Economics GK Quiz-6

Question: The Law of Demand expresses
(1) effect of change in price of a commodity on its demand
(2) effect of change in demand of a commodity on its price
(3) effect of change in demand of a commodity over the supply of its substitute
(4) None of the above
Answer: (1) effect of change in price of a commodity on its demand
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 leads to changes in the quantity demanded. In other words, the higher the price of a product, the lower the quantity demanded.



Question: An exceptional demand curve is one that moves
(1) upward to the right
(2) downward to the right
(3) horizontally
(4) vertically
Answer: (2) downward to the right
A demand curve that violates the law of demand is termed an exceptional demand curve. If a household expects the price of a commodity to increase, it may start purchasing a greater amount of the commodity even at the presently increased price. Similarly, if the household expects the price of the commodity to decrease, it may postpone its purchases. Thus, law of demand is violated in such cases. In this case, the demand curve does not slope down from left to right; instead it presents a backward slope from the top right to down left. This curve is known as an exceptional demand curve.



Question: Production function explains the relationship between
(1) initial inputs and ultimate output
(2) inputs and ultimate consumption
(3) output and consumption
(4) output and exports
Answer: (1) initial inputs and ultimate output
Production function explains the relationship between factor input and output under given technology. It explains as to for increasing the output, in which proportion various inputs or factors may be employed under given technological conditions. In short, production function may be defined as a technological relationship that tells the maximum output producible from various combina-tions of inputs. Production function explains the physical relationship between input and output under given technology.



Question: In Economics the ‘Utility’ and ‘Usefulness’ have
(1) same meaning
(2) different meaning
(3) opposite meaning
(4) None of the above
Answer: (2) different meaning
In economics, utility is a representation of preferences over some set of goods and services. Preferences have a utility representation so long as they are transitive, complete, and continuous. Usefulness refers to which extent something is useful and the utility is the quality of that piece in practical use. Both are inter-related terms. Utility is a factor of usefulness term. Usefulness means having practical utility of a piece which is beneficial, pertinent and functional.


Question: If two commodities are complements, then their cross-price elasticity is
(1) zero
(2) positive
(3) negative
(4) imaginary number
Answer: (3) negative
In economics, the cross elasticity of demand or cross-price elasticity of demand measures the responsiveness of the demand for a good to a change in the price of another good. It is measured as the percentage change in demand for the first good that occurs in response to a percentage change in price of the second good. A negative cross elasticity denotes two products that are complements, while a positive cross elasticity denotes two substitute products.



Question: Opportunity cost of production of a commodity is
(1) the cost that the firm could have incurred when a different technique was adopted
(2) the cost that the firm could have incurred under a different method of production
(3) the actual cost incurred
(4) the next best alternative output
Answer: (4) the next best alternative output
The concept of opportunity cost is based on scarcity and choice. The opportunity cost of a commodity is the next best alternative commodity sacrificed. In other words opportunity cost of a commodity is for going the opportunity to produce alternative goods and services. If one commodity is produced another commodity is sacrificed. So opportunity cost of producing a good is equal to the cost of not producing another commodity.



Question: Surplus earned by a factor other than land in the short period of referred to as
(1) economic rent
(2) net rent
(3) quasi-rent
(4) super-normal rent
Answer: (3) quasi-rent
Quasi-rent is the surplus which is received in the short period because of demand exceeding the supply by the man made factors besides land. It is an analytical term in economics, for the income earned, in excess of post-investment opportunity cost, by a sunk cost investment. In general, an economic rent is the difference between the income from a factor of production in a particular use, and either the cost of bringing the factor into economic use (Classical factor rent), or the opportunity cost of using the factor, where opportunity cost is defined as the current income minus the income available in the next best use.



Question: Which from the following is not true when the interest rate in the economy goes up ?
(1) Saving increases
(2) Lending decreases
(3) Cost of production increases
(4) Return on capital increases
Answer: (4) Return on capital increases
The interest rate is the cost of demanding or borrowing loanable funds. Alternatively, the interest rate is the rate of return from supplying or lending loanable funds. The demand for loanable funds takes
account of the rate of return on capital. The rate of return on capital is the additional revenue that a firm
can earn from its employment of new capital. This additional revenue is usually measured as a percentage rate per unit of time, which is why it is called the rate of return on capital. Firms will demand loanable funds as long as the rate of return on capital is greater than or equal to the interest rate paid on funds borrowed. In case of increase in interest rate, retrun on capital decreases.



Question: Labour Intensive Technique would get chosen in a
(1) Labour Surplus Economy
(2) Capital Surplus Economy
(3) Developed Economy
(4) Developing Economy
Answer: (1) Labour Surplus Economy
‘Labour’ refers to the people required to carry out a process in a business. Labour-intensive processes are those that require a relatively high level of labour compared to capital investment. These processes are more likely to be used to produce individual or personalised products, or to produce on a small scale. The costs of labour are: wages and other benefits, recruitment, training and so on. Labour intensive processes are more likely to be seen in Job production and in smaller-scale enterprises.



Question: Under which market condition do firms have excess capacity?
(1) Perfect competition
(2) Monopolistic competition
(3) Duopoly
(4) Oligopoly
Answer: (2) Monopolistic competition
Unlike a perfectly competitive firm, a monopolistically competitive firm ends up choosing a level of output that is below its minimum efficient scale. When the firm produces below its minimum efficient scale, it is under-utilizing its available resources. In this situation, the firm is said to have excess capacity because it can easily accommodate an increase in production. This excess capacity is the major social cost of a monopolistically competitive market structure.


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