ICET Business and Commerce Fundamentals 3 — Questions and Answers
Question 1: Which market structure is characterized by a few large firms that dominate an industry?
- Monopoly
- Perfect competition
- Oligopoly (Correct answer)
- Monopsony
Correct answer: Oligopoly
An oligopoly is characterized by a small number of large firms that have significant market power.
Question 2: What is the fundamental accounting equation?
- Revenue = Expenses + Profit
- Assets = Liabilities + Equity (Correct answer)
- Profit = Revenue − Expenses
- Cash = Assets − Liabilities
Correct answer: Assets = Liabilities + Equity
The fundamental accounting equation is Assets = Liabilities + Equity, forming the basis of double-entry bookkeeping.
Question 3: What does 'price elasticity of demand' measure?
- The total demand in the market
- The responsiveness of quantity demanded to a change in price (Correct answer)
- The supply available at a given price
- The income level of consumers
Correct answer: The responsiveness of quantity demanded to a change in price
Price elasticity of demand measures how responsive the quantity demanded is to a change in price.
Question 4: Which of the following is NOT a current asset?
- Cash
- Accounts receivable
- Inventory
- Machinery (Correct answer)
Correct answer: Machinery
Machinery is a fixed (non-current) asset, while cash, receivables, and inventory are all current assets.
Question 5: What is the primary purpose of a cash flow statement?
- Show profitability over a period
- Track inflows and outflows of cash (Correct answer)
- Summarize all assets and liabilities
- Calculate total tax liability
Correct answer: Track inflows and outflows of cash
The cash flow statement tracks cash inflows and outflows from operating, investing, and financing activities.
Question 6: What does the law of diminishing returns state?
- Each additional unit of input adds more output than the previous one
- Adding more of one input eventually yields smaller and smaller increases in output (Correct answer)
- Revenue decreases as product prices increase
- Profits decline automatically as total sales grow
Correct answer: Adding more of one input eventually yields smaller and smaller increases in output
The law of diminishing returns states that adding more of one variable input, while others remain fixed, eventually produces smaller incremental output gains.
ICET Business and Commerce Fundamentals 3
Which market structure is characterized by a few large firms that dominate an industry?