- The concept of “invisible hand” was introduced by –
(A) John Maynard Keynes
(B) Milton Friedman
(C) Adam Smith
(D) David Ricardo
Answer: (C)
Explanation: Adam Smith introduced the “invisible hand” in The Wealth of Nations, describing how individual self-interest in markets, like India’s retail sector, leads to societal benefits through efficient resource allocation. - National Income can be calculated by –
(A) Income method
(B) Expenditure method
(C) Production method
(D) All of the above
Answer: (D)
Explanation: National income in India is calculated using income (wages, profits), expenditure (consumption, investment), and production (value-added) methods, ensuring comprehensive GDP measurement. - Which of the following best describes “Monopsony”?
(A) One seller and many buyers
(B) Many sellers and one buyer
(C) One buyer and one seller
(D) Many buyers and many sellers
Answer: (B)
Explanation: Monopsony occurs when one buyer dominates, like a single employer in a small Indian town, controlling wages, unlike monopoly (one seller) or competitive markets. - Which of the following goods are exempt from GST?
(A) Luxury cars
(B) Unbranded cereals
(C) Electronics
(D) Cement
Answer: (B)
Explanation: Unbranded cereals, essential for food security in India, are exempt from GST to keep prices affordable, unlike luxury cars or cement, which face standard rates. - The term “Budgetary Deficit” means –
(A) Total expenditure – total receipts
(B) Fiscal deficit – borrowings
(C) Revenue deficit + capital deficit
(D) None of the above
Answer: (A)
Explanation: Budgetary deficit in India is total expenditure minus total receipts, reflecting overall borrowing needs, unlike fiscal deficit, which excludes certain receipts. - What is meant by “Social Cost”?
(A) Private cost + external cost
(B) Government cost
(C) Cost to society after subsidies
(D) Personal income tax
Answer: (A)
Explanation: Social cost includes private costs (e.g., production) plus external costs (e.g., pollution), like coal plants in India impacting health, unlike government or tax costs. - Which one of the following is not a component of the Human Development Index?
(A) Life expectancy
(B) Literacy rate
(C) Gross enrolment ratio
(D) Gender parity
Answer: (D)
Explanation: HDI measures life expectancy, education (literacy, enrolment), and per capita income. Gender parity, while important, is not a direct HDI component in India’s rankings. - The concept of “Pareto Efficiency” is used in –
(A) Public finance
(B) Welfare economics
(C) Monetary economics
(D) Labour markets
Answer: (B)
Explanation: Pareto efficiency, where resources cannot be reallocated without harming someone, is a welfare economics concept, applied in India to assess policy fairness, unlike monetary or labor contexts. - Which of the following is a tool for qualitative credit control?
(A) CRR
(B) Repo Rate
(C) Moral suasion
(D) Bank rate
Answer: (C)
Explanation: Moral suasion, where RBI persuades banks to adjust lending, is a qualitative credit control tool in India, unlike quantitative tools like CRR or repo rate. - Which organization publishes the “World Happiness Report”?
(A) UNDP
(B) IMF
(C) World Bank
(D) Sustainable Development Solutions Network
Answer: (D)
Explanation: The Sustainable Development Solutions Network publishes the World Happiness Report, ranking countries like India based on life satisfaction, unlike UNDP or IMF reports. - The break-even point is where –
(A) Revenue = fixed cost
(B) Revenue = total cost
(C) Revenue = variable cost
(D) Profit = total cost
Answer: (B)
Explanation: The break-even point occurs when revenue equals total cost (fixed + variable), as in Indian small businesses, where no profit or loss is incurred. - The term “Gresham’s Law” relates to –
(A) Bad money drives out good money
(B) Demand creates its own supply
(C) Money supply creates inflation
(D) Supply creates its own demand
Answer: (A)
Explanation: Gresham’s Law states that bad (debased) money drives out good money, as seen historically in India when counterfeit coins circulated, reducing trust in currency. - A market structure where few firms dominate is called –
(A) Monopoly
(B) Oligopoly
(C) Duopoly
(D) Monopsony
Answer: (B)
Explanation: An oligopoly, like India’s telecom market with firms like Jio and Airtel, features few dominant players, unlike a single-firm monopoly or duopoly. - What is “dumping” in international trade?
