CA Foundation Economics Question Paper Jan 25 with Answers
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Question 1. Price elasticity of demand of a firm under perfect competition will be:
(A) Very Large
(B) Infinite
(C) Large
(D) Small
Answer:
Question 2. Many sellers offering differentiated products to many buyers is the characteristics of:
(A) Perfect competition
(B) Monopolistic competition
(C) Oligopoly competition
(D) Monopoly
Answer: B
In monopolistic competition, many sellers offer differentiated products to many buyers. Each seller's product is slightly different from the others, allowing firms to have some control over their prices while still facing competition from other sellers offering similar, but not identical, products.
Question 3. Identify the correct relationship among MR, AR & e (price elasticity of demand):
(A) MR = AR × e/(e-1)
(B) AR = MR × (e-1)/e
(C) MR = AR × e/(e-1)
(D) MR = AR × (e-1)/e
Answer: D
This relationship expresses the marginal revenue (MR) in terms of average revenue (AR) and the price elasticity of demand (e). It is valid when considering the price elasticity of demand in different market structures.
Question 4. Total revenue will be maximum, where elasticity is equal to:
(A) Greater than 1
(B) Less than 1
(C) Zero
(D) 1
Answer: D
At this point, the percentage change in quantity demanded is exactly proportional to the percentage change in price, meaning total revenue is neither increasing nor decreasing. This occurs at the unitary elastic point.
Question 5. When both demand and supply increase, the equilibrium quantity ______ but the change in equilibrium price is ______.
(A) decreases, uncertain
(B) increases, constant
(C) increases, uncertain
(D) decreases, constant
Answer:
Question 6. Identify the correct below mentioned condition/conditions for equilibrium of a firm under perfect competition:
(I) MR = MC
(II) MR > MC
(III) MR < MC
(IV) MC should have a positive slope.
(V) MC should have a negative slope.
(A) (III) and (V)
(B) (I) and (IV)
(C) (I) and (V)
(D) (II) and (IV)
Answer:
Question 7. ______ are already incurred once and for all, and cannot be recovered.
(A) Sunk costs
(B) Historical cost
(C) Private costs
(D) Social costs
Answer: A
Question 8. Market for soaps and detergents are the appropriate example of:
(A) Monopoly
(B) Oligopoly
(C) Monopolistic competition
(D) Perfect competition
Answer: C
The market for soaps and detergents is a good example of monopolistic competition because there are many sellers offering differentiated products. Each brand has its unique features, packaging, and marketing, but the products are still similar enough that consumers can switch between them. This allows firms some control over prices but they still face competition from other brands.
Question 9. Downward sloping and highly inelastic demand curve is the feature of:
(A) Monopoly
(B) Oligopoly
(C) Monopolistic competition
(D) Perfect competition
Answer:
Question 10. Market characterized by a single buyer of a product or service and is mostly applicable to factor markets in which a single firm is the only buyer of a factor is known as:
(A) Oligopsony
(B) Duopoly
(C) Bilateral monopoly
(D) Monopsony
Answer: D
A monopsony is a market structure where there is a single buyer of a product or service. It is mostly applicable to factor markets, where a single firm is the only buyer of a particular factor of production, such as labor. This gives the buyer significant market power in determining wages or prices for the factor.
Question 11. Assume that when price is ₹ 20, the quantity demanded is 9 units, and when price is ₹ 19, the quantity demanded is 10 units. Based on this information, what is the marginal revenue resulting from an increase in output from 9 units to 10 units?
(A) ₹ 20
(B) ₹ 19
(C) ₹ 10
(D) ₹ 1
Answer: C
Marginal Revenue Calculation:
Given:
Step 1: Calculate Total Revenue (TR) at each price level
Step 2: Calculate the change in total revenue (ΔTR) and the change in quantity (ΔQ)
Step 3: Calculate Marginal Revenue (MR)
Conclusion: The marginal revenue resulting from an increase in output from 9 units to 10 units is ₹10.
Question 12. Average revenue curve is also known as:
(A) Profit Curve
(B) Demand Curve
(C) Average Cost Curve
(D) Indifference Curve
Answer:
Question 13. With a decrease in demand there is:
(A) an overall decrease in price but an increase in equilibrium quantity.
