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

Answer: (d)

In economics, the cross elasticity of demand or cross-price elasticity of demand measures the responsiveness of the demand for a good to a change in the price of another good.

It is measured as the percentage change in demand for the first good that occurs in response to a percentage change in the price of the second good.

A negative cross elasticity denotes two products that are complements, while a positive cross elasticity denotes two substitute products.

Answer: (d)

Free goods are what is needed by society and is available without limits. The free good is a term used in economics to describe a good that is not scarce.

A free good is available in as great a quantity as desired with zero opportunity cost to society.

Answer: (b)

Intermediate consumption is an accounting concept that measures the value of the goods and services consumed as inputs by a process of production.

It excludes fixed assets whose consumption is recorded as the consumption of fixed capital. The goods and services may be either transformed or used up by the production process.

Intermediate goods or services used in production can be either changed in form (e.g. bulk sugar) or completely used up (e.g. electric power, water, etc).

Answer: (d)

All factors of production like land, labour, capital and entrepreneur are required in combination at a time to produce a commodity.

Production means the creation or an addition of utility. Factors of production (or productive ‘inputs’ or ‘resources’) are any commodities or services used to produce goods and services.

Answer: (b)

In economics, the law states that all else being equal, as the price of a product increases, quantity demanded falls; likewise, as the price of a product decreases, quantity demanded increases.

So basically the quantity demanded and the price of a commodity is inversely related, other things remaining constant.

Answer: (a)

In economics, factors of production are the inputs to the production process.

There are three basic factors of production:

1. land,
2. labour,
3. capital.

The payment for use and the received income of a landowner is rent. The payment for someone else’s labour and all income received from one’s own labour is wages. The modern theory of rent is that it is the difference between the actual earning of a factor unit over its transfer earnings.

So the Transfer earnings are the minimum payment required to keep a factor of production in its present use. It is also known as opportunity cost.