introduction to micro economics section 2 MCQ Questions & Answers Detailed Explanation

Answer: (d)

The theory of Economic problems states that there is scarcity, or that the finite resources available are insufficient to satisfy all human wants and needs.

The problem 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: (d)

There are two extreme forms of market structure: monopoly and, its opposite, perfect competition.

Perfect competition is characterized by many buyers and sellers, many products that are similar in nature and, as a result, many substitutes.

A monopoly is a market structure in which there is only one producer/ seller for a product.

Answer: (a)

Engel’s law is an observation in economics stating that as income rises, the proportion of income spent on food falls, even if actual expenditure on food rises.

In other words, the income elasticity of demand for food is between 0 and 1.

Engel’s Law doesn’t imply that food spending remains unchanged as income increases: It suggests that consumers increase their expenditures for food products (in % terms) less than their increases in income.

Answer: (a)

Any straight-line supply curve passing through the origin has an elasticity of supply equal to 1. The different types of price elasticity of supply are listed below:

Answer: (a)

The fundamental condition of perfect competition is that there must be a large number of sellers or firms. Homogeneous Commodity is the second fundamental condition of a perfect market.

The products of all firms in the industry are homogeneous and identical. In other words, they are perfect substitutes for one another.

Answer: (c)

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.