(B) an overall increase in price but a decrease in equilibrium quantity.
(C) a decrease in the equilibrium price and quantity demanded and supplied.
(D) a change in overall price but a reduction in equilibrium quantity.
Answer: C
When there is a decrease in demand, the demand curve shifts to the left. This leads to a lower equilibrium price and a lower equilibrium quantity because the quantity demanded at every price decreases, which results in both price and quantity being reduced.
Question 14. When a perfect competitive firm earns ______, its average revenues are more than average total costs.
(A) Suparnormal profits
(B) normal profits
(C) normal profits and supernormal profits
(D) Losses
Answer: A
When a perfectly competitive firm earns supernormal profits, its average revenues (AR) are more than average total costs (ATC). This means the firm is making profits above the normal profit level, where AR > ATC.
Question 15. In oligopoly, when the industry is dominated by one large firm which is considered as leader of the group, then it is called:
(A) open oligopoly
(B) collusive oligopoly
(C) partial oligopoly
(D) syndicated oligopoly
Answer:
Question 16. The consumption function is a functional relationship between aggregate consumption and:
(A) aggregate disposable income
(B) aggregate demand
(C) aggregate supply
(D) savings
Answer: A
The consumption function represents the relationship between aggregate consumption and aggregate disposable income. It shows how consumption changes in response to changes in income, with other factors held constant.
Question 17. The value of all final goods and services produced in the country within a given period is called:
(A) National Income
(B) Gross Domestic Product (GDP)
(C) Net National Product (NNP)
(D) Gross National Product (GNP)
Answer: B
(A) The aggregate amount that a country's citizens and companies earn abroad is greater than the aggregate amount that foreign citizens and overseas companies earn in that country.
(B) NFIA is negative.
(C) The aggregate amount that a country's citizens and companies earn abroad is equal to the aggregate amount that foreign citizens and overseas companies earn in that country.
(D) NFIA is positive.
Answer:
Question 19. If supply increases in a greater proportion than demand then:
(A) The new equilibrium price and quantity will be greater than the original equilibrium price and quantity.
(B) The new equilibrium price will be greater than the original equilibrium price but equilibrium quantity will be higher.
(C) The new equilibrium price and quantity will be less than the original equilibrium price and quantity.
(D) The new equilibrium price will be less than the original equilibrium price.
Answer: D
When supply increases in a greater proportion than demand, the shift in the supply curve results in a greater quantity being available at every price level, leading to a decrease in the equilibrium price. Although the equilibrium quantity will increase, the dominant effect is a lower price due to the larger increase in supply compared to demand.
Question 20. Which of the following is not true for personal income?
(A) It is income received by household sector.
(B) It includes Non-profit Institutions serving households.
(C) It is a measure of actual current income receipts of persons only from productive activities.
(D) It excludes retained earnings.
Answer:
Question 21. Calculate average propensity to save when C = 300 and Y = 1200.
(A) 0.25
(B) 0.50
(C) 0.75
(D) 0.80
Answer: C
Average Propensity to Save (APS) Calculation:
Given:
Step 1: Calculate Savings (S)
Step 2: Calculate APS (Average Propensity to Save)
Conclusion: The Average Propensity to Save (APS) is 0.75.
Question 22. Marginal propensity to consume is:
(A) Zero
(B) Always less than unity but greater than zero.
(C) Greater than one when income rises.
(D) Does not depend on income.
Answer:
Question 23. Product Method or Value-added method for calculation of National Income is also called:
(A) Industrial Origin Method
(B) Income Disposal Method
(C) Factor Payment Method
(D) Distributed Share Method
Answer: A
The Product Method or Value-added method for calculating National Income is also known as the Industrial Origin Method. This method calculates national income by adding up the value added at each stage of production in all industries of the economy.
Question 24. In a 3-sector model, suppose C = 8 + 0.6 Yd, I = 60, G = T = 10, where C is consumption, I is investment, Yd is disposable income, G is government expenditure and T is tax.
Find out the equilibrium level of national income.
