Economic Theory Quiz

What does the Law of Variable Proportions explain?

• How prices fluctuate in the market

• The relationship between inputs and outputs in production

• The impact of taxes on consumer behavior

• The concept of supply and demand

In a linear production function, what happens to the output when inputs are doubled?

• The output remains the same

• The output decreases

• The output triples

• The output doubles

What does the Marginal Rate of Substitution measure?

• The rate at which prices change over time

• The rate at which a consumer can give up one good for another while maintaining satisfaction

• The rate at which companies enter a competitive market

• The rate at which a consumer can exchange goods in the market

What is the slope of an indifference curve?

• Positive

• Zero

• Negative

• Undefined

In monopolistic competition, what happens to economic profits in the long run?

• They increase continuously

• They are not affected

• They decrease continuously

• They stabilize at zero

What is the main characteristic of a non-linear production function?

• The output always doubles with increased inputs

• The output increases proportionally with inputs

• The output does not increase proportionally with inputs

• The output remains constant regardless of inputs

How does the Law of Variable Proportions relate to baking cookies?

• Adding more sugar is the key to better cookies

• Adding more flour always improves the taste

• Adding more eggs is always beneficial

• Adding too much flour can ruin the recipe

What is the purpose of understanding indifference curves in economics?

• To determine government spending

• To analyze consumer preferences and behavior

• To predict stock market trends

• To regulate international trade

What happens to the price and output of a monopolistically competitive firm in the short run?

• Price is constant, output varies

• Price equals marginal cost, output is profit-maximizing

• Price increases, output decreases

• Price decreases, output increases

How do firms maintain market power in monopolistic competition?

• By selling identical products

• By engaging in price wars

• By offering differentiated products

• By forming a monopoly