Economics MCQ Questions and Solutions with Explanations | Commerce

If rate of interest is 10%, the PV (present value) of Rs.100 received in 1 year's time is 90.9. "Present value" of a rupee received a year from now, is equal to only 90.9 paise [100/(1.1)].

Law of substitution is another name for law of Law of Equi-MU. The Law of equimarginal Utility is another fundamental principle of Econo­mics. This law is also known as the Law of substitution or the Law of Maxi­mum Satisfaction.

The average cost is U-shaped because an increase in output increases the returns and reduces the total cost. As the curve continues to slope downwards, it enters a phase of constant returns where the returns and output are at their optimum level. After the constant level, continued increase in output stops yielding any further increments in the returns (diminishing returns) and the costs begin to rise, forcing the curve to start sloping upwards.

The Making of Index numbers is the work of Irving Fisher. Index numbers played an important role in his monetary theory, and his book The Making of Index Numbers has remained influential down to the present day. Fisher's main intellectual rival was the Swedish economist Knut Wicksell.

Professor Knight is famous for his theory of Profit. He is best known for his Risk, Uncertainty and Profit, a monumental study of the role of the entrepreneur in economic life.

When Marginal Utility is positive, Total Utility Decreases. When we say that the total utility is increasing at a diminishing rate, we mean that amount of change in total utility is decreasing with the consumption of every extra unit which is nothing but marginal utility.

The three broad types of productive resources are Capital, labour and natural resources.

Economic development of a country requires Skilled labour and Abundant natural resources.

Profits are Residual payment. Residual payments are most often associated with the entertainment industry, since movies and music can generate revenues long after they are originally released.

Diminishing marginal utility is the basis of Law of demand. When the price of a goods falls, downward sloping marginal utility curve implies that the consumers must buy more of the good so that its marginal utility falls and becomes equal to the new price.