introduction to micro economics section 4 MCQ Questions & Answers Detailed Explanation
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The following question based on Introduction to Micro Economics topic of indian economy mcq
(a) autonomous demand
(b) composite demand
(c) joint demand
(d) derived demand
The correct answers to the above question in:
Answer: (d)
Derived demand is a term in economics, where demand for one good or service occurs as a result of the demand for another intermediate/final good or service. This may occur as the former is a part of the production of the second.
For example, demand for coal leads to derived demand for mining, as coal must be mined for coal to be consumed.
As the demand for coal increases, so does its price.
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Read more introduction to micro economics Based Indian Economy Questions and Answers
Question : 1
Which of the following statements is correct ?
a) Economic rent is the amount one must pay to enter a desirable labour market.
b) Most workers will work for less than their reservation wage.
c) The reservation wage is the maximum amount any firm will pay for a worker.
d) Economic rent is the difference between the market wage and the reservation wage.
Answer »Answer: (d)
The difference between the actual market wage and the reservation wage is called economic rent.
Therefore, the lower a person’s reservation wage compared to the actual wage, the more rent they receive. While labour supply decisions determine the reservation wage, the employment decisions of firms establish the value of the real wage at which any person becomes unemployed (The Goals of Macroeconomic Policy by Martin Prachowny, p. 58).
Question : 2
When percentage change in demand for a commodity is less than percentage change in its price, then demand is said to be
a) Perfectly inelastic
b) Highly elastic
c) Inelastic
d) Relatively elastic
Answer »Answer: (c)
When the percentage change in quantity demanded is less than the percentage change in price, then the demand for the commodity is said to be inelastic.
Price elasticity of demand refers to the degree of responsiveness of quantity demanded to change in price.
Question : 3
A market in which there are a few number of large firms is called as
a) Monopoly
b) Duopoly
c) Competition
d) Oligopoly
Answer »Answer: (d)
Duopoly means a market in which two producers of the same good are predominantly powerful. In some theories, the term is used specifically to denote the existence of only two suppliers of a good.
Competition refers to a condition in a market in which firms are attempting to increase their profits at the expense of their rivals.
Oligopoly refers to a market that is dominated by a few firms producing differentiated products.
Monopoly refers to a market in which there is only one supplier and no other firms are able to enter. According to the Fair Trading Act, 1973, a Monopoly is defined as any firm (or group of firms acting together) that accounts for 25 per cent or more of the market output of a good or service.
Question : 4
Diamonds are priced higher than water because :
a) consumers do not buy them at lower prices.
b) they are sold by selected firms with monopolistic powers.
c) their marginal utility to buyers is higher than that of water.
d) their total utility to buyers is higher than that of water.
Answer »Answer: (c)
The water diamond paradox or puzzle was a mystery of Adam Smith who observed that the price of diamonds was much higher than that of water even though water seemed to offer far more utility than diamonds.
The resolution of this puzzle or paradox is based on the distinction between marginal utility and total utility. The marginal utility of diamonds is very high and so consumers are willing to pay higher prices for diamonds, than for water.
Question : 5
Tooth paste is a product sold under :
a) Duopoly
b) Monopolistic Competition
c) Perfect Competition
d) Monopoly
Answer »Answer: (b)
Monopolistic competition is a type of imperfect competition such that many producers sell products that are differentiated from one another as goods but not perfect substitutes (such as from branding, quality, or location).
In monopolistic competition, a firm takes the prices charged by its rivals as given and ignores the impact of its own prices on the prices of other firms.
There are six characteristics of monopolistic competition (MC):
- Product differentiation;
- many firms;
- Free entry and exit in the long run;
- Independent decision making;
- market power; and
- Buyers and Sellers do not have perfect information.
Toothpaste, toilet papers, computer software and operating systems are examples of differentiated products.
Question : 6
Elasticity of demand measures the responsiveness of the quantity demanded of a goods to a
a) change in the price of joint products
b) change in the price of the goods
c) change in the price of substitutes
d) change in the price of the complements
Answer »Answer: (b)
Price elasticity of demand is a measure of the responsiveness of the quantity of a good or service demanded to changes in its price.
This measure of elasticity is sometimes referred to as the own-price elasticity of demand for a good, i.e., the elasticity of demand with respect to the good's own price, in order to distinguish it from the elasticity of demand for that good with respect to the change in the price of some other good, i.e., a complementary or substitute good.
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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