CA Foundation Business Economics Important Question

Gear up for the CA Foundation Business Economics exam in January 2025 with our carefully curated list of important practice questions for each chapter. From Microeconomics principles like demand and supply to Macroeconomics topics such as national income, our comprehensive question bank ensures you develop a strong conceptual foundation and exam readiness. Focus on high-yield areas, tackle challenging concepts, and reinforce your knowledge to excel in the Business Economics paper. Start practicing now to build your confidence, enhance problem-solving skills, and secure success in your upcoming CA Foundation exam

Table of Content

1. 1. Nature & Scope of Business Economics
   2. Theory of Demand and Supply
   3. Theory of Production and Cost
   4. Price Determination in Diffrent Markets
   5. Buisness Cycles
   6. Determination of National Income 
   7. Public Finance 
   8. Money Market
   9. International Trade 
   10. Indian Economy

CA Foundation Jan 25 Important Question Other Subjects Blogs :

1. Important Question Jan 25 Paper 1 : Accounting
2. Important Question Jan 25 Paper 2 : Business Laws 
3. Important Question Jan 25 Paper 3 : Quantitative Aptitude 
4. CA Foundation Syllabus (New Updates)

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Chapter 1: Nature & Scope of Business Economics

Question 1.

A free market economy solve its central problems through

1. Planning authority.
2. Market mechanism.
3. Both (a) and (b)
4. None of these.

Answer: b. Market mechanism.

Description: Under capitalist economy( free market economy), there is no central authority to solve the central problems of economy, hence it uses the impersonal forces of demand and supply or the price mechanism( market mechanism) to solve its central problems.

Question 2.

Normative Economics is based on

1. Ethical consideration.
2. Value judgements
3. What is or what should be.
4. All of these.

Answer: d. All of These

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Question 3. 

The benefit of economic study is–

1. It ensures that all problems will be appropriately tackled 
2. It helps in identifying problems 
3. It enable to examine a problem in its right perspective
4. It gives exact solutions to every problem 

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Question 4. 

Ethics is:

1. Positive economics
2. Normative economics
3. Both positive and normative economics
4. None of the above

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Question 5. 

Positive economics remains strictly neutral towards ends. This means that--

1. Positive economics study the facts as they are
2. Positive economics is prescriptive in nature
3. Positive economics is based on ethical, philosophical and religious beliefs.
4. Both (A) and (B)

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Chapter 2: Theory of Demand and Supply

Question 1.

As income increases, the consumer will go in for superior goods and consequently the demand for inferior goods will fall. This means inferior goods have

1. Income elasticity of demand, less than one.
2. Negative income elasticity of demand
3. Zero income elasticity of demand
4. Unitary income elasticity of demand

Answer: b. Negative income elasticity of demand

Description: Goods having negative income elasticity are known as inferior Goods, and their demand falls as income increases.

Question 2. 

Assertion (A): In the short run, a producer operates in only II stage of Law of Diminishing Returns Where average product of variable factor is declining. 

Reason (R): In stage I and stage III the marginal product of the fixed and the variable factors respectively are negative.  

1. (A) is true and (R) is false
2. Both (A) and (R) are true & (R) is the correct explanation of (A) 
3. Both (A) and (R) are true & (R) is not the correct explanation of (A) 
4. (A) is false and (R) is true 

Answer: b. Both (A) and (R) are true & (R) is the correct explanation of (A) 

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Question 3.

Conspicuous goods are also known as

1. Prestige goods
2. Snob goods
3. Veblen goods
4. All of the above

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Question 4. 

Calculate Income-elasticity for the household when the income of a household rises by 5% and the demand for bajra falls by 2%.

1. 2.5
2. -2.5
3. -0.4
4. 0.4

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Question 5. 

Suppose that a price of ₹ 300 per month, there are 30,000 subscribers to cable television in a small town. If small town cable television raises its price to ₹ 400 per month, the No. of subscribers will fall to ₹ 20,000. Using arc elasticity method for calculating elasticity, what is the price of elasticity of demand for cable TV in small Town.

1. 1.4
2. 0.66
3. 0.75
4. 2

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Chapter 3: Theory of Production and Cost

Question 1. 

The marginal product of a variable input is best described as______________

1. Total product divided by the number of units of variable input
2. The additional output resulting from a one unit increase in the variable input
3. The additional output resulting from a one unit increase in both the variable and fixed inputs
4. The ratio of the amount of the variable input that is being used to the amount of the fixed input that is being used

Answer: b. The additional output resulting from a one unit increase in the variable input

Description: Marginal product is the change in total product per unit change in the quantity of a variable factor. In other words, it is the addition made to the total production by an additional unit of input of variable factor.

