introduction to micro economics section 1 MCQ Questions & Answers Detailed Explanation

Answer: (d)

The price of a good is also known as the Average Revenue of the firm. Average Revenue (AR) or Price and Marginal Revenue (MR) are identical.

When the former is constant, the latter is also constant. Moreover, the Average Revenue curve of a firm is the same as the individual demand curve.

Hence, the competitive demand curve is a horizontal straight line parallel to the OX axis.

Answer: (a)

In economics, the cross elasticity of demand or cross-price elasticity of demand measures the responsiveness of the demand for a good to a change in the price of another good.

It is measured as the percentage change in demand for the first good that occurs in response to a percentage change in the price of the second good.

For example, if, in response to a 10% increase in the price of fuel, the demand for new cars that are fuel inefficient decreased by 20%, the cross elasticity of demand would be -2.

A negative cross elasticity denotes two products that are complements, while a positive cross elasticity denotes two substitute products.

Answer: (d)

The Production function expresses a functional relationship amidst quantities of raw materials and goods.

It is the name given to the relationship between rates of input of productive services and the rate of output of product.

Answer: (a)

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.

Answer: (a)

The Theory of Economic Problem states that scarcity exists in the sense that only finite and insufficient resources are available to satisfy the needs and desires of all human beings.

The fundamental economic problem is how to allocate scarce resources to the provision of various goods and services within the economy.

The question then becomes how to determine what is to be produced, and how the factors of production (such as capital and labour) are to be allocated.

Answer: (a)

In economics, the demand curve is the graph depicting the relationship between the price of a certain commodity and the amount of it that consumers are willing and able to purchase at that given price. A change in the price of the commodity leads to a movement along the demand curve without shifting it.

In simple words, the increase or decrease in the price of a commodity only causes contraction or extension of demand (increase causes contraction while decrease cause extension).

An increase or decrease in demand only occurs only when there is a change in other determinants of demand, other than the price of the commodity.

So when the price of the commodity changes, the demand curve does not shift; however, when any other determinant of demand changes, the demand curve shifts either rightward or leftward.