introduction to micro economics section 6 MCQ Questions & Answers Detailed Explanation

Answer: (c)

Monopoly power implies the amount of discretion that a monopolist possesses to fix up the prices of his products and the degree of control over his output decisions.

According to J.S. Bains, the degree of monopoly power can be measured by the monopoly firm's super-normal profit.

Answer: (a)

Rent refers to that part of the payment by a tenant which is made only for the use of land, i.e., free gift of nature. The payment made by an agriculturist tenant to the landlord is not necessarily equaled to the economic rent.

A part of this payment may consist of interest on capital invested in the land by the landlord in the form of buildings, fences, tube wells, etc. The term ’economic rent’ refers to that part of the payment which is made for the use of land only, and the total payment made by a tenant to the landlord is called ‘contract rent’.

Economic rent is also called surplus because it emerges without any effort on the part of a landlord.

Answer: (d)

The Ramsey rule states that commodities with low elasticities of demand should be taxed at higher rates than commodities with high elasticities of demand.

However, low-income people might spend a higher proportion of their incomes on commodities with low elasticities of demand (food, clothing, and so on) than might high-income people.

Consequently, following the Ramsey rule may result in a regressive taxation scheme society may view as inequitable.

Answer: (b)

Demand for complementary goods is called Joint Demand. Joint Demand is the demand in which goods are related in such a way that an increase in the demand for one causes an increase in the demand for the other.

Answer: (a)

The term real wages refers to wages that have been adjusted for inflation. This term is used in contrast to nominal wages or unadjusted wages.

Real wages provide a clearer representation of an individual’s wages. The real purchasing power of income or money is the key determinant of the real wage. It is an indication of an individual’s actual purchasing power.

Real wages are a useful economic measure, as opposed to nominal wages, which simply show the monetary value of wages in that year. However, real wages do not take into account other compensation like benefits or old-age pensions.

Answer: (a)

A real wage rate is a nominal wage rate divided by the price of a good and is a transparent measure of how much of the good an hour of work buys. It provides an important indicator of the living standards of workers, and also of the productivity of workers.

While differences in earnings or incomes may be misleading indicators of worker welfare, real wage rates are comparable across time and location.

Nominal wages are not sufficient to tell us if workers gain since, even if wages rise, the price of one of the goods also rises when moving to free trade. The real wage represents the purchasing power of wages— that is, the quantity of goods the wages will purchase.