Practice Test Questions: Trivia Quiz On Economics!

In economics, the terms "elastic," "inelastic," and "unit elastic" are used to describe the responsiveness of demand or supply to a change in price. When demand is elastic, a small change in price leads to a proportionally larger change in quantity demanded. Inelastic demand means that a change in price has a relatively small effect on quantity demanded. Unit elastic demand occurs when a change in price leads to an equal percentage change in quantity demanded. Therefore, the answer is that 1 means elastic,

The correct answer is Labour/Capital/Land. These three factors are the main inputs required in the production process. Labour refers to the human effort and skills involved in production, while capital refers to the machinery, tools, and equipment used. Land includes all natural resources such as land itself, minerals, water, and other raw materials. These three factors work together to create goods and services.

The answer suggests that the Law of Diminishing Returns occurs when one extra unit of a variable factor (such as labor or raw materials) is added, but the additional output produced is less than the output produced by the previous unit. This means that the productivity or efficiency of the variable factor decreases as more of it is added. This can result in a decrease in overall production and potentially lead to the firm losing money.

The production possibility curve is a graphical representation that shows the different combinations of two goods that a country can produce within a specified time period, assuming that all available resources are fully employed. It illustrates the trade-offs a country faces when allocating its resources between the production of different goods. The curve demonstrates the maximum output that can be achieved given the available resources and technology.

The correct answer is "As prices rise, the quantity demanded falls." According to the Law of Demand, there is an inverse relationship between the price of a good or service and the quantity demanded. When the price increases, consumers are less willing or able to purchase the same quantity of the good, resulting in a decrease in demand. This is because higher prices make the good relatively more expensive compared to other alternatives, reducing the willingness or ability of consumers to purchase it.

The correct answer is Law of Supply. According to the law of supply, as prices rise, the quantity supplied by producers increases. This is because higher prices incentivize producers to supply more goods or services in order to maximize their profits. Therefore, the relationship between price and quantity supplied is directly proportional, as stated by the law of supply.

A shift along a demand curve is caused by a change in price. When the price of a product increases or decreases, it directly affects the quantity demanded by consumers. As the price increases, the quantity demanded decreases, resulting in a movement along the demand curve. Conversely, when the price decreases, the quantity demanded increases, causing a shift along the demand curve. Factors such as fashion, income, and supply can also influence demand, but they would cause a shift of the entire demand curve rather than a movement along it.

The given formula, %DQd / %DP, is the formula for Price Elasticity of Demand. Price Elasticity of Demand measures the responsiveness of quantity demanded to a change in price. This formula calculates the percentage change in quantity demanded divided by the percentage change in price, giving a numerical value that indicates the elasticity of demand.

If both demand and supply shift right, it means that both the quantity demanded and the quantity supplied increase. This results in an increase in the equilibrium quantity (QD) while the price (P) remains the same.

The correct answer is "When one extra unit of a variable factor will produce less extra output than the previous unit." This is known as the law of diminishing returns, which states that as more units of a variable input are added to a fixed input, the marginal product of the variable input will eventually decrease. In other words, the additional output gained from each additional unit of the variable factor will be smaller than the output gained from the previous unit. This occurs because the fixed input becomes a limiting factor in the production process.

Monopolies encourage risk-taking because they have a dominant market position with little or no competition. This allows them to take risks in terms of pricing, product development, and expansion without the fear of losing market share. Furthermore, monopolies often have significant financial resources and can afford to invest in research and development or other risky ventures. This can lead to innovation and the development of new products or services. However, it is important to note that monopolies can also stifle competition and innovation in the long run, which can have negative effects on the economy and consumers.

This answer suggests that destabilizing speculation occurs when buyers or sellers believe that a change in price will result in similar changes in the future. This means that they expect the price to continue to increase or decrease, leading to more buying or selling in order to take advantage of the expected price movement. This behavior can create instability in the market as it can amplify price fluctuations and potentially lead to a bubble or crash.

The Production Possibility Curve shows the different combinations of two goods that can be produced with limited resources. It illustrates the concept of opportunity costs, which refers to the trade-offs that occur when producing more of one good requires sacrificing the production of another good. The curve also shows increasing or decreasing opportunity costs, as resources are shifted from one good to another. However, it does not directly show marginal costs, which are the additional costs incurred when producing one more unit of a good. Marginal costs are not represented on the curve itself.

The correct answer is "Marginal Physical Product." Marginal Physical Product refers to the additional output or production that is generated by adding one more unit of input, such as labor or capital. It measures the rate at which output changes with respect to the change in input. In this context, DTPP/DQV represents the change in total physical product divided by the change in quantity of variable input. Therefore, it is a measure of the marginal physical product.

