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

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: (c)

The demand of commodity mainly stems from the consumption capacity of the buyer. Demand is equal to desire plus ability to pay plus will to spend. Demand for a commodity depends upon a number of factors called Determinants.

The demand function can be symbolically expressed as:

QdN = f (PN, PR, I, T, E, O)

Where QdN = Quantity demanded the commodity;

PN = Price of the commodity;

PR = Price of the related commodity;

I = Income of consumers;

T = Taste & Preferences of the consumers;

E = Expectations about the future prices; and O= other factors.

Answer: (d)

Monopoly refers to a market in which there is only one supplier and no other firms are able to enter.

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)

The Marginal Propensity to Consume (MPC) is measured as the ratio of the change in consumption to the change in income, thus giving us a figure between 0 and 1.

The MPC can be more than one if the subject borrowed money to finance expenditures higher than their income. One minus the MPC equals the marginal propensity to save.

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.