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

Answer: (c)

In economics, factors of production are the inputs to the production process. Factors of production’ may also refer specifically to the ‘primary factors’, which are stocks including land, labour (the ability to work), and capital goods applied to production. Many economists today consider “human capital” (skills and education) as the fourth factor of production, with entrepreneurship as a form of human capital.

In markets, entrepreneurs combine the other factors of production, land, labour, and capital, in order to make a profit. Often these entrepreneurs are seen as innovators, developing new ways to produce and new products. In a planned economy, central planners decide how land, labour, and capital should be used to provide maximum benefit for all citizens.

Answer: (b)

Negative income elasticity of demand is associated with inferior goods. The Giffen good is an unusual type of inferior good which has a positive price elasticity of demand.

It is a good which people paradoxically consume more of as the price rises, violating the law of demand.

When the price goes up, the quantity demanded also goes up.

Answer: (b)

As per the law of diminishing marginal utility, the utility of each successive unit goes on diminishing as more and more units of a commodity are consumed.

A rational consumer will consume the commodity up to a point where the marginal utility of the final unit of the commodity is equal to the marginal utility of money (in terms of price) paid for it. In this way, the consumer will get maximum satisfaction and will be in equilibrium.

Answer: (b)

Production involves the transformation of inputs into outputs. The output is a function of the input. The functional relationship between physical inputs and the physical output of a firm is called the production function. The word ‘function’ in mathematics means the precise relationship that exists between one dependent variable and a number (or one) of independent variables.

The production function states the maximum quantity of output that can be produced from any given quantity of various inputs during a given period of time.

Answer: (c)

J.S. Mill developed the wages-fund theory. This theory of wage was an attempt to show that in certain circumstances wages could rise above subsistence level.

According to this theory, a fund of capital has to be accumulated in advance before wages could be paid. This fund of capital is called wages-fund out of which wages are paid to labourers.

Answer: (a)

The opportunity cost of a choice is the value of the best alternative forgone, in a situation in which a choice needs to be made between several mutually exclusive alternatives given limited resources.

It is equivalent to what a factor could earn for the firm in alternative uses.