I85PREP
⌘ K
RBSE SS Economics study materials
RBSE SS Economics study resources

RBSE SS Economics practice questions

One question at a time. Build your RBSE SS Economics understanding.

First 50 of 200 questions. Each one lists the choices, the correct answer, and an explanation. The checker at the top of this page saves progress in this browser when it is available.

Continue in the practice tool above to load more questions, 50 at a time.

Question 1Introduction to Economics and Basic Concepts

In economics, the central problem of scarcity arises because:

  1. Human wants are unlimited while the resources available to satisfy them are limited Correct answer.
  2. Some people are poor and cannot afford to buy goods in the market
  3. Governments refuse to print enough money for everyone
  4. Producers deliberately produce fewer goods to keep prices high

Explanation

Scarcity is the fundamental economic condition in which wants are virtually unlimited but the resources used to satisfy them (land, labour, capital, enterprise) are limited and have alternative uses. It is a universal condition affecting rich and poor societies alike, not a matter of poverty or money supply.

Question 2Introduction to Economics and Basic Concepts

A farmer uses a plot of land either to grow wheat or to graze cattle, but not both at the same time. The value of the cattle he gives up when he chooses wheat is best described as:

  1. The total revenue from wheat
  2. The accounting cost of growing wheat
  3. The marginal utility of wheat
  4. The opportunity cost of growing wheat Correct answer.

Explanation

Opportunity cost is the value of the next best alternative forgone when a choice is made. Since the land can serve only one use at a time, the value of the cattle sacrificed is the opportunity cost of choosing wheat.

Question 3Introduction to Economics and Basic Concepts

Which statement correctly describes the production possibility frontier (PPF) when it is drawn as a downward-sloping curve concave to the origin?

  1. It shows the quantity demanded at every possible price of a good
  2. It shows combinations of two goods that fully and efficiently use all given resources Correct answer.
  3. It shows the total cost incurred at each level of output
  4. It shows the maximum profit a firm can earn at each output level

Explanation

The PPF traces the various combinations of two goods that an economy can produce when it uses all its resources fully and efficiently, given its technology. Its downward slope reflects the trade-off between the goods, and its concave shape reflects increasing opportunity cost.

Question 4Introduction to Economics and Basic Concepts

An economy is producing at a point inside its production possibility frontier. This indicates that:

  1. The economy could produce more of one good without sacrificing the other by using resources better Correct answer.
  2. The economy is using its resources fully but inefficiently
  3. The economy has achieved productive efficiency
  4. The economy has run out of natural resources

Explanation

Any point inside the PPF means resources are underemployed or used inefficiently, so output of one good can be raised without reducing the other by moving toward the frontier. Only points on the frontier represent full and efficient use of resources.

Question 5Introduction to Economics and Basic Concepts

The branch of economics that studies the behaviour of individual households and firms and how prices are determined in single markets is called:

  1. Development economics
  2. Microeconomics Correct answer.
  3. Macroeconomics
  4. Public finance

Explanation

Microeconomics deals with individual decision-making units such as consumers, households and firms, and with price formation in particular markets. Macroeconomics, by contrast, studies economy-wide aggregates such as national income, inflation and unemployment.

Question 6Introduction to Economics and Basic Concepts

A statement such as 'the government should raise the minimum wage to reduce poverty' is best classified as:

  1. A normative statement, because it involves a value judgement about what ought to be Correct answer.
  2. A positive statement, because it concerns government policy
  3. A positive statement, because it can be tested against data
  4. A normative statement, because it mentions the government

Explanation

Normative statements express opinions about what ought to be and rest on value judgements, so they cannot be proved or disproved by evidence alone. The word 'should' signals a recommendation rather than a testable claim about facts.

Question 7Introduction to Economics and Basic Concepts

According to the law of demand, other things remaining equal, when the price of a good rises:

  1. The demand curve for that good shifts to the right
  2. The quantity demanded of that good falls Correct answer.
  3. The quantity demanded of that good rises
  4. The demand curve for that good becomes vertical

Explanation

The law of demand states an inverse relationship between price and quantity demanded, holding other factors constant. A higher price therefore leads to a smaller quantity demanded, shown as a movement upward along the demand curve.

