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

Answer: (b)

In microeconomics, economies of scale are the cost advantages that an enterprise obtains due to expansion.

“Economies of scale” is a long-run concept and refers to reductions in unit cost as the size of a facility and the usage levels of other inputs increase.

Answer: (b)

Price elasticity of demand (PED or Ed) is a measure used in economics to show the responsiveness, or elasticity, of the quantity, demanded of a good or service to a change in its price.

The formula for the coefficient of price elasticity of demand for a good is: $e_(R) = {{DQ}/Q}/{{dP}/P}$,

where $e_(R)$ = Elasticity of demand;

dQ/ Q= % change in demand and

dP/P= % change in price.

Answer: (d)

Internal rates of return are commonly used to evaluate the desirability of investments or projects. The higher a project's internal rate of return, the more desirable it is to undertake the project.

A firm (or individual), in theory, undertakes all projects or investments available with IRRs that exceed the cost of capital.

As the number of investments increases, its internal rate of return is greater than an established minimum acceptable rate of return or cost of capital.

Answer: (c)

In economics, ‘Utility,’ refers to the total satisfaction received from consuming a good or service.

It is usually applied by economists in such constructs as the indifference curve, which plots the combination of commodities that an individual or a society would accept to maintain a given level of satisfaction.

Answer: (b)

Normative economics (as opposed to positive economics) is that part of economics that expresses value judgments (normative judgments) about economic fairness or what the economy ought to be like or what goals of public policy ought to be.

It is the study or presentation of “what ought to be” rather than what actually is. Normative economics deals heavily with value judgments and theoretical scenarios.

An example of a normative economic statement would be, “We should cut taxes in half to increase disposable income levels”. By contrast, a positive (or objective) economic observation would be, “Big tax cuts would help many people, but government budget constraints make that option infeasible.”