(A) Selling goods at high prices abroad
(B) Importing cheap goods
(C) Exporting goods below cost
(D) Restricting trade
Answer: (C)
Explanation: Dumping involves exporting goods below cost to capture markets, as seen in Chinese steel exports to India, prompting anti-dumping duties to protect local industries. - The concept of “economies of scale” is related to –
(A) Cost increases with scale
(B) Cost decreases with increased production
(C) Price increases with demand
(D) Cost increases with inflation
Answer: (B)
Explanation: Economies of scale reduce per-unit costs as production scales, like Indian textile firms lowering costs through bulk manufacturing, unlike price or inflation effects. - SEZs in India are governed by which Act?
(A) Industrial Development Act
(B) SEZ Act, 2005
(C) Companies Act
(D) MSME Act
Answer: (B)
Explanation: The SEZ Act, 2005, governs India’s Special Economic Zones, promoting exports through tax incentives, as seen in zones like Kandla, unlike other acts. - The elasticity of demand is perfectly inelastic when –
(A) Demand changes with price
(B) Demand remains constant despite price change
(C) Demand is infinite
(D) Supply changes with price
Answer: (B)
Explanation: Perfectly inelastic demand means quantity demanded stays constant despite price changes, like essential medicines in India, unlike elastic or supply-driven scenarios. - A “Giffen Good” violates –
(A) Law of supply
(B) Law of diminishing returns
(C) Law of demand
(D) Price elasticity
Answer: (C)
Explanation: A Giffen good, like low-cost staples in rural India, violates the law of demand, as demand rises with price due to income effects, unlike supply or elasticity principles. - The Laffer Curve shows the relationship between –
(A) Tax rates and Inflation
(B) Tax rates and employment
(C) Tax rates and tax revenue
(D) Tax and subsidy
Answer: (C)
Explanation: The Laffer Curve illustrates that beyond a point, higher tax rates reduce revenue, as seen in India’s tax reforms balancing revenue and compliance. - The Cobb-Douglas function is related to –
(A) Utility
(B) Investment
(C) Production
(D) Inflation
Answer: (C)
Explanation: The Cobb-Douglas function models production, combining labor and capital inputs, used in India to analyze agricultural or industrial output, unlike utility or inflation. - “Stagflation” is a situation of –
(A) Inflation with high growth
(B) High unemployment and inflation
(C) No inflation and growth
(D) Deflation and stagnation
Answer: (B)
Explanation: Stagflation combines high inflation and unemployment with low growth, as India faced in the 1970s, challenging policymakers, unlike growth or deflation scenarios. - What is the term for the income received from owning a factor of production?
(A) Wages
(B) Rent
(C) Profit
(D) Factor income
Answer: (D)
Explanation: Factor income includes wages (labor), rent (land), profit (entrepreneurship), and interest (capital), earned in India from owning production factors. - In a “closed economy”, there is no –
(A) Government spending
(B) Private sector
(C) Foreign trade
(D) Banking sector
Answer: (C)
Explanation: A closed economy, unlike India’s open economy, has no foreign trade (exports/imports), relying solely on domestic production and consumption. - If marginal cost is less than average cost, then –
(A) AC is rising
(B) AC is falling
(C) MC = AC
(D) Profit is maximized
Answer: (B)
Explanation: When marginal cost is below average cost, average cost falls, as seen in Indian manufacturing where additional units lower per-unit costs, unlike rising AC. - An increase in aggregate demand leads to –
(A) Deflation
(B) Disinflation
(C) Higher output and price
(D) Lower output
Answer: (C)
Explanation: Rising aggregate demand in India boosts output (e.g., more goods produced) and prices (inflation), unlike deflation or reduced output scenarios. - Which one is an example of transfer payment?
