introduction to micro economics section 4 MCQ Questions & Answers Detailed Explanation

Answer: (a)

In economics, the law of demand is an economic law, which states that consumers buy more of a good when its price is lower and less when its price is higher (ceteris paribus).

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 number of goods demanded by the consumer will be negatively correlated to the change in the price of the good.

Answer: (c)

Like the law of demand, the law of supply demonstrates the quantities that will be sold at a certain price. But unlike the law of demand, the supply relationship shows an upward slope.

This means that the higher the price, the higher the quantity supplied. Producers supply more at a higher price because selling a higher quantity at a higher price increases revenue.

Answer: (c)

The term "exploitation" is used to denote the payment to labour of a wage less than its marginal revenue product. Under monopolistic competition, all factors are exploited in this sense.

All firms hire labour until the marginal revenue product equals the marginal factor cost.

Answer: (d)

Economists divide the factors of production into four categories: land, labour, capital, and entrepreneurship. An entrepreneur is a person who combines the other factors of production – land, labour, and capital – to earn a profit.

His profit is in the form of Net Profit which is achieved by deducting other elements (such as planning the production, producing the commodities on the basis of demand, looking after efficient distribution) from the gross profit.

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.

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.