Practice Introduction to micro economics - indian economy mcq Online Quiz (set-1) For All Competitive Exams

Monopoly refers to a market in which there is only one supplier and no other firms are able to enter.

Dynamic Theory of Profit is associated with the name of an American Economist J. B. Clark. In the world of reality, according to J. B. Clark profit arises only in a dynamic economy.

For certain goods called necessities, demand is not related to income. Demand for salt does not increase with the increase in income & does not decrease with the decrease in income.

It means that it is irrespective of income. The demand curve slopes downward for goods like salt, but it is inelastic.

It was Adam Smith who conceptualized Economics as a science of wealth. Elaborating upon the scope and fundamental conceptualizations of the new science, he then called political economy as "an inquiry into the nature and causes of the wealth of nations.”

The kinked demand curve theory is an economic theory regarding oligopoly and monopolistic competition. Kinked demand was an initial attempt to explain sticky prices.

In economics, income elasticity of demand measures the responsiveness of the demand for a good to a change in the income of the people demanding the good, ceteris paribus.

It is calculated as the ratio of the percentage change in demand to the percentage change in income.

For example, if, in response to a 10% increase in income, the demand for a good increased by 20%, the income elasticity of demand would be ${20%}/{10%} = 2$.

Positive income elasticity of demand is associated with normal goods; an increase in income will lead to a rise in demand.

If the income elasticity of demand of a commodity is less than 1, it is a necessity good. If the elasticity of demand is greater than 1, it is a luxury good or a superior good.

Expenditure on the advertisement and public relations by an enterprise is a part of its intermediate consumption. These are treated as intermediate goods and services which form part of the cost of producing other goods.

Intermediate consumption consists of the total monetary value of goods and services consumed or used up as inputs in production by enterprises, including raw materials, services and various other operating expenses.

Schumpeter’s (1934) original theory of innovative profits emphasized the role of entrepreneurship (his term was entrepreneurial profits) and the seeking out of opportunities for novel value-generating activities which would expand (and transform) the circular flow of income.

It did so with reference to a distinction between invention or discovery on the one hand and innovation, commercialization and entrepreneurship on the other.

This separation of invention and innovation marked out the typical nineteenth-century institutional model of innovation, in which independent inventors typically fed discoveries as potential inputs to entrepreneurial firms.

Division of labour is a process whereby the production process is broken down into a sequence of stages and workers are assigned to particular stages.

As it is the power of exchanging that gives occasion to the division of labour, so the extent of this division must always be limited by the extent of that power, or, in other words, by the extent of the market. When the market is very small, no person can have any encouragement to dedicate himself entirely to one employment.

The demand of commodity mainly stems from the consumption capacity of the buyer. Demand is equal to desire plus ability to pay plus will to spend. Demand for a commodity depends upon a number of factors called Determinants.

The demand function can be symbolically expressed as:

QdN = f (PN, PR, I, T, E, O)

Where QdN = Quantity demanded the commodity;

PN = Price of the commodity;

PR = Price of the related commodity;

I = Income of consumers;

T = Taste & Preferences of the consumers;

E = Expectations about the future prices; and O= other factors.

All goods which are meant either

1. for consumption by consumers or
2. for investment by firms are called final goods.

They are finished goods, meant for final use. These are neither resold nor do they enter into further stages of production. For example, Cars, television sets, cloth, food, machinery, equipment etc. are final goods.

Production function explains the relationship between factor input and output under given technology. It explains as to for increasing the output, in which proportion various inputs or factors may be employed under given technological conditions.

In short, production function may be defined as a technological relationship that tells the maximum output producible from various combinations of inputs. Production function explains the physical relationship between input and output under given technology.

A shift in the demand curve is caused by a factor affecting demand other than a change in price. If any of these factors change then the amount consumers wish to purchase changes whatever the price.

The shift in the demand curve is referred to as an increase or decrease in demand. A movement along the demand curve occurs when there is a change in price. This may occur because of a change in supply conditions.

The factors affecting the demand are assumed to be held constant. A change in price leads to a movement along the demand curve and is referred to as a change in quantity demanded.

The term ‘supply of labour’ refers to the number of hours of a given type of labour that will be offered for hire at different wage rates. Usually, it is found that the higher the wage rates larger is the supply indicating a direct relationship that exists between the wage rate i.e. the price of labour and labour hours supplied.

The supply of labour is very much affected by the work leisure ratio which in turn is affected by the changes in wage rates.

The supply of labour in an economy depends on various economic and non-economic factors such as:

1. population,
2. sex composition,
3. age composition of the population,
4. willingness to work,
5. wage rates,
6. migration and immigration,
7. working hours,
8. social attitude and standard,
9. legal barriers,
10. education and training,
11. employer’s attitude,
12. labour supply and leisure,
13. the efficiency of workers, etc.

In economics, the marginal product of labour (MPL) is the change in output that results from employing an added unit of labour. It has nothing to do with the supply of labour.

Elasticity (e) expressed by the formula 1 > e > 0 is relatively inelastic. Elasticity is responsiveness of one variable to a change in another, when other conditions are held constant.

Selling cost is total cost of marketing, advertising, and selling a product. It differs from the production cost which is incurred to produce goods.

In economics, the law of demand is an economic law, which states that consumers buy more of a good when its price is lower and less when its price is higher.

The Law of demand states that the quantity demanded and the price of a commodity are inversely related, other things remaining constant.

That is, if the income of the consumer, prices of the related goods, and preferences of the consumer remain unchanged, then the change in the number of goods demanded by the consumer will be negatively correlated to the change in the price of the good.

Factors of Production is an economic term to describe the inputs that are used in the production of goods or services in the attempt to make an economic profit.

Resources required for the generation of goods or services, generally classified into four major groups:

1. Land (including all natural resources),
2. Labor (including all human resources),
3. Capital (including all man-made resources), and
4. Enterprise (which brings all the previous resources together for production).

Under perfect competition, the firms operate at the minimum point of the long-run average cost curve.

In this way, the actual long-run output of the firm under monopolistic competition falls short of what is produced under perfect competition which can be considered the socially ideal output. This gives the measure of excess capacity which lies unutilized under imperfect competition.

Full cost pricing is a practice where the price of a product is calculated by a firm on the basis of its direct costs per unit of output plus a markup to cover overhead costs and profits.

Having worked out what average total cost would be if the level of output expected for the next period of time were actually achieved, firms add to this a 'satisfactory' profit margin.

This is known as 'full cost' pricing. The price is equal to 'full' cost, including an acceptable profit.