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

Answer: (a)

According to Engel's Law, as the disposable income of a consumer increases, the percentage of income spent on food decreases if all other factors remain constant.

This happens even when the actual expenditure on food rises. The income elasticity of demand for food is less than 1. A lower Engel coefficient indicates a higher standard of living.

Answer: (c)

The four basic laws of supply and demand are:

1. If demand increases and supply remains unchanged, a shortage occurs, leading to a higher price;
2. If demand decreases and supply remains unchanged, a surplus occurs, leading to a lower price;
3. If demand remains unchanged and supply increases, a surplus occurs, leading to a lower price; and
4. If demand remains unchanged and supply decreases, a shortage occurs, leading to a higher price.

Answer: (b)

Supply curve, in economics, is a graphic representation of the relationship between product price and quantity of product that a seller is willing and able to supply. Product price is measured on the vertical axis of the graph and quantity of product supplied on the horizontal axis.

In most cases, when there are increasing returns, the supply curve is drawn as a slope rising upward from left to right, since product price and quantity supplied are directly related (i.e., as the price of commodity increases in the market, the amount supplied increases).

Answer: (c)

Selling cost is total cost of marketing, advertising, and selling a product. It differs from the production cost which is incurred to produce goods.

Answer: (d)

The term ‘supply of labour’ refers to the number of hours of a given type of labour that will be offered for hire at different wage rates. Usually, it is found that the higher the wage rates larger is the supply indicating a direct relationship that exists between the wage rate i.e. the price of labour and labour hours supplied.

The supply of labour is very much affected by the work leisure ratio which in turn is affected by the changes in wage rates.

The supply of labour in an economy depends on various economic and non-economic factors such as:

1. population,
2. sex composition,
3. age composition of the population,
4. willingness to work,
5. wage rates,
6. migration and immigration,
7. working hours,
8. social attitude and standard,
9. legal barriers,
10. education and training,
11. employer’s attitude,
12. labour supply and leisure,
13. the efficiency of workers, etc.

In economics, the marginal product of labour (MPL) is the change in output that results from employing an added unit of labour. It has nothing to do with the supply of labour.