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

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)

According to the Law of demand, consumers buy more of a good when its price is lower and less when its price is higher.

It states that the quantity demanded and the prices of a commodity are inversely related, other things remaining constant.

Answer: (a)

Elasticity (e) expressed by the formula 1 > e > 0 is relatively inelastic. Elasticity is responsiveness of one variable to a change in another, when other conditions are held constant.

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: (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)

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.