CA Foundation Economics Question Paper May 25 with Answers
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The firm will be making maximum profits by expanding output to the level where:
(A) Marginal revenue is greater than marginal cost
(B) Marginal revenue is equal to marginal cost
(C) Marginal revenue is less than marginal cost
(D) Marginal revenue is equal to average cost
What will happen to the equilibrium price and equilibrium quantity when demand increases and supply decreases?
(A) The equilibrium price rises but change in equilibrium quantity is uncertain.
(B) Both equilibrium price and equilibrium quantity falls.
(C) Both equilibrium price and equilibrium quantity go up.
(D) The equilibrium quantity increases but the change in equilibrium price is uncertain.
Explanation:
Suppose that a sole proprietor is earning total revenue of ₹ 1,20,000/- and is incurring explicit cost of ₹ 95,000/-. If the owner could work for another company for ₹ 30,000/- a year, which of the following statement is false?
(A) The firm incurred an economic loss of ₹ 5,000/-
(B) The firm is having accounting profit of ₹ 25,000/-
(C) Total economic costs are ₹ 30,000/-
(D) The total accounting costs are ₹ 95,000/-
This statement is false.
Explanation:
Accounting Profit = Total Revenue – Explicit Cost = ₹1,20,000 – ₹95,000 = ₹25,000
Economic Profit = Accounting Profit – Implicit Cost = ₹25,000 – ₹30,000 = –₹5,000 (Economic Loss)
Total Economic Cost = Explicit Cost + Implicit Cost = ₹95,000 + ₹30,000 = ₹1,25,000
So, saying that “Total economic costs are ₹30,000” is false.
Which type of markets allocates productive resources to producers and helps ensure that those resources are used efficiently?
(A) Product markets
(B) Factor markets
(C) Local Markets
(D) Retail markets
Use the following data to answer question 5 and 6 :
|
Quantity |
0 |
10 |
20 |
30 |
40 |
|
Total Cost (in ₹) |
100 |
220 |
320 |
410 |
510 |
What is the average variable cost when 20 units are produced?
(A) ₹ 5
(B) ₹ 10
(C) ₹ 11
(D) ₹ 16
Step-by-step Calculation:
Total Fixed Cost (TFC) = Total Cost at 0 units = ₹100
Total Cost (TC) at 20 units = ₹320
Total Variable Cost (TVC) = TC – TFC = ₹320 – ₹100 = ₹220
Quantity = 20 units
Average Variable Cost (AVC) = TVC / Quantity = ₹220 / 20 = ₹11
Between 10 and 20 units, what is the marginal cost per unit?
(A) ₹ 10
(B) ₹ 20
(C) ₹ 100
(D) ₹ 220
Step-by-step Calculation:
Total Cost at 10 units = ₹220
Total Cost at 20 units = ₹320
Change in Quantity = 20 – 10 = 10 units
Change in Total Cost = ₹320 – ₹220 = ₹100
Marginal Cost per unit = ₹100 ÷ 10 = ₹10
Which of the following is not a condition for price discrimination?
(A) The seller should have price setting power.
(B) The seller should be able to divide his market into two or more sub markets.
(C) The price elasticity of the product should be different in different sub markets.
(D) It should be possible for buyers of low-priced market to resell the product to the buyers of high-priced market.
Explanation:
This option is not a condition for price discrimination — in fact, the opposite is true.
For price discrimination to work, resale must NOT be possible. If buyers from the cheaper market can resell to the higher-priced market, price discrimination breaks down.
Essential Conditions for Price Discrimination:
Under second degree price discrimination, different prices are charged for _______.
(A) Each individual consumer
(B) Location
(C) Customer segment
(D) Different quantities sold
Explanation:
Examples:
Which of the following is not a feature of the monopoly market?
(A) Single buyer of the products
(B) Barriers to entry
(C) No close substitutes
(D) Market power
Explanation:
Features of Monopoly:
Assume that when price is ₹ 30 the quantity demanded is 19 units and when price is ₹ 28 the quantity demanded is 20 units, what is the marginal revenue resulting from an increase in output from 19 units to 20 units?
