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

Answer: (a)

According to Engel's Law, as the disposable income of a consumer increases, the percentage of income spent on food decreases if all other factors remain constant.

This happens even when the actual expenditure on food rises. The income elasticity of demand for food is less than 1. A lower Engel coefficient indicates a higher standard of living.

Answer: (c)

The four basic laws of supply and demand are:

1. If demand increases and supply remains unchanged, a shortage occurs, leading to a higher price;
2. If demand decreases and supply remains unchanged, a surplus occurs, leading to a lower price;
3. If demand remains unchanged and supply increases, a surplus occurs, leading to a lower price; and
4. If demand remains unchanged and supply decreases, a shortage occurs, leading to a higher price.

Answer: (b)

Supply curve, in economics, is a graphic representation of the relationship between product price and quantity of product that a seller is willing and able to supply. Product price is measured on the vertical axis of the graph and quantity of product supplied on the horizontal axis.

In most cases, when there are increasing returns, the supply curve is drawn as a slope rising upward from left to right, since product price and quantity supplied are directly related (i.e., as the price of commodity increases in the market, the amount supplied increases).

Answer: (c)

Economic rent in the sense of surplus over transfer earnings arises when the supply of the factor units is less than perfectly elastic or not perfectly elastic.

When the supply of factor units is perfectly elastic, there is no surplus or economic rent and the actual earnings and transfer earnings are equal.

In such a scenario, at a given price or remuneration, the entrepreneur can engage any number of factor units.

Answer: (d)

In economics, fixed costs are business expenses that are not dependent on the level of goods or services produced by the business. They tend to be time-related, such as salaries or rents being paid per month and are often referred to as overhead costs.

For some employees, salary is paid on monthly rates, independent of how many hours the employees work. This is a fixed cost. On the other hand, the hours of hourly employees paid in wages can often be varied, so this type of labour cost is a variable cost.

Answer: (d)

Division of labour is a process whereby the production process is broken down into a sequence of stages and workers are assigned to particular stages.

As it is the power of exchanging that gives occasion to the division of labour, so the extent of this division must always be limited by the extent of that power, or, in other words, by the extent of the market. When the market is very small, no person can have any encouragement to dedicate himself entirely to one employment.