Question 2.

The point at which marginal cost equate average cost shows

1. The maximum profit
2. The equilibrium point of the consumer
3. The plant capacity
4. The minimum price of the product

Answer: c. The plant capacity

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Question 3. 

A firm has a variable cost of ₹ 1000 at 5 units of output. If fixed costs are ₹400, what will be the average total cost at 5 units of output?

1. ₹ 280
2. ₹ 60
3. ₹ 120
4. ₹ 1400

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Question 4.

The total cost of 4th unit is- suppose that total Fixed Cost is ₹ 120

Output	1	2	3	4	5
Average total cost	240	160	140	160	180

1. 320
2. 420
3. 640
4. 900

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Question 5. 

Find Average Fixed cost when the output is 2:

Units	0	1	2
Total cost	580	1200	1500

1. 235
2. 290
3. 310
4. 920

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Chapter 4: Price Determination in Different Markets

Question 1.

Price-taking firms, i.e. firms that operate in the perfectly competitive market, are said to be small relative to the market. Which of the following best describes this smallness?

1. The individual firm must have fewer than 10 employees
2. The individual firm faces a downward-sloping demand curve
3. The individual firm has assets of less than ₹ 20 lakh
4. The individual firm is unable to affect market price through its output decisions

Answer: d. The individual firm is unable to affect market price through its output decisions

Description: There are large number of buyers and sellers who compete among themselves, and their number is so large that no buyer or seller is in a position to influence the demand or supply in the market. Also, there is perfect knowledge on the part of buyers and sellers, of the quantities of stock of goods in the market, market conditions and the prices at which transactions of purchase and sale are being entered into.

Question 2. 

Assume that when price is ₹ 20, the quantity demanded is 15 units, and when price is ₹ 18, the quantity demanded is 16 units. Based on this information, what is the marginal revenue resulting from an increase in output from 15 units to 16 units?

1.  ₹ 18
2. ₹ 16
3. ₹ -12
4. ₹ 28

Answer: c. ₹ -12

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Question 3. 

Suppose that the demand curve for the XYZ Co. slopes downward and to the right. We can conclude that

1. The firm operates in a perfectly competitive market
2. The firm can sell all that it wants to at the established market price
3. The XYZ Co. is not a price taker in the market because it must lower price to sell additional units of output
4. The XYZ Co. will not be able to maximize profits because price and revenue are subject to change

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Question 4. 

Quantity Sold 5 units 6 units TR (₹) 300 330 respectively The AR and MR for 6 units would be

1. 55 and 30 respectively
2. 30 and 55 respectively
3. 60 and 30 respectively
4. 30 and 60 respectively

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Question 5. 

If a producer sells 4 units of a goods at ₹10 per unit and 5 units at ₹ 8 per unit, marginal revenue would be-

1. 0
2. 1
3. 2
4. 3

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Chapter 5: Business Cycles

Question 1. 

If the growth rate of population is higher than the rate of economic growth, there will be _____ in the economy.

1. more savings 
2. no effect on savings
3. lesser savings
4. none of these

Answer: b. no effect on savings

Description: During contraction, there is fall in the levels of investment and employment. Producers do not instantaneously recognise the pulse of the economy and continue anticipating higher levels of demand, and therefore, maintain their existing levels of investment and production. The consequence is a discrepancy or mismatch between demand and supply. Supply far exceeds demand. Initially, this happens only in few sectors and at a slow pace, but rapidly spreads to all sectors. Producers, being aware of the fact that they have indulged in excessive investment and over production, respond by holding back future investment

Question 2. 

Which of the following best describes a typical business cycle?

1. Economic expansions are followed by economic contractions
2. Inflation is followed by rising income and unemployment
3. Economic expansions are followed by economic growth and development
4. Stagflation is followed by inflationary economic growth.

Answer: a. Economic expansions are followed by economic contractions

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Question 3.

Inflation occurs whenever: 

1. aggregate demand rises
2. the price of any given commodity rises
3. the average price of most goods and services rises
4. the tax rate is lower than the government spending rate

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Question 4. 

GDP is a

1. A leading indicator
2. A coincident indicator
3. A lagging indicator
4. A cycle indicator

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Question 5. 

The end of expansion is termed as -

1. Peak 
2. Contraction 
3. Through
4. None of the above 

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Chapter 6: Determination of National Income

Question 1. 

Suppose in a country investment increases by ₹100 crores and consumption is given by C= 10 +0.6Y. How much increase will there take place in income?