(A) ₹ 10
(B) - ₹ 10
(C) ₹ 20
(D) - ₹ 20
Step-by-step Calculation:
Total Revenue at 19 units = 19 × ₹30 = ₹570
Total Revenue at 20 units = 20 × ₹28 = ₹560
Change in Total Revenue = ₹560 – ₹570 = – ₹10
Change in Quantity = 1 unit
Marginal Revenue = – ₹10 / 1 = – ₹10
The oligopoly market in which few firms come to a common understanding with each other in fixing price or output or both is called:
(A) Pure Oligopoly
(B) Collusive Oligopoly
(C) Partial Oligopoly
(D) Syndicated Oligopoly
During the upswing phase of business cycle, the involuntary unemployment is
(A) Highest
(B) Almost Zero
(C) Lowest
(D) Not affected
The level of national income and expenditure declines rapidly during which phase of the business cycle?
(A) Upswing
(B) Downswing
(C) Recovery
(D) Trough and Depression
Trough and Depression: Depression is the severe form of recession and is characterized by extremely sluggish economic activities. During this phase of the business cycle, growth rate becomes negative and the level of national income and expenditure declines rapidly.
In all kinds of businesses, the different phases of business cycle generally occurs as:
(A) Having perfectly timed cycles
(B) No fixed time cycles but are regular
(C) Boom have longer period than Depression
(D) Depression have longer period than Boom
Kinked demand curve model of oligopoly is also called:
(A) Sweezy’s Model
(B) McKinsey’s Model
(C) Oskar’s Model
(D) Neumann’s Model
Explanation:
There is a war going between Country A and Country B for last two years. Now in the current year both countries have signed a peace agreement and war has come to an end. Now both countries have started to rebuild the losses caused due to war out of their own funds. Which type of cause of change in business cycle is this for Country A?
(A) Internal Cause
(B) External Cause
(C) Both Internal and External Cause
(D) This is not a cause of change in business cycle
Explanation:
A war and its end through a peace agreement are events that originate outside the economic system of a country. Therefore, they are classified as external causes of change in the business cycle.
Which of the following organisation is responsible for the compilation of National accounts statistics?
(A) Central Statistical Organisation (CSO)
(B) Directorate of Economics and Statistics (DES)
(C) Ministry of Finance of Central Government
(D) Reserve Bank of India (RBI)
Which of the following is not a significance and usefulness of the National Income estimates?
(A) Businesses use it to forecast the future demand of their products
(B) To identify the sector wise composition of national income
(C) To assist in making policies related to inflation
(D) To assist in making policies related to population growth
An indicator which gives information about the rate of change of the expansion or contraction of an economy is called ______.
(A) Leading Indicator
(B) Lagging Indicator
(C) Both Leading and Lagging Indicator
(D) Co-incident Indicator
Explanation:
A Co-incident Indicator provides real-time information about the current rate of expansion or contraction in the economy, not future changes.
Which of the following defines the Gross National Product (GNP) of a country under the concept of National Income?
(A) It is market value of all final economic goods & services produced within the domestic territory of a country including Net Factor Income from abroad.
(B) It is market value of all final economic goods & services produced within the domestic territory of a country excluding Net Factor Income from abroad.
(C) It is production cost of all final economic goods & services produced within the domestic territory including depreciation.
(D) It is production cost of all final economic goods & services produced within the domestic territory excluding depreciation.
Explanation:
Gross National Product (GNP) = GDP + Net Factor Income from Abroad.
It includes the value of all goods and services produced by a country's residents, regardless of where they are located.
The Gross Domestic Product at Factor Cost (GDPFC) is calculated by which of the following formula (Here GDPMP is Gross Domestic Product at market prices):
(A) GDPFC = GDPMP + Net Factor Income from Abroad
(B) GDPFC = GDPMP + Net Factor Income from Abroad − Depreciation
(C) GDPFC = GDPMP − Indirect Taxes + Subsidies
(D) GDPFC = GDPMP + Indirect Taxes − Subsidies
Explanation:
To convert GDP at Market Price (GDPMP) to GDP at Factor Cost (GDPFC), use the formula:
GDPFC = GDPMP − Indirect Taxes + Subsidies
Market price includes taxes and excludes subsidies, while factor cost removes taxes and adds subsidies.
