Economics

✅ ANSWER: B
If two goods were perfect substitutes of each other, it necessarily follows that an indifference curve relating the two goods will be linear. As price rises for a fixed money income, the consumer seeks the less expensive substitute at a lower indifference curve.

✅ ANSWER: A
Product differentiation is the most important feature of Monopolistic competition. Monopolistic Competition refers to a market situation in which there are large numbers of firms which sell closely related but differentiated products.

✅ ANSWER: B
When MC = AC, we know that the firms must be producing at the minimum point of the average cost curve and so there will be productive efficiency.

✅ ANSWER: B
A firm encounters its ‘shutdown point’ when average variable cost equals price at the profit-maximizing level of output.

✅ ANSWER: A
According to Marshall, the basis of consumer surplus is Law of diminishing MU. As per the law, as we purchase more of a commodity, its marginal utility reduces. Since the price is fixed, for all units of the goods we purchase, we get extra utility. This extra utility is consumer surplus.

✅ ANSWER: B
All of the following are determinants of demand except Quantity supplied. The Five Determinants of Demand Prices of related goods or services. These are either complementary, those purchased along with a particular good or service, or substitutes, those purchased instead of a certain good or service. Tastes or preferences of consumers. Expectations.

✅ ANSWER: C
If all inputs are trebled and the resultant output is doubled, this is a case of Diminishing returns to scale.

✅ ANSWER: D
The supply of a commodity refers to amount of the commodity offered for sale at a particular price per unit of time. Price of a commodity is determined by the demand for and supply of a commodity.

✅ ANSWER: C
The exception to law of demand is Veblen goods and Giffen goods.
Giffen goods are the inferior goods whose demand increases with the increase in its prices. There are several inferior commodities, much cheaper than the superior substitutes often consumed by the poor households as an essential commodity. Whenever the price of the Giffen goods increases its quantity demanded also increases because, with an increase in the price, and the income remaining the same, the poor people cut the consumption of superior substitute and buy more quantities of Giffen goods to meet their basic needs.
Another exception to the law of demand is given by the economist Thorstein Veblen, who proposed the concept of “Conspicuous Consumption.” According to Veblen, there are a certain group of people who measure the utility of the commodity purely by its price, which means, they think that higher priced goods and services derive more utility than the lesser priced commodities.

✅ ANSWER: A
The minimum wage is an example of Price floor. A price floor is the absolute minimum price at which a good or service (labor in this case) can be sold and it is usually set by the government. Price floors are set above the market equilibrium price of a good or service.