Business Economics Mock Test - 1


100 Questions MCQ Test Mock Tests & Past Year Papers for CA Foundation | Business Economics Mock Test - 1


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This mock test of Business Economics Mock Test - 1 for CA Foundation helps you for every CA Foundation entrance exam. This contains 100 Multiple Choice Questions for CA Foundation Business Economics Mock Test - 1 (mcq) to study with solutions a complete question bank. The solved questions answers in this Business Economics Mock Test - 1 quiz give you a good mix of easy questions and tough questions. CA Foundation students definitely take this Business Economics Mock Test - 1 exercise for a better result in the exam. You can find other Business Economics Mock Test - 1 extra questions, long questions & short questions for CA Foundation on EduRev as well by searching above.
QUESTION: 1

Average income increases from INR 20,000 p.m. to INR 22,000 p.m. Quantity demanded per month increases from 5000 to 6000 units. Which of the following is correct?

Solution:

The percentage change in demand is +20%; the percentage change in income is +10%. This means the product is normal because demand rises with more income and has an income elasticity of +2.

QUESTION: 2

If the marginal product of labor is 2, the marginal product of capital is 4, the wage rate is INR 3, the rental price of capital is INR 6, and the price of output is INR 1.50, then the firm should

Solution:

Cost of hiring one additional unit of labour = Rs 3
Revenue from hiring an additional unit of labour = MP of labour x price = Rs 3
Cost of renting one additional unit of capital = Rs 6
Revenue from renting an additional unit of capital = MP of capital x price = Rs 6
Hence, there is no benefit in increasing labour or capital.

QUESTION: 3

The supply curve of a firm is given by the equation q=250p−250. If the price decreases by 2 units, ______

Solution:

QUESTION: 4

Vysakh is selling samosas. He already sold 250 samosas. His decision on whether or not to sell the 251st samosa is based on the ___

Solution:

On taking any economic decisions, only the marginal quantities are important. In this case, the relevant decision variable is the marginal quantity of the 251st samosa.

QUESTION: 5

When the no.of uses of the purchase goods is less price elasticity of demand is

Solution:

When goods whose uses less will have less price elastic because the products can be used for a specific purpose i.e it has no substitutes. The products which have more substitutes will have high elastic demand.

QUESTION: 6

For an inferior good with a downward sloping demand curve:

Solution:

For an inferior good demand falls as income increases. The quantity demanded falls as price increases; this means the income elasticity and the price elasticity will both be negative.

QUESTION: 7

For a firm operating in a perfectly competitive market, the slope of the TR curve is

Solution:

For a firm operating in a perfectly competitive market, the slope of the TR curve is equal to the price and is constant.

QUESTION: 8

Which of the following is an alternate measure of well-being currently used that incorporates GDP, but does not rely exclusively on income as a measure of well-being?

Solution:

HDI is a measure of well-being that includes health (measured with life expectancy), wealth (measured with GDP per capita), and education (measured with an education index), that can be used to compare countries' social and economic development, as well as track this development over time.

QUESTION: 9

When the money value of money exceeds the commodity value of money, it is called:

Solution:

Credit money has a face value which is much higher than the commodity value. Credit money consists of credit cards, demand deposits, among others. 

QUESTION: 10

Reeta buys only compact discs and tapes and spends all her income. The marginal utility from a compact disc is 30 and the marginal utility from a tape is 20. The price of a compact disc is INR 15 and the price of a tape is INR 10. To maximize her utility, Reeta should

Solution:

MCCDs/PCDs=MUtape/Ptape. Reeta is already maximizing her utility.

QUESTION: 11

If the demand is price inelastic:

Solution:

This means that the percentage change in quantity demanded is less than the percentage change in price; this means a price increase will increase revenue.

QUESTION: 12

The direct tax is collected directly from

Solution:

The direct tax is collected directly from the income earners.

QUESTION: 13

Convex indifferent curve is explained by

Solution:

Convexity means slope is decreasing as the marginal rate of substitution goes on diminishing.

QUESTION: 14

If the marginal propensity to save decreases, the value of the multiplier will

Solution:

If the marginal propensity to save decreases, the value of the multiplier will increase.

QUESTION: 15

Service tax is an example of

Solution:

Service tax which is applied to the sales of services is an indirect tax.

QUESTION: 16

If there is no change in quantity demanded to any charge in price then elasticity of demand is & shape of demand curve is

Solution:

When demand does not respond to the given change in price it is known as Perfectly Inelastic demand where elasticity of demand is zero & demand curve is parallel to Y axis i.e. it is vertical.