Question 8Introduction to Economics and Basic Concepts

The market price of a good is determined, in the simple supply and demand model, at the point where:

  1. Quantity demanded equals quantity supplied Correct answer.
  2. The government fixes a maximum price
  3. The quantity demanded exceeds the quantity supplied
  4. The quantity supplied exceeds the quantity demanded

Explanation

Equilibrium occurs where the quantity buyers wish to purchase equals the quantity sellers wish to offer. At that price there is neither excess demand nor excess supply, so there is no pressure for the price to change.

Question 9Introduction to Economics and Basic Concepts

Consumers' income rises and, as a result, the demand curve for a normal good shifts to the right. This change is best described as:

  1. An increase in demand caused by a non-price factor Correct answer.
  2. An increase in quantity demanded caused by a price change
  3. A decrease in supply caused by higher income
  4. A movement along the demand curve

Explanation

A change in a non-price determinant such as income shifts the entire demand curve, which economists call a change in demand. A change in quantity demanded, by contrast, is a movement along a given curve caused by a price change.

Question 10Introduction to Economics and Basic Concepts

The price elasticity of demand for a good is measured as:

  1. The total revenue earned divided by the price of the good
  2. The percentage change in quantity demanded divided by the percentage change in price Correct answer.
  3. The change in price divided by the change in quantity demanded
  4. The change in quantity demanded divided by the change in price

Explanation

Price elasticity of demand compares proportional changes, being the percentage change in quantity demanded divided by the percentage change in price. Using percentages makes the measure independent of the units in which price and quantity are expressed.

Question 11Introduction to Economics and Basic Concepts

A shopkeeper finds that when she raises the price of a product, her total revenue falls. This suggests that demand for the product is:

  1. Inelastic
  2. Perfectly inelastic
  3. Elastic Correct answer.
  4. Unitary elastic

Explanation

When demand is elastic, the percentage fall in quantity demanded exceeds the percentage rise in price, so total revenue moves in the opposite direction to price. A price increase therefore reduces total revenue, which is exactly what the shopkeeper observes.

Question 12Introduction to Economics and Basic Concepts

The law of diminishing marginal utility states that as a consumer consumes more units of a good in a given period:

  1. The consumer's total expenditure always rises
  2. Total utility falls from the first unit onward
  3. The price of the good must fall
  4. The additional satisfaction from each extra unit eventually declines Correct answer.

Explanation

The law concerns the marginal, not total, satisfaction: beyond some point each successive unit adds less satisfaction than the previous one. Total utility may still be rising while marginal utility falls, and it turns downward only when marginal utility becomes negative.

Question 13Introduction to Economics and Basic Concepts

A consumer maximises satisfaction from spending a fixed income on two goods when:

  1. The marginal utility per rupee spent is equal for both goods Correct answer.
  2. The prices of the two goods are equal
  3. The total utility from each good is equal
  4. The marginal utility of each good is equal in absolute terms

Explanation

The equi-marginal principle says a consumer allocates spending so that the marginal utility obtained from the last rupee spent is the same for every good. If one good offered more utility per rupee, the consumer could gain by shifting spending toward it.

Question 14Introduction to Economics and Basic Concepts

In the circular flow of income for a simple two-sector economy, households supply factor services to firms and in return receive:

  1. Taxes
  2. Factor incomes such as wages, rent, interest and profit Correct answer.
  3. Imports from abroad
  4. Government subsidies

Explanation

Households own the factors of production and sell their services to firms, receiving wages for labour, rent for land, interest for capital and profit for enterprise. These factor incomes flow back to firms as consumption expenditure, completing the circular flow.

Question 15Introduction to Economics and Basic Concepts

Which of the following is counted as a factor of production in economics?

  1. A government pension payment
  2. A tractor used on a farm Correct answer.
  3. A share certificate bought on the stock exchange
  4. Money held by a household

Explanation

Capital as a factor of production consists of produced means of production such as machinery, tools and buildings used to make other goods. A tractor is a produced good used in farming and therefore qualifies as capital.