Considering the data given in the table below calculate the Inflation rate of year 3 :
|
Year |
Nominal GDP |
Real GDP |
GDP Deflator |
|
0 |
900 |
900 |
100 |
|
1 |
1200 |
1000 |
120 |
|
2 |
1500 |
1200 |
125 |
|
3 |
1800 |
1250 |
144 |
|
4 |
2000 |
1600 |
125 |
(A) 13.19%
(B) 15.20%
(C) 19%
(D) -19%
Explanation:
Inflation Rate = [(Deflator in Year 3 − Deflator in Year 2) / Deflator in Year 2] × 100
= [(144 − 125) / 125] × 100
= (19 / 125) × 100 = 15.20%
Inflation is calculated by the percentage increase in the GDP deflator from year 2 to year 3.
Which of the following is an indicator of the standard of living of a country under the concept of National Income?
(A) Personal Income
(B) Disposable Personal Income
(C) Per Capita Income
(D) GDP at factor cost
The amount of money in the hands of the individual that is available for their consumption or savings is known as _______.
(A) Private Income
(B) Per Capita Income
(C) Disposable Personal Income
(D) Personal Income
Which of the following is included in the calculation of Personal Income under the concept of National Income?
(A) Unemployment Compensation
(B) Retained Earnings
(C) Indirect Business Taxes
(D) Contribution towards Social Security
Which of the following is true in relation with Private Income under the concept of National Income?
(A) It is personal income adjusted by inflation rate.
(B) It is personal income less personal income tax.
(C) It is the income (both factor & transfer income) accrued to private sector from all sources within the country only.
(D) It is income (both factor and transfer income) accrued to the private sector from all sources within and outside the country.
Explanation:
Private Income includes all factor incomes (like wages, rent, interest, profit) and transfer incomes (like gifts, remittances, pensions) received by the private sector from domestic and foreign sources.
Which of the following is true about the basic price in the determination of National Income?
(A) Basic Price = Factor Cost − Manufacturing Taxes + Manufacturing Subsidy
(B) Basic Price = Factor Cost − Depreciation
(C) Basic Price = Factor Cost + Net Factor Income from Abroad
(D) Basic Price = Factor Cost + Production Tax + Production Subsidy
Explanation:
Basic Price is calculated by adjusting Factor Cost for production-related taxes and subsidies.
So, the formula is:
Basic Price = Factor Cost + Production Taxes − Production Subsidies (Since subsidies reduce cost, they are subtracted in effect.)
Which of the following is not a sector to be included in the three sector model of Keynesian theory of Income determination?
(A) Household Sector
(B) Business Sector
(C) Foreign Sector
(D) Government Sector
Explantion:
The Three-Sector Model in Keynesian theory includes:
The Foreign Sector (exports and imports) is introduced in the Four-Sector Model, not the three-sector one.
Under the Keynesian theory of National Income determination, which of the following term is given to the demand for money?
(A) Investment multiplier
(B) Liquidity preference
(C) Aggregate demand
(D) Marginal Propensity
Under the Keynesian theory of determination of national income, the assumption is that the consumption increases with an increase in disposable income but the increase in consumption will be ______ the increase in disposable income.
(A) Equal to
(B) Opposite to
(C) Greater than
(D) Less than
Explantion:
According to Keynesian theory, as disposable income increases, consumption also increases, but not by the full amount of the income increase.
This concept is captured by the Marginal Propensity to Consume (MPC), which is less than 1.
Which of the following is true in respect of relation of Marginal Propensity to Consume (MPC) and Marginal Propensity to Save (MPS) as per the Keynesian theory of determination of National Income?
(A) MPC = MPS
(B) MPC + MPS = 1
(C) MPC + MPS = 0
(D) No relation exists between MPC and MPS
In the preparation of state income estimates, certain activities like railways, banking, insurance etc. that cut across state boundaries, and thus their economic contribution assigned to more than one state are known as _______.
(A) Central Sectors of economy
(B) Supra Regional Sectors of economy
(C) Tertiary Sectors of economy
(D) Secondary Sectors of economy
Explantion:
Which of the following statement is true in respect of Social cost?
(A) Social Cost = Private Cost + External Cost
(B) Social Cost = Private Cost + External Cost – Total Negative Externalities
(C) Social Cost = Private Cost + External Cost – Government Taxes
(D) Social Cost = Private Cost + Total Negative Externalities – Government Taxes
Explanation:
Social cost refers to the total cost to society due to the production or consumption of a good. It includes:
Which of the following is not a characteristic of Public Goods?
