introduction to micro economics section 1 Practice Questions Answers Test with Solutions & More Shortcuts

Answer: (a)

Adam Smith is best known for two classic works: The Theory of Moral Sentiments (1759), and An Inquiry into the Nature and Causes of the Wealth of Nations (1776).

The latter, usually abbreviated as The Wealth of Nations, is considered his magnum opus and the first modern work of economics. Smith is cited as the father of modern economics and is still among the most influential thinkers in the field of economics today.

Answer: (a)

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. A change in the price of the commodity leads to a movement along the demand curve without shifting it.

In simple words, the increase or decrease in the price of a commodity only causes contraction or extension of demand (increase causes contraction while decrease cause extension).

An increase or decrease in demand only occurs only when there is a change in other determinants of demand, other than the price of the commodity.

So when the price of the commodity changes, the demand curve does not shift; however, when any other determinant of demand changes, the demand curve shifts either rightward or leftward.

Answer: (a)

The Theory of Economic Problem states that scarcity exists in the sense that only finite and insufficient resources are available to satisfy the needs and desires of all human beings.

The fundamental economic problem is how to allocate scarce resources to the provision of various goods and services within the economy.

The question then becomes how to determine what is to be produced, and how the factors of production (such as capital and labour) are to be allocated.

Answer: (a)

Break-even is the point of balance between making either a profit or a loss. In economics & business, specifically 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.

Answer: (c)

Capital goods are goods that are used in producing other goods, rather than being bought by consumers.

They are tangible assets such as buildings, machinery, equipment, vehicles and tools that an organization uses to produce goods or services in order to produce consumer goods and goods for other businesses.