introduction to micro economics section 7 MCQ Questions & Answers Detailed Explanation

Answer: (b)

In macroeconomic theory, liquidity preference refers to the demand for money, considered as liquidity. The concept was first developed by John Maynard Keynes in his book The General Theory of Employment, Interest and Money (1936) to explain the determination of the interest rate by the supply and demand for money. The demand for money as an asset was theorized to depend on the interest foregone by not holding bonds.

Interest rates, he argues, cannot be a reward for saving as such because, if a person hoards his savings in cash, keeping it under his mattress say, he will receive no interest, although he has nevertheless refrained from consuming all his current income. Instead of a reward for saving, interest in the Keynesian analysis is a reward for parting with liquidity.

Answer: (d)

In microeconomics and macroeconomics, a production function is a function that specifies the output of a firm, an industry, or an entire economy for all combinations of inputs.

The primary purpose of the production function is to address allocative efficiency in the use of factor inputs in production and the resulting distribution of income to those factors.

Answer: (a)

Price elasticity of demand measures consumer response to price changes. If consumers are relatively sensitive to price changes, demand is elastic; if they are relatively unresponsive to price changes, demand is inelastic.

Perfectly inelastic demand is graphed as a line parallel to the vertical axis; perfectly elastic demand is shown by a line above and parallels to the horizontal axis.

When the demand for a commodity is perfectly elastic, the quantity of demand keeps changing with the price. So the coefficient of price elasticity of demand is infinity.

Answer: (c)

In economics, the demand curve is the graph depicting the relationship between the price of a certain commodity and the amount of it that consumers are willing and able to purchase at that given price. The shift of a demand curve takes place when there is a change in any non-price determinant of demand, resulting in a new demand curve.

There is movement along a demand curve when a change in price causes the quantity demanded to change. When there is a change in an influencing factor other than price, there may be a shift in the demand curve to the left or to the right, as the quantity demanded increases or decreases at a given price.

For example, if there is a positive news report about the product, the quantity demanded at each price may increase, as demonstrated by the demand curve shifting to the right.

Answer: (b)

The supply function expresses the relationship between the total quantity supplied and the price received by all suppliers per unit of time, holding other factors constant. It illustrates the relationship between price and supply.

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The diagram (Price is shown on the Y-axis and Quantity per day on the X-axis) shows that suppliers will produce quantity Q1 units of a good if the price they receive is P1.

As the price keeps decreasing, the quantity produced also keeps on decreasing. So though the supply function has to do with supply and price, it can be perceived to express the similar functional relationship between price and output (in terms of quantity that will be produced).

Answer: (d)

In economics and cost accounting, the break-even point (BEP) is the point at which cost or expenses and revenue are equal: there is no net loss or gain, and one has "broken even".

A profit or a loss has not been made, although opportunity costs have been "paid", and capital has received the risk-adjusted, expected return.