Economics GK Quiz-2

Question: Economic rent refers to
(1) Payment made for the use of labour
(2) Payment made for the use of capital
(3) Payment made for the use of organisation
(4) Payment made for the use of land

Answer: (4) Payment made for the use of land
Rent refers to that part of payment by a tenant which is made only for the use of land, i.e., free gift of nature. The payment made by an agriculturist tenant to the landlord is not necessarily equals to the economic rent. A part of this payment may consist of interest on capital invested in the land by the landlord in the form of buildings, fences, tube wells, etc. The term ’economic rent’ refers to that part of payment which is made for the use of land only, and the total payment made by a tenant to the landlord is called ‘contract rent’. Economic rent is also called surplus because it emerges without any effort on the part of a landlord.


Question: If the price of an inferior good falls, its demand
(1) rises
(2) falls
(3) remains constant
(4) can be any of the above

Answer: (1) rises
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.


Question: The Marginal Utility Curve slopes downward from left to right indicating
(1) A direct relationship between marginal utility and the stock of commodity
(2) A constant relationship between marginal utility and the stock of commodity
(3) A proportionate relationship between marginal utility and the stock of commodity
(4) An inverse relationship between marginal utility and the stock of commodity

Answer: (4) An inverse relationship between marginal utility and the stock of commodity
The Marginal Utility Curve is a curve illustrating the relation between the marginal utility obtained from consuming an additional unit of good and the quantity of the good consumed. The negative slope of the marginal utility curve reflects the law of diminishing marginal utility. The marginal utility curve also can be used to derive the demand curve. Marginal Utility is the utility derived from the last unit of a commodity purchased. One of the earliest explanations of the
inverse relationship between price and quantity demanded is the law of diminishing marginal utility. This law suggests that as more of a product is consumed the marginal (additional) benefit to the consumer falls; hence consumers are prepared to pay less.


Question: In equilibrium, a perfectly competitive firm will equate
(1) marginal social cost with marginal social benefit
(2) market supply with market demand
(3) marginal profit with marginal cost
(4) marginal revenue with marginal cost

Answer: (4) marginal revenue with marginal cost
A perfectly competitive firm’s supply curve is that portion of its marginal cost curve that lies above the minimum of the average variable cost curve. A perfectly competitive firm maximizes profit by producing the quantity of output that equates price and marginal cost. In that price equals marginal revenue for a perfectly competitive firm, price is also equal to marginal cost. In other words, the firm produces by moving up and down along its marginal cost curve. The marginal cost curve is thus the perfectly competitive firm’s supply curve.

Question: Equilibrium is a condition that can
(1) never change
(2) change only if some outside factor changes
(3) change only if some internal factor changes
(4) change only if government policies change

Answer: (3) change only if some internal factor changes
In economics, economic equilibrium is a state of the world where economic forces are balanced and in the absence of external influences the (equilibrium) values of economic variables will not change. For example, in the standard text-book model of perfect competition, equilibrium occurs at the point at which quantity demanded and quantity supplied is equal. Equilibrium can change if there is a change in demand or supply conditions which are internal factor changes. In equilibrium, the price is endogenous because producers change their price.


Question: Enterpreneurial ability is a special kind of labour that
(1) is hired out to firms at high wages
(2) organizes the process of production
(3) produces new capital goods to earn interest
(4) manages to avoid losses by continual innovation

Answer: (2) organizes the process of production
In economics, factors of production are the inputs to the production process. Factors of production’ may also refer specifically to the ‘primary factors’, which are stocks including land, labor (the ability to work), and capital goods applied to production. Many economists today consider “human capital” (skills and education) as the fourth factor of production, with entrepreneurship as a form of human capital. In markets, entrepreneurs combine the other factors of production, land, labor, and capital, in order to make a profit. Often these entrepreneurs are seen as innovators, developing new ways to produce and new products. In a planned economy, central planners decide how land, labor, and capital should be used to provide for maximum benefit for all citizens.


Question: Transfer earning or alternative cost is otherwise known as
(1) Variable cost
(2) Implicit cost
(3) Explicit cost
(4) Opportunity cost (economic cost)

Answer: (4) Opportunity cost (economic cost)
Opportunity cost is the cost of any activity measured in terms of the value of the next best alternative forgone (that is not chosen). It is the sacrifice related to the second best choice available to someone, or group, who has picked among several mutually exclusive choices. When economists refer to the “opportunity cost” of a resource, they mean the value of the next-highest-valued alternative use of that resource. If, for example, we spend time and money going to a movie, we cannot spend that time at home reading a book, and we cannot spend the money on something else. If our next-best alternative to seeing the movie is reading the book, then the opportunity cost of seeing the movie is the money spent plus the pleasure we forgo by not reading the book.


Question: Demand of commodity mainly depends upon–
(1) Purchasing will
(2) Purchasing power
(3) Tax policy
(4) Advertisement

Answer: (2) Purchasing power
The demand of commodity mainly stems from the consumption capacity of the buyer. Demand is equal to desire plus ability to pay plus will to spend. Demand for a commodity depends upon number of factors called Determinants. The demand function can be symbolically expressed as: QdN = f (PN, PR, I, T, E, O) where, QdN = Quantity demanded for the commodity; PN = Price of the commodity; PR = Price of related commodity; I = Income of consumers; T = Taste & Preferences of the consumers; E = Expectations about the future prices; and O= other factors.


Question: Equilibrium price means
(1) Price determined by demand and supply
(2) Price determined by Cost and Profit
(3) Price determined by Cost of production
(4) Price determined to maximise profit

Answer: (1) Price determined by demand and supply
Equilibrium price is a state in economy where the supply of goods matches demand. When a major index experiences a period of consolidation or sideways momentum, it can be said that the forces of supply and demand are relatively equal and that the market is in a state of equilibrium. In short, it is the market price at which the supply of an item equals the quantity demanded.


Question: When marginal utility is zero, the total utility is
(1) Minimum 
(2) Increasing
(3) Maximum 
(4) Decreasing

Answer: (3) Maximum 
Marginal utility measures the extra utility (or satisfaction) from consuming an additional unit of a product. Total utility is the total satisfaction from the consumption of the product. According to the Law of Diminishing Marginal Utility, total utility increases at a diminishing rate. When marginal utility is 0 this means there is no increase in total satisfaction from the consumption of that unit. So the total unit is at maximum.


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