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

Answer: (c)

In economics, income elasticity of demand measures the responsiveness of the demand for a good to a change in the income of the people demanding the good.

An Inferior good is a good that decreases in demand when consumer income rises, unlike normal goods, for which the opposite is observed. Normal goods are those for which consumers' demand increases when their income increases.

Answer: (a)

Fixed costs are business expenses that are not dependent on the level of goods or services produced by the business.

They tend to be time-related, such as salaries or rents being paid per month and are often referred to as overhead costs.

This is in contrast to variable costs, which are volume-related (and are paid per quantity produced).

Answer: (a)

Production function specifies the output of a firm, an industry, or an entire economy for all combinations of inputs.

The relationship of output to inputs is non-monetary; that is, a production function relates physical inputs to physical outputs, and prices and costs are not reflected in the function.

Answer: (c)

Perfect competition is a form of market in which there are a large number of buyers and sellers competing with each other in the purchase and sale of goods, respectively and no individual buyer or seller has any influence over the price and output.

Each firm’s output is a perfect substitute for the output of the other firms, so the demand for each firm’s output is perfectly elastic. Product differentiation holds the key in this type of market structure.

Answer: (a)

The fundamental condition of perfect competition is that there must be a large number of sellers or firms. Homogeneous Commodity is the second fundamental condition of a perfect market. The products of all firms in the industry are homogeneous and identical.

In other words, they are perfect substitutes for one another.

There are no trademarks, patents etc. to distinguish the product of one seller from that of another. Under perfect competition, the control over price is completely eliminated because all firms produce homogeneous commodities.

This condition ensures that the same price prevails in the market for the same commodity.