introduction to macro economics section 5 MCQ Questions & Answers Detailed Explanation

Answer: (a)

Deflation sets in when aggregate supply exceeds aggregate demand. Recession sets in.

This will lead to a buildup in stocks (inventories) and this sends a signal to producers either to cut prices (to stimulate an increase in demand) or to reduce output so as to reduce the buildup of excess stocks.

Either way - there is a tendency for output to move closer to the current level of demand.

Answer: (a)

The Innovation Theory of Profit was proposed by Joseph. A. Schumpeter, who believed that an entrepreneur can earn economic profits by introducing successful innovations.

In other words, the innovation theory of profit posits that the main function of an entrepreneur is to introduce innovations and the profit in the form of reward is given for his performance.

Answer: (a)

Total product (TP) is the total output a production unit can produce, using different combinations of factors of production.

When marginal product =0 (at point D in the figure), the total product is at its maximum (as seen at point C in the figure given below). Then en as the marginal product becomes negative, the total product starts going down.

Answer: (c)

Market segmentation is a marketing strategy that refers to the aggregating of prospective buyers into groups, or segments, having similar needs, wants, or demand characteristics.

Its objective is to design a marketing mix that precisely matches the expectations of customers in the targeted segment.