QUESTION: 17

There are 20 identical firms in a market. At a price of Rs 20, firm 1 supplies 25 units of a good, What is the total supply at that price?

Solution:

Since the firms are identical, we can assume that their supply curves are identical. Hence, each firm would supply 25 units.
∴Qs=20×25=500

QUESTION: 18

The fact that rubies are more expensive than milk reflects the fact that for most consumers

Solution:

Because more milk is consumed, the MU from milk is lower than the MU from rubies.

QUESTION: 19

Study the supply curve given below and answer the following question.

Q. If the market price is $4, the producer surplus is ________.

Solution:

QUESTION: 20

The other names for capital formation is

Solution:

The other names for capital formation is investments

QUESTION: 21

MRS is determined by

Solution:

MRS is always related to the choice and preferences of the consumer.

QUESTION: 22

A firm should shut down temporarily if

Solution:

In the short run, fixed costs are treated as sunk costs. Hence, a firm should shut down temporarily if P<AVC. If AVC<P<SAC, the firm should remain operational.

QUESTION: 23

The supply curves of two firms 1 and 2 are given below.
q1=3p−5, p≥5
q2=6p−1, p≥2
​Q. Choose the correct option(s) about the market supply. All prices are in rupees.

Solution:

Let q be the market supply.
p<2⇒q=0
2≤p<5⇒q=q1=6p−1
p≥5⇒q=q1+q2=9p−6
Hence, p=6⇒q=9×6−6=48
p=4⇒q=6×4−1=23

QUESTION: 24

Commercial banks accept deposits from the public in the form of:

Solution:

Banks accept deposits as chequeable deposits and non-chequeable deposits. 

QUESTION: 25

Forward market is that market which:

Solution:

Forward market deals with foreign exchange transactions that are meant for future delivery.

QUESTION: 26

Given the following four possibilities ,which one results in an increase in total consumer expenditure?

Solution:

Increase in total expenditure will have two effect on price. if the price rises than the demand is inelastic and if the price falls than the demand is elastic. Thus in the given example we observe that total expenditure increases then the demand will inelastic with rise in price because there is a direct relationship between the price and total expenditure.

QUESTION: 27

Shalini sells lemonades at Rs 10 per glass. If she sells 300 glasses, what is her total revenue?

Solution:

TR=P×Q=300×10
=Rs  3000

QUESTION: 28

If people with higher incomes pay higher taxes, the system is called:

Solution:

A progressive tax is a tax in which the average tax rate (taxes paid ÷ personal income) increases as the taxable amount increases. The term "progressive" refers to the way the tax rate progresses from low to high, with the result that a taxpayer's average tax rate is less than the person's marginal tax rate.

QUESTION: 29

In which of the following systems was the rent fixed and a revenue collector was appointed by the government who was responsible for rent collection?

Solution:

In the Zamindari system the rent was fixed and a revenue collector was appointed by the government who was responsible for rent collection.

QUESTION: 30

What kind of goods has elastic demand

Solution:

Luxary goods elastic demand as a small change in price of it can lead to large change in quantity demanded.

QUESTION: 31

Use this information :- Hours of labour : 0 , Total Output : 0 , Marginal Product : 0 ;, Hours of labour : 1 , Total Output : 100 , Marginal Product : 100 ;,Hours of labour : 2 , Total Output : 0 , Marginal Product : 80 ;,Hours of labour : 3 , Total Output : 240 , Marginal Product : 0 ;, What is the marginal product of the 3rd hour of labour ?

Solution:

240 - 180 = 60

QUESTION: 32

Use this information :- Hours of labour : 0 , Total Output : 0 , Marginal Product : 0 ;, Hours of labour : 1 , Total Output : 100 , Marginal Product : 100 ;,Hours of labour : 2 , Total Output : 0 , Marginal Product : 80 ;,Hours of labour : 3 , Total Output : 240 , Marginal Product : 0 ;, What is the output when 2 hours of labour are employed ?

Solution:

QUESTION: 33

The market demand curve show

Solution:

The market demand curve shows the quantity of a good that consumers would like to purchase at different prices.

QUESTION: 34

How much interest is paid by the RBI on the money deposited under the CRR measure?

Solution:

No interest is paid by the RBI on the money deposited under the CRR measure

QUESTION: 35

An increase in the supply of a good is caused by

Solution:

An increase in supply is caused by other factors other than price as such all the statements given here are true.