(A) Non-rival in consumption
(B) Indivisibility
(C) More vulnerable to externalities
(D) Excludable
What does the term “lemon” mean in the model of “Lemons problem” developed by “George Akerlof” in relation to used car market:
(A) Only good quality used cars
(B) Both poor and good quality used cars
(C) Average quality used cars
(D) Scrapped used cars
Which of the following is one of the key functions of fiscal policy and aims at eliminating the macroeconomic fluctuations arising from sub optimal allocation of resources?
(A) The Allocation Function
(B) The Redistribution Function
(C) The Stabilization Function
(D) The Utilisation Function
Article 112 of Indian Constitution provides that in respect of every financial year the President shall cause to be laid before both houses of the parliament a statement of estimated receipts and expenditure of the government of India for that year. This statement is referred as:
(A) Budget
(B) Annual Financial Statement
(C) Statement of Income & Expenditure
(D) Interim Budget
Explanation:
It is commonly referred to as the Union Budget, but the constitutional term is Annual Financial Statement.
Which of the following information regarding the receipts and expenditure of the Government is not presented in the budget documents?
(A) Budget estimates of Current financial year
(B) Budget estimates of the Ensuing financial year
(C) Revised estimates of the Ensuing financial year
(D) Actual expenditure and Income of Current financial year
Explanation:
The budget documents present:
However, there is no such thing as "Revised Estimates of the Ensuing financial year" — because that year hasn’t started yet.
Which of the following is the nodal department for overseeing the public financial management system in the Central Government?
(A) NITI Aayog
(B) Department of Revenue under Finance Ministry
(C) Department of Expenditure under Finance Ministry
(D) Reserve Bank of India
Explanation:
The Department of Expenditure, which is part of the Ministry of Finance, is the nodal department responsible for:
The statutory disclaimer that “Mutual Fund investments are subject to market risks please read the offer documents carefully before investing” is which of the following type of government intervention?
(A) Government intervention to correct externalities.
(B) Government intervention for equitable distribution.
(C) Government intervention to correct information failure.
(D) Government intervention in case of public goods.
Explanation:
The disclaimer:
“Mutual Fund investments are subject to market risks, please read the offer documents carefully before investing”
is a government-mandated message to inform investors about the risks involved. This is done to:
What does the term Y represent in the expression Md = k PY ?
(A) Real National Income
(B) Price level
(C) Money supply
(D) Interest rate
Banks availing Marginal Standing Facility (MSF) Rate can use a maximum of how much percentage of Statutory Liquidity Ratio (SLR) securities?
(A) 1%
(B) 2%
(C) 3%
(D) 4%
Calculate currency with Public from the following data (₹ in lakhs):
|
Notes in Circulation |
2,59,121 |
|
Coins in Circulation |
23,345 |
|
Cash on hands with Banks |
19,009 |
|
Coin on hands with Banks |
909 |
(A) ₹ 3,02,384
(B) ₹ 2,62,548
(C) ₹ 2,53,876
(D) ₹ 2,15,858
Step-by-step Calculation:
Currency with Public = (Notes + Coins in Circulation) – (Cash + Coin with Banks)
= (2,59,121 + 23,345) – (19,009 + 909)
= 2,82,466 – 19,918
During the Budget proceedings, the Speaker of Lok Sabha, once the prescribed time is over, puts all the outstanding demand for grants, whether discussed or not, to the vote of the house. This process is known as:
(A) Cut Motion
(B) Presenting the Appropriation Bill
(C) Outcome Budget
(D) Guillotine
Which of the following is not true regarding the fiscal policy of Government?
(A) It is deliberate policy of Government.
(B) An economy producing full employment does not require Government action in the form of fiscal policy.
(C) Taxation policy is part of Fiscal policy.
(D) Fiscal Policy is supply side policy.
What is the likely impact of an increase in the Time Deposit to Demand Deposit (TD/DD) ratio on the banking system and monetary expansion?
(A) It leads to higher availability of free reserves and consequent enlargement of volume of multiple deposit expansion and monetary expansion.
(B) It reduces the availability of free reserves, thereby restricting the process of monetary expansion.
(C) It has no impact on the banking system as time deposits and demand deposits are interchangeable.
