Basic Economics Trivia Quiz

Answer: increase

Notwithstanding this assertion, the quantity demanded of an "inferior good" will decrease when the price falls.

Answer: True

The increase in satisfaction will continue till you reach what is called the "bliss point", which represents the highest possible satisfaction level. If you continue consuming more of the same commodity after reaching the bliss point, the total satisfaction levels will start falling. But generally it is held that the bliss point is unattainable, so the situation of total satisfaction falling due to excess consumption does not arise (except in case of food/drink items, over a relatively short time period).

To put it another way, when consumption of a good increases, the satisfaction will increase up to a point of maximum satiation where no more satisfaction (utility) can be derived. Beyond this point, negative satisfaction is seen. e.g a thirsty runner can only drink so much water. A point reaches beyond which any additional glass of water will only cause him/her discomfort.

Answer: Satisfy the most urgent needs which can be met within his/her income levels

Though Buddha said that one should renounce all wants to attain happiness, unfortunately, in real world, it appears that people are more inclined towards being jealous of well-to-do neighbours, or be resigned to their fate, as some of us Indians are.

Answer: Lowest

Here the catch is that commodities are "identical". Suppose you wanted to purchase a Ford Taurus, then you would obviously purchase it from the dealer who offers you the lowest price. But if you wanted to buy "a car", then things would become complicated, as all "cars" on offer are not similar. For instance, one car may have a larger engine, the other one may be more comfortable to drive, and the third one is more fuel efficient and so on.

This adding on of "different" features to the basic product (car in this case), so that consumers will be attracted to purchase that particular product, is called "product differentiation".

This is the normal situation we find ourselves in. In such a situation, you purchase the car which suits your particular needs best and is also available at a more economical price.

This of course does not apply if you decide to purchase a "status symbol", like a Rolls Royce. In such a case, a higher the price may - up to a point - increase desirability.

Answer: less

The Law of Diminishing Marginal Utility states that as you keep on consuming a (homogeneous) commodity continuously, the satisfaction derived from each subsequent unit will keep on falling (but the total level of satisfaction will still rise, as said in question 2).

This is because the urgency of the want it self will be diminishing. For instance, when you are very hungry, you would welcome a Big Mac. But once you have eaten the Big Mac and your hunger is overcome, you may rather have an Ice Cream rather than another Big Mac.

Answer: profits

Traditional theory says that profit maximisation is the basic objective of a firm. However, there are theories which state that firms try to maximise their Sales or Revenue also. But these theories assume certain special conditions like constant returns to scale. (We will not go into those details).

In any case, if the special conditions are met, then it transpires that the firm is actually doing profit maximisation ultimately.

Answer: seller

It is very difficult to have a pure monopoly, unless there is some "entry barrier" like huge capital requirement, etc. However, sometimes, the governments may "create" monopolies to meet some special needs. One such example is the currency issuing authorities of different countries, like FED in US, Bank of England in UK and the Reserve Bank of India in my country.

Answer: Money

Even though Marxists believe that markets don't work (at least in the long run), it appears that they do work indeed. The other wrong answers may also appeal to some as being true, but it's really money, honey. The greatest attribute of money (currency) is that it is universally acceptable medium of exchange. So when you produce a commodity, you sell it in exchange of money and then use the money to buy whatever you want. Imagine a barter economy where you are producing hats and need a horse. Then you have to go around to find a fellow who has a horse and also wants a hat. Such activity is obviously time consuming and hampers economic activity.

Answer: recession

Boom is when the economic activity is thriving. Deflation means a fall in general price level. Depression is an acute fall in economic activity characterised by widespread losses due to lack of demand, job retrenchment, etc. Recession precedes a depression, and when the recession becomes uncontrollable, it will precipitate into a depression.

The global economy has witnessed a recession as recently as the late 1990s. It has not precipitated into a depression, thankfully due to the lessons we have learnt from the Great Depression.

Answer: Taxes and levies

All the wrong answers also provide some income to the governments. And in some cases, the loans may even exceed the tax revenues. But the ultimate source of income for a government is taxes.