Question 1

Commodities bought in larger quantities when income rises are called:&#10;A)Normal goods&#10;B)Inferior goods&#10;C)Giffen goods&#10;D)None

Accepted Answer

Normal goods are those for which demand increases as the income of the consumer increases. This is because consumers tend to buy more of these goods when they have more disposable income.

Question 2

The curve showing the quantity of a good that would be purchased at various income levels:&#10;A)Income Consumption Curve&#10;B)Price Consumption Curve&#10;C)Engel Curve&#10;D)Indifference Curve

Accepted Answer

The Engel Curve represents the relationship between income levels and the quantity of a good purchased, showing how consumption changes as income changes.

Question 3

Change in demand due to change in relative price alone is called:&#10;A)Income effect&#10;B)Substitution effect&#10;C)Price effect&#10;D)Ratchet effect

Accepted Answer

The substitution effect occurs when consumers react to a change in the price of a good by substituting it with another good, keeping their utility level constant. This effect isolates the impact of relative price changes on demand, distinct from the income effect, which involves changes in consumption patterns due to changes in purchasing power.

Question 4

Substitution Effect is:&#10;A)Always negative&#10;B)Always positive&#10;C)Seldom negative&#10;D)Zero

Accepted Answer

The Substitution Effect is always negative because it describes how consumers will substitute cheaper goods for more expensive ones when prices change, leading to a decrease in the quantity demanded of the more expensive good.

Question 5

If income effect works in the same direction to that of substitution effect, the good is a:&#10;A)Normal good&#10;B)Inferior good&#10;C)Giffen good&#10;D)Superior Good

Accepted Answer

When both the income effect and the substitution effect work in the same direction, it indicates a normal good. This means that as income increases, the demand for the good also increases, and vice versa.

Question 6

If income effect works in the direction opposite to that of substitution effect, the good is not:&#10;A)Giffen good&#10;B)Inferior good&#10;C)Normal good&#10;D)Superior Good

Accepted Answer

When the income effect works in the opposite direction to the substitution effect, it indicates that as income increases, the demand for the good decreases, which is characteristic of inferior goods, not normal goods. Normal goods see an increase in demand as income increases.

Question 7

Introspection is not the basis of :&#10;A)Marshallian utility analysis&#10;B)Indifference Curve Analysis&#10;C)Revealed Preference Hypothesis&#10;D)Demand Analysis

Accepted Answer

The Revealed Preference Hypothesis, proposed by Paul Samuelson, is based on the observation of consumer behavior rather than introspection. It suggests that the preferences of consumers can be revealed by their purchasing habits, unlike the Marshallian utility analysis and Indifference Curve Analysis, which rely on the introspective assessment of utility or satisfaction. Demand Analysis can also involve introspection to some extent when it comes to understanding consumer preferences and behaviors.

Question 8

The ordering of combinations on an indifference curve is:&#10;A)Weak&#10;B)Strong&#10;C)Average&#10;D)None

Accepted Answer

The ordering of combinations on an indifference curve is weak because it represents a set of bundles among which the consumer is indifferent, implying no strong preference for one bundle over another as long as they are on the same curve.

Question 9

Strong ordering is a distinguishing feature of the theory given by:&#10;A)Marshall&#10;B)Hicks&#10;C)Samuelson&#10;D)Adam Smith

Accepted Answer

Samuelson's revealed preference theory is characterized by strong ordering, which implies consistent and transitive consumer choices.

Question 10

Father of Economics:&#10;A)Marshall&#10;B)David Ricardo&#10;C)Adam Smith&#10;D)J.M. Keynes

Accepted Answer

Adam Smith is widely recognized as the father of economics due to his seminal work, "The Wealth of Nations," which laid the foundations for classical economics.

Question 11

The Wealth of Nations is the work of:&#10;A)Marshall&#10;B)J.S. Mill&#10;C)Adam Smith&#10;D)Lionel Robins

Accepted Answer

The answer of The Wealth of Nations is the work...

Question 12

Indifference Approach is related with:&#10;A)Marshall&#10;B)J.R. Hicks&#10;C)Samuelson&#10;D)Sismondi

Accepted Answer

The answer of Indifference Approach is related with:&#10;A)Marshall&#10;B)J.R. Hicks&#10;C)Samuelson&#10;D)Sismondi...

Question 13

Which one of the following is an example of close substitute:&#10;A)Tea and Coffee&#10;B)Milk and water&#10;C)Bread and Butter&#10;D)Pen and pencil

Accepted Answer

The answer of Which one of the following is an...

Question 14

The addition to the total revenue by the sale of an additional unit is:&#10;A)Total revenue&#10;B)Average revenue&#10;C)Value added&#10;D)Marginal revenue

Accepted Answer

The answer of The addition to the total revenue by...

Question 15

Which cost is to be incurred by a firm even if output is zero:&#10;A)Opportunity cost&#10;B)Fixed cost&#10;C)Variable Cost&#10;D)Total cost

Accepted Answer

The answer of Which cost is to be incurred by...

Question 16

The marginal utility theory is contributed by:&#10;A)Marshall&#10;B)David Ricardo&#10;C)Adam Smith&#10;D)Samuelson

Accepted Answer

The answer of The marginal utility theory is contributed by:&#10;A)Marshall&#10;B)David...

Question 17

The factor earning of entrepreneur is:&#10;A)Rent&#10;B)Wage&#10;C)Interest&#10;D)Profit

Accepted Answer

The answer of The factor earning of entrepreneur is:&#10;A)Rent&#10;B)Wage&#10;C)Interest&#10;D)Profit...

Question 18

The Scarcity definition of Economics is the contribution of:&#10;A)Samuelson&#10;B)Adam Smith&#10;C)Lionel Robbins&#10;D)Marshall

Accepted Answer

The answer of The Scarcity definition of Economics is the...

Question 19

Average Revenue is equal to:&#10;A)Price&#10;B)Cost&#10;C)Profit&#10;D)None of these

Accepted Answer

The answer of Average Revenue is equal to:&#10;A)Price&#10;B)Cost&#10;C)Profit&#10;D)None of these...

Question 20

Total Revenue is the maximum when Marginal Revenue is ----------&#10;A)Positive&#10;B)Negative&#10;C)One&#10;D)Zero

Accepted Answer

The answer of Total Revenue is the maximum when Marginal...

Question 21

Market economy is also known as:&#10;A)Socialist economy&#10;B)Capitalist economy&#10;C)Mixed economy&#10;D)Developing economy

Accepted Answer

The answer of Market economy is also known as:&#10;A)Socialist economy&#10;B)Capitalist...

Question 22

If the demand curve is linear and negatively sloped, the marginal revenue curve has a slope:&#10;A)Negative&#10;B)Positive&#10;C)Neither negative nor positive&#10;D)Either negative or positive

Accepted Answer

The answer of If the demand curve is linear and...

Question 23

For complementary goods, the cross elasticity of demand:&#10;A)Positive&#10;B)Negative&#10;C)Zero&#10;D)None

Accepted Answer

The answer of For complementary goods, the cross elasticity of...

Deck 16: Indifference Curves, Ordering, Wealth of Nations, and More