(D) It directly reduces the money supply as time deposits are not considered part of the money supply
Explanation:
The time deposit-demand deposit ratio i.e. how much money is kept as time deposits compared to demand deposits, also has an important implication for the money multiplier and, hence for the money stock in the economy. An increase in TD/DD ratio means that greater availability of free reserves and consequent enlargement of volume of multiple deposit expansion and monetary expansion
Broad money includes currency deposits with an agreed maturity of up to ___ years, deposits redeemable at notice up to ___ months and repurchase agreements, money market fund shares/units and debt security up to ___ years.
(A) 3 years, 6 months, 3 years
(B) 2 years, 6 months, 2 years
(C) 3 years, 3 months, 3 years
(D) 2 years, 3 months, 2 years
Explanation:
Broad money (also referred to as M3 in many economic systems) includes:
These features align with broader definitions of liquidity, capturing near-money assets.
Which of the following is NOT included in M1?
(A) Currency with the public
(B) Demand deposits with banks
(C) Time (term) deposits with banks
(D) Other deposits with RBI
Liquidity trap occurs when:
(A) Interest rates are high, and people prefer bonds over cash balances.
(B) Interest rates are near zero, and people prefer holding cash over bonds.
(C) Inflation rates are high, reducing purchasing power of money balances.
(D) Central banks increase CRR drastically.
Explanation:
A liquidity trap occurs when:
In this situation, monetary policy becomes ineffective — even if central banks inject more money, it doesn't stimulate spending or investment.
Which of the following is NOT a quantitative tool of monetary policy?
(A) Cash Reserve Ratio (CRR)
(B) Statutory Liquidity Ratio (SLR)
(C) Open Market Operations (OMO)
(D) Liquidity Adjustment Facility (LAF)
Which of the following expressions is true?
(A) Reverse Repo Rate = Repo Rate − 1
(B) Reverse Repo Rate = Repo Rate + 1
(C) Repo Rate = Reverse Repo Rate + 1
(D) Repo Rate = 1 − Reverse Repo Rate
In the Theory of Comparative Costs, which of the following statements are true?
I. It is based on money cost which is more realistic
II. It is Positive in Nature
III. It is Normative in nature
IV. Do not take into account the factor price differences
(A) I and II are correct
(B) III and IV are correct
(C) II and IV are correct
(D) I and IV are correct
Explanation:
Normative; tries to demonstrate the gains from international trade . Does not take into account the factor price differences.
Which of the following is NOT one of the four determinants of the Friedman's demand for money?
(A) Nominal Demand for money is a function of total wealth.
(B) It is positively related to price level P, if price level rises the demand for money increases.
(C) Nominal demand for money falls if the opportunity costs of money holding declines.
(D) Nominal Demand for money is influenced by inflation.
Explanation:
Friedman's theory says demand for money depends on wealth, price level, interest rates (opportunity cost), and expected inflation.
What is the Ad valorem tariff?
(A) The fixed amount of money per physical unit or weight of commodity imported or exported.
(B) A fixed time period for tariff application per calendar year.
(C) The duty levied as a fixed percentage of the value of the traded commodity.
(D) A flat rate imposed regardless of the product’s value.
A tariff that is set so high that no imports can enter is known as _______.
(A) Prohibitive Tariff
(B) Bound Tariff
(C) Escalated Tariff
(D) Variable Tariff
Which of these countries is part of the USMCA Agreement?
(A) Mexico
(B) Malta
(C) Malaysia
(D) Mongolia
Which one of these is the main reason why GATT lost its relevance by 1980?
(A) Efforts at liberalising agricultural trade were successful.
(B) International investments did not expand substantially.
(C) GATT was a treaty.
(D) There were inadequacies in institutional structure and dispute settlement system.
Explanation:
GATT was a treaty without a strong institutional setup. By the 1980s, its weak dispute resolution and lack of enforcement powers made it less effective, leading to the formation of WTO in 1995.
The value of the product or service is enhanced as the number of individuals using it increases. What effect is this?
