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

Answer: (d)

The ‘Principle of Maximum Social Advantage’, introduced by British economist Hugh Dalton, is the fundamental principle of Public Finance which implies that all the financial operations of the state should aim at maximization of net social benefit.

It takes into consideration both the aspects of public finance that is the government revenue or taxation as well as government expenditure. Since it studies problems related to government taxation and spending, it comes under the domain of fiscal economics.

Answer: (d)

Division of labour is a process whereby the production process is broken down into a sequence of stages and workers are assigned to particular stages.

As it is the power of exchanging that gives occasion to the division of labour, so the extent of this division must always be limited by the extent of that power, or, in other words, by the extent of the market. When the market is very small, no person can have any encouragement to dedicate himself entirely to one employment.

Answer: (d)

In economics, 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.

For some employees, salary is paid on monthly rates, independent of how many hours the employees work. This is a fixed cost. On the other hand, the hours of hourly employees paid in wages can often be varied, so this type of labour cost is a variable cost.

Answer: (c)

Economic rent in the sense of surplus over transfer earnings arises when the supply of the factor units is less than perfectly elastic or not perfectly elastic.

When the supply of factor units is perfectly elastic, there is no surplus or economic rent and the actual earnings and transfer earnings are equal.

In such a scenario, at a given price or remuneration, the entrepreneur can engage any number of factor units.

Answer: (b)

A consumer is in a state of equilibrium when he achieves maximum aggregate satisfaction on the expenditure that he makes depending on the set of conditions relating to his tastes and preferences, income, price and supply of the commodity etc.

Producers’ equilibrium occurs when he maximizes his net profit subject to a given set of economic situations. A firm’s equilibrium point is when it has no inclination in changing its production.

In the short run Marginal revenue = Marginal Cost is the condition of equilibrium.