introduction to micro economics section 4 Practice Questions Answers Test with Solutions & More Shortcuts

Answer: (b)

According to Keynes’ psychological law of consumption, increased aggregate consumption is due to increased aggregate income – aggregate consumption increases with increase in aggregate income but the increase in consumption is less than the increase in the income.

This is because when the basic necessities or demands of the people are already fulfilled, they start saving the extra additional income.

Answer: (d)

For certain goods called necessities, demand is not related to income. Demand for salt does not increase with the increase in income & does not decrease with the decrease in income.

It means that it is irrespective of income. The demand curve slopes downward for goods like salt, but it is inelastic.

Answer: (c)

Unlike a perfectly competitive firm, a monopolistically competitive firm ends up choosing a level of output that is below its minimum efficient scale. When the firm produces below its minimum efficient scale, it is under-utilizing its available resources.

In this situation, the firm is said to have excess capacity because it can easily accommodate an increase in production. This excess capacity is the major social cost of a monopolistically competitive market structure.

Answer: (c)

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.

Answer: (a)

The break-even point (BEP) is the point at which cost or expenses and revenue are equal: there is no net loss or gain, and one has "broken even." For businesses, reaching the break-even point is the first major step towards profitability.