(A) Veblen Effect
(B) Bandwagon Effect
(C) Income Effect
(D) Snob Effect
Match the following:
|
Table A |
Table B |
|
(a) Has a long term interest and is invested for long |
(i) Foreign Portfolio Investment |
|
(b) Speculative in Nature |
(ii) Foreign Direct Investment |
|
(c) Help developing countries benefit fully from global trading system |
(iii) Free Floating exchange rate system |
|
(d) Government and central banks do not participate in the market for foreign exchange |
(iv) World Trade Organisation |
(A) (a)-(ii), (b)-(i), (c)-(iv), (d)-(iii)
(B) (a)-(i), (b)-(ii), (c)-(iv), (d)-(iii)
(C) (a)-(ii), (b)-(i), (c)-(iii), (d)-(iv)
(D) (a)-(i), (b)-(ii), (c)-(iii), (d)-(iv)
An investment in which one investor establishes a business activity in a foreign country which is different from investor’s main business activity but in some way supplements its major activity is called ______
(A) Horizontal direct investment
(B) Vertical investment
(C) Conglomerate type of FDI
(D) Two way direct foreign investment
Explanation:
A vertical investment is one under which the investor establishes or acquires a business activity in a foreign country which is different from the investor’s main business activity yet in some way supplements its major activity. For example; an automobile manufacturing company may acquire an interest in a foreign company that supplies parts or raw materials required for the company.
The most controversial topic for Doha Development Agenda was
(A) The Labour Welfare
(B) World Peace
(C) Globalization
(D) Agriculture Trade
Which of the following are fiscal reforms?
i. Ensuring better tax compliance
ii. Reinvestment of funds in more profitable options
iii. Encouraging private sector participation
iv. Thrust on curbing government expenditure
(A) Only i and iii
(B) Only i, ii, iii
(C) Only i, iii, iv
(D) Only i, ii, iv
Explanation:
Fiscal reforms focus on improving government revenue and expenditure practices.
Which of the following best describes the pre-British Indian economy?
(A) Dependent on imports for goods
(B) Self-sufficient villages and cities which were centers of commerce
(C) Focus on industrial production
(D) Dominated by foreign trade
The trade policy reforms include _______:
(A) Inclusion of licensing restrictions for imports
(B) Removal of licensing procedure for imports
(C) Complication of tariffs
(D) Inclusion of quantitative restrictions on imports and exports
Explanation:
Trade policy reforms in India (especially post-1991) focused on liberalizing trade by:
Which initiative by NITI Aayog aims to promote electric vehicles?
(A) E-Amrit
(B) Shoonya Campaign
(C) Methanol Economy Program
(D) India Policy Insights (IPI)
An appreciation of currency or strong currency makes the domestic currency more ______; therefore, it can be exchanged for a ______ amount of foreign currency.
(A) Weaker, smaller
(B) Valuable, larger
(C) Weaker, larger
(D) Valuable, smaller
What percentage of India’s population depends on agriculture for livelihood as per latest estimates?
(A) 18%
(B) 25%
(C) 47%
(D) 60%
Which government scheme focuses on providing financial support to farmers suffering crop loss or damage?
(A) PM KISAN
(B) Pradhan Mantri Fasal Bima Yojana (PMFBY)
(C) Soil Health Card Scheme
(D) Paramparagat Krishi Vikas Yojana (PKVY)
Explanation:
The Pradhan Mantri Fasal Bima Yojana (PMFBY) is a government scheme that provides insurance coverage and financial support to farmers in case of:
Which regime replaced the Foreign Investment Promotion Board (FIPB)?
(A) SEBI
(B) FIF Portal
(C) NITI Aayog
(D) DPIIT
What was India’s rank in 2022 as per Global Innovation Index?
(A) 81st
(B) 40th
(C) 63rd
(D) 25th
Explanation:
In the Global Innovation Index (GII) 2022, published by the World Intellectual Property Organization (WIPO):
Which policy replaced the Merchandise Exports from India Scheme (MEIS) in 2021?
(A) NDAP
(B) GST
(C) PLI Scheme
(D) RoDTEP
The early liberalization and reforms started in India in ______.
(A) 1980s
(B) 1970s
(C) 1960s
(D) 1990s
Explanation:
While the major liberalization reforms are associated with 1991, the early phase of economic reforms in India began in the 1980s.
Which of the following is not correct about business economics with reference to economics?
(A) Business economics helps in proper decision making in a particular business entity.
(B) Business economics has a narrow scope in comparison to economics.
(C) Economics is an applied branch of business economics.
(D) Business economics includes the analysis of micro level issues like demand, supply etc.
Explanation:
This statement is incorrect because:
Business economics is actually an applied branch of economics, not the other way around.
It uses economic theories and principles (mainly microeconomics) to solve real-world business problems.
Command Economy is another name for:
(A) Capitalist Economy
(B) Socialist Economy
(C) Mixed Economy
(D) Macro Economy
Which of the following is not a merit of Capitalist Economy?
