introduction to micro economics section 8 Practice Questions Answers Test with Solutions & More Shortcuts

Answer: (b)

Some goods are known as inferior goods. With inferior goods, there is an inverse relationship between real income and the demand for the good in question.

If real incomes rise, the demand for an inferior good will fall. If real incomes fall (in a recession, for instance), the demand for an inferior good will rise.

Example: Bus travel. As people get richer, they are more likely to buy themselves a car, or use a taxi, rather than rely on the more inferior bus, so the demand for bus travel falls as real incomes rise.

Answer: (a)

Selling cost is total cost of marketing, advertising, and selling a product. It differs from the production cost which is incurred to produce goods. Selling cost influences the commercial desire to purchase a commodity.

Answer: (d)

If quantity demanded changes by a very large percentage as a result of a tiny percentage change in price, then the demand is said to be perfectly elastic.

It reflects the fact that the quantity demanded is extremely responsive to even a small change in price.

Technically, the elasticity in this extreme case would be undefined but it approaches negative infinity as demand becomes more elastic.

Answer: (a)

The production of two or more goods simultaneously from the same imputs is called Joint Supply. Wool and Mutton are an example for joint supply.

Answer: (b)

The most important defining characteristic of a market in economics is that it allows buyers and sellers to exchange any type of goods, services and information.

According to Walter Christaller’s ‘Central Place Theory,’ a central place is a market centre for the exchange of goods and services by people attracted from the surrounding area.

The central place is so-called because it is centrally located to maximize accessibility from the surrounding region.