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

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: (d)

The Law of demand states that the quantity demanded and the price of a commodity are inversely related, other things remaining constant.

That is, if the income of the consumer, prices of the related goods, and preferences of the consumer remain unchanged, then the change in the quantity of goods demanded by the consumer will be negatively correlated to the change in the price of the good.

When there is excess demand for the commodity the price starts rising and it continues to rise till equilibrium price is reached.

Answer: (b)

Normative economics (as opposed to positive economics) is that part of economics that expresses value judgments (normative judgments) about economic fairness or what the economy ought to be like or what goals of public policy ought to be.

It is the study or presentation of “what ought to be” rather than what actually is. Normative economics deals heavily with value judgments and theoretical scenarios.

An example of a normative economic statement would be, “We should cut taxes in half to increase disposable income levels”. By contrast, a positive (or objective) economic observation would be, “Big tax cuts would help many people, but government budget constraints make that option infeasible.”

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.