(A) Faster economic growth
(B) Collective ownership
(C) High degree of operative efficiency
(D) Incentives for innovation and technological progress
Explanation:
An economy exists on which of the following two facts?
(A) Human wants are limited and the resources are unlimited.
(B) Human wants are limited and the resources are scarce.
(C) Human wants as well as resources are unlimited.
(D) Human wants are unlimited but the resources are relatively scarce.
Explanation:
An economy exists because of the basic economic problem:
This leads to the need for choice, prioritization, and efficient allocation — which is the core of economic study.
The microeconomic theory mainly does not deal with which of the following issues:
(A) Stage of business cycles
(B) Demand analysis and forecasting
(C) Production and Cost Analysis
(D) Inventory management
Highly priced goods are consumed by status seeking rich people to satisfy their need for conspicuous consumption. This is called:
(A) Demonstrative effect
(B) Bandwagon effect
(C) Snob effect
(D) Veblen effect
Explanation:
The Veblen Effect refers to the phenomenon where demand for a good increases as its price increases, because high price itself adds to its prestige.
Common in luxury goods, where status-seeking consumers derive satisfaction from the conspicuous consumption of expensive items.
An expectation that price will fall in future will lead to:
(A) A downward movement along the same demand curve
(B) An upward movement along the same demand curve
(C) Rightward shift of demand curve
(D) Leftward shift of demand curve
Explanation:
If consumers expect that prices will fall in the future, they will postpone their current purchases, leading to a decrease in current demand. This causes the demand curve to shift to the left, rather than a movement along the same curve.
A consumer buys 100 units of a good at a price of ₹6 per unit. Suppose elasticity of demand is –3. At what price will he buy 80 units?
(A) ₹5.8
(B) ₹6.2
(C) ₹6.4
(D) ₹6.75
Explanation:
Elasticity = –3, Quantity falls from 100 to 80 ⇒ 20% fall
Use formula:
Elasticity = (% change in quantity) / (% change in price)
⇒ -3 = (-20%) / [(P2 - 6)/6]
⇒ (P2 - 6)/6 = 6.67%
⇒ P2 = 6.4
If total revenue of goods increases with an increase in its price, demand for the goods is said to be:
(A) Elastic
(B) Unit elastic
(C) Inelastic
(D) Infinitely elastic
Which of the following statement is not true while determining price elasticity of demand?
(A) Goods which have close or perfect substitutes, have highly elastic demand curves.
(B) The greater the proportion of income spent on a commodity, generally the lesser will be its elasticity of demand.
(C) Necessities are generally price inelastic.
(D) The more possible uses of a commodity, greater will be its price elasticity.
Explanation:
(B) is not true — If a good takes up a larger proportion of income, demand is usually more elastic, not less, because people are more sensitive to price changes for expensive items.
Commodities for which the quantity demanded rises only up to a certain level of income and decreases with an increase in income beyond this level are called:
(A) Normal goods
(B) Inferior goods
(C) Essential goods
(D) Luxury goods
When total utility is increasing at decreasing rate:
(A) Marginal utility is equal to total utility.
(B) Marginal utility is decreasing but remains positive.
(C) Marginal utility becomes negative.
(D) Marginal utility is equal to zero.
Explanation:
When total utility increases at a decreasing rate, it means that each additional unit adds less utility than the previous one, but still adds something. So, marginal utility is positive but decreasing.
Due to an increase in price of product X from ₹100 to ₹110, quantity supplied increases from 150 units to 200 units. Calculate elasticity of supply using arc-elasticity method.
(A) 2.3
(B) 3
(C) 3.33
(D) 3.5
Explanation:
Elasticity = (50 ÷ 350) ÷ (10 ÷ 210)
= 0.1429 ÷ 0.0476 ≈ 3
This means supply is elastic — a small price rise caused a larger % increase in quantity supplied.
The rate at which a consumer is prepared to exchange goods X and Y, holding the level of satisfaction constant is called as ________.
(A) Indifference curve
(B) Marginal rate of substitution
(C) Diminishing marginal utility
(D) Consumer surplus
The form of capital which performs its function in production in a single use and is not available for further use is termed as:
(A) Fixed capital
(B) Circulating capital
(C) Real capital
(D) Intangible capital
Explanation:
Circulating capital refers to capital goods like raw materials, fuel, and intermediate goods that are completely used up in a single production cycle. These do not remain in the business after the production is over. They are recurrent in nature and need to be replenished for each new cycle. Unlike fixed capital, they do not contribute to production over a long period.
