introduction to micro economics section 3 Practice Questions Answers Test with Solutions & More Shortcuts

Answer: (b)

Dynamic Theory of Profit is associated with the name of an American Economist J. B. Clark. In the world of reality, according to J. B. Clark profit arises only in a dynamic economy.

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, ceteris paribus.

It is calculated as the ratio of the percentage change in demand to the percentage change in income.

For example, if, in response to a 10% increase in income, the demand for a good increased by 20%, the income elasticity of demand would be ${20%}/{10%} = 2$.

Positive income elasticity of demand is associated with normal goods; an increase in income will lead to a rise in demand.

If the income elasticity of demand of a commodity is less than 1, it is a necessity good. If the elasticity of demand is greater than 1, it is a luxury good or a superior good.

Answer: (d)

The demand curve facing a perfectly competitive firm is flat or horizontal. This is because all firms in perfect competition are by definition selling an identical (homogeneous) product.

A horizontal demand curve is a flat curve with a slope of zero. It is a perfectly elastic demand curve. Because the slope of the curve is zero, it is impossible for the price to change in the market.

Answer: (c)

Adam Smith is known as ‘Father of Modern Economics.’ He 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).

Answer: (b)

Consumer surplus is the difference between the maximum price a consumer is willing to pay and the actual price they do pay.

If a consumer would be willing to pay more than the current asking price, then they are getting more benefit from the purchased product than they spent to buy it.