introduction to micro economics section 6 Practice Questions Answers Test with Solutions & More Shortcuts

Answer: (b)

Demand for complementary goods is called Joint Demand. Joint Demand is the demand in which goods are related in such a way that an increase in the demand for one causes an increase in the demand for the other.

Answer: (c)

Inelastic demand means that if the price changes, the quantity demanded will not change much.

The more necessary a good is, the lower the elasticity, as people will attempt to buy it no matter the price. Necessities such as water are likely to have perfectly inelastic demand.

Answer: (c)

Monopoly power implies the amount of discretion that a monopolist possesses to fix up the prices of his products and the degree of control over his output decisions.

According to J.S. Bains, the degree of monopoly power can be measured by the monopoly firm's super-normal profit.

Answer: (a)

Rent refers to that part of the payment by a tenant which is made only for the use of land, i.e., free gift of nature. The payment made by an agriculturist tenant to the landlord is not necessarily equaled to the economic rent.

A part of this payment may consist of interest on capital invested in the land by the landlord in the form of buildings, fences, tube wells, etc. The term ’economic rent’ refers to that part of the payment which is made for the use of land only, and the total payment made by a tenant to the landlord is called ‘contract rent’.

Economic rent is also called surplus because it emerges without any effort on the part of a landlord.

Answer: (d)

The Ramsey rule states that commodities with low elasticities of demand should be taxed at higher rates than commodities with high elasticities of demand.

However, low-income people might spend a higher proportion of their incomes on commodities with low elasticities of demand (food, clothing, and so on) than might high-income people.

Consequently, following the Ramsey rule may result in a regressive taxation scheme society may view as inequitable.