(A) 120
(B) 150
(C) 180
(D) 200
Answer: C
Calculation of Equilibrium National Income in a 3-Sector Model:
Given:
Step 1: Express consumption (C) as a function of disposable income (Yd)
Step 2: Write the aggregate demand (AD) equation
Step 3: Set aggregate demand equal to national income (Y) at equilibrium
Conclusion: The equilibrium level of national income is 180.
Question 25. In an economy investment expenditure is increased by ₹ 300 crores and marginal propensity to consume is 0.6. Calculate the total increase in income.
(A) ₹ 300 crores
(B) ₹ 100 crores
(C) ₹ 650 crores
(D) ₹ 750 crores
Answer: D
Calculation of Total Increase in Income:
Given:
Step 1: Calculate the Multiplier
Step 2: Calculate the Total Increase in Income
Conclusion: The total increase in income is ₹750 crores.
Question 26. Find the real GDP if nominal GDP = ₹ 720 and price index = 120.
(A) 864
(B) 500
(C) 600
(D) 650
Answer:
Question 27. Calculate Gross value added at market price if sales = 750, opening stock = 300, closing stock = 200 and intermediate consumption is 250.
(A) 400
(B) 450
(C) 600
(D) 650
Answer: A
Calculation of Gross Value Added at Market Price (GVA at MP):
Given:
Step 1: Apply the formula for GVA at MP
Conclusion: The Gross Value Added at Market Price (GVA at MP) is ₹400.
Question 28. Nominal GDP is:
(A) Same as real GDP
(B) Real GDP less depreciation
(C) GDP at current prices
(D) GDP at constant prices
Answer:
Question 29. The investment multiplier is defined as the ratio of:
(A) Change in income due to change in saving
(B) Change in demand due to change in investment
(C) Change in consumption due to change in investment
(D) Change in national income due to change in investment
Answer: D
The investment multiplier is the ratio of the change in national income to the change in investment. It measures how much the national income will increase as a result of an initial increase in investment.
Question 30. The ratio of total consumption to total income is known as:
(A) Average Propensity to Consume (APC)
(B) Marginal Propensity to Consume (MPC)
(C) Saving function
(D) Income function
Answer:
Question 31. When entrepreneurs are pessimistic about future market conditions:
(A) It does not impact the economy.
(B) Expansionary phase may begin.
(C) It fosters contraction in economic activities.
(D) Investments tend to increase.
Answer: C
When entrepreneurs are pessimistic about future market conditions, they are likely to reduce investments, which can lead to a contraction in economic activities. This pessimism generally results in less business expansion, reduced production, and lower economic growth.
Question 32. While using the income method, which of the following income is included while calculating national income?
(A) Capital gains
(B) Windfall profits
(C) Income from sale of second-hand goods
(D) Commissions and brokerages
Answer:
Question 33. Which of the following is not an internal cause of business cycles?
(A) Fluctuations in effective demand
(B) Fluctuation in investment
(C) Variations in government spending
(D) Technology shock
Answer: C
Variations in government spending are considered external causes of business cycles because they stem from government policies, not from internal economic factors. The other options are internal causes that arise from within the economy.
Question 34. Changes in stock price, new orders for capital and consumer goods are examples of:
(A) Leading indicators
(B) Lagging indicators
(C) Coincident indicators
(D) Non-economic indicators
Answer: A
Changes in stock prices, new orders for capital and consumer goods are examples of leading indicators. These indicators signal future economic activity and often change before the economy as a whole does, helping to predict upcoming trends.
Question 35. Variables that change after the real output changes are called:
(A) Leading indicators
(B) Lagging indicators
(C) Coincident indicators
(D) Non-economic indicators
Answer:
Question 36. Taxes on agriculture income is levied by:
(A) Central government
(B) State government
(C) Both central and state governments as they are in concurrent list
(D) Local self-government
Answer: B
In India, taxes on agricultural income are primarily levied by the State government. While agriculture is a state subject under the Constitution, it is the states that have the authority to impose taxes on income derived from agriculture. However, the central government does not levy any tax on agricultural income, as it is specifically excluded from the scope of income tax under the Indian Income Tax Act.
