Financial capital consists of the funds that firms use to buy and operate capital. A financial market is where businesses get the funds that they use to buy capital. In a financial market, while firms are the demanders of the funds, people are the savers and ready to lend their sacrificed consumption, in other words, their savings. Financial markets are the channels through which firms borrow financial resources to buy capital. The interest rate is determined by the forces of demand and supply in a market called the loanable funds market in which borrowers (demanders of funds) and lenders (suppliers of funds) encounter. The correct answer is A.

Marginal revenue is the additional revenue obtained by selling one more unit. The correct answer is D.

A market supply curve for labor shows the total amount of labor that the workers are ready to supply at a given wage. This amount is affected by some other factors which are assumed to be constant when the supply curve is drawn: changes in population, changes in tastes and changes in opportunities in other labor markets. The answer is E.

Economic efficiency is the use of scarce resources—the labor force, natural resources and land—that will yield the highest possible amount of output or the production of what people demand using the least amount of input. Therefore, the correct option is C. 

Law of Diminishing Returns Decrease in the marginal product of a variable input. When additional units of a variable input—typically labor—are added to fixed input—typically
capital— the marginal product of variable input firstly increases and then finally decreases. The correct answer is D.

The amount of maximum output that a firm can produce with different levels of labor for a given capital amount used is defined as total product of labor.

In the case of unit elastic demand, which is the case of mid-point of linear demand curve, an increase in price leaves total revenue unchanged: the increase in the total revenue from higher Price exactly offsets the reduction of the total revenue due to lower Quantity.

Toatl revenue is the total amount of money received by a seller, which is equal to price times quantity sold. Therefore, the correct option is B.

From an economist’s point of view, the cost includes not only the explicit expenses you must pay, but also as implicit costs the monetary value of time, effort and other resources you have to give up. The sum of all these costs is called the economic cost.

There are basically two factors that can cause the market supply to shift to the rightward: (i) A decrease in production costs shifts the market supply curve rightward. For example, a technological innovation which leads to a rise in labor productivity decreases the unit labor cost and causes the market supply curve to shift to the right. (ii) In the long run, an increase in the number of firms, i.e., new firms entering the industry, shifts the market supply curve rightward. The correct answer is E.

The resources that we can use to satisfy our needs and desires are available only in limited quantities. They fall short of the amounts required to fully satisfy all our needs and desires. This is true not only for individuals but also for all societies. Scarcity refers to society’s inability to produce all the goods and services people desire to have due to resource limitations. The correct answer is B.

Monopoly is a market structure with only one producer/seller of a good and it does not act as a price taker but as a price setter.

For an income of ?120 and prices of ?30 for good X and ?6 for good Y the budget constraint yields to P_x X + P_y Y = Income which is equal to 30X + 6Y =120. The true answer is B.

The Law of Supply states that, under the assumption of ceteris paribus, an increase in the price of a product leads to an increase in the quantity supplied. In other words, The law of supply states that there exists a positive relationship between the price and the quantity supplied of a good, implying that the supply curves normally slope upwards. As it is understood the correct answer is “A”. Market demand is the sum of all the quantities of a product demanded per period by all the buyers in the market. By market equilibrium, economists think of the price level at which demand and supply curves meet. At that price level the quantity demanded will be equal to the quantity supplied.  The quantities that the producers are willing and able to supply at every given prices are called quantity supplied. For a perfectly competitive firm, the curvature and the slope of the supply curve follow the marginal cost (MC) curve of the producers. By marginal cost, we mean the additional cost that the producers have to incur when they increase the production of a certain product by one unit. Marginal cost tends to increase as production increases. In other words, each additional unit produced will cost more to the firm to produce than the previous unit.

The amount of labor demand at a given wage is affected by some other factors as well, and they are given in A, B, C, and D. Therefore, the correct option is E.

I. Firms pay wage to the labor they use in production. (True)

II. The compensation for the use of capital is rent. (False, the compensation for the use of capital is interest.)

III. The price of using land is called interest. (False, the price of using land is called rent.)

The answer is A.

Monopolistic competition is a market structure where there are many firms that sell differentiated products. Each firm has a monopoly over the product it sells, but many other firms make similar products that compete for the same customers. Therefore, the correct option is C.