introduction to micro economics section 5 MCQ Questions & Answers Detailed Explanation

Answer: (c)

Negative income elasticity of demand is associated with inferior goods; an increase in income will lead to a fall in the demand and may lead to changes to more luxurious substitutes.

Positive income elasticity of demand is associated with normal goods; an increase in income will lead to a rise in demand.

Answer: (c)

The basic causal relationship between the price level and the value of money is that as the price level goes up, the value of money goes down.

The "value of money" refers to what a unit of money can buy whereas the "price level" refers to the average of all of the prices of goods and services in a given economy.

Answer: (c)

In treatments of monopolistic competition, Edward Chamberlin and Joan Robinson are usually credited with simultaneously and independently developing the theory of monopolistic or imperfect competition.

Chamberlin published his book ‘The Theory of Monopolistic Competition’ in 1933, the same year that Joan Robinson published her book on the same topic: ‘The Economics of Imperfect Competition,’ so these two economists can be regarded as the parents of the modern study of imperfect competition.

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.