introduction to micro economics section 7 Practice Questions Answers Test with Solutions & More Shortcuts

Answer: (b)

Complete market information is one of the main features of Perfect Competition. This condition implies close contact between buyers and sellers.

Both of them possess complete knowledge about the prices at which goods are being bought and sold and the prices at which others are prepared to buy or sell.

Answer: (b)

In macroeconomic theory, liquidity preference refers to the demand for money, considered as liquidity. The concept was first developed by John Maynard Keynes in his book The General Theory of Employment, Interest and Money (1936) to explain the determination of the interest rate by the supply and demand for money. The demand for money as an asset was theorized to depend on the interest foregone by not holding bonds.

Interest rates, he argues, cannot be a reward for saving as such because, if a person hoards his savings in cash, keeping it under his mattress say, he will receive no interest, although he has nevertheless refrained from consuming all his current income. Instead of a reward for saving, interest in the Keynesian analysis is a reward for parting with liquidity.

Answer: (d)

In microeconomics and macroeconomics, a production function is a function that specifies the output of a firm, an industry, or an entire economy for all combinations of inputs.

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: (a)

Price elasticity of demand measures consumer response to price changes. If consumers are relatively sensitive to price changes, demand is elastic; if they are relatively unresponsive to price changes, demand is inelastic.

Perfectly inelastic demand is graphed as a line parallel to the vertical axis; perfectly elastic demand is shown by a line above and parallels to the horizontal axis.

When the demand for a commodity is perfectly elastic, the quantity of demand keeps changing with the price. So the coefficient of price elasticity of demand is infinity.

Answer: (b)

An oligopoly is a market form in which a market or industry is dominated by a small number of sellers (oligopolists). Because there are few sellers, each oligopolist is likely to be aware of the actions of the others. The decisions of one firm influence, and are influenced by, the decisions of other firms.

Businesses that are part of an oligopoly share some common characteristics: they are less concentrated than in a monopoly but more concentrated than in a competitive system.

This creates a high amount of interdependence which encourages competition in non-pricerelated areas, like advertising and packaging. Tobacco companies, soft drink companies, and airlines are examples of an imperfect oligopoly.