Economics GK Quiz-4

Question: The concept that under a system of free enterprise, it is consumers who decide what goods and services shall be produced and in what quantities is known as
(1) Consumer Protection
(2) Consumer’s Decision
(3) Consumer Preference
(4) Consumer’s Sovereignty

Answer: (4) Consumer’s Sovereignty
Consumer sovereignty means that buyers ultimately determine which goods and services remain in production. While businesses can produce and attempt to sell whatever goods they choose, if the goods fail to satisfy the wants and needs, consumers decide not to buy. If the consumers do not buy, the businesses do not sell and the goods are not produced.

Question: Seawater, fresh air, etc., are regarded in Economics as
(1) Giffen goods
(2) inferior goods
(3) free goods
(4) normal goods

Answer: (3) free goods
Free goods are what is needed by the society and is available without limits. The free good is a term used in economics to describe a good that is not scarce. A free good is available in as great a quantity as desired with zero opportunity cost to society.

Question: Which of the following does not determine supply of labour ?
(1) Size and age-structure of population
(2) Nature of work
(3) Marginal productivity of labour
(4) Work-leisure ratio

Answer: (3) Marginal productivity of labour
The term ‘supply of labour’ refers to the number of hours of a given type of labour which will be offered for hire at different wage rates. Usually, it is found that higher the wage rates larger is the supply indicating a direct relationship that exists between the wage rate i.e. the price of labour and labour hours supplied. The supply of labour is very much affected by the work leisure ratio which in turn is affected by the changes in wage rates. The supply of labour in an economy depends on various economic and non-economic factors such as: population, sex composition, age composition of the population, willingness to work, wage rates, migration and immigration, working hours, social attitude and standard, legal barriers, education and training, employer’s attitude, labour supply and leisure, efficiency of workers, etc. In economics, the marginal product of labor (MPL) is the change in output that results from employing an added unit of labor. It has nothing to do with the supply of labour.

Question: Prime cost is equal to
(1) Variable cost plus administrative cost
(2) Variable cost plus fixed costs
(3) Variable cost only
(4) Fixed cost only

Answer: (1) Variable cost plus administrative cost
Prime Cost refers to a business’s expenses for the materials and labor it uses in production. Prime cost is a way of measuring the total cost of the production inputs needed to create a given output. By analyzing its prime costs, a company can determine how much it must charge for its finished product in order to make a profit. Variable costs are expenses that change in proportion to the activity of a business. Variable cost is the sum of marginal costs over all units produced. It can also be considered normal costs. Fixed costs and variable costs make up the two components of total cost. Prime Cost = Direct Materials + Direct Labour+ Direct expenses. This comes to Variable cost + Administrative cost. Administrative cost is the cost associated with the general management of organization in accounting.

Question: An expenditure that has been made and cannot be recovered is called
(1) Variable cost
(2) Opportunity cost
(3) Sunk cost
(4) Operational cost

Answer: (3) Sunk cost
In economics and business decision-making, sunk costs are retrospective (past) costs that have already been incurred and cannot be recovered. Sunk costs are sometimes contrasted with prospective costs, which are future costs that may be incurred or changed if an action is taken. The sunk cost is distinct from economic loss. Sunk costs may cause cost overrun.

Question: Engel’s Law states the relationship between
(1) quantity demanded and price of a commodity
(2) quantity demanded and price of substitutes
(3) quantity demanded and tastes of the consumers
(4) quantity demanded and income of the consumers

Answer: (4) quantity demanded and income of the consumers
Engel’s law is an observation in economics stating that as income rises, the proportion of income spent on food falls, even if actual expenditure on food rises. In other words, the income elasticity of demand of food is between 0 and 1. Engel’s Law doesn’t imply that food spending remains unchanged as income increases: It suggests that consumers increase their expenditures for food products (in % terms) less than their increases in income.

Question: The demand curve for a Giffen good is
(1) upward rising
(2) downward falling
(3) parallel to the quantity axis
(4) parallel to the price axis

Answer: (1) upward rising
A Giffen good is a good whose consumption increases as its price increases. (For a normal good, as the price increases, consumption decreases.) Thus, the demand curve will be upward instead of downward sloping. A Giffen good has an upward sloping demand curve because it is exceptionally inferior. It has a strong negative income elasticity of demand such that when a price changes the income effect outweighs the substitution effect and this leads to perverse demand curve.

Question: All of the goods which are scarce and limited in supply are called
(1) Luxury goods
(2) Expensive goods
(3) Capital goods
(4) Economic goods

Answer: (4) Economic goods
In economics, a good is something that is intended to satisfy some wants or needs of a consumer and thus has economic utility. An economic good is a consumable item that is useful to people but scarce in relation to its demand, so that human effort is required to obtain it. In contrast, free goods (such as air) are naturally in abundant supply and need no conscious effort to obtain them.

Question: Which is the most essential function of an entrepreneur ?
(1) Supervision
(2) Management
(3) Marketing
(4) Risk bearing

Answer: (4) Risk bearing
An entrepreneur performs a series of functions necessary right from the genesis of an idea up to the establishment and effective operation of an enterprise. The functions of an entrepreneur as risk bearer are specific in nature. The entrepreneur assumes all possible risks of business which emerges due to the possibility of changes in the tastes of consumers, modern techniques of production and new inventions. Such risks are not insurable and incalculable. In simple terms such risks are known as uncertainty concerning a loss.

Question: Knowledge, technical skill, education etc. in economics, are regarded as
(1) social-overhead capital
(2) human capital
(3) tangible physical capital
(4) working capital

Answer: (2) human capital
Human capital is the stock of competencies, knowledge, social and personality attributes, including creativity, embodied in the ability to perform labor so as to produce economic value. It is an aggregate economic view of the human being acting within economies, which is an attempt to capture the social, biological, cultural and psychological complexity as they interact in explicit and/or economic transactions.

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