1. 250
2. 200
3. 150
4. None of these

Answer: c. 150

Description: 

Given that consumption is C=10+0.6YC = 10 + 0.6YC=10+0.6Y, and investment increases by ₹100 crores, the new equation becomes:

Y=(10+0.6Y)+100

Now, solve for Y:

Y=10+0.6Y+100

Y−0.6Y=110 

0.4Y=110 

Y=110/0.4 = 275

275−0=275 crores

Question 2. 

Which of the following is an example of transfer payment?

1. Old age pensions and family pensions
2. Scholarships given to deserving diligent students
3. Compensation given for loss of property due to floods
4. All the above

Answer: d. All of the above 

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Question 3.

If the market demand curve for a commodity has a negative slope, then the market structure must be:

1. Perfect competition
2. Monopoly
3. Imperfect competition
4. The market structure cannot be determined as the information is insufficient

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Question 4. 

Which of the following is a limitation of using GDP as a measure of economic well-being?

1. It includes only monetary transactions.
2. It does not account for income distribution.
3. It considers both market and non-market activities.
4. It is not affected by inflation. 

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Question 5. 

In a closed economy, aggregate demand is the sum of 

1. consumer expenditure, demand for exports and government spending.
2. consumer expenditure, planned investment spending and government spending
3. consumer expenditure, actual investment spending, government spending and net exports. 
4. consumer expenditure, planned investment spending, government spending, and net exports.

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Chapter 7: Public Finance 

Question 1. 

While if governments compete with the private sector to borrow money for securing resources for expansionary fiscal policy

1.  it is likely that interest rates will go up and firms may not be willing to invest 
2. it is likely that interest rates will go up and the individuals too may be reluctant to borrow and spend
3. it is likely that interest rates will go up and the desired increase in aggregate demand may not be realized
4. All the above are possible

Answer: b. it is likely that interest rates will go up and the individuals too may be reluctant to borrow and spend

Description: 

1. "The market-generated allocation of resources is usually imperfect and leads to inefficient allocation of resources in the economy" is generally correct. Markets may experience imperfections and inefficiencies, leading to market failures.

2. "Market failures can at all times be corrected through government intervention" is not always correct. While government intervention can address some market failures, it may not be feasible or effective in all situations.

3. "Public goods will not be produced in sufficient quantities in a market economy" is generally correct. Public goods, characterized by non-excludability and non-rivalry, may be underprovided in a pure market economy because individuals have little incentive to pay for goods that they cannot be excluded from using.

Question 2. 

Which of the following is true in respect of the role of Finance Commissions in India?

1. The distribution between the union and the states of the net proceeds of taxes 
2. Allocation between the states of the respective shares of such proceeds. 
3. Make Recommendations on integrated GST on inter-state movement of goods and services
4. To recommend expenditure decentralization among different states

1. I and II are correct
2. II and III are correct
3. I, II and III are correct
4. All the above are correct

Answer: a. I and II are correct

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Question 3.

During recession the fiscal policy of the government should be directed towards

1. Increasing the taxes and reducing the aggregate demand
2. Decreasing taxes to ensure higher disposable income
3. Increasing government expenditure and increasing taxes
4. None of the above 

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Question 4. 

Smoking in public is a case of 

1. Negative consumption externality
2. Negative production externality
3. Internalising externality
4. Negative consumption externality

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Question 5. 

Government borrowings from foreign governments and institutions are

1. Capital receipt
2. Revenue receipt 
3. Accounts for fiscal deficit
4. Any of the above depending on the purpose of borrowing  

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Chapter 8: Money Market

Question 1.

According to Baumol and Tobin’s approach to demand for money, the optimal average money holding is:

1. a positive function of income Y and the price level P
2. a positive function of transactions costs c,
3. a negative function of the nominal interest rate i
4. All the above

Answer: d. All of the above

Description: This means that the optimal average money holding is considered a positive function of income (Y) and the price level (P), a positive function of transaction costs (c), and a negative function of the nominal interest rate (i).

Question 2. 

The Monetary Policy Framework Agreement is on

1. the maximum repo rate that RBI can charge from government
2. the maximum tolerable inflation rate that RBI should target to achieve price 
3. the maximum repo rate that RBI can charge from the commercial banks
4. the maximum reverse repo rate that RBI can charge from the commercial banks

Answer: b. the maximum reverse repo rate that RBI can charge from the commercial banks

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Question 3.

Which of the following is included in M2, a broader measure of money supply compared to M1? 

1. Currency in circulation
2. Savings deposits
3. Demand deposits
4. Travellers’ checks 

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Question 4. 

Under the’ minimum reserve system’ the central bank is

1. empowered to issue currency to any extent by keeping an equivalent reserve of gold and foreign securities.
2. empowered to issue currency to any extent by keeping only a certain minimumreserve of gold and foreign securities
3. empowered to issue currency in proportion to the reserve money by keeping only a minimum reserve of gold and foreign securities
4. empowered to issue currency to any extent by keeping a reserve of gold and foreign securities to the extent of ` 350 crores

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Question 5. 

