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

Answer: (d)

Derived demand is a term in economics, where demand for one good or service occurs as a result of the demand for another intermediate/final good or service. This may occur as the former is a part of the production of the second.

For example, demand for coal leads to derived demand for mining, as coal must be mined for coal to be consumed.

As the demand for coal increases, so does its price.

Answer: (d)

The difference between the actual market wage and the reservation wage is called economic rent.

Therefore, the lower a person’s reservation wage compared to the actual wage, the more rent they receive. While labour supply decisions determine the reservation wage, the employment decisions of firms establish the value of the real wage at which any person becomes unemployed (The Goals of Macroeconomic Policy by Martin Prachowny, p. 58).

Answer: (c)

When the percentage change in quantity demanded is less than the percentage change in price, then the demand for the commodity is said to be inelastic.

Price elasticity of demand refers to the degree of responsiveness of quantity demanded to change in price.

Answer: (d)

Duopoly means a market in which two producers of the same good are predominantly powerful. In some theories, the term is used specifically to denote the existence of only two suppliers of a good.

Competition refers to a condition in a market in which firms are attempting to increase their profits at the expense of their rivals.

Oligopoly refers to a market that is dominated by a few firms producing differentiated products.

Monopoly refers to a market in which there is only one supplier and no other firms are able to enter. According to the Fair Trading Act, 1973, a Monopoly is defined as any firm (or group of firms acting together) that accounts for 25 per cent or more of the market output of a good or service.

Answer: (d)

Economists divide the factors of production into four categories: land, labour, capital, and entrepreneurship. An entrepreneur is a person who combines the other factors of production – land, labour, and capital – to earn a profit.

His profit is in the form of Net Profit which is achieved by deducting other elements (such as planning the production, producing the commodities on the basis of demand, looking after efficient distribution) from the gross profit.