introduction to micro economics section 2 MCQ Questions & Answers Detailed Explanation
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The following question based on Introduction to Micro Economics topic of indian economy mcq
(a) Opportunity cost (economic cost)
(b) Variable cost
(c) Implicit cost
(d) Explicit cost
The correct answers to the above question in:
Answer: (a)
Opportunity cost is the cost of any activity measured in terms of the value of the next best alternative forgone (that is not chosen).
It is the sacrifice related to the second-best choice available to someone, or group, who has picked among several mutually exclusive choices. When economists refer to the “opportunity cost” of a resource, they mean the value of the next-highest-valued alternative use of that resource.
If, for example, we spend time and money going to a movie, we cannot spend that time at home reading a book, and we cannot spend the money on something else.
If our next-best alternative to seeing the movie is reading the book, then the opportunity cost of seeing the movie is the money spent plus the pleasure we forgo by not reading the book.
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Read more introduction to micro economics Based Indian Economy Questions and Answers
Question : 1
The demand curve for a Giffen good is
a) parallel to the price axis
b) upward rising
c) downward falling
d) parallel to the quantity axis
Answer »Answer: (b)
A Giffen good is a good whose consumption increases as its price increases. (For a normal good, as the price increases, consumption decreases.) Thus, the demand curve will be upward instead of downward sloping.
A Giffen good has an upward-sloping demand curve because it is exceptionally inferior. It has a strong negative income elasticity of demand such that when a price changes the income effect outweighs the substitution effect and this leads to a perverse demand curve.
Question : 2
In a free enterprise economy, resource allocation is determined by
a) the traditional employment of factors
b) the pattern of consumers’ spending
c) the wealth of the entrepreneurs
d) decision of the Government
Answer »Answer: (b)
In a free-market economy, resources are allocated through the interaction of free and self-directed market forces.
This means that what to produce is determined by consumers’ capacity to spend. How to produce is determined by producers, and who gets the products depends upon the purchasing power of consumers.
Question : 3
The law of demand states that
a) if the price of a good increases, the quantity demanded of that good increases.
b) if the price of a good increases, the demand for that good decreases.
c) if the price of a good increases, the the demand for that good increases.
d) if the price of a good increases, the quantity demanded of that good decreases.
Answer »Answer: (d)
The law of demand states that other things remaining the same, the quantity demanded of a commodity is inversely related to its price.
Thus, according to the law of demand, there is an inverse relationship between price and quantity demanded, other things remaining the same.
Question : 4
An expenditure that has been made and cannot be recovered is called
a) Operational cost
b) Variable cost
c) Opportunity cost
d) Sunk cost
Answer »Answer: (d)
In economics and business decision-making, sunk costs are retrospective (past) costs that have already been incurred and cannot be recovered.
Sunk costs are sometimes contrasted with prospective costs, which are future costs that may be incurred or changed if an action is taken. The sunk cost is distinct from economic loss. Sunk costs may cause cost overrun.
Question : 5
If the price of Pepsi decreases relative to the price of Coke and 7-Up, the demand for
a) Coke and 7-Up will decrease
b) Coke will decrease
c) 7-Up will decrease
d) Coke and 7-Up will increase
Answer »Answer: (a)
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.
A decrease in the price of a good normally results in an increase in the quantity demanded by consumers because of the law of demand, and conversely, quantity demanded decreases when the price rises.
So, here the decrease in the price of Pepsi will increase in demand for it, while the demand for Coke and 7-Up will decrease because of no change in their price level.
Question : 6
Bilateral monopoly situation is
a) when there are two buyers and two sellers of a product
b) when there are only two sellers of a product
c) when there are only two buyers of a product
d) when there is only one buyer and one seller of a product
Answer »Answer: (d)
A bilateral monopoly is a market consisting of a single seller (monopolist) and a single buyer (monopsonist).
For example, if a single firm produced all the copper in a country and if only one firm used this metal, the copper market would be a bilateral monopoly market.
The equilibrium in such a market cannot be determined by the traditional tools of demand and supply.
GET Introduction to Micro Economics PRACTICE TEST EXERCISES
introduction to micro economics section 1
introduction to micro economics section 2
introduction to micro economics section 3
introduction to micro economics section 4
introduction to micro economics section 5
introduction to micro economics section 6
introduction to micro economics section 7
introduction to micro economics section 8
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