Question 37. Government's direct production of an economic good e.g., electricity and public transportation services are example of:
(A) Allocation function
(B) Distribution function
(C) Stabilization function
(D) Protection function
Answer: A
Government's direct production of goods like electricity and public transportation services is an example of the allocation function, where the government provides goods and services that may not be efficiently produced by the private sector.
Question 38. Which of the following is not a characteristic of business cycle?
(A) They occur periodically.
(B) They are recurrent.
(C) They occur at regular intervals.
(D) They have distinct phases of expansion, peak, contraction and trough.
Answer: C
Business cycles are recurrent but not regular. While they repeat over time, the timing and duration of each cycle can vary, making them unpredictable in terms of when they will occur or how long they will last.
Question 39. Non-debt capital receipts of government include:
(A) Market loans for different purposes
(B) State provident fund(Net)
(C) Securities issued against small savings
(D) Recoveries of loans and advances
Answer:
Question 40. When the outcomes of a policy are not visible for some time, it is called:
(A) Recognition lag
(B) Decision lag
(C) Implementation lag
(D) Impact lag
Answer: D
Non-debt capital receipts of the government include recoveries of loans and advances, as they involve the repayment of loans given by the government and do not involve borrowing. The other options involve the government taking on debt.
Question 41. The excess of the government's total expenditure over its total receipts excluding borrowings is termed as:
(A) Revenue deficit
(B) Fiscal deficit
(C) Primary deficit
(D) Budgetary deficit
Answer:
Question 42. The receipts which neither create any liability nor cause any reduction in the assets of government are called:
(A) Non-debt capital receipts
(B) Debt capital receipts
(C) Revenue receipts
(D) Estimated receipts
Answer: C
Revenue receipts are those that do not create any liability or cause a reduction in government assets. These receipts include taxes, fees, and other income from government activities. They are used to cover the regular expenses of the government.
Question 43. Which of the following is applied on inter-state movement of goods and services and on imports and exports?
(A) CGST
(B) SGST
(C) IGST
(D) Income tax
Answer: C
IGST (Integrated Goods and Services Tax) is applied on inter-state movement of goods and services as well as on imports and exports in India. It ensures that goods and services moving across state boundaries are taxed efficiently.
Question 44. A progressive direct tax system ensures:
(A) Economic growth with stability because it distributes the burden of taxes unequally.
(B) Those who have greater ability to pay contribute more and the tax burden is distributed fairly among the population.
(C) Uniform taxes for all.
(D) Luxuries are taxed heavily.
Answer:
Question 45. Which constitutional body maintains fiscal federalism in India?
(A) Central government
(B) Parliament
(C) Reserve Bank of India
(D) Finance Commission
Answer: D
The Finance Commission is the constitutional body responsible for maintaining fiscal federalism in India. It recommends the distribution of financial resources between the central government and the states to ensure equitable fiscal relations.
Question 46. Which of the following is not a characteristic of money?
(A) Generally acceptable
(B) Effortlessly recognisable
(C) Easily transportable
(D) Easily reproducible by people
Answer:
Question 47. The currency issued by the Central Bank is known as ______ and is backed by supporting reserves and its value is a sovereign guarantee.
(A) Real money
(B) Credit money
(C) Fiat money
(D) Sovereign bonds
Answer: C
Fiat money is the currency issued by the Central Bank that has value because the government declares it as legal tender. It is not backed by physical commodities but is supported by the reserves and the sovereign guarantee.
Question 48. Considering that with a money multiplier of 1.5 there has been an increment of ₹ 600 of money supply. Find out the monetary base.
(A) ₹ 800 cr
(B) ₹ 200 cr
(C) ₹ 400 cr
(D) ₹ 900 cr
Answer: C
Calculation of Monetary Base:
Given:
Step 1: Apply the formula for Monetary Base
Conclusion: The monetary base is ₹400 cr.
Question 49. Calculate Narrow Money M1 from the following data:
Currency with public: ₹ 4,88,000 cr
Demand deposit with the banking system: ₹ 88,000 cr
Time deposit with the banking system: ₹ 2,20,000 cr
Other deposits with RBI: ₹ 2,40,000 cr
Saving deposits with Post Office Saving Bank: ₹ 50,000 cr
(A) ₹ 5,68,000 cr
(B) ₹ 6,18,000 cr
(C) ₹ 5,98,000 cr
(D) ₹ 6,38,000 cr
Answer: A
Calculation of Narrow Money M1:
Given:
Step 1: Apply the formula for M1
Conclusion: The Narrow Money M1 is ₹5,68,000 cr.