The shift in supply can be caused by various factors. Costs of production play a significant role in determining the supply of a product. If production costs increase, the supply curve will shift leftward, indicating a decrease in supply. On the other hand, if production costs decrease, the supply curve will shift rightward, indicating an increase in supply. The profitability of alternative products and goods in joint supply also affects the supply. If alternative products or goods in joint supply become more profitable, producers may shift their resources away from the current product, resulting in a decrease in supply. Nature and other random shocks, such as natural disasters or changes in weather conditions, can also impact the supply. Additionally, the aims and expectations of producers can influence the supply. Therefore, all of the given factors can cause a shift in supply.

The correct answer is C - Easy access to key resources/labour. This is not a barrier to entry in a monopoly because easy access to key resources and labor would actually make it easier for new firms to enter the market and compete with the monopolist. Barriers to entry, on the other hand, are factors that make it difficult or costly for new firms to enter the market and compete with the monopolist. Examples of barriers to entry include economies of scale, legal restrictions, and product differentiation.

The correct answer is APP = TPP/QV. This equation represents the average physical product (APP) which is calculated by dividing the total physical product (TPP) by the quantity of variable input (QV). This equation helps to measure the average productivity of each unit of variable input in the production process.

An oligopoly is a market structure where a few large firms dominate the market. These firms have significant market power and control a substantial portion of the market share. The presence of large barriers to entry means that it is difficult for new firms to enter and compete in the market. This allows the existing firms to maintain their dominance and limit competition.

This answer is correct because elastic demand means that the quantity demanded is highly responsive to changes in price. When the price rises, the demand for the product decreases, resulting in a decrease in revenue.

The correct answer is APP = TPP/QV. This equation represents the average physical product (APP) as the change in total physical product (TPP) divided by the change in variable quantity (QV). This equation is used to calculate the average output per unit of variable input in production. By dividing the change in total physical product by the change in variable quantity, we can determine the average amount of output produced for each additional unit of input.

In monopolistic competition markets, companies face competition from other firms selling similar but slightly differentiated products. This competition limits the ability of companies to make supernormal profits in the long-term. As consumers have various options to choose from, they can easily switch to a competitor offering a similar product at a lower price. This drives down prices and reduces profit margins for companies. Therefore, the statement that companies in monopolistic competition markets can make a supernormal profit in the long-term is false.

Tacit collusion refers to a situation where firms engage in collusive behavior and price leadership without having a formal agreement or written rules. In this type of collusion, firms coordinate their actions and set prices in a way that maximizes their joint profits, even though there is no explicit agreement or communication between them. This can involve practices such as monitoring competitors' prices and adjusting their own accordingly, or following the actions of a dominant firm in the market. Tacit collusion is often difficult to detect and prove, making it a challenge for antitrust authorities to address.

In a market where demand equals supply, the equilibrium price and equilibrium output are determined. This means that the price at which buyers are willing to purchase the same quantity of goods or services that sellers are willing to supply is the equilibrium price. Similarly, the quantity of goods or services that are produced and sold at this equilibrium price is the equilibrium output. Therefore, both the equilibrium price and equilibrium output are correct answers in this context.

A shift in the demand curve is caused by factors that affect the overall demand for a product. Tastes, the price of substitute goods, and the price of complementary goods all directly impact the demand for a product. However, the price of the product itself does not cause a shift in the demand curve. Instead, changes in the price of the product result in movements along the demand curve, known as changes in quantity demanded.

The correct answer is "No excess capacity." In monopolistic competition, firms have some degree of market power and can differentiate their products. This differentiation leads to a variety of products for consumers to choose from, which is an advantage. Additionally, firms in monopolistic competition can gain economies of scale, which can lead to cost efficiencies. Waste is also insignificant as demand is highly elastic, meaning that firms can adjust their production levels based on consumer demand. However, monopolistic competition does not eliminate excess capacity, as firms may still have unused production capacity due to imperfect competition and market fluctuations.

Perfect competition is a market structure characterized by firms being price takers, meaning they have no control over the price of the product and must accept the market price. Additionally, there is free entry into the market, allowing new firms to enter and compete. The products in perfect competition are homogeneous, meaning they are identical and indistinguishable from each other. Lastly, perfect competition assumes perfect knowledge, where all participants have complete information about the market, prices, and products.

In short run production, at least one factor remains the same while other factors may vary. This means that there is at least one fixed factor of production, such as capital or land, that cannot be easily changed in the short run. The variable factors, such as labor or raw materials, can be adjusted to some extent. This allows for some flexibility in production decisions while still having some constraints due to the fixed factor.

The kinked demand curve theory is based on the assumption that if a firm raises its prices, other firms in the market will not follow suit, resulting in a decrease in demand for the firm's product. On the other hand, if the firm reduces its prices, other firms will feel compelled to do the same in order to remain competitive. This theory suggests that firms face a relatively inelastic demand curve above the current price, due to the assumption that competitors will not raise their prices in response to a price increase.