Question 1

Commodities bought in larger quantities when income rises are called:
A)Normal goods
B)Inferior goods
C)Giffen goods
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:
A)Income Consumption Curve
B)Price Consumption Curve
C)Engel Curve
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:
A)Income effect
B)Substitution effect
C)Price effect
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:
A)Always negative
B)Always positive
C)Seldom negative
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:
A)Normal good
B)Inferior good
C)Giffen good
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:
A)Giffen good
B)Inferior good
C)Normal good
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 :
A)Marshallian utility analysis
B)Indifference Curve Analysis
C)Revealed Preference Hypothesis
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:
A)Weak
B)Strong
C)Average
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:
A)Marshall
B)Hicks
C)Samuelson
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:
A)Marshall
B)David Ricardo
C)Adam Smith
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:
A)Marshall
B)J.S. Mill
C)Adam Smith
D)Lionel Robins

Accepted Answer

Adam Smith is the author of "The Wealth of Nations," which is considered one of the foundational texts in classical economics.

Question 12

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

Accepted Answer

The Indifference Approach, also known as Indifference Curve Analysis, is primarily associated with J.R. Hicks. This approach was developed to analyze consumer behavior and choices without relying on the concept of utility measurement, which was a departure from the cardinal utility approach advocated by Marshall.

Question 13

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

Accepted Answer

Tea and coffee are considered close substitutes because they both serve a similar purpose as caffeinated beverages, often consumed for a similar experience or effect, such as an energy boost or warmth. Consumers might switch between the two based on price, preference, or availability, making them close substitutes in the market.

Question 14

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

Accepted Answer

Marginal revenue is the increase in total revenue resulting from the sale of one additional unit of a product or service. It is a key concept in microeconomics and business, reflecting the additional income generated from selling one more unit.

Question 15

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

Accepted Answer

Fixed costs are incurred by a firm regardless of its level of production, including when output is zero. These costs do not vary with the level of production activity. Examples include rent, salaries, and insurance.

Question 16

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

Accepted Answer

Marshall is credited with the development of the marginal utility theory, which is a fundamental concept in microeconomics that explains how individuals make decisions based on the additional benefit gained from consuming one more unit of a good or service.

Question 17

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

Accepted Answer

The factor earning of an entrepreneur is profit. This is because entrepreneurs earn income through the profits generated by their businesses, after paying for all other costs, including wages, rent, and interest.

Question 18

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

Accepted Answer

Lionel Robbins defined economics as the science which studies human behavior as a relationship between ends and scarce means which have alternative uses. This definition emphasizes scarcity, choice, and opportunity cost.

Question 19

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

Accepted Answer

Average Revenue (AR) is defined as the revenue per unit of output sold. It is calculated by dividing the total revenue by the quantity of goods sold. Since price is the amount of money received from selling one unit of a good or service, it directly corresponds to average revenue. Therefore, average revenue is equal to the price of the good.

Question 20

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

Accepted Answer

Total Revenue is maximized when Marginal Revenue equals zero. This is because Marginal Revenue represents the change in total revenue from selling one more unit of a good or service. When it's zero, it indicates that selling additional units will not increase total revenue, marking the point of maximum total revenue.

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

Commodities bought in larger quantities when income rises are called:

The curve showing the quantity of a good that would be purchased at various income levels:

Change in demand due to change in relative price alone is called:

Substitution Effect is:

If income effect works in the same direction to that of substitution effect, the good is a:

If income effect works in the direction opposite to that of substitution effect, the good is not:

Introspection is not the basis of :

The ordering of combinations on an indifference curve is:

Strong ordering is a distinguishing feature of the theory given by:

Father of Economics:

The Wealth of Nations is the work of:

Indifference Approach is related with:

Which one of the following is an example of close substitute:

The addition to the total revenue by the sale of an additional unit is:

Which cost is to be incurred by a firm even if output is zero:

The marginal utility theory is contributed by:

The factor earning of entrepreneur is:

The Scarcity definition of Economics is the contribution of:

Average Revenue is equal to:

Total Revenue is the maximum when Marginal Revenue is ----------