QUESTION: 36

AC is obtained by dividing TC by the level of

Solution:

AC=TC/Output

QUESTION: 37

In a situation when MRS>PX/PY, the consumer would react by

Solution:

MRS is the amount of Good-Y which a consumer is willing to give up for one unit more of Good-X. In a situation when MRS>PX/PY, the consumer would react by increasing the consumption of commodity-X.

QUESTION: 38

Which of the following will not decrease the demand for a normal good?

Solution:

With an increase in income, the demand for normal goods increase.

QUESTION: 39

The law of diminishing returns

Solution:

The law of diminishing returns is reflected in the negatively sloped portion of the marginal product curve

QUESTION: 40

A line that connects all points where the marginal rate of technical substitution is equal to the ratio of input prices is called the

Solution:

A line that connects all points where the marginal rate of technical substitution is equal to the ratio of input prices is called the expansion path.

QUESTION: 41

The oil company 'Standard Oil' delivers Q amount of oil to the market. They developed a new technology which helps them drill oil at a cheaper cost. As a result, 'Standard Oil' would be willing to ________

Solution:

If the costs of production go down, the supply curve shifts to the right as the willingness to sell would be greater at any given price. Hence, 'Standard Oil' would supply more oil at a given price and the same amount of oil at a lower price.

QUESTION: 42

If a car is purchased by a taxi-operator, it will be regarded as a:

Solution:

The car will be both a capital and a final good.

QUESTION: 43

If income is distributed evenly, the Gini co-efficient is:

Solution:

A Gini coefficient of zero corresponds to precise equality in income distribution

QUESTION: 44

Which of the following systems is followed by the Reserve Bank of India for issuing currency?

Solution:

The RBI follows the minimum reserve system, wherein it has to maintain a minimum quantity of gold bullion as reserves to issue currency. 

QUESTION: 45

When MU is zero , TU is

Solution:

When MU is zero, TU is maximum that point is called as point of satiety or maximum satisfactions.

QUESTION: 46

An isoquant that is

Solution:

An isoquant that is further from the origin represents greater output.

QUESTION: 47

Deposits in the banks are:

Solution:

Deposits are part of the liabilities of the bank.

QUESTION: 48

If investment increases from 400 to 600 and income increases from 3,000 to 4,000, the MPS should be equal to

Solution:

QUESTION: 49

If Rs 150 are required to buy $2, instead of Rs 100 earlier, then:

Solution:

This is a case of depreciation, and the import bill rises as a result. 

QUESTION: 50

A vertical supply curve parallel to Y axis implies that the elasticity of supply is

Solution:

A vertical supply curve is parallel to Y axis implies that the elasticity of supply is zero.

QUESTION: 51

Those goods which satisfy human wants directly are called :

Solution:

Consumer goods satisfy human wants directly. 

QUESTION: 52

The quote about the nature of statistics, "Statistics are like the clay from which you can make a God or a devil as you please", is attributed to:-

Solution:
QUESTION: 53

If isoquants are plotted on a graph with capital measured on the vertical axis and labor on the horizontal axis, then an increase in the wage rate will cause the isocost line

Solution:

If isoquants are plotted on a graph with capital measured on the vertical axis and labor on the horizontal axis, then an increase in the wage rate will cause the isocost line to become steeper and the optimal quantity of labor will decrease.

QUESTION: 54

Equilibrium:

Solution:

Equilibrium is an important idea for predicting economic changes.  Economic equilibrium is defined as the point at which supply equals demand for a product, with the equilibrium price existing where the hypothetical supply and demand curves intersect.

QUESTION: 55

In pre-industrial times, which of the following contributed the most to a country's economy?

Solution:

Even though the economy was primarily agrarian, the revenues from trade mainly arose out of trade of manufactured products.

QUESTION: 56

If the government spending multiplier is found to be 1, what is the marginal propensity to consume?

Solution:

QUESTION: 57

Which assumptions implies the consumer aims at utility maximization ?

Solution:

A rational consumer always desires to obtain maximum satisfaction.

QUESTION: 58

Which of the following is not a determinant of a consumer's demand for a commodity?

Solution:

Population is not a determinant of a consumer's demand for a commodity.

QUESTION: 59

For the short run shutdown decision, which of the following cost is treated as sunk cost?

Solution:

For the short run shutdown decision, the fixed costs are treated as sunk costs because they must be paid regardless of whether output is being produced or not.

