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

Answer: (d)

Free goods are what is needed by society and is available without limits. The free good is a term used in economics to describe a good that is not scarce.

A free good is available in as great a quantity as desired with zero opportunity cost to society.

Answer: (b)

Intermediate consumption is an accounting concept that measures the value of the goods and services consumed as inputs by a process of production.

It excludes fixed assets whose consumption is recorded as the consumption of fixed capital. The goods and services may be either transformed or used up by the production process.

Intermediate goods or services used in production can be either changed in form (e.g. bulk sugar) or completely used up (e.g. electric power, water, etc).

Answer: (b)

Fixed costs are business expenses that are not dependent on the level of goods or services produced by the business.

They tend to be time-related, such as salaries or rents being paid per month and are often referred to as overhead costs. The salaries of administrative staff are variable costs.

Answer: (c)

Some economists have classified factors into two categories, land and labour (or nature and man) on the ground that they are the only original or primary factors.

It is said that capital has no independent origin and is merely the outcome of combined efforts of land and labour.

However, other economists include all man-made instruments for production in the category of Capital. It includes machines, tools, factories, buildings, canals, roads, raw materials, etc, which play a vital role in production.

Factors of Production:

1. Land -.All free gifts of nature, i.e., soil, forests, mountains, seas. etc.
2. Labour - Human, a physical or mental effort done for income or material benefit
3. Capital - All man-made means of production like machines, tools, buildings, roads, raw materials, etc
4. Entrepreneur - Human resource that helps to organize production, i.e., takes the risk and combines land, labour and capital to produce.

Answer: (a)

The Law of Demand states that all else being equal, as the price of a product increases, quantity demanded lowers; likewise, as the price of a product decreases, quantity demanded increases. Demand is derived from consumers’ tastes and preferences, and it is bound by income.

In other words, given a limited income, the consumer must decide what goods and services to purchase. Each consumer will purchase different things because individual preferences and incomes differ.