Question 16Introduction to Economics and Basic Concepts

A firm's fixed costs are those costs which:

  1. Change directly with the level of output produced
  2. Are incurred only when output exceeds capacity
  3. Remain constant in total regardless of the output level in the short run Correct answer.
  4. Fall to zero when output is zero

Explanation

In the short run, fixed costs such as rent on a building or insurance premiums do not vary with output, so their total stays the same even when production is zero. Variable costs, by contrast, rise and fall with the quantity produced.

Question 17Consumer Behaviour and Demand

In consumer theory, utility refers to which of the following?

  1. The cost of producing one additional unit
  2. The total quantity of a good available for sale
  3. The money price paid for a good in the market
  4. The satisfaction a consumer derives from consuming a good Correct answer.

Explanation

Utility is the want-satisfying power of a commodity, that is, the satisfaction a consumer obtains from consuming it. It is a subjective psychological concept, not a price, quantity, or production cost. This distinction is the starting point of the theory of consumer behaviour.

Question 18Consumer Behaviour and Demand

A consumer's total utility is maximum at the point where marginal utility is:

  1. Zero Correct answer.
  2. Rising
  3. Negative
  4. Equal to total utility

Explanation

Total utility increases as long as marginal utility is positive and stops rising when marginal utility becomes zero. At that point total utility reaches its maximum, which is called the point of satiety. Once marginal utility turns negative, total utility begins to fall.

Question 19Consumer Behaviour and Demand

The law of diminishing marginal utility states that as a consumer consumes more units of a commodity in a given period, the marginal utility of successive units:

  1. Increases steadily
  2. Falls Correct answer.
  3. Remains constant
  4. Becomes equal to price

Explanation

The law states that the additional satisfaction obtained from each extra unit falls as consumption of that commodity increases within a given time period, other things remaining equal. This happens because the intensity of a particular want is limited. The fall is the reason the demand curve slopes downward.

Question 20Consumer Behaviour and Demand

A consumer is in equilibrium when buying a single commodity if:

  1. Marginal utility equals price Correct answer.
  2. Marginal utility exceeds price
  3. Total utility equals price
  4. Marginal utility is zero

Explanation

With one commodity and money treated as the measuring rod, the consumer keeps buying until the marginal utility of the commodity equals its price. Buying beyond that point would mean paying more than the satisfaction received. Hence MU = price is the equilibrium condition.

Question 21Consumer Behaviour and Demand

Which of the following is a determinant of an individual consumer's demand for a commodity?

  1. The number of firms in the industry
  2. The wage rate paid to factory workers
  3. The tax rate on company profits
  4. The income of the consumer Correct answer.

Explanation

Individual demand depends on the price of the good, the consumer's income, tastes and preferences, and prices of related goods. Income directly determines how much a consumer can afford, so it shifts demand. The other options describe producer-side or fiscal variables.

Question 22Consumer Behaviour and Demand

A movement along a given demand curve for a commodity is caused by a change in:

  1. Tastes of consumers
  2. The price of the commodity itself Correct answer.
  3. The price of a substitute good
  4. Consumer income

Explanation

A change in the good's own price changes the quantity demanded and is shown as a movement along the same demand curve. Changes in income, tastes, or prices of related goods shift the whole curve. This distinction between movement along and shift of the curve is fundamental.

Question 23Consumer Behaviour and Demand

The demand curve for a normal good slopes downward to the right mainly because of:

  1. Government price controls
  2. Fixed supply in the short run
  3. Increasing costs of production
  4. The law of diminishing marginal utility and the income effect Correct answer.

Explanation

As price falls, the consumer buys more because each rupee now buys more satisfaction at the margin and because real income rises. These substitution and income effects, grounded in diminishing marginal utility, explain the inverse price-quantity relationship. Supply-side factors do not explain the slope of demand.

Question 24Consumer Behaviour and Demand

A consumer's total utility from 4 units is 40 utils and from 3 units is 33 utils. The marginal utility of the fourth unit is:

  1. 7 utils Correct answer.
  2. 10 utils
  3. 73 utils
  4. 40 utils

Explanation

Marginal utility is the addition to total utility from one more unit, computed as the change in total utility divided by the change in quantity. Here 40 minus 33 gives 7 utils. Dividing by the one-unit change leaves the answer unchanged.