(A) Salary
(B) Interest
(C) Pension
(D) Rent
Answer: (C)
Explanation: Transfer payments, like pensions in India, redistribute income without production, unlike salaries or rent, which involve economic activity. - What is the opportunity cost?
(A) Cost of all options
(B) Cost of next best alternative foregone
(C) Cost of production
(D) Fixed cost
Answer: (B)
Explanation: Opportunity cost is the value of the next best alternative foregone, like choosing to invest in Indian infrastructure over education, sacrificing potential education benefits. - If price elasticity of demand is greater than 1, demand is –
(A) Perfectly elastic
(B) Inelastic
(C) Elastic
(D) Unitary
Answer: (C)
Explanation: Elastic demand (elasticity > 1) means demand changes significantly with price, as with luxury goods in India, unlike inelastic or unitary demand. - A progressive tax system means –
(A) Everyone pays the same tax
(B) Rich pay more than poor
(C) Indirect taxes dominate
(D) Tax is fixed for all
Answer: (B)
Explanation: India’s progressive tax system, like income tax, imposes higher rates on higher incomes, ensuring the rich pay more, unlike flat or indirect taxes. - Which one of these is a fixed cost?
(A) Raw material
(B) Electricity
(C) Wages
(D) Rent
Answer: (D)
Explanation: Rent, a fixed cost, remains constant regardless of output in Indian businesses, unlike variable costs like raw materials or electricity. - “Law of Variable Proportions” is related to –
(A) Short-run production
(B) Long-run production
(C) Consumption
(D) Budgeting
Answer: (A)
Explanation: The Law of Variable Proportions applies to short-run production, where adding variable inputs (e.g., labor in Indian farms) eventually reduces marginal output. - When income increases, demand for inferior goods –
(A) Increases
(B) Decreases
(C) Constant
(D) Doubles
Answer: (B)
Explanation: Inferior goods, like low-quality grains in India, see reduced demand as incomes rise, with consumers preferring superior alternatives, unlike constant or increasing demand. - Fiscal drag results in –
(A) Increase in fiscal deficit
(B) Reduced inflation
(C) Increase in tax burden with rising income
(D) Less public spending
Answer: (C)
Explanation: Fiscal drag occurs when rising incomes push taxpayers into higher tax brackets, increasing India’s tax burden without rate changes, unlike deficit or spending effects. - Price discrimination is possible under –
(A) Perfect competition
(B) Monopoly
(C) Monopolistic competition
(D) Oligopoly
Answer: (B)
Explanation: Price discrimination, charging different prices for the same good, is feasible under monopoly, like Indian Railways’ dynamic pricing, due to market control. - When average revenue equals marginal revenue, demand is –
(A) Elastic
(B) Perfectly elastic
(C) Unitary elastic
(D) Inelastic
Answer: (C)
Explanation: When average revenue equals marginal revenue, demand is unitary elastic, as revenue remains constant despite price changes, observed in some Indian consumer goods. - What is the relation between average product and marginal product when AP is rising?
