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

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: (c)

An oligopoly is a market form in which a market or industry is dominated by a small number of sellers (oligopolists). Because there are few sellers, each oligopolist is likely to be aware of the actions of the others. The decisions of one firm influence, and are influenced by, the decisions of other firms.

Some of its characteristics are:

1. Profit maximization conditions;
2. Number of firms;
3. Product differentiation;
4. Interdependence;
5. Non-Price Competition, etc.

The distinctive feature of an oligopoly is interdependence.

Oligopolies are typically composed of a few large firms. Each firm is so large that its actions affect market conditions. Therefore the competing firms will be aware of a firm’s market actions and will respond appropriately.

This means that in contemplating a market action, a firm must take into consideration the possible reactions of all competing firms and the firm’s countermoves.

Answer: (c)

Final goods are goods that are ultimately consumed rather than used in the production of another good. For example, a car sold to a consumer is a final good; the components such as tires sold to the car manufacturer are not; they are intermediate goods used to make the final good.

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.