in income. the increase of income will increase the expenditure keeping the price of commodities constant vice versa.

2. If the two commodities are perfect substitutes, the relevant indifference curve will be : Negatively sloped straight line because marginal rate of technical substitution will be constant throughout.

3. Price elasticity of demand at the mid point of a linear demand curve is : Unitary elastic .

4. When average product (AP) of a factor rises, the marginal product (MP) of the factor will be :Greater than AP because AP will only increase when MP is greater than AP.

5. If the price of the commodity alone increases, what will be its impact on consumer surplus?

Consumer surplus will decrease because now more money will be spent on buying same quantity of a commodity.

6. The shape of the Average Fixed Cost (AFC) curve will be : Rectangular Hyperbola because and average fixed cost declines with increase in output and total fixed cost is never zero therefore it never touches the x axis.

7. At the point of equilibrium, the marginal cost curve of a perfectly competitive firm will be :Positively sloped. Despite being downward sloping at the initial levels, it will ultimately be positively sloped because of diminishing marginal returns.