Economics GK Quiz-3

Question: Operating Surplus arises in the
(1) Government Sector
(2) Production for self-consumption
(3) Subsistence farming
(4) Enterprise Sector

Answer: (1) Government Sector
Operating surplus is an accounting concept used in national accounts statistics (such as United Nations System of National Accounts (UNSNA) and in corporate and government accounts. It is the balancing item of the Generation of Income Account in the UNSNA. It may be used in macro-economics as a proxy for total pre-tax profit income, although entrepreneurial income may provide a better measure of business profits. In UNSNA, “implicit (imputed) rents” on land owned by the enterprise and the “implicit (imputed) interest” chargeable on the use of the enterprise’s own funds are excluded from operating surplus.

Question: Sellers market denotes a situation where :
(1) commodities are available at competitive rates
(2) demand exceeds supply
(3) supply exceeds demand
(4) supply and demand are evenly balanced

Answer: (2) demand exceeds supply
Seller’s market is a market which has more buyers than sellers. High prices result from this excess of demand over supply. The opposite of the seller’s market is the buyer’s market, where supply greatly exceeds demand.

Question: The fixed cost on such factors of production which are neither hired nor bought by the firm is called
(1) social cost
(2) opportunity cost
(3) economic cost
(4) surcharged cost

Answer: (1) social cost
Social cost is defined as a sum of the private cost and external costs. The social cost is generally not borne by an individual. It may be borne by entire society, city or even country. This is not a one-time cost like private cost. This cost is recurrent and it is very difficult to calculate due to the inclusion of external costs. The cost may result from an event, action, or policy changes. Social costs are not calculated whenever a seller sells any product or item to buyer. This cost is added up from the use of that product.

Question: The ‘break-even point’ is where
(1) marginal revenue equals marginal cost
(2) average revenue equals average cost
(3) total revenue equals total cost
(4) None of these

Answer: (2) average revenue equals average cost
The break-even point (BEP) is the point at which cost or expenses and revenue are equal: there is no net loss or gain, and one has “broken even”. A profit or a loss has not been made, although opportunity costs have been “paid”, and capital has received the risk-adjusted, expected return.

Question: One of the essential conditions of Monopolistic competition is
(1) Many buyers but one seller
(2) Price discrimination
(3) Product differentiation
(4) Homogeneous product

Answer: (3) Product differentiation
Monopolistic competition is a type of imperfect competition such that many producers sell products that are differentiated from one another as goods but not perfect substitutes (such as from branding, quality, or location). In monopolistic competition, a firm takes the prices charged by its rivals as given and ignores the impact of its own prices on the prices of other firms. In a monopolistically competitive market, firms can behave like monopolies in the short run, including by using market power to generate profit. In the long run, however, other firms enter the market and the benefits of differentiation decrease with competition; the market becomes more like a perfectly competitive one where firms cannot gain economic profit.

Question: In the law of demand, the statement “Other things remain constant” means
(1) income of consumer should not change
(2) price of other goods should not change
(3) taste of consumer should not change
(4) All of the above

Answer: (4) All of the above
In economics, the law of demand is an economic law, which states that consumers buy more of a good when its price is lower and less when its price is higher (ceteris paribus). The Law of demand states that the quantity demanded and the price of a commodity are inversely related, other things remaining constant. That is, if the income of the consumer, prices of the related goods, and preferences of the consumer remain unchanged, then the change in quantity of good demanded by the consumer will be negatively correlated to the change in the price of the good.

Question: A firm is in equilibrium when its
(1) marginal cost equals the marginal revenue
(2) total cost is minimum
(3) total revenue is maximum
(4) average revenue and marginal revenue are equal

Answer: (1) marginal cost equals the marginal revenue
A consumer is in a state of equilibrium when he achieves maximum aggregate satisfaction on the expenditure that he makes depending on the set of conditions relating to his tastes and preferences, income, price and supply of the commodity etc. Producers’ equilibrium occurs when he maximizes his net profit subject to a given set of economic situations. A firm’s equilibrium point is when it has no inclination in changing its production. In short run Marginal revenue = Marginal Cost is the condition of equilibrium.

Question: Given the money wages, if the price level in an economy increases, then the real wages will
(1) increase
(2) decrease
(3) remain constant
(4) become flexible

Answer: (2) decrease
If workers receive a higher nominal wage and the price level does not change, then the real purchasing power of their wages is higher and they are inclined to increase the quantity of labor supplied. If the workers receive the same nominal wage, but the price level increases, then the real purchasing power of their wages is lower and they are inclined to decrease the quantity of labor supplied. Any combination of changes in nominal resource prices or the price level that changes the purchasing power of resource prices entices resource owners to change quantities supplied.

Question: In Economics, production means
(1) manufacturing
(2) making
(3) creating utility
(4) farming

Answer: (3) creating utility
All factors of production like land, labour, capital and entrepreneur are required in combination at a time to produce a commodity. Production means creation or an addition of utility. Factors of production (or productive ‘inputs’ or ‘resources’) are any commodities or services used to produce goods and services.

Question: According to modern thinking, the law of diminishing returns applies to
(1) agriculture
(2) industry
(3) mining
(4) all fields of production

Answer: (4) all fields of production
The law of diminishing returns (also law of diminishing marginal returns or law of increasing relative cost) states that in all productive processes, adding more of one factor of production, while holding all others constant (“ceteris paribus”), will at some point yield lower per-unit returns. The law of diminishing returns does not imply that adding more of a factor will decrease the total production, a condition known as negative returns, though in fact this is common.

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