QUESTION: 60

Which among the following institutions have to maintain SLR?

Solution:

All the given options have to maintain SLR.

QUESTION: 61

Who can issue the Registration Cum Membership Certificate? 

Solution:

Export Promotion Council or Federation of Indian Export Organization if not these two then there is another option of Export Development Authority.

QUESTION: 62

Name the principles of scientific management which emphasises on the study and analysis of methods rather than estimation. 

Solution:

Science not rule of thumb is the principle, which emphasises on study and analysis of methods rather than estimation. 

QUESTION: 63

___ is an empty exercise without controlling because, in the absence of a control system, it is impossible to monitor the progress and keep a check on the proper implementation of plans.

Solution:

Planning is an empty exercise without controlling because, in the absence of a control system, it is impossible to monitor the progress and keep a check on the proper implementation of plans.

QUESTION: 64

Which limitation of planning states that 'Once plans are made, managers may not be in a position to change them'? 

Solution:

Planning leads to rigidity. A specific plan clearly indicates the objective to be achieved and the ways of doing work. Since the manager may not be able to change these plans, it leads to rigidity.

QUESTION: 65

Which industry is engaged in producing goods for intermediate or final consumption through processing of raw materials?

Solution:

Manufacturing industries are engaged in producing goods through processing of raw material.

QUESTION: 66

Administration can be viewed as?

Solution:

Administration can be viewed as a part of management.

QUESTION: 67

The employees of Manav Ltd, have formed a dramatic group for their recreation. Identify the type of organisation.

Solution:

Since the dramatic group is made for recreation, the members of the group communicate freely and there won't be any strict hierarchical order or reporting relationships. The organisation arises spontaneously. This is an example of informal organisation.

QUESTION: 68

The directors of a famous I.T company have decided to set up a new firm in Pune, with an estimated cost of rupees of eight crores. Which of the following sources of finance would be most suitable?

Solution:

Setting up of a plant means funds are required for investment in long-term assets. There are various sources of long-term finance, such as equity shares, preference shares, and debentures.

QUESTION: 69

Strategic planning is done by:

Solution:

Strategic planning is done by top managers of the firm.

QUESTION: 70

Mr. Ram has his own artificial jewellery shop. He prefers to not join hands with any other persons, why? 

Solution:

Mr. Ram has his own shop. He prefers to not join hands with any other person, because in a small business, there are limited savings, and a personal connection to the business. 

QUESTION: 71

The activities that are connected with the extraction and production of natural resources and reproduction and development of living organisms is called ___

Solution:

The activities that are connected with the extraction and production of natural resources and reproduction and development of living organisms is called primary industry. 

QUESTION: 72

Estimating Manpower Requirement is a ___ .

Solution:

Workload analysis means to find out number and type of employees required to perform various jobs designed in organisational structure. The manpower requirement can find out by equating workload analysis to workforce analysis.

QUESTION: 73

Buying and selling of goods and services in large quantities for the purpose of resale or intermediate use by ___ . 

Solution:

Buying and selling of goods and services in large quantities for the purpose of resale or intermediate use by wholesale trader

QUESTION: 74

Companies with a higher growth pattern are likely to:

Solution:

Companies with higher growth opportunities tend to retain more money out of their earnings so as to finance the required investments. Therefore, higher growth prospects result in lower dividend payment.

QUESTION: 75


Q. What is the minimum percentage of shares required to be subscribed?

Solution:

As per the rule laid down by SEBI, a minimum of 90% of the total shares offered needs by the company has to be subscribed.

QUESTION: 76

Sita opened a small stationery shop in her town. However, she figures the need to hire middlemen to take care of the marketing aspect in order to get her business known and earn more customers. Even then she realizes that it is a challenge. Why?

Solution:

Even after Sita hires middlemen for her marketing needs, they charge an exorbitant fee for doing so. This leads to a huge reduction in her revenues earned. 

QUESTION: 77

What is the prerequisite of selection? 

Solution:

The prerequisite of selection is recruitment because in recruitment company receives a large number of applications and then only the selection process starts.

QUESTION: 78

The cheapest source of finance is:

Solution:

Retained earning is a part of profit which is not distributed among shareholders as dividends but is retained in the business for future use. It is also known as self financing. It is available free of cost for the business.

QUESTION: 79

________________________________ is a functional 24 * 7 facility, fund transfer at any time of the day.

Solution:

Immediate payment service is a functional 24 * 7 facility, fund transfer at any time of the day. 

