Posted by Anjali Kaur on Nov 14, 2021

Practice Paper 4

Practice paper 4 contains questions on microeconomics and statistics.

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1. State the meaning of ‘quantity demanded of a commodity’.

Answer. The amount of quantity that is demanded at a particular price and at a particular time period.

2. What is scarcity?

Answer. When the demand of a commodity is more than its supply.

3. What is marginal utility?

Answer. Marginal utility refers to the additional satisfaction derived from the consumption of an additional unit of a commodity.

4. What is organisation of data?

Answer. It means arranging data, in a proper sequence for further analysis.

5. What is arithmetic mean?

Answer. Arithmetic mean is the sum of all observations over the total number of observations. It reflects the center or middle of a distribution.

6. What is investment?

Answer. Investment means saving for future needs. This is done with the intent to earn profit.

7. What is statistics in singular sense?

Answer. Statistics in a singular sense is Collection, Organisation, Presentation, analysis, and interpretation of data.

8. Who is a service provider?

Answer. The person who provides service in return for money is called a service provider, like a teacher providing teaching services in return for a meager salary.

9. Define demand schedule.

Answer. A demand schedule refers to a demand table; which shows an inverse relationship between quantity demanded and price, ceteris paribus.

10. What factors lead to leftward shift in a demand curve?

Answer. Decrease in the price of substitute goods. For example, if the price of coffee decreases, then the demand for tea will shift to the left because people will start buying more coffee.

11. What is the relation between marginal cost and average cost when average cost is rising?

Answer. Marginal cost is greater than average cost when AC is rising.

Relation between MC and AC

12. When does ‘decrease’ in supply take place?

Answer. When the price of inputs or raw material increases, then a decrease in supply takes place. That is supply curve shifts to the left.

13. What are monotonic preferences?

Answer. In the case of the indifference curve, consumers will always prefer a bundle offering more of at least one good as compared to another. For example, (5,4) is monotonically preferred to (4,4).

14. When marginal utility is 0, Total utility is______

Answer. Total utility is maximum.

15. State any two causes of an economic problem.

Answer. 1. Human wants are unlimited. 2. Resources to satisfy those wants are limited.

16. Define inferior goods.

Answer. Inferior goods are those whose demand falls when the income of the consumer rises.

17. What is equilibrium price?

Answer. The equilibrium price is the one where the demand of a commodity intersects the supply of a commodity. At that particular point, we have equilibrium price and equilibrium quantity.

18. Draw average revenue curve of a firm under perfect competition.

Answer. The average revenue curve is the same as the price. Since under perfect competition, prices are fixed. So the shape of the AR curve of a firm under perfect competition is a straight line parallel to the x axis.

19. Under which market form, is a firm a price-taker?

Answer. Perfect competition.

20. What is the shape of average cost curve?

Answer. Average cost curve is generally U shaped.

21. Total Fixed Costs of a firm are Rs 100. Its AVC at different levels of output is given. Calculate the TC and the MC.





MC = Change in TVC / Change in Q

22. A consumer consumes only two good X and Y. Marginal Utilitities of X and Y are 5 and 4 respectively. The prices of X and Y are Rs 4 per unit and Rs 5 per unit respectively. Is the consumer in equilibrium? What will be the further reaction of the consumer? Explain.


In the case of two commodities: The following conditions should be met;

  1. MUx=MUy=Price; This condition is used when the price of both goods (x and y are two goods here) is the same.
  2. MUx/Px=MUy/Py=MUm; This condition is used when the price of both the goods is different.


MUx/Px = 5/4

MUy/Py = 4/5

MUx/Px > MUy/Py

In such a situation the consumption of X should increase because as you keep on consuming more and more units of X, the satisfaction derived from each successive units goes on diminishing.

We will continue consuming more and more of X until,

MUx/Px = MUy/Py is achieved.

23. Explain why demand curve is downward sloping?

Answer. The causes or the reasons behind the downward sloping demand curve

It includes:

  • The law of diminishing marginal utility.
  • The Income effect.
  • The Substitution effect.
  • Size of the consumer group or the market size.
  • Alternative uses of the commodity.

Read here:

24. When price of a good rises from Rs 12 per unit to Rs 15 per unit the producer supplied 50% more output. What is the price elasticity of supply? Calculate.


Price Elasticity Of Supply | Intelligent Economist

% change in price = Change in Price / Original Price X 100

% change in price = 3/ 12 x 100 = 300/ 12 = 25%

Price elasticity of supply = 50%/ 25% = (+) 2

Thank You!

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