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

Answer: (b)

Capitalism generally refers to an economic system in which the means of production are largely or entirely privately owned and operated for a profit, structured on the process of capital accumulation.

In general, investments, distribution, income, and pricing are determined by markets. In capitalism, prices are decided by the demand-supply scale.

For example, higher demand for certain goods and services lead to higher prices and lower demand for certain goods lead to lower prices.

Answer: (b)

The stages of Law of Variable Proportion are:

Stage 1: Increasing return;

Stage 2: Diminishing return; and

Stage 3: Negative Return.

In the third stage, the Marginal Product of the variable factor is zero. In this stage, the Total Product starts diminishing.

Answer: (c)

There are 4 factors of production;

1. land,
2. labour,
3. capital and
4. entrepreneurship.

The demand for the factors of production is a derived demand. That means these factors of production are demanded because there is a demand for the end product they produce.

Answer: (d)

The Law of demand states that the quantity demanded and the price of a commodity are inversely related, other things remaining constant.

That is, if the income of the consumer, prices of the related goods, and preferences of the consumer remain unchanged, then the change in the quantity of goods demanded by the consumer will be negatively correlated to the change in the price of the good.

When there is excess demand for the commodity the price starts rising and it continues to rise till equilibrium price is reached.

Answer: (c)

Unit elastic refers to An elasticity alternative in which any percentage change in price causes an equal percentage change in quantity.

In other words, any change in price, whether big or small, triggers exactly the same percentage change in quantity.

However, the unit price elastic demand curve does not touch either the price axis or quantity axis.