introduction to micro economics section 6 MCQ Questions & Answers Detailed Explanation
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The following question based on Introduction to Micro Economics topic of indian economy mcq
(a) Exchange rate
(b) Interest rate
(c) Bank rate
(d) Wage rate
The correct answers to the above question in:
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.
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Read more introduction to micro economics Based Indian Economy Questions and Answers
Question : 1
When there is one buyer and many sellers then that situation is called
a) Double buyers right
b) Monopoly
c) Single buyer right
d) Down right
Answer »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.
Question : 2
The internal rate of return
a) is equal to the market interest rate for all the firm’s investment.
b) must be less than the interest rate if the firm is to invest.
c) makes the present value of profits equal to the present value of costs.
d) falls as the annual yield of an investment rises.
Answer »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.
Question : 3
In the long-run equilibrium, a competitive firm earns
a) No profit
b) Super-normal profit
c) Profits equal to other firms
d) Normal profit
Answer »Answer: (d)
Making the assumption that the market demand curve remains unchanged, higher market supply will reduce the equilibrium market price until the price = long-run average cost.
At this point, each firm is making normal profits only. There is no further incentive for the movement of firms in and out of the industry and a long-run equilibrium has been established.
Question : 4
If the main objective of the government is to raise revenue, it should tax commodities with
a) high income elasticity of demand
b) high elasticity of demand
c) low elasticity of supply
d) low elasticity of demand
Answer »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.
Question : 5
Economic rent refers to
a) Payment made for the use of land
b) Payment made for the use of labour
c) Payment made for the use of capital
d) Payment made for the use of organisation
Answer »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.
Question : 6
The degree of monopoly power is to be measured in terms of the firm’s
a) selling price
b) normal profit
c) supernormal profit
d) both normal and supernormal profit
Answer »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.
GET Introduction to Micro Economics PRACTICE TEST EXERCISES
introduction to micro economics section 1
introduction to micro economics section 2
introduction to micro economics section 3
introduction to micro economics section 4
introduction to micro economics section 5
introduction to micro economics section 6
introduction to micro economics section 7
introduction to micro economics section 8
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