RBI provides financial accommodation to the commercial banks through repos/reverse repos under

1. Market Stabilisation Scheme (MSS)
2. The Marginal Standing Facility (MSF)
3. Liquidity Adjustment Facility (LAF).
4. Statutory Liquidity Ratio (SLR)

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Chapter 9: International Trade

Question 1. 

Given the number of labour hours to produce cloth and grain in two countries, which country should produce grain?

Labour cost (hours) for production of one unit

	Country A	Country B
Cloth	40	80
Grain	80	40

 

1. Country A 
2. Country B 
3. Neither A nor B
4. Both A and B 

Answer: b. Country B

Description: 

To determine which country should produce grain, we should compare the opportunity costs of producing grain in each country. The opportunity cost is the value of the next best alternative forgone.

Opportunity Cost (Grain) = Labor hours to produce Grain / Labor hours to produce Cloth

Let's calculate the opportunity costs for each country:

For Country A: Opportunity Cost (Grain A) = 80 / 40 = 2

For Country B: Opportunity Cost (Grain B) = 40 / 80 = 0.5

Now, compare the opportunity costs:

Country A has an opportunity cost of 2 for producing one unit of Grain.
Country B has an opportunity cost of 0.5 for producing one unit of Grain.
Since Country B has a lower opportunity cost for producing Grain, Country B should specialize in producing Grain

Question 2. 

Countervailing duty shall not be levied unless it is determined that: 

1. The subsidy relates to export performance. 
2. The subsidy relates to the use of domestic goods over imported goods in the export article 
3. The subsidy has been conferred on a limited number of persons engaged in the manufacture, production or export of articles. 
4. All of the above 

Answer: d. All of the above 

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Question 3.

Comparative advantage refers to

1. a country’s ability to produce some good or service at the lowest possible cost compared to other countries
2. a country’s ability to produce some good or service at a lower opportunity cost than other countries.
3. Choosing a productive method which uses minimum of the abundant factor
4. (a) and (b) above 

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Question 4. 

Given the number of labour hours to produce cloth and grain in two countries, which country should produce grain?

Labour cost (hours) for production of one unit

	Country A	Country B
Cloth	40	80
Grain	80	40

1. Country A
2. Country B
3. Neither A nor B
4. Both A and B

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Question 5. 

The essence of ‘MFN principle’ is

1. equality of treatment of all member countries of WTO in respect of matters related to trade 
2. favour one, country, you need to favour all in the same manner
3. every WTO member will treat all its trading partners equally without any prejudice and discrimination
4. all the above

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Chapter 10. Indian Economy

Question 1.

The industrial sector depends on the agricultural sector because:

1. the agricultural sector provides food and other products for the consumption purposes of industrial sector  
2. the agricultural sector provides raw materials for the development of agro-based industries of the economy 
3. the agricultural sector provides market for the industrial products
4. All of the above 

Answer: d. All of the above 

Description: 

The industrial sector depends on the agricultural sector for multiple reasons:

(a) The agricultural sector provides food and other products for the consumption purposes of the industrial sector. Workers in the industrial sector need food and other agricultural products to sustain themselves, which are provided by the agricultural sector.

(b) The agricultural sector provides raw materials for the development of agro-based industries of the economy. As mentioned earlier, agro-based industries rely on agricultural raw materials for manufacturing processes.

(c) The agricultural sector provides a market for the industrial products. Farmers and workers in the agricultural sector purchase various industrial products such as machinery, equipment, fertilizers, pesticides, and more, which supports the industrial sector.

Question 2.

FAME-India Scheme aims to 

1. Enhance faster industrialization through private participation
2. to promote manufacturing of electric and hybrid vehicle technology
3. to spread India’s fame among its trading partners
4. None of the above

Answer: b. to promote manufacturing of electric and hybrid vehicle technology

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Question 3.

The objective of introducing Monopolies and Restrictive Trade Practices Act 1969 was - 

1. to ensure that the operation of the economic system does not result in the concentration of economic power in hands of a few
2. to provide for the control of monopolies
3. to prohibit monopolistic and restrictive trade practice
4. all the above

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Question 4. 

Macro-Prudential Policy Measures can help to overcome: 

1. Systemic Risk 
2.  Credit Risk 
3.  Inflation risk 
4.  None of these 

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Question 5. 

Which organization is accountable for calculating the Gross Domestic Product of India?

1. Indian Statistical Institute
2. Reserve Bank of India
3. National Statistical Office 
4. Ministry of Commerce and Industry

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