Question 50. The cap and trade method used by government to ensure that pollution is minimized in the most cost-effective way is an example of:
(A) Government intervention to correct externalities.
(B) Government intervention in the case of merit goods.
(C) Government intervention in the case of demerit goods.
(D) Government intervention for correcting market failure.
Answer:
Question 51. ______ is a penal rate at which RBI lends money to banks, above the rate available under the repo policy.
(A) Marginal standing facility rate
(B) Bank rate
(C) Repo rate
(D) Reverse repo rate
Answer: A
The Marginal Standing Facility (MSF) rate is the penal rate at which the Reserve Bank of India (RBI) lends money to commercial banks, above the rate available under the repo policy. It is used when banks face liquidity shortages and need emergency funding.
Question 52. Liquidity Adjustment Facility (LAF) was introduced by RBI on the basis of the recommendation of the ______ Committee on the reforms in banking sector.
(A) Tandon
(B) Narasimham
(C) Chore
(D) Basel
Answer:
Question 53. Money created by the commercial banks is called:
(A) Real money
(B) High powered money
(C) Fiat money
(D) Credit money
Answer: D
Credit money refers to the money created by commercial banks through lending activities. It includes the deposits created when banks extend credit to borrowers, which increases the money supply in the economy.
Question 54. Under the concept of money supply, the term ‘public’ does not include ______:
(A) Households
(B) Institutions
(C) Government and banking system
(D) Firms
Answer:
Question 55. Compute the total credit money created by the banking system if the required reserved ratio is 15% for every ₹ 12,00,000 deposited in the banking system?
(A) ₹ 1,00,00,000
(B) ₹ 80,00,000
(C) ₹ 1,25,00,000
(D) ₹ 1,50,00,000
Answer: B
Calculation of Total Credit Money Created by the Banking System:
Given:
Step 1: Calculate the Money Multiplier
Step 2: Calculate the Total Credit Money Created
Conclusion: The total credit money created by the banking system is ₹80,00,000.
Question 56. Calculate currency with the public from the following data:
Notes in circulation: ₹ 45,000 cr
Circulation of rupee coins: ₹ 1,500 cr
Circulation of small coins: ₹ 750 cr
Cash on hand with banks: ₹ 27,500 cr
(A) ₹ 74,750 cr
(B) ₹ 19,750 cr
(C) ₹ 73,250 cr
(D) ₹ 29,750 cr
Answer: B
Calculation of Currency with the Public:
Given:
Step 1: Apply the formula for Currency with the Public
Conclusion: The currency with the public is ₹19,750 cr.
Question 57. Which tariff is calculated on the basis of specific contents of the imported goods (duties are payable by its components or related items)?
(A) Compound tariff
(B) Mixed tariff
(C) Ad valorem tariff
(D) Technical tariff
Answer:
Question 58. Which tariff is expressed either on the basis of the value of the imported goods or on the basis of a unit of measure of the imported goods depending on which generates the most income (or least income at times) for the country?
(A) Ad valorem tariff
(B) Specific tariff
(C) Compound tariff
(D) Mixed tariff
Answer: D
A mixed tariff is a combination of both ad valorem tariff (based on the value of the imported goods) and specific tariff (based on a unit of measure, such as weight or quantity). The government may use the type of tariff that generates the most revenue, depending on the circumstances, such as the value or volume of the imports.
Question 59. The system wherein the nominal tariff rates on imports of manufactured goods are higher than the nominal tariff rates on intermediate inputs and raw materials is known as ______:
(A) Applied tariff
(B) Escalated tariff
(C) Bound tariff
(D) Preferential tariff
Answer: B
An escalated tariff system is where nominal tariff rates on imports of manufactured goods are higher than the rates on intermediate inputs and raw materials. This system is designed to encourage domestic processing and manufacturing by making it cheaper to import raw materials and intermediate goods compared to finished products.