QUESTION: 80

___  refers to shifting an employee to a similar job with no change in salary, status, and responsibility.

Solution:

Transfer refers to shifting an employee to a similar job with no change in salary, status, and responsibility.

QUESTION: 81

Which is the form of organization where the initial cost of setting-up of the business is least?

Solution:

As far as initial business setting-up costs are concerned, sole proprietorship is the least expensive way to start a business. 

QUESTION: 82

A situation where fewer shares have to be sold than offered is called ____?

Solution:

A situation where fewer shares have to be sold than offered is called under-subscription.

QUESTION: 83

A Treasury bill is an instrument of  ____________.

Solution:

A treasury bill is an instrument of short term debt. Treasury bills are sold with maturities of four, thirteen, twenty-six and fifty-two weeks.

QUESTION: 84

___________________ is an online record of what a person has picked up while browsing the online store. 

Solution:

Shopping cart is an online record of what a person has picked up while browsing the online store. 

QUESTION: 85

What are the two important sources from where the owner's funds can be obtained?

Solution:

Owner's funds are the funds that are provided by the owners of an enterprise, which may have sole trader or partner or shareholder of a company. The owner's capital is invested for a long period of time. Such capital forms the basis on which owners acquire their right of control of management. An issue of equity shares and retained earnings are the two important sources where owner's funds can be obtained.

QUESTION: 86

Government subsidy of ___ is provided to the small businesses for building capital assets.

Solution:

Government subsidy of 15-20% is provided to the small businesses for building capital assets.

QUESTION: 87

The most common route for investments by MNCs in countries around the world is to__________________. 

Solution:

The most common route for investments by MNCs in countries around the world is to form partnerships with local companies.

QUESTION: 88

___ are basic truths and guidelines for behaviour. 

Solution:

Principles are basic truths and guidelines for behaviour. 

QUESTION: 89

"To see whether plans are being implemented and activities are being performed according to schedule,' is a step of planning process. Identify the step 

Solution:

Follow- up action, it refers to the process of monitoring the plans, whether they are implemented properly or not. 

QUESTION: 90

___ areas are those areas which are critical to the success of an organisation and affect the profits significantly.

Solution:

Key Result Areas are those areas which are critical to the success of an organisation and affect the profits significantly.

QUESTION: 91

What is the main objective of Public sector enterprises?

Solution:

Providing services to the public is the main objective of a public service enterprise.

QUESTION: 92

Several acts passed by the government, Court judgements and statutory warnings prescribed under law. These are all included in the ___environment of business?

Solution:

Several acts passed by the government, Court judgements and statutory warnings prescribed under law. These are all included in the legal environment of business.

QUESTION: 93

A ___________ is the most developed credit instrument of the bank, for the withdrawal of deposits.

Solution:

A cheque is the most developed credit instrument of the bank, for the withdrawal of deposits. It is the most convenient and an inexpensive medium of exchange.

QUESTION: 94

A commercial bill is used to ____________

Solution:

Working capital financing is done by various modes such as trade credit, cash and discount of bills, bank guarantee, letter of credit, factoring, commercial paper, working capital financing extensively used by all small and big businesses.

QUESTION: 95

Which of the following alone can ensure effective ethics programme in a business enterprise?

Solution:

Involvement of employees alone can ensure effective ethics programme in a business enterprise. It is the employees at different levels who implement ethics policies to make ethical business a reality.

QUESTION: 96

Which of the following best indicates the importance of business environment?

Solution:

Identification of opportunities and risks, improvement in performance, and coping with rapid changes all indicate the importance of business environment.

QUESTION: 97

Financial leverage is called favourable if:

Solution:

Financial leverage is the degree to which a company uses fixed-income securities such as debt. Therefore, financial leverage is favorable when the uses to which debt can be put generate returns (ROI) greater than the interest expense associated with the debt (Cost of Debt).

QUESTION: 98

Types of organizations in the private sector are:

Solution:

Proprietorship and Joint Hindu family business, both, fall under private sector. 

QUESTION: 99

Which one of the following modes of entry permits greatest degree of control over overseas opeartions?

Solution:

Wholly owned subsidiary permits greatest degree of control over overseas opeartions.

QUESTION: 100

Name the organisation in which employees are allowed to communicate freely and these are no rules and regulations.

Solution:

In an informal organisation, employees can communicate freely.