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

Answer: (b)

Capitalism generally refers to an economic system in which the means of production are largely or entirely privately owned and operated for a profit, structured on the process of capital accumulation.

In general, investments, distribution, income, and pricing are determined by markets. In capitalism, prices are decided by the demand-supply scale.

For example, higher demand for certain goods and services lead to higher prices and lower demand for certain goods lead to lower prices.

Answer: (b)

The stages of Law of Variable Proportion are:

Stage 1: Increasing return;

Stage 2: Diminishing return; and

Stage 3: Negative Return.

In the third stage, the Marginal Product of the variable factor is zero. In this stage, the Total Product starts diminishing.

Answer: (c)

There are 4 factors of production;

1. land,
2. labour,
3. capital and
4. entrepreneurship.

The demand for the factors of production is a derived demand. That means these factors of production are demanded because there is a demand for the end product they produce.

Answer: (c)

In economics, ‘Utility,’ refers to the total satisfaction received from consuming a good or service.

It is usually applied by economists in such constructs as the indifference curve, which plots the combination of commodities that an individual or a society would accept to maintain a given level of satisfaction.

Answer: (d)

Internal rates of return are commonly used to evaluate the desirability of investments or projects. The higher a project's internal rate of return, the more desirable it is to undertake the project.

A firm (or individual), in theory, undertakes all projects or investments available with IRRs that exceed the cost of capital.

As the number of investments increases, its internal rate of return is greater than an established minimum acceptable rate of return or cost of capital.

Answer: (b)

Price elasticity of demand (PED or Ed) is a measure used in economics to show the responsiveness, or elasticity, of the quantity, demanded of a good or service to a change in its price.

The formula for the coefficient of price elasticity of demand for a good is: $e_(R) = {{DQ}/Q}/{{dP}/P}$,

where $e_(R)$ = Elasticity of demand;

dQ/ Q= % change in demand and

dP/P= % change in price.