introduction to micro economics section 2 Practice Questions Answers Test with Solutions & More Shortcuts

Answer: (c)

Final goods are goods that are ultimately consumed rather than used in the production of another good. For example, a car sold to a consumer is a final good; the components such as tires sold to the car manufacturer are not; they are intermediate goods used to make the final good.

Answer: (d)

The theory of Economic problems states that there is scarcity, or that the finite resources available are insufficient to satisfy all human wants and needs.

The problem 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: (d)

There are two extreme forms of market structure: monopoly and, its opposite, perfect competition.

Perfect competition is characterized by many buyers and sellers, many products that are similar in nature and, as a result, many substitutes.

A monopoly is a market structure in which there is only one producer/ seller for a product.

Answer: (a)

Engel’s law is an observation in economics stating that as income rises, the proportion of income spent on food falls, even if actual expenditure on food rises.

In other words, the income elasticity of demand for food is between 0 and 1.

Engel’s Law doesn’t imply that food spending remains unchanged as income increases: It suggests that consumers increase their expenditures for food products (in % terms) less than their increases in income.

Answer: (c)

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.

Some of its characteristics are:

1. Profit maximization conditions;
2. Number of firms;
3. Product differentiation;
4. Interdependence;
5. Non-Price Competition, etc.

The distinctive feature of an oligopoly is interdependence.

Oligopolies are typically composed of a few large firms. Each firm is so large that its actions affect market conditions. Therefore the competing firms will be aware of a firm’s market actions and will respond appropriately.

This means that in contemplating a market action, a firm must take into consideration the possible reactions of all competing firms and the firm’s countermoves.