Economics GK Quiz-7

Question: Price theory is also known as
(1) Macro Economics
(2) Development Economics
(3) Public Economics
(4) Micro Economics
Answer: (4) Micro Economics
Price theory is also known as micro economics and is concerned with the economic behaviour of individual consumers, producers and resource owners. Prof. Leftwich defines Price Theory as “it is concerned with the flow of goods and services from business firms to consumers, the composition of flow and the evaluation of pricing of the component parts of the flow. It is concerned too with the flow of productive resources (or their services) from resource owners to business firms with their evaluation and with their allocation among alternative uses.”



Question: A want becomes a demand only when it is backed by the
(1) Ability to purchase
(2) Necessity to buy
(3) Desire to buy
(4) Utility of the product
Answer: (1) Ability to purchase
“Need,” “Want,” and “Demand” are the three key concepts of marketing. Needs are the basic human requirements. These needs become wants when they are directed to specific objects that might satisfy the need, though these wants in themselves are not essential for living. Wants are therefore shaped by one’s society and surroundings. The third concept, demands, are wants for specific products backed by an ability to pay. Many people want a luxury car or a weekend break in the Caribbean, but only a few people are willing and able to buy one. In business terms, companies must measure not only how many people want their product but also how many would actually be willing and able to buy it.



Question: “Economics is what it ought to be” - This statement refers to
(1) Normative economics
(2) Positive economics
(3) Monetary economics
(4) Fiscal economics
Answer: (1) Normative economics
Normative economics (as opposed to positive economics) is that part of economics that expresses value judgments (normative judgments) about economic fairness or what the economy ought to be like or what goals of public policy ought to be. It is the study or presentation of “what ought to be” rather than what actually is. Normative economics deals heavily in value judgments and theoretical scenarios. An example of a normative economic statement would be, “We should cut taxes in half to increase disposable income levels”. By contrast, a positive (or objective) economic observation would be, “Big tax cuts would help many people, but government budget constraints make that option infeasible.”



Question: The excess of price a person is to pay rather than forego the consumption of the commodity is called
(1) Price 
(2) Profit
(3) Producers’ surplus
(4) Consumer’s surplus
Answer: (3) Producers’ surplus
‘Producer Surplus’ is an economic measure of the difference between the amount that a producer of a good receives and the minimum amount that he or she would be willing to accept for the good. The difference, or surplus amount, is the benefit that the producer receives for selling the good in the market.


Question: When the price of a commodity falls, we can expect
(1) the supply of it to increase
(2) the demand for it to fall
(3) the demand for it to stay constant
(4) the demand for it to increase
Answer: (4) the demand for it to increase
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. 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: The most distinguishing feature of oligopaly is
(1) number of firms
(2) interdependence
(3) negligible influence on price
(4) price leadership
Answer: (2) interdependence
An oligopoly is a market form in which a market or industry is dominated by a small number of sellers (oligopolists). Because there are few sellers, each oligopolist is likely to be aware of the actions of the others. The decisions of one firm influence, and are influenced by, the decisions of other firms. Some of its characteristics are: Profit maximization conditions; Number of firms; Product differentiation; Interdependence; Non-Price Competition, etc. The distinctive feature of an oligopoly is interdependence. Oligopolies are typically composed of a few large firms. Each firm is so large that its actions affect market conditions. Therefore the competing firms will be aware of a firm’s market actions and will respond appropriately. This means that in contemplating a market action, a firm must take into consideration the possible reactions of all competing firms and the firm’s countermoves.



Question: ‘Law of demand’ implies that when there is excess demand for a commodity, then
(1) price of the commodity falls
(2) price of the commodity remains same
(3) price of the commodity rises
(4) quantity demanded of the commodity falls
Answer: (3) price of the commodity rises
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. When there is excess demand of the commodity the price starts rising and it continues to rise till equilibrium price is reached.



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 the above
Answer: (3) total revenue equals total cost
Break-even is the point of balance between making either a profit or a loss. In economics & business, specifically cost accounting, 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: The value of a commodity expressed in terms of money is known as
(1) Price 
(2) Utility
(3) Value 
(4) Wealth
Answer: (1) Price 
The exchange value of every commodity can be expressed in terms of money. This possibility has enabled money to become a medium for expressing values when the growing elaboration of the scale of values which resulted from the development of exchange necessitated a revision of the technique of valuation. When value is expressed in terms of money, it is called price. Thus, price can be defined as exchange value of a commodity expressed in terms of money.



Question: In a Capitalistic Economy, the prices are determined by :
(1) Demand and Supply
(2) Government Authorities
(3) Buyers in the Market
(4) Sellers in the Market
Answer: (1) Demand and Supply
Capitalism generally refers to economic system in which the means of production are largely or entirely privately owned and operated for a profit, structured on the process of capital accumulation. In general, investments, distribution, income, and pricing is determined by markets. In capitalism, prices are decided by the demand-supply scale. For example, higher demand for certain goods and services lead to higher prices and lower demand for certain goods lead to lower prices.


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