Economics MCQ Questions and Solutions with Explanations | Commerce

An inferior commodity is one which is consumed in smaller quantities when the income of the consumer rises.

Inferior goods are products whose demand decreases as the consumer's income increases. This is because consumers tend to shift to more expensive substitutes when their purchasing power grows. For example, as people earn more, they might buy less instant noodles and more fresh produce or dining-out meals.

Option A: Becomes nil
This option is incorrect because it does not relate to the income change scenario described for inferior goods. If a consumer's income becomes nil, the consumption behavior would change drastically for all types of goods, not just inferior ones.

Option B: Remains the same
This option is incorrect because if the income remains the same, the quantity demanded for inferior goods would not change.

Option C: Falls
This option is incorrect because when the income of the consumer falls, the demand for inferior goods typically increases as consumers substitute these for more expensive alternatives.

Example of correct usage:
When a consumer's income rises, they may purchase less generic or store-brand products (inferior goods) and opt for more brand-name or luxury items instead.

Understanding the concept of inferior goods helps economists and businesses predict changes in market demand based on economic conditions and consumer income levels.

In long run equilibrium, the pure monopolist can make pure profits because of blocked entry. Barriers may block entry even if the firm or firms currently in the market are earning profits.

Positive income elasticity implies that as income rises, demand for the commodity rises. A positive income elasticity of demand is associated with normal goods; an increase in income will lead to a rise in demand.

A firm under perfect competition will be making minimum losses (in the short run) at a point where MC=MR. In order to maximize profits in a perfectly competitive market, firms set marginal revenue equal to marginal cost (MR=MC).

Small number of buyers and sellers is not a feature of perfect competition. These are the three essential features of perfect competition: The number of buyers and sellers in the market is very large. These buyers and sellers compete among themselves. Due to the large number, no buyer or seller influences the demand or supply in the market.

If firm's average cost curve is falling then marginal curve must be below average cost curve.

Scarcity of resources, Alternative uses and Unlimited wants are the cause of an economic problem. Factors like production costs and labor affect the cost of scarce items. If the unlimited wants and needs of a particular good can be met by resources, then it is not considered scarce. This would require the resources to be unlimited as well for it to meet unlimited demand.

Income elasticity for the household when the income of a household rises by 10% and the demand for Rice rises by 5% is 0.5. Income Elasticity = (% change in quantity demanded) / (% change in income).

When two goods are perfect substitutes of each other, then MRS is constant. Two commodities are perfect substitutes for each other – In this case, the indifference curve is a straight line, where MRS is constant.

In the long run, normal profits are included in the LAC curve. Long run average cost (LAC) can be defined as the average of the LTC curve or the cost per unit of output in the long run.