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

Answer: (a)

Purchasing power parity (PPP) is an economic theory and a technique used to determine the relative value of currencies, estimating the amount of adjustment needed on the exchange rate between countries in order for the exchange to be equivalent to (or on par with) each currency’s purchasing power. It asks how much money would be needed to purchase the same goods and services in two countries, and uses that to calculate an implicit foreign exchange rate. Using that PPP rate, an amount of money thus has the same purchasing power in different countries.

Answer: (c)

In economics, a monopsony (mono: single) is a market form in which only one buyer faces many sellers. It is an example of imperfect competition, similar to a monopoly, in which only one seller faces many buyers.

As the only purchaser of a good or service, the monopsonist may dictate terms to its suppliers in the same manner that a monopolist controls the market for its buyers.

It is also known as Single buyer Right. A single-payer universal health care system, in which the government is the only “buyer” of health care services, is an example of a monopsony. Another possible monopsony could develop in the exchange between the food industry and farmers.

Answer: (d)

The internal rate of return on an investment or project is the "annualized effective compounded return rate" or discount rate that makes the net present value of all cash flows (both positive and negative) from a particular investment equal to zero.

In more specific terms, the IRR of an investment is the interest rate at which the net present value of costs (negative cash flows) of the investment equals the net present value of the benefits (positive cash flows) of the investment.

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: (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: (c)

Inelastic demand means that if the price changes, the quantity demanded will not change much.

The more necessary a good is, the lower the elasticity, as people will attempt to buy it no matter the price. Necessities such as water are likely to have perfectly inelastic demand.