Survival, growth and expansion come under which of the following objective of an enterprise?
(A) Organic objective
(B) Economic objective
(C) Social objective
(D) National objective
When two goods are complementary, the cross elasticity between them is:
(A) Infinite
(B) Positive and large
(C) Zero
(D) Negative
Which of the following is not true about relationship between average product and marginal product?
(A) When average product rises as a result of an increase in the quantity of variable input marginal product is more than the average product.
(B) When average product is maximum, marginal product is equal to average product.
(C) When average product falls, marginal product is less than the average product.
(D) When average product is negative, marginal product becomes zero.
Explanation:
Average product (AP) can never be negative — it's the output per unit of input, so it remains zero or positive. Hence, the statement in option (D) is not true.
Total product starts declining in which stage of production?
(A) Stage 1: The stage of increasing returns
(B) Stage 2: The stage of diminishing returns
(C) Stage 3: The stage of negative returns
(D) It may decline in any stage of production
Returns to scale refers to:
(A) Changes in output as a result of proportionate change in one of the variable factors of production.
(B) Changes in output as a result of proportionate change in all factors of production.
(C) Changes in output as a result of proportionate change in any two variable factors of production.
(D) Changes in output as a result of variation in factor proportions.
Explanation:
Returns to scale refers to how output changes when all inputs (factors of production) are increased in the same proportion. It examines whether output increases more than, equal to, or less than the proportional increase in inputs.
Linear Homogeneous Production function is another name for ______
(A) Law of variable proportion
(B) Constant returns to scale
(C) Increasing returns to scale
(D) Decreasing returns to scale
Explanation:
A Linear Homogeneous Production Function implies that doubling all inputs results in exactly double the output, which is the definition of constant returns to scale.
The minimum quantities of various inputs that are required to yield a given quantity of output is termed as:
(A) Demand function
(B) Supply function
(C) Production function
(D) Investment function
Budget line or budget constraint line which shows the various alternative combinations of two factors which the firm can buy with given outlay is called:
(A) Isoquant
(B) Indifference curve
(C) Isocost line
(D) Iso-product curve
Use the following data to answer question 96-97:
|
Output (Q) |
0 |
1 |
2 |
3 |
4 |
5 |
|
Total Cost (TC) |
₹ 200 |
₹ 310 |
₹ 410 |
₹ 500 |
₹ 604 |
₹ 710 |
The Average Fixed Cost of 2 units of output is:
(A) ₹ 85
(B) ₹ 100
(C) ₹ 110
(D) ₹ 205
The Average Fixed Cost (AFC) of 2 units of output:
Step 1: Fixed Cost (FC) = Total Cost when output = 0
⇒ FC = ₹200
Step 2: AFC = FC / Q
⇒ AFC at 2 units = ₹200 / 2 = ₹100
Diminishing marginal returns start to occur between units:
(A) 1 and 2
(B) 2 and 3
(C) 3 and 4
(D) 4 and 5
Diminishing marginal returns start to occur between units:
We calculate Marginal Cost (MC) to find where marginal returns diminish (i.e., marginal cost starts increasing).
So, diminishing returns begin between 3 and 4.
Which of the following is not a feature of perfect competition market?
(A) Very large number of sellers
(B) Homogeneous products
(C) Inelastic demand
(D) Firms are price takers
Explanation:
In a perfect competition market:
A firm should not produce at all if:
(A) AR is greater than minimum AVC
(B) AR is equal to ATC
(C) If its total variable costs are not met
(D) AR is greater than ATC
Calculate Marginal Revenue (MR) when Average Revenue (AR) = ₹ 45 and price elasticity of demand (e) = 3.
(A) ₹ 15
(B) ₹ 25
(C) ₹ 30
(D) ₹ 135
Ruchika Saboo
An All India Ranker (AIR 7 - CA Finals, AIR 43 - CA Inter), she is one of those teachers who just loved studying as a student. Aims to bring the same drive in her students.
Ruchika Ma'am has been a meritorious student throughout her student life. She is one of those who did not study from exam point of view or out of fear but because of the fact that she JUST LOVED STUDYING. When she says - love what you study, it has a deeper meaning.
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