Question 25Consumer Behaviour and Demand

A consumer spends her income on goods X and Y. She is in equilibrium when:

  1. Px = Py
  2. MUx = MUy regardless of prices
  3. MUx/Px = MUy/Py Correct answer.
  4. MUx × Px = MUy × Py

Explanation

The equi-marginal principle states that a consumer maximises satisfaction when the marginal utility of the last rupee spent on each good is equal. That is, MUx divided by Px equals MUy divided by Py. If the ratios differ, reallocating spending towards the higher ratio raises total utility.

Question 26Consumer Behaviour and Demand

The price of good X is 4 and its marginal utility is 20 utils. The price of good Y is 2. For equilibrium, the marginal utility of Y must be:

  1. 40 utils
  2. 5 utils
  3. 20 utils
  4. 10 utils Correct answer.

Explanation

Equilibrium requires MUx/Px = MUy/Py. Here 20/4 equals 5 utils per rupee, so MUy must equal 5 multiplied by 2, which is 10 utils. Equalising utility per rupee, not absolute utility, is what guides the consumer.

Question 27Consumer Behaviour and Demand

Which pair of goods is most likely to be substitutes?

  1. Pen and ink
  2. Bread and butter
  3. Tea and coffee Correct answer.
  4. Car and petrol

Explanation

Substitutes are goods that satisfy the same want, so a rise in the price of one increases demand for the other. Tea and coffee are alternative beverages and show a positive cross-price elasticity. The other pairs are complements used together.

Question 28Consumer Behaviour and Demand

The cross-price elasticity of demand between two goods is negative. This indicates that the goods are:

  1. Inferior goods
  2. Substitutes
  3. Complements Correct answer.
  4. Unrelated

Explanation

A negative cross-price elasticity means that when the price of one good rises, the demand for the other falls, which happens when the goods are used together. Complements such as cars and petrol show this pattern. Substitutes instead show a positive cross-price elasticity.

Question 29Consumer Behaviour and Demand

A consumer's income rises and, other things equal, her demand for a commodity falls. The commodity is:

  1. A luxury good
  2. A complementary good
  3. A normal good
  4. An inferior good Correct answer.

Explanation

An inferior good has a negative income elasticity: as income rises, consumers switch towards better alternatives and demand for it falls. Normal and luxury goods both show rising demand with income, luxury goods more than proportionately. Complementarity describes a price relationship, not an income relationship.

Question 30Consumer Behaviour and Demand

Price elasticity of demand is measured as:

  1. Change in total expenditure divided by change in price
  2. Change in quantity divided by change in price
  3. Percentage change in price divided by percentage change in quantity
  4. Percentage change in quantity demanded divided by percentage change in price Correct answer.

Explanation

Elasticity compares proportionate changes, so it is the percentage change in quantity demanded divided by the percentage change in price. Using percentages makes the measure independent of the units in which price and quantity are expressed. The ratio of absolute changes would depend on units and is not elasticity.

Question 31Consumer Behaviour and Demand

If a 10 per cent fall in the price of a good raises quantity demanded by 25 per cent, the price elasticity of demand is:

  1. 2.5 Correct answer.
  2. 0.4
  3. 15
  4. 25

Explanation

Elasticity equals the percentage change in quantity demanded divided by the percentage change in price. Twenty-five divided by ten gives 2.5, and the value is taken as positive for this purpose. Since it exceeds one, demand is elastic.

Question 32Consumer Behaviour and Demand

Demand for a good is perfectly inelastic. Its demand curve is:

  1. Upward sloping
  2. Downward sloping at 45 degrees
  3. Horizontal
  4. Vertical Correct answer.

Explanation

Perfectly inelastic demand means quantity demanded does not change at all when price changes, so elasticity is zero. On a price-quantity diagram the same quantity is bought at every price, giving a vertical line. A horizontal curve instead represents perfectly elastic demand.

