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

Answer: (a)

Purchasing power parity (PPP) is an economic theory and a technique used to determine the relative value of currencies, estimating the amount of adjustment needed on the exchange rate between countries in order for the exchange to be equivalent to (or on par with) each currency’s purchasing power. It asks how much money would be needed to purchase the same goods and services in two countries, and uses that to calculate an implicit foreign exchange rate. Using that PPP rate, an amount of money thus has the same purchasing power in different countries.

Answer: (c)

In economics, a monopsony (mono: single) is a market form in which only one buyer faces many sellers. It is an example of imperfect competition, similar to a monopoly, in which only one seller faces many buyers.

As the only purchaser of a good or service, the monopsonist may dictate terms to its suppliers in the same manner that a monopolist controls the market for its buyers.

It is also known as Single buyer Right. A single-payer universal health care system, in which the government is the only “buyer” of health care services, is an example of a monopsony. Another possible monopsony could develop in the exchange between the food industry and farmers.

Answer: (d)

The internal rate of return on an investment or project is the "annualized effective compounded return rate" or discount rate that makes the net present value of all cash flows (both positive and negative) from a particular investment equal to zero.

In more specific terms, the IRR of an investment is the interest rate at which the net present value of costs (negative cash flows) of the investment equals the net present value of the benefits (positive cash flows) of the investment.

Answer: (d)

Making the assumption that the market demand curve remains unchanged, higher market supply will reduce the equilibrium market price until the price = long-run average cost.

At this point, each firm is making normal profits only. There is no further incentive for the movement of firms in and out of the industry and a long-run equilibrium has been established.

Answer: (c)

The marginal product of an input (factor of production) is the extra output that can be produced by using one more unit of the input (for instance, the difference in output when a firm’s labour usage is increased from five to six units), assuming that the quantities of no other inputs to a production change.

Marginal product, which occasionally goes by the alias marginal physical product (MPP), is one of two measures derived from the total product. The other is an average product. Marginal product is directly proportional to total product.