(A) MP > AP
(B) MP = AP
(C) MP < AP
(D) No relation
Answer: (A)
Explanation: When average product (AP) rises in Indian factories, marginal product (MP) exceeds AP, as additional inputs boost output significantly, driving up the average. - “Cross elasticity” measures –
(A) Demand for complementary goods
(B) Demand for substitute goods
(C) Demand for inferior goods
(D) Relation between price and demand of two goods
Answer: (D)
Explanation: Cross elasticity measures how a price change in one good affects demand for another, like tea and coffee in India, capturing substitute or complementary relationships. - The term “depreciation” in accounting refers to –
(A) Loss due to inflation
(B) Wear and tear of capital
(C) Decrease in currency value
(D) Export reduction
Answer: (B)
Explanation: Depreciation in accounting reflects the wear and tear of capital assets, like machinery in Indian industries, reducing their value over time, unlike currency or trade losses. - When total product is maximum, marginal product is –
(A) Maximum
(B) Minimum
(C) Zero
(D) Constant
Answer: (C)
Explanation: When total product peaks in Indian agriculture, marginal product is zero, as additional inputs yield no extra output, marking the production limit. - A kinked demand curve is found in –
(A) Perfect competition
(B) Monopoly
(C) Oligopoly
(D) Monopsony
Answer: (C)
Explanation: A kinked demand curve, seen in India’s oligopolistic telecom market, reflects price rigidity, where firms avoid price wars due to competitors’ reactions. - Which cost remains constant irrespective of output?
(A) Fixed cost
(B) Variable cost
(C) Marginal cost
(D) Total cost
Answer: (A)
Explanation: Fixed costs, like rent for Indian factories, remain constant regardless of output, unlike variable or marginal costs, which vary with production. - Personal Income = National Income –
(A) Corporate tax
(B) Undistributed profits + transfer payments
(C) Corporate tax + retained earnings – transfer payments
(D) None of the above
Answer: (C)
Explanation: Personal income in India is national income minus corporate taxes and retained earnings, plus transfer payments like pensions, reflecting disposable income. - “Indifference Curve” shows –
(A) Cost and benefit
(B) Income and expenditure
(C) Price and demand
(D) Different combinations of goods giving same satisfaction
Answer: (D)
Explanation: Indifference curves show combinations of goods (e.g., rice and pulses in India) yielding equal satisfaction, guiding consumer choice under budget constraints. - The budget line represents –
(A) Level of utility
(B) Income constraints
(C) Price elasticity
(D) Opportunity cost
Answer: (B)
Explanation: The budget line shows affordable combinations of goods within income constraints, as Indian consumers face when balancing food and clothing purchases. - Which of the following is true under monopolistic competition?
(A) Few firms
(B) Homogeneous products
(C) Free entry and product differentiation
(D) Perfect knowledge
Answer: (C)
Explanation: Monopolistic competition in India, like restaurants, features free entry and differentiated products, unlike few firms (oligopoly) or identical products (perfect competition). - “Marginal Rate of Substitution” is the rate at which –
(A) A consumer substitutes one good for another
(B) Market substitutes price
(C) Utility increases with price
(D) Income is substituted for goods
Answer: (A)
Explanation: Marginal Rate of Substitution measures how much of one good (e.g., tea) a consumer sacrifices for another (e.g., coffee) in India, maintaining equal satisfaction. - The slope of the indifference curve is –
(A) Positive
(B) Zero
(C) Negative
(D) Infinite
Answer: (C)
Explanation: The indifference curve’s negative slope reflects the trade-off between goods, as Indian consumers reduce one good’s consumption to gain another, maintaining utility. - Which of the following curves is U-shaped?
(A) Demand curve
(B) Marginal utility curve
(C) Average cost curve
(D) Total product curve
Answer: (C)
Explanation: The average cost curve is U-shaped in Indian firms, declining initially due to economies of scale, then rising due to diminishing returns, unlike demand or utility curves. - Total cost is the sum of –
(A) Fixed cost + marginal cost
(B) Variable cost + opportunity cost
(C) Fixed cost + variable cost
(D) Marginal cost + opportunity cost
Answer: (C)
Explanation: Total cost in Indian businesses is fixed costs (e.g., rent) plus variable costs (e.g., raw materials), excluding marginal or opportunity costs. - The main objective of a monopolist is to –
(A) Maximize profit
(B) Maximize output
(C) Minimize cost
(D) Increase employment
Answer: (A)
Explanation: A monopolist, like a dominant Indian utility provider, aims to maximize profit by setting prices where marginal cost equals marginal revenue, unlike output or employment goals.