Question 33Consumer Behaviour and Demand

A shopkeeper lowers the price of a good and finds that total revenue from it falls. Demand for the good in this range is:

  1. Unitary elastic
  2. Perfectly elastic
  3. Elastic
  4. Inelastic Correct answer.

Explanation

When demand is inelastic, a price cut increases quantity sold less than proportionately, so total revenue falls. Revenue moves in the same direction as price under inelastic demand. Under elastic demand a price cut would raise revenue instead.

Question 34Consumer Behaviour and Demand

Which factor generally makes demand for a commodity more elastic?

  1. The good absorbs a very small share of income
  2. Consumers need the good immediately
  3. The good has many close substitutes Correct answer.
  4. The good is a necessity with no alternatives

Explanation

The availability of close substitutes is the most important determinant of elasticity, because consumers can easily switch when the price rises. Necessities, goods with a tiny budget share, and urgent needs tend to have inelastic demand. Hence many substitutes make demand more elastic.

Question 35Consumer Behaviour and Demand

A consumer's indifference curve shows all combinations of two goods that:

  1. Lie on the same budget line
  2. Give the consumer equal total satisfaction Correct answer.
  3. Cost the same amount of money
  4. Contain equal quantities of both goods

Explanation

An indifference curve is the locus of commodity bundles among which the consumer is indifferent because each yields the same level of satisfaction. It is not a budget concept, and its points generally have different prices and different quantities. The slope of the curve measures the marginal rate of substitution.

Question 36Consumer Behaviour and Demand

Indifference curves are convex to the origin because of:

  1. Fixed consumer income
  2. Diminishing marginal rate of substitution Correct answer.
  3. Constant marginal utility of money
  4. Increasing marginal rate of substitution

Explanation

As the consumer gives up more of one good for the other, the willingness to sacrifice further units falls because the good becoming scarce is valued more at the margin. This diminishing marginal rate of substitution makes the curve convex to the origin. Increasing substitution rates would make it concave.

Question 37Consumer Behaviour and Demand

At the point where a consumer's budget line is tangent to an indifference curve:

  1. The indifference curve cuts the budget line twice
  2. The consumer spends all income on one good
  3. The marginal rate of substitution is zero
  4. The marginal rate of substitution equals the price ratio of the two goods Correct answer.

Explanation

Tangency means the slope of the indifference curve, the marginal rate of substitution, equals the slope of the budget line, the price ratio. This is the same condition as equality of marginal utility per rupee across goods. It identifies the highest attainable indifference curve given income and prices.

Question 38Consumer Behaviour and Demand

A consumer's budget line shifts outward parallel to itself when:

  1. Both prices fall in the same proportion
  2. The consumer's tastes change
  3. Money income rises while prices stay constant Correct answer.
  4. The price of one good falls

Explanation

The intercepts of the budget line equal income divided by each price, so a rise in money income with unchanged prices raises both intercepts equally. The result is a parallel outward shift. A change in a single price rotates the line instead of shifting it parallel.

Question 39Consumer Behaviour and Demand

A Giffen good is one for which:

  1. Demand equals supply at every price
  2. Demand falls when income rises but rises when price rises is impossible
  3. Demand rises when its price rises Correct answer.
  4. Demand is perfectly elastic at all prices

Explanation

A Giffen good is a strongly inferior good that absorbs a large share of a poor consumer's budget, so the negative income effect of a price rise outweighs the substitution effect. As a result, quantity demanded moves in the same direction as price, giving an upward-sloping demand curve. This is an exception to the law of demand.

Question 40Consumer Behaviour and Demand

The income effect of a fall in the price of a normal good refers to:

  1. The rise in real income that lets the consumer buy more of the good Correct answer.
  2. The fall in quantity demanded caused by a rise in price
  3. The substitution of a cheaper good for a dearer one
  4. The shift of the demand curve caused by a change in tastes

Explanation

When the price of a good falls, the consumer's purchasing power over the existing basket increases, which is a rise in real income. For a normal good this raises quantity demanded and is called the income effect. The substitution effect is the separate tendency to replace the now dearer alternative.

Question 41Producer Behaviour and Supply

In the short run, which factor of production is typically fixed for a firm?

