ECO404 Important short Questions and Answers

Question: Differentiate between explicit and implicit costs.
Answer: Explicit costs: Explicit costs are the actual out of pocket
expenditures of the firm to purchase or hire the inputs it
requires in production. Implicit costs: Implicit costs refer
to the value of the inputs owned and used by the firm in
its own production processes.


Question: Differentiate between accounting profit and economic
profit.
Answer: Business or Accounting Profit: Total revenue minus the
explicit or accounting costs of production. Economic
Profit: Total revenue minus the explicit and implicit costs
of production.


Question: Differentiate between direct demand and derived
demand.
Answer: Direct Demand Individual’s demand for goods and
services that directly satisfy consumer desires is known
as direct demand. This is also known as consumer
demand. Derived Demand Goods that are demanded not
for direct consumption but rather for their use in
providing other goods and services are known as derived
demand. Their demand is derived from the demand for
the products they are used to provide. Input demand is
called derived demand. It is also called business demand.


Question: Differentiate between the situation of surplus and
shortage.
Answer: Surplus: A surplus is created when producers supply
more of a product at a given price than buyers demand.
Surplus describes a condition of excess supply. Shortage:
A shortage is created when buyers demand more of a
product at a given price than producers are willing to
supply. Shortage describes a condition of excess demand.


Question: Differentiate between short run and long run.
Answer: Short run: The short run is the period of time in which
sellers already in the market respond to a change in
equilibrium price by adjusting variable inputs. Buyers
already in the market respond to changes in equilibrium
price by adjusting the quantity demanded for the good or
service. Long run: The long run is the period of time in
which new sellers may enter a market, existing sellers
may exit from a market, existing sellers may adjust fixed
factors of production, and buyers may react to a change
in equilibrium price by changing their tastes and
preferences.