Question 60. Which of the following is a measure to protect human, animal, or plant life from risks arising out of additives, pests, toxins, etc., and to protect the biodiversity?
(A) Prohibited tariff
(B) Sanitary and phytosanitary measures
(C) Technical barriers to trade
(D) Anti-dumping duties
Answer:
Question 61. With regards to international trade, the European Union can be categorised as a:
(A) Trading bloc
(B) Free trade area
(C) Bilateral agreements
(D) Customs union
Answer: D
The European Union (EU) is categorized as a customs union because its member states have eliminated tariffs and other trade barriers among themselves and have adopted a common external tariff on imports from non-member countries. This ensures the free flow of goods within the EU while maintaining a uniform tariff policy for imports.
Question 62. Factor Endowment Theory of trade is also known as ______:
(A) Baumol and Tobin theory
(B) Adam Smith, Absolute Cost Advantage theory
(C) Heckscher-Ohlin theory
(D) Factor Price Equalisation theory
Answer:
Question 63. Investments which are reciprocal investments between countries are referred to as:
(A) Horizontal direct investment
(B) Vertical direct investment
(C) Two-way direct foreign investment
(D) Conglomerate foreign investment
Answer: C
Question 64. A total ban imposed by the Government on imports or exports of some or all commodities to a particular country or regions for a specified or indefinite period is known as ______:
(A) Prohibitive tariff
(B) Anti-dumping duties
(C) Embargo
(D) Rules of origin
Answer: C
Question 65. The theory of Comparative Advantage in International Trade was presented by:
(A) Adam Smith
(B) David Ricardo
(C) John Maynard Keynes
(D) Milton Friedman
Answer:
Question 66. ______ facilitates and improves access to Indian Government data.
(A) E-Amrit
(B) E-NAM
(C) NDAP
(D) MIDH
Answer: C
NDAP (National Data and Analytics Platform) facilitates and improves access to Indian Government data by providing a platform for accessible, reliable, and standardized datasets. This platform helps promote transparency and enhances the ability to analyze government data.
Question 67. Which scheme is aimed at promoting manufacture of electric and hybrid vehicle technology and to ensure sustainable growth for the same?
(A) FAME India
(B) E-Amrit
(C) FIPB
(D) PDMC
Answer: A
Question 68. Which Act was initially aimed for regulation of large firms which had relatively large market power?
(A) RBI Act
(B) FEMA
(C) RERA
(D) MRTP Act, 1969
Answer:
Question 69. Which of the following country is not a member of the G20 economies?
(A) Argentina
(B) India
(C) Tunisia
(D) Mexico
Answer: C
Question 70. Minimum Support Price (MSP) is fixed by the Government of India at ______ of the cost of production.
(A) Two and a half times
(B) Half
(C) One and a half time
(D) Twice
Answer: A
Question 71. Which policy was adopted to ensure world-class industrial infrastructure which would attract cutting-edge technology and boost FDI and local investment in the textile sector?
(A) PM-MITRA
(B) PM Gati Shakti National Master Plan
(C) National Logistic Policy
(D) Production Linked Incentive (PLI) Scheme
Answer: A
The PM-MITRA (Pradhan Mantri Mega Integrated Textile Region and Apparel) scheme was adopted to ensure world-class industrial infrastructure in the textile sector. It aims to attract cutting-edge technology, boost foreign direct investment (FDI), and encourage local investment to enhance the textile industry in India.
Question 72. During the British period, modern industrial sector saw lopsided growth with the dominance of ______ industries.
(A) Wool and cotton
(B) Nylon and silk
(C) Cotton and jute
(D) Silk and cotton
Answer:
Question 73. Statutory recognition was granted to ______ to facilitate mobilization of adequate resources and their efficient allocation in the capital markets.
(A) RBI
(B) BSE
(C) SEBI
(D) NSE
Answer: C
(A) Telecom
(B) Aviation
(C) Atomic energy
(D) Defence
Answer: C
FDI (Foreign Direct Investment) is not permissible in the atomic energy sector in India. The government has strict regulations and restrictions on foreign investment in this sector due to national security concerns and strategic interests.
Question 75. Production of milk is included in which sector?
