Practice Introduction to micro economics - indian economy mcq Online Quiz (set-2) For All Competitive Exams

In macroeconomic theory, liquidity preference refers to the demand for money, considered as liquidity. The concept was first developed by John Maynard Keynes in his book The General Theory of Employment, Interest and Money (1936) to explain the determination of the interest rate by the supply and demand for money. The demand for money as an asset was theorized to depend on the interest foregone by not holding bonds.

Interest rates, he argues, cannot be a reward for saving as such because, if a person hoards his savings in cash, keeping it under his mattress say, he will receive no interest, although he has nevertheless refrained from consuming all his current income. Instead of a reward for saving, interest in the Keynesian analysis is a reward for parting with liquidity.

Quasi-rent is a term in economics that describes certain types of returns to firms. It differs from pure economic rent in that it is a temporary phenomenon. It can arise from the barriers to entry that potential competitors face in the short run, such as the granting of patents or other legal protections for intellectual property by governments.

The exchange value of every commodity can be expressed in terms of money. This possibility has enabled money to become a medium for expressing values when the growing elaboration of the scale of values which resulted from the development of exchange necessitated a revision of the technique of valuation.

When the value is expressed in terms of money, it is called price. Thus, the price can be defined as the exchange value of a commodity expressed in terms of money.

The basic causal relationship between the price level and the value of money is that as the price level goes up, the value of money goes down.

The "value of money" refers to what a unit of money can buy whereas the "price level" refers to the average of all of the prices of goods and services in a given economy.

Some economists have classified factors into two categories, land and labour (or nature and man) on the ground that they are the only original or primary factors.

It is said that capital has no independent origin and is merely the outcome of combined efforts of land and labour.

However, other economists include all man-made instruments for production in the category of Capital. It includes machines, tools, factories, buildings, canals, roads, raw materials, etc, which play a vital role in production.

Factors of Production:

1. Land -.All free gifts of nature, i.e., soil, forests, mountains, seas. etc.
2. Labour - Human, a physical or mental effort done for income or material benefit
3. Capital - All man-made means of production like machines, tools, buildings, roads, raw materials, etc
4. Entrepreneur - Human resource that helps to organize production, i.e., takes the risk and combines land, labour and capital to produce.

Monopoly power implies the amount of discretion that a monopolist possesses to fix up the prices of his products and the degree of control over his output decisions.

According to J.S. Bains, the degree of monopoly power can be measured by the monopoly firm's super-normal profit.

An oligopoly is a market form in which a market or industry is dominated by a small number of sellers (oligopolists). Because there are few sellers, each oligopolist is likely to be aware of the actions of the others. The decisions of one firm influence, and are influenced by, the decisions of other firms.

Businesses that are part of an oligopoly share some common characteristics: they are less concentrated than in a monopoly but more concentrated than in a competitive system.

This creates a high amount of interdependence which encourages competition in non-pricerelated areas, like advertising and packaging. Tobacco companies, soft drink companies, and airlines are examples of an imperfect oligopoly.

The supply curve shows the relationship between the price of a good and the quantity supplied, holding constant the values of all other variables that affect supply.

Each point on the curve shows the quantity that sellers would choose to sell at a specific price.

The production of two or more goods simultaneously from the same imputs is called Joint Supply. Wool and Mutton are an example for joint supply.

Division of Labor is the “specialization” of cooperative labour in specific, circumscribed tasks and like roles.

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

The Marginal Propensity to Consume (MPC) is measured as the ratio of the change in consumption to the change in income, thus giving us a figure between 0 and 1.

The MPC can be more than one if the subject borrowed money to finance expenditures higher than their income. One minus the MPC equals the marginal propensity to save.

The Total Fixed Cost Curve is a curve that graphically represents the relation between the total fixed cost incurred by a firm in the short-run product of a good or service and the quantity produced.

This curve is constructed to capture the relation between total fixed cost and the level of output, holding other variables, like technology and resource prices, constant.

Because total fixed costs are in fact, fixed, the total fixed cost curve is, in fact, a horizontal line.

‘Labour’ refers to the people required to carry out a process in a business. Labour-intensive processes are those that require a relatively high level of labour compared to capital investment. These processes are more likely to be used to produce individual or personalised products or to produce on a small scale.

The costs of labour are:

1. wages and other benefits,
2. recruitment,
3. training and so on.

Labour-intensive processes are more likely to be seen in Job production and in smaller-scale enterprises.

Capital goods are goods that are used in producing other goods, rather than being bought by consumers.

They are tangible assets such as buildings, machinery, equipment, vehicles and tools that an organization uses to produce goods or services in order to produce consumer goods and goods for other businesses.

Because the monopolist is the market's only supplier, the demand curve the monopolist faces is the market demand curve.

The market demand curve is downward sloping, reflecting the law of demand.

The fact that the monopolist faces a downward-sloping demand curve implies that the price a monopolist can expect to receive for its output will not remain constant as the monopolist increases its output.

When the marginal revenue productivity of a factor is equal to the marginal- cost (MR=MC) of the factor, the firm will be in equilibrium and its profits maximized.

Equilibrium in perfect competition is the point where market demands will be equal to market supply.

The condition that price equals both average revenue and marginal revenue (P = AR = MR) is the standard condition for a perfectly competitive firm.

‘ Demand ’ in Economics refers to the quantity of a good or service consumers ate able and willing to buy at a given price in a given market during a specified time period , other things beings equal.

The four basic laws of supply and demand are:

1. If demand increases and supply remains unchanged, a shortage occurs, leading to a higher price;
2. If demand decreases and supply remains unchanged, a surplus occurs, leading to a lower price;
3. If demand remains unchanged and supply increases, a surplus occurs, leading to a lower price; and
4. If demand remains unchanged and supply decreases, a shortage occurs, leading to a higher price.

Break-even is the point of balance between making either a profit or a loss. In economics & business, specifically cost accounting, the break-even point (BEP) is the point at which cost or expenses and revenue are equal: there is no net loss or gain, and one has “broken even”.

A profit or a loss has not been made, although opportunity costs have been “paid”, and capital has received the risk-adjusted, expected return.

Opportunity cost is the cost of any activity measured in terms of the value of the next best alternative forgone (that is not chosen).

It is the sacrifice related to the second-best choice available to someone, or group, who has picked among several mutually exclusive choices. When economists refer to the “opportunity cost” of a resource, they mean the value of the next-highest-valued alternative use of that resource.

If, for example, we spend time and money going to a movie, we cannot spend that time at home reading a book, and we cannot spend the money on something else.

If our next-best alternative to seeing the movie is reading the book, then the opportunity cost of seeing the movie is the money spent plus the pleasure we forgo by not reading the book.