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

Answer: (c)

Selling cost is total cost of marketing, advertising, and selling a product. It differs from the production cost which is incurred to produce goods.

Answer: (d)

The term ‘supply of labour’ refers to the number of hours of a given type of labour that will be offered for hire at different wage rates. Usually, it is found that the higher the wage rates larger is the supply indicating a direct relationship that exists between the wage rate i.e. the price of labour and labour hours supplied.

The supply of labour is very much affected by the work leisure ratio which in turn is affected by the changes in wage rates.

The supply of labour in an economy depends on various economic and non-economic factors such as:

1. population,
2. sex composition,
3. age composition of the population,
4. willingness to work,
5. wage rates,
6. migration and immigration,
7. working hours,
8. social attitude and standard,
9. legal barriers,
10. education and training,
11. employer’s attitude,
12. labour supply and leisure,
13. the efficiency of workers, etc.

In economics, the marginal product of labour (MPL) is the change in output that results from employing an added unit of labour. It has nothing to do with the supply of labour.

Answer: (c)

There are six characteristics of monopolistic competition (MC):

1. Product differentiation;
2. many firms;
3. Free entry and exit in the long run;
4. Independent decision making;
5. market power; and
6. Buyers and Sellers do not have perfect information.

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: (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: (b)

A consumer is in a state of equilibrium when he achieves maximum aggregate satisfaction on the expenditure that he makes depending on the set of conditions relating to his tastes and preferences, income, price and supply of the commodity etc.

Producers’ equilibrium occurs when he maximizes his net profit subject to a given set of economic situations. A firm’s equilibrium point is when it has no inclination in changing its production.

In the short run Marginal revenue = Marginal Cost is the condition of equilibrium.