CBSE Class 12 Commerce Economics · Ch 1: Introduction (Introductory Microeconomics)

Topics in this test

Difficulty: 3 easy · 8 medium · 19 hard

Sample questions with answers

The first 5 questions of this free test.

1. Q1. Suppose a new technology raises the productivity of resources used only in producing good X (measured on the X-axis), with no change in the production of good Y. The production possibility curve will:

   • A. shift inward along the X-axis
   • B. remain unchanged, because technology does not affect the PPC
   • C. shift outward only along the X-axis, the Y-intercept remaining unchanged
   • D. shift outward equally (parallelly) along both the X-axis and the Y-axis
   Solution

   Since only good X can now be produced in larger quantity with the same resources, the curve shifts outward along the X-axis while the maximum output of Y (the Y-intercept) stays the same.

2. Q2. Consider the following statements about types of economies: 1. In a centrally planned economy, the central authority (government) takes all the major economic decisions. 2. In a market economy, economic decisions are taken through the free interaction of buyers and sellers. 3. A mixed economy has features of both the market and the centrally planned economies. 4. In a market economy, the government owns all the means of production. Which of the statements are correct?

   • A. 1, 2 and 4
   • B. 2, 3 and 4
   • C. 1 and 4 only
   • D. 1, 2 and 3
   Solution

   In a market economy, the means of production are mainly privately owned and decisions are made by the market, not the government; so statement 4 is wrong. Statements 1, 2 and 3 correctly describe the three types.

3. Q3. Match each economic activity with the central problem it illustrates: (i) Growing wheat using more machines instead of more workers (ii) Deciding to produce more consumer goods than capital goods (iii) Distributing output among people according to their purchasing power Choose the correct matching:

   • A. (i) How to produce, (ii) For whom to produce, (iii) What to produce
   • B. (i) What to produce, (ii) How to produce, (iii) For whom to produce
   • C. (i) How to produce, (ii) What to produce, (iii) For whom to produce
   • D. (i) For whom to produce, (ii) What to produce, (iii) How to produce
   Solution

   'How to produce' is the choice of technique (machines vs workers), 'What to produce' is the choice of which goods and how much, and 'For whom to produce' is how output is distributed among people.

4. Q4. An economy's production possibility schedule for goods X and Y is: (0X,15Y), (1X,14Y), (2X,12Y), (3X,9Y), (4X,5Y). The marginal opportunity cost of producing the 3rd unit of X is:

   • A. 3 units of Y
   • B. 2 units of Y
   • C. 9 units of Y
   • D. 4 units of Y
   Solution

   Moving from 2 units of X to 3 units of X, production of Y falls from 12 to 9, i.e. 3 units of Y are sacrificed. So the marginal opportunity cost (MRT) of the 3rd unit of X is 3 units of Y.

5. Q5. Assertion (A): The production possibility curve is normally concave to the origin. Reason (R): As more of one good is produced, the marginal opportunity cost (MRT) of producing it goes on increasing. Choose the correct option:

   • A. A is false but R is true
   • B. A is true but R is false
   • C. Both A and R are true, but R is not the correct explanation of A
   • D. Both A and R are true, and R is the correct explanation of A
   Solution

   Resources are not equally efficient in producing both goods, so each extra unit of a good costs more and more units of the other good; this rising MRT makes the curve bow inward (concave). So both are true and R correctly explains A.

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