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

Answer: (b)

The fundamental condition of perfect competition is that there must be a large number of sellers or firms. Homogeneous Commodity is the second fundamental condition of a perfect market. The products of all firms in the industry are homogeneous and identical.

Answer: (b)

The law of demand states the inverse relation that comes to exist of between price in one hand and quantity demanded on the other. The law of demand portrays that demand is the function of price.

Price is the key determinant of demand. Fluctuations in price lead to changes in the quantity demanded. In other words, the higher the price of a product, the lower the quantity demanded.

Answer: (b)

Factor payments refer to payments made to scarce resources, or the factors of production (labour, capital, land, and entrepreneurship), in return for productive services.

Wages are paid for the services of labour; interest is the payment for the services of capital, rent is the services for land, and profit is the factor payment to entrepreneurship.

Answer: (a)

In a bilateral monopoly, there is both a monopoly (a single seller) and monopsony (a single buyer) in the same market. The one supplier tends to act as monopoly power and looks to charge high prices to the one buyer. The lone buyer looks towards paying a price that is as low as possible.

Since both parties have conflicting goals, the two sides negotiate based on the relative bargaining power of each, with a final price settling in between the two sides’ points of maximum profit.

Answer: (b)

The classical economists were of the opinion that – the law of diminishing returns applies only to agriculture and to some extractive industries, such as mining, fisheries urban land, etc. However, it is applicable to other sectors such as manufacturing as well.

Answer: (b)

An oligopoly is a market form in which a market or industry is dominated by a small number of sellers (oligopolists). Because there are few sellers, each oligopolist is likely to be aware of the actions of the others. The decisions of one firm influence, and are influenced by, the decisions of other firms.

Businesses that are part of an oligopoly share some common characteristics: they are less concentrated than in a monopoly but more concentrated than in a competitive system.

This creates a high amount of interdependence which encourages competition in non-pricerelated areas, like advertising and packaging. Tobacco companies, soft drink companies, and airlines are examples of an imperfect oligopoly.