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

Answer: (a)

In accounting, gross profit or sales profit is the difference between revenue and the cost of making a product or providing a service, before deducting overhead, payroll, taxation, and interest payments.

Gross profit = Net sales (total receipts) - Cost of goods sold (total expenditure).

Answer: (a)

The size of the market for a product refers to a number of buyers and sellers in a particular market.

This is especially important for companies that wish to launch a new product or service since small markets are less likely to be able to support a high volume of goods.

The market size is defined through the market volume and the market potential (defines the upper limit of the total demand and takes potential clients into consideration).

Answer: (b)

Some goods are known as inferior goods. With inferior goods, there is an inverse relationship between real income and the demand for the good in question.

If real incomes rise, the demand for an inferior good will fall. If real incomes fall (in a recession, for instance), the demand for an inferior good will rise.

Example: Bus travel. As people get richer, they are more likely to buy themselves a car, or use a taxi, rather than rely on the more inferior bus, so the demand for bus travel falls as real incomes rise.

Answer: (d)

In economics, economic equilibrium is a state of the world where economic forces are balanced and in the absence of external influences, the (equilibrium) values of economic variables will not change.

For example, in the standard textbook model of perfect competition, equilibrium occurs at the point at which quantity demanded and quantity supplied is equal.

Equilibrium can change if there is a change in demand or supply conditions which are internal factor changes. In equilibrium, the price is endogenous because producers change their price

Answer: (b)

Other things being constant, cross demand expresses the relation between demand for good ‘A’ due to change in the price of its related good ‘B’. It shows that at different prices of good ‘B’ what different quantities of good A’ will be demanded.

Answer: (c)

Production refers to “the creation of utility having value-in-exchange.” The process of production may create six types of utilities: form utility, time utility, place utility, ownership utility, service utility and knowledge utility.