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

Answer: (b)

Negative income elasticity of demand is associated with inferior goods. The Giffen good is an unusual type of inferior good which has a positive price elasticity of demand.

It is a good which people paradoxically consume more of as the price rises, violating the law of demand.

When the price goes up, the quantity demanded also goes up.

Answer: (b)

As per the law of diminishing marginal utility, the utility of each successive unit goes on diminishing as more and more units of a commodity are consumed.

A rational consumer will consume the commodity up to a point where the marginal utility of the final unit of the commodity is equal to the marginal utility of money (in terms of price) paid for it. In this way, the consumer will get maximum satisfaction and will be in equilibrium.

Answer: (c)

The demand of commodity mainly stems from the consumption capacity of the buyer. Demand is equal to desire plus ability to pay plus will to spend. Demand for a commodity depends upon a number of factors called Determinants.

The demand function can be symbolically expressed as:

QdN = f (PN, PR, I, T, E, O)

Where QdN = Quantity demanded the commodity;

PN = Price of the commodity;

PR = Price of the related commodity;

I = Income of consumers;

T = Taste & Preferences of the consumers;

E = Expectations about the future prices; and O= other factors.

Answer: (d)

Monopoly refers to a market in which there is only one supplier and no other firms are able to enter.

Answer: (c)

The modern theory of rent does not confine itself to the reward of the only land as a factor of production as was the case in the classical Ricardian theory of rent.

Rent in the modern sense can arise in respect of any other factor of production, i.e., labour, capital and entrepreneurship.