introduction to micro economics section 5 Practice Questions Answers Test with Solutions & More Shortcuts

Question : 1 [SSC CML 2002]

It is prudent to determine the size of the output when the industry is operating in the stage of

a) negative returns

b) increasing returns

c) constant returns

d) diminishing returns

Answer: (d)

In economics, diminishing returns (also called diminishing marginal returns) is the decrease in the marginal (per-unit) output of a production process as the amount of a single factor of production is increased, while the amounts of all other factors of production stay constant.

This law plays a central role in production theory.

Question : 2 [SSC HSLDEO 2010]

The situation in which total Revenues equals total cost, is known as :

a) Perfect competition

b) Monopolistic competition

c) Equilibrium level of output

d) Break even point

Answer: (d)

In economics and cost accounting, 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.”

Question : 3 [SSC GL 2013]

In the case of an inferior good, the income elasticity of demand is :

a) Positive

b) Zero

c) Negative

d) Infinite

Answer: (c)

Negative income elasticity of demand is associated with inferior goods; an increase in income will lead to a fall in the demand and may lead to changes to more luxurious substitutes.

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

Question : 4 [SSC DEO 2009]

The relationship between the value of money and the price level in an economy is

a) Stable

b) Direct

c) Inverse

d) Proportional

Answer: (c)

The basic causal relationship between the price level and the value of money is that as the price level goes up, the value of money goes down.

The "value of money" refers to what a unit of money can buy whereas the "price level" refers to the average of all of the prices of goods and services in a given economy.

Question : 5 [SSC HSLDEO 2010]

The theory of monopolistic competition has been formulated in the United States of America by

a) Joseph Schumpeter

b) Joan Robinson

c) Edward Chamberlin

d) John Bates Clark

Answer: (c)

In treatments of monopolistic competition, Edward Chamberlin and Joan Robinson are usually credited with simultaneously and independently developing the theory of monopolistic or imperfect competition.

Chamberlin published his book ‘The Theory of Monopolistic Competition’ in 1933, the same year that Joan Robinson published her book on the same topic: ‘The Economics of Imperfect Competition,’ so these two economists can be regarded as the parents of the modern study of imperfect competition.

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