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

Answer: (b)

The classical economists were of the opinion that – the law of diminishing returns applies only to agriculture and to some extractive industries, such as mining, fisheries urban land, etc. However, it is applicable to other sectors such as manufacturing as well.

Answer: (a)

In a bilateral monopoly, there is both a monopoly (a single seller) and monopsony (a single buyer) in the same market. The one supplier tends to act as monopoly power and looks to charge high prices to the one buyer. The lone buyer looks towards paying a price that is as low as possible.

Since both parties have conflicting goals, the two sides negotiate based on the relative bargaining power of each, with a final price settling in between the two sides’ points of maximum profit.

Answer: (b)

Consumer sovereignty means that buyers ultimately determine which goods and services remain in production.

In unrestricted markets, those with income or wealth are able to use their purchasing power to motivate producers. So ultimately it means how the consumers want to spend their incomes.

Answer: (b)

The fundamental condition of perfect competition is that there must be a large number of sellers or firms. Homogeneous Commodity is the second fundamental condition of a perfect market. The products of all firms in the industry are homogeneous and identical.

Answer: (b)

The law of demand states the inverse relation that comes to exist of between price in one hand and quantity demanded on the other. The law of demand portrays that demand is the function of price.

Price is the key determinant of demand. Fluctuations in price lead to changes in the quantity demanded. In other words, the higher the price of a product, the lower the quantity demanded.