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

Answer: (c)

Marginal utility of a good or service is the gain (or loss) from an increase (or decrease) in the consumption of that good or service.

As the rate of commodity acquisition increases, marginal utility decreases. If commodity consumption continues to rise, marginal utility at some point falls to zero, reaching maximum total utility.

Further increase in consumption of units of commodities causes the marginal utility to become negative; this signifies dissatisfaction.

Answer: (d)

It was Adam Smith who conceptualized Economics as a science of wealth. Elaborating upon the scope and fundamental conceptualizations of the new science, he then called political economy as "an inquiry into the nature and causes of the wealth of nations.”

Answer: (d)

Marginal utility measures the extra utility (or satisfaction) from consuming an additional unit of a product. Total utility is the total satisfaction from the consumption of the product.

According to the Law of Diminishing Marginal Utility, total utility increases at a diminishing rate. When marginal utility is 0 this means there is no increase in total satisfaction from the consumption of that unit. So the total unit is at maximum.

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.

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: (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.