(A) Tertiary sector
(B) Service sector
(C) Primary sector
(D) Secondary sector
Answer:
Question 76. From which year onwards, India followed the managed floating exchange rate system?
(A) 1990
(B) 1991
(C) 1995
(D) 1993
Answer:
Question 77. “Buyers ultimately determine which goods and services will be produced and in what quantities.” The given statement is the meaning of:
(A) Planned economy
(B) Consumer Sovereignty
(C) Freedom of economic choice
(D) Freedom of enterprise
Answer: B
Consumer sovereignty means that buyers ultimately determine which goods and services will be produced and in what quantities based on their preferences and spending choices. This concept reflects the power of consumers in directing the production of goods and services in a market economy.
Question 78. Which of the following is not one of the four basic economic problems of an economy?
(A) What to produce?
(B) Where to produce?
(C) For whom to produce?
(D) What provisions are to be made for economic growth?
Answer: D
The four basic economic problems of an economy are:
"What provisions are to be made for economic growth?" is not one of the core basic economic problems but pertains to policy decisions for long-term economic development.
Question 79. Finance minister was discussing, balance of trade and balance of payments. This area comes under:
(A) Micro Economics
(B) Macro Economics
(C) Capitalist Economy
(D) Mixed Economy
Answer:
Question 80. Which of the following is an example of normative statement?
(A) The demand for a good will increase if its price decreases.
(B) The government should increase taxes on liquor to reduce its consumption.
(C) A decrease in interest rates will lead to an increase in investment.
(D) An increase in government spending will reduce the unemployment rate.
Answer: B
A normative statement expresses a value judgment or opinion about what ought to be, rather than what is. In this case, the statement suggests a course of action (increasing taxes on liquor) based on a desired outcome (reducing consumption), which is a normative view.
Question 81. When some people start investing money in share market then many people start following the same without considering its advantages and disadvantages is an example of:
(A) Veblen effect
(B) Bandwagon Effect
(C) Snob Effect
(D) Sheep Effect
Answer:
Question 82. Which of the following does not describe the nature of business economics?
(A) It is normative in nature.
(B) It is abstract and purely theoretical.
(C) It is an art.
(D) It incorporates elements of Macro Analysis.
Answer: B
Business economics is practical and applied, rather than purely abstract or theoretical. It focuses on real-world business decisions, taking into account both macroeconomic and microeconomic factors, and provides practical solutions for businesses.
Question 83. The slope of a demand curve is:
(A) ΔQ / ΔPA
(B) ΔP / ΔQ
(C) –ΔQ / ΔP
(D) –ΔP / ΔQ
Answer:
Question 84. A shopkeeper sells two commodities A and B, which are close substitutes of each other. It is observed that when the price of commodity A rises by 20%, the demand for B increases by 30%. What is the cross-price elasticity for commodity B against the price of commodity A?
(A) +1
(B) –1
(C) +1.5
(D) –1.5
Answer: C
Calculation of Cross-Price Elasticity of Demand:
Given:
Step 1: Apply the formula for Cross-Price Elasticity of Demand
Conclusion: The cross-price elasticity for commodity B against the price of commodity A is +1.5.
Question 85. “Excess of the price which a consumer would be willing to pay rather than go without a thing over that which he actually does pay”, is called:
(A) Consumer equilibrium
(B) Consumer surplus
(C) Change in demand
(D) Change in price
Answer: B
Consumer surplus refers to the difference between what a consumer is willing to pay for a good or service and what they actually pay. It represents the benefit to the consumer from participating in the market.
Question 86. With reference to the following indifference map, which of the following curve represents highest satisfaction level?
(A) IC3
(B) IC2
(C) IC1
(D) All the curves represent the same satisfaction level.
Answer:
Question 87. 'Ceteris Paribus' is a Latin phrase that generally means:
(A) All other things being equal
(B) An inverse relationship
(C) Income of consumers
(D) Tastes and preferences of consumers
Answer: A
Ceteris Paribus is a Latin phrase that means "all other things being equal" or "holding other factors constant." It is commonly used in economics to isolate the effect of one variable while assuming that other relevant factors remain unchanged.
