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

Answer: (c)

A subsidy is essentially a payment by the government to suppliers/producers that reduce their costs of production and encourages them to increase output.

Examples include a guaranteed payment on the factor cost of a product –

e.g. a guaranteed minimum price offered to farmers; an input subsidy that subsidizes the cost of inputs used in production, etc. However, subsidies can be given to consuming units as well. Either way, it benefits the end-user or consumer.

Answer: (d)

In economics, diminishing returns (also called diminishing marginal returns) is the decrease in the marginal (per-unit) output of a production process as the amount of a single factor of production is increased, while the amounts of all other factors of production stay constant.

This law plays a central role in production theory.

Answer: (d)

In economics and cost accounting, 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.”

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: (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: (b)

Schumpeter’s (1934) original theory of innovative profits emphasized the role of entrepreneurship (his term was entrepreneurial profits) and the seeking out of opportunities for novel value-generating activities which would expand (and transform) the circular flow of income.

It did so with reference to a distinction between invention or discovery on the one hand and innovation, commercialization and entrepreneurship on the other.

This separation of invention and innovation marked out the typical nineteenth-century institutional model of innovation, in which independent inventors typically fed discoveries as potential inputs to entrepreneurial firms.