Practice Quiz set 4 - indian economy mcq Online Quiz (set-1) For All Competitive Exams

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.

Under perfect competition, the control over price is completely eliminated because all firms produce homogeneous commodities. This condition ensures that the same price prevails in the market for the same commodity.

Monopolistic competition is a type of imperfect competition such that many producers sell products that are differentiated from one another as goods but not perfect substitutes (such as from branding, quality, or location).

In monopolistic competition, a firm takes the prices charged by its rivals as given and ignores the impact of its own prices on the prices of other firms.

There are six characteristics of monopolistic competition (MC):

1. Product differentiation;
2. many firms;
3. Free entry and exit in the long run;
4. Independent decision making;
5. market power; and
6. Buyers and Sellers do not have perfect information.

Toothpaste, toilet papers, computer software and operating systems are examples of differentiated products.

Duopoly means a market in which two producers of the same good are predominantly powerful. In some theories, the term is used specifically to denote the existence of only two suppliers of a good.

Competition refers to a condition in a market in which firms are attempting to increase their profits at the expense of their rivals.

Oligopoly refers to a market that is dominated by a few firms producing differentiated products.

Monopoly refers to a market in which there is only one supplier and no other firms are able to enter. According to the Fair Trading Act, 1973, a Monopoly is defined as any firm (or group of firms acting together) that accounts for 25 per cent or more of the market output of a good or service.

Unlike a perfectly competitive firm, a monopolistically competitive firm ends up choosing a level of output that is below its minimum efficient scale. When the firm produces below its minimum efficient scale, it is under-utilizing its available resources.

In this situation, the firm is said to have excess capacity because it can easily accommodate an increase in production. This excess capacity is the major social cost of a monopolistically competitive market structure.

Consumer surplus is the difference between the price consumers would be prepared to pay and the actual market price.

The fundamental condition of perfect competition is that there must be a large number of sellers or firms. Homogeneous Commodity is the second fundamental condition of a perfect market.

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.

The demand for labour is “derived” from the production and demand for the product being demanded.

If the demand for the product increases, either the price will increase or the demand for production labour will increase until the equilibrium price and production numbers are met. Labour is “derived” from the market demand for the product.