Question 88. If the price of Wheat increases from ₹ 1,800 per Quintal to ₹ 2,200 per Quintal and consequently the quantity supplied rises from 2,000 Quintal to 3,200 Quintal. Calculate the elasticity of supply.
(A) +0.7
(B) +1.7
(C) +2.7
(D) +3.7
Answer: C
Calculation of Elasticity of Supply:
Given:
Step 1: Calculate the percentage change in price
Step 2: Calculate the percentage change in quantity supplied
Step 3: Calculate the Elasticity of Supply
Conclusion: The elasticity of supply is +2.7.
Question 89. In case of perfectly elastic supply:
(A) Es > 1
(B) Es = 1
(C) Es = 0
(D) Es = ∞
Answer:
Question 90. The Supply function is given as q = 120 + 6p. Find the elasticity of supply, when price is ₹ 10.
(A) +1/3
(B) +2/3
(C) –2/3
(D) +3/4
Answer: A
Calculation of Elasticity of Supply:
Given Supply Function:
Step 1: Find dQ/dP
Step 2: Calculate quantity supplied at P = ₹10
Step 3: Calculate the Elasticity of Supply
Conclusion: The elasticity of supply is +1/3.
Question 91. Which of the following is not a characteristic of land?
(A) Land is heterogeneous.
(B) Land is an active factor.
(C) Supply of land is fixed.
(D) Land has multiple uses.
Answer:
Question 92. Cobb-Douglas production function is stated as:
(A) Q = KaL C(1-a)
(B) Q = K(1-a)LaC
(C) Q = KaL(1-a)C
(D) Q = K LaC(1-a)
Answer: A
Formula for Cobb-Douglas Production Function:
The Cobb-Douglas production function is typically represented as:
Q = A × Ka × L(1-a)
Where:
Based on the options provided, the closest match to the typical form of the Cobb-Douglas production function is:
Question 93. Which of the following refers to the want satisfying power of goods and services? It is not absolute but relative. It is a subjective concept and it depends upon the mental attitude of people.
(A) Utility
(B) Consumers equilibrium
(C) Need
(D) Demand
Answer: A
Product Schedule:
|
Quantity of Labour |
Total Product (TP) |
Average Product (AP) |
Marginal Product (MP) |
|
1 |
- |
- |
- |
|
2 |
10 |
- |
- |
|
3 |
- |
11 |
11 |
|
4 |
- |
- |
11 |
|
5 |
52 |
- |
- |
|
6 |
- |
- |
8 |
Question 94. What will be the average product when quantity of labour is 6?
(A) 9
(B) 10
(C) 11
(D) 12
Answer: B
To calculate the Average Product (AP), we use the formula:
AP = Total Product (TP) / Quantity of Labour (L)
The Total Product (TP) for labour 6 is 60, as calculated from the given information.
The Average Product (AP) for labour 6 = 60 / 6 = 10
Question 95. What will be the total product when quantity of labour is 4?
(A) 38
(B) 40
(C) 42
(D) 44
Answer: D
Question 96. What will be the marginal product when quantity of labour is 5?
(A) 8
(B) 9
(C) 10
(D) 11
Answer: A
The Marginal Product (MP) for labour 5 is given as 8 in the table.
Question 97. In short-run, when average cost falls as a result of an increase in output, marginal cost is ______ average cost.
(A) greater than
(B) less than
(C) equal to
(D) independent of
Answer:
Question 98. Initially a firm enjoys ______ of scale and beyond a certain limit it suffers from ______ of scale.
(A) internal economies, internal diseconomies
(B) external economies, external diseconomies
(C) internal diseconomies, internal economies
(D) external diseconomies, external economies
Answer:
Question 99. The long-run average cost curve is also called:
(A) Kinked curve
(B) Equal quantity curve
(C) Envelope curve
(D) Sharp curve
Answer: C
Question 100. Who describes production function as the relationship between the maximum amount of output that can be produced and the input required to make that output?
(A) Cobb-Douglas
(B) Samuelson
(C) Paul Sweezy
(D) Alfred Marshall
Answer: D
Alfred Marshall described the production function as the relationship between the maximum amount of output that can be produced and the inputs required to make that output. He emphasized the concept of production in the context of economic theory, focusing on how inputs are transformed into outputs.
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