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Microeconomics Questions and Answers

11.

In a Game Theory, the set of outcomes for a game is determined by:

Exam Year(s)

DSSSB PGT - 2023,

Answer: C

In game theory, the pay off matrix lists the outcome for each player for every combination of strategies, so it determines the set of outcomes of a game. An equilibrium is a result of the play, a pay off is a single entry of the matrix, and 'shifting the steel firm' is not a game theory term. The key gives the pay off matrix, option C. The pay offs are shown in a table with each player's strategies on one side, and the cells show the gains.

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12.

If the demand equation is given by D= 1000-P and the supply equation is given by S= 100+4P, equilibrium price would be:

Exam Year(s)

DSSSB PGT - 2023,

Answer: B

Equilibrium price is found by setting demand equal to supply. A quick check is that at P = 180 both sides give 820 units, so there is neither shortage nor surplus.

\[ 1000 - P = 100 + 4P \]

\[ 900 = 5P \Rightarrow P = 180 \]

At this price the quantity demanded is \(1000 - 180 = 820\) and the quantity supplied is \(100 + 4 \times 180 = 820\), so the market clears. The other prices, 160, 170 and 200, do not make demand equal to supply (at 200 demand is 800 and supply 900, an excess supply). The answer is 180, option B.

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13.

Which of the following can be a reason for an exception to the law of demand?

Exam Year(s)

DSSSB PGT - 2023,

Answer: B

An exception to the law of demand arises when a rise in price leads to a rise in the quantity demanded. This happens when buyers expect the price to rise further in future, so they buy more now at a higher price (as in the case of speculative demand). A large share of expenditure on a commodity is the case of a Giffen good only in a special sense, and increasing marginal utility and many substitutes are not reasons for a rising demand curve. The key gives expectation about future prices, option B.

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14.

What do 'a' and 'b' represent in the demand function Qd=a-bP?

Exam Year(s)

DSSSB PGT - 2023,

Answer: C

In the linear demand function Qd = a - bP, the term 'a' is the constant intercept, that is the quantity demanded when the price is zero, and 'b' is the gradient, the change in quantity demanded for a unit change in price, with a negative sign in front to show the inverse relation. They do not stand for quantity and price themselves, nor for income, taste or the elasticities. The answer is constant intercept and gradient, option C. The gradient b measures how much the quantity demanded falls when the price rises by one unit.

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15.

In case of a homogeneous production function, the expansion path is:

Exam Year(s)

DSSSB PGT - 2023,

Answer: C

A homogeneous production function has the property that scaling all inputs by a factor scales the output by a power of that factor, so the marginal rate of technical substitution is the same along any ray from the origin. The isoclines (the expansion paths) are therefore straight lines through the origin, so the expansion path is linear. A convex, concave or curvilinear path would arise for a non homogeneous function. The answer is linear, option C.

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16.

In the standard form of the Constant Elasticity of Substitution (CES) production function with two inputs, \(Q = A\left[aK^{-\theta} + (1-a)L^{-\theta}\right]^{-1/\theta}\), “A” is the:

Exam Year(s)

DSSSB PGT - 2023,

Answer: C

In the CES production function the parameter A is the efficiency parameter, which measures the level of technology: a larger A gives more output from the same inputs. The parameter a is the distribution parameter, which fixes the share of the two factors, and theta is the substitution parameter, from which the elasticity of substitution is derived. The scale of production is governed by a separate degree of homogeneity in the general form. The answer is the efficiency parameter, option C.

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17.

A perfectly competitive firm can sell all the output it wants to:

Exam Year(s)

DSSSB PGT - 2023,

Answer: D

A perfectly competitive firm is a price taker, since it is one of very many sellers and each one is too small to affect the market price. It can sell all it wants to at the going price, so the demand curve it faces is horizontal, and it does not have to lower its price to sell more. Cutting supply or lowering costs is not what lets it sell any amount. The answer is without lowering the price, option D. The firm's marginal revenue equals the price, which is why it equates price with marginal cost to maximise profit.

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18.

Sweezy's model fails to explain:

Exam Year(s)

DSSSB PGT - 2023,

Answer: A

Sweezy's kinked demand curve model explains why prices are rigid in an oligopoly (the demand curve has a kink at the going price, since rivals match a cut and ignore a rise), and it deals with interdependent decision making and, to an extent, non price competition. It fails to explain how the price was determined in the first place, since it only shows why the price stays where it is. The answer is how price is determined, option A. The kink arises because the demand is elastic above the going price and less elastic below it.

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19.

Branch of economics which examines the factors that influence individual economic choices and how markets coordinate the choices of various decision makers is:

Exam Year(s)

DSSSB PGT - 2023,

Answer: B

Microeconomics studies the choices of individual consumers, firms and workers, and how markets coordinate those choices through prices. Macroeconomics deals with aggregates such as national income and employment, public economics with the government's role in the economy, and development economics with growth in poor countries. The answer is microeconomics, option B. The branch looks at demand, supply, cost and market structure, mostly in individual markets.

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20.

Prisoner's Dilemma is a:

Exam Year(s)

DSSSB PGT - 2023,

Answer: B

The prisoner's dilemma is a non zero sum game: the gains of one player are not exactly the losses of the other, and the players can both be better or worse off depending on the combination of strategies. In a zero sum game one player's gain is the other's loss. The dilemma may be played in one round or repeated, but its basic character is that it is non zero sum. The answer is option B. The best known outcome is that both prisoners confess although both would be better off if neither did.

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