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

Answer: (a)

In economics, factors of production are the inputs to the production process.

There are three basic factors of production:

1. land,
2. labour,
3. capital.

The payment for use and the received income of a landowner is rent. The payment for someone else’s labour and all income received from one’s own labour is wages. The modern theory of rent is that it is the difference between the actual earning of a factor unit over its transfer earnings.

So the Transfer earnings are the minimum payment required to keep a factor of production in its present use. It is also known as opportunity cost.

Answer: (b)

In economics, the law states that all else being equal, as the price of a product increases, quantity demanded falls; likewise, as the price of a product decreases, quantity demanded increases.

So basically the quantity demanded and the price of a commodity is inversely related, other things remaining constant.

Answer: (d)

All factors of production like land, labour, capital and entrepreneur are required in combination at a time to produce a commodity.

Production means the creation or an addition of utility. Factors of production (or productive ‘inputs’ or ‘resources’) are any commodities or services used to produce goods and services.

Answer: (d)

In economics, a production function relates the physical output of a production process to physical inputs or factors of production.

The primary purpose of the production function is to address allocative efficiency in the use of factor inputs in production and the resulting distribution of income to those factors.

Answer: (d)

In economics, the cross elasticity of demand or cross-price elasticity of demand measures the responsiveness of the demand for a good to a change in the price of another good.

It is measured as the percentage change in demand for the first good that occurs in response to a percentage change in the price of the second good.

A negative cross elasticity denotes two products that are complements, while a positive cross elasticity denotes two substitute products.