  1. Raw materials
  2. Casual labour
  3. Plant and machinery Correct answer.
  4. Electricity used in production

Explanation

The short run is defined as a period in which at least one factor of production cannot be varied. Capital equipment such as plant and machinery is normally treated as the fixed factor, while materials, casual labour and power are variable inputs that can be adjusted with output.

Question 42Producer Behaviour and Supply

The law of variable proportions is studied with reference to which time period?

  1. The very long run
  2. Both the short run and the long run equally
  3. The short run Correct answer.
  4. The long run

Explanation

The law of variable proportions examines how output responds when one factor is increased while other factors stay fixed. Since fixed factors exist only in the short run, this law applies to short-run production. In the long run all factors are variable, so the relevant analysis is returns to scale instead.

Question 43Producer Behaviour and Supply

Total product is at its maximum when marginal product is:

  1. Zero Correct answer.
  2. Positive and rising
  3. Equal to average product
  4. At its maximum

Explanation

Total product rises as long as marginal product is positive and stops rising when marginal product becomes zero. The point where MP equals zero therefore marks the maximum of total product. Beyond that point MP is negative and total product falls.

Question 44Producer Behaviour and Supply

Average product of labour is calculated as:

  1. Total revenue divided by units of labour
  2. Total product multiplied by units of labour
  3. Change in total product divided by change in labour
  4. Total product divided by units of labour Correct answer.

Explanation

Average product measures output per unit of the variable input. It is obtained by dividing total product by the number of units of labour employed. The change in total product divided by the change in labour gives marginal product instead.

Question 45Producer Behaviour and Supply

Marginal product of the fourth worker is 12 units and that of the fifth worker is 9 units. What happens to total product when the fifth worker is hired?

  1. It falls by 3 units
  2. It rises by 9 units Correct answer.
  3. It remains unchanged
  4. It rises by 12 units

Explanation

Marginal product of a worker is the addition to total product contributed by that worker. Since the fifth worker adds 9 units, total product increases by 9 units. The fall from 12 to 9 shows diminishing marginal product, but total product still rises because MP remains positive.

Question 46Producer Behaviour and Supply

When marginal product is greater than average product, average product must be:

  1. Rising Correct answer.
  2. Falling
  3. Equal to zero
  4. Constant

Explanation

Average product is pulled in the direction of the marginal value. If the marginal addition exceeds the existing average, the average must rise. Average product falls only when marginal product lies below it.

Question 47Producer Behaviour and Supply

The stage of negative marginal product corresponds to which range of the total product curve?

  1. Where total product is falling Correct answer.
  2. Where total product is at its maximum
  3. Where total product is rising at an increasing rate
  4. Where total product is rising at a diminishing rate

Explanation

Negative marginal product means an extra unit of the variable input actually reduces total output. This happens only after total product has peaked, so the total product curve slopes downward. The other ranges all involve positive marginal product.

Question 48Producer Behaviour and Supply

A firm's total fixed cost is ₹200 and total variable cost at 10 units of output is ₹300. What is the total cost of producing 10 units?

  1. ₹50
  2. ₹300
  3. ₹500 Correct answer.
  4. ₹200

Explanation

Total cost is the sum of total fixed cost and total variable cost at a given output level. Adding ₹200 and ₹300 gives ₹500. Fixed cost is incurred even at zero output, so it must be included.

Question 49Producer Behaviour and Supply

The vertical distance between the total cost curve and the total variable cost curve equals:

  1. Total revenue
  2. Total fixed cost Correct answer.
  3. Marginal cost
  4. Average total cost

Explanation

Total cost equals total variable cost plus total fixed cost at every level of output. The gap between the two curves is therefore the constant total fixed cost. Because fixed cost does not change with output, this vertical distance stays the same throughout.

Question 50Producer Behaviour and Supply

Average fixed cost continuously falls as output increases because:

  1. A constant total fixed cost is spread over more units Correct answer.
  2. Marginal cost is falling
  3. Variable inputs are used more efficiently
  4. Fixed factors become more productive

Explanation

Total fixed cost is constant in the short run while output expands. Dividing the same fixed amount by a larger number of units gives a progressively smaller average fixed cost. This is often called spreading the overhead.