Economics GK Quiz-10

91. Economic problem arises mainly due to
(1) overpopulation
(2) unemployment
(3) scarcity of resources
(4) lack of industries
Answer:
91. (3) The theory of Economic problem states that there
is scarcity, or that the finite resources available are
insufficient to satisfy all human wants and needs.
The problem then becomes how to determine what is
to be produced and how the factors of production
(such as capital and labor) are to be allocated.


92. If the change in demand for a commodity is at a faster rate than change in the price of the commodity, the demand is
(1) perfectly inelastic
(2) elastic
(3) perlectly elastic
(4) inelastic
Answer:
92. (3) If quantity demanded changes by a very large percentage as a result of a tiny percentage change in
price, then the demand is said to be perfectly elastic.
It reflects the fact that quantity demanded is extremely
responsive to even a small change in price. Technically, the elasticity in this extreme case would be
undefined but it approaches negative infinity as demand becomes more elastic.


93. Which of the following are not fixed costs?
(1) Rent on land
(2) Municipal taxes
(3) Wages paid to workers
(4) Insurance charges
Answer:
93. (3) In economics, fixed costs are business expenses
that are not dependent on the level of goods or services produced by the business. They tend to be timerelated, such as salaries or rents being paid per month,
and are often referred to as overhead costs. For some
employees, salary is paid on monthly rates, independent of how many hours the employees work. This is
a fixed cost. On the other hand, the hours of hourly
employees paid in wages, can often be varied, so this
type of labour cost is a variable cost.


94. Product differentiation is the most important feature of
(1) pure competition
(2) monopolistic competition
(3) monopoly
(4) oligopoly
Answer:
94. (2) There are six characteristics of monopolistic competition (MC): (a) Product differentiation; (b) many
firms; (c) Free entry and exit in the long run; (d) Independent decision making; (e) market power; and (f)
Buyers and Sellers do not have perfect information.


95. Division of labour is the result of
(1) Complicated work
(2) excessive pressure
(3) excess supply of labour
(4) specialisation
Answer:
95. (4) Division of Labor is the “specialization” of cooperative labor in specific, circumscribed tasks and like
roles. It is a process whereby the production process
is broken down into a sequence of stages and workers are assigned to particular stages.


96. Different firms constituting the industry, produce homogeneous goods under
(1) monopoly
(2) monopolistic competition
(3) oligopoly
(4) perfect competition
Answer:
96. (4) The fundamental condition of perfect competition
is that there must be a large number of sellers or
firms. Homogeneous Commodity is the second fundamental condition of a perfect market. The products of all firms in the industry are homogeneous and
identical. In other words, they are perfect substitutes
for one another.ECONOMICS
SGAE–607


97. Gross Profit means
(1) Total investment over total saving
(2) Changes in methods of production
(3) Changes in the form of business organisation
(4) Total receipts over total expenditure
Answer:
97. (4) In accounting, gross profit or sales profit is the
difference between revenue and the cost of making a
product or providing a service, before deducting overhead, payroll, taxation, and interest payments. Gross
profit = Net sales (total receipts) - Cost of goods sold
(total expenditure).


98. Same price prevails throughout the market under
(1) perfect competition
(2) monopoly
(3) monopolistic competition
(4) oligopoly
Answer:
98. (1) Under perfect competition, the control over price
is completely eliminated because all firms produce
homogeneous commodities. This condition ensures
that the same price prevails in the market for the
same commodity.


99. Selling cost means:
(1) Cost of selling a product
(2) Cost incurred in transportation
(3) Cost Incurred in advertisement
(4) Cost Incurred on factors of production
Answer:
99. (3) Selling cost is total cost of marketing, advertising,
and selling a product. It differs from the production
cost which is incurred to produce goods. Selling cost
influences the commercial desire to purchase a commodity.


100. A situation of large number of firms producing similar goods is termed as :
(1) Perfect competition
(2) Monopolistic competition
(3) Pure competition
(4) Oligopoly
Answer:
100. (1) The fundamental condition of perfect competition
is that there must be a large number of sellers or
firms. Homogeneous Commodity is the second fundamental condition of a perfect market. The products of all firms in the industry are homogeneous and
identical.


101. The difference between the price the consumer is prepared to pay for a commodity and the price
which he actually pays is called
(1) Consumer’s Surplus
(2) Producer’s Surplus
(3) Landlord’s Surplus
(4) Worker’s Surplus
Answer:
101. (1) Consumer surplus is the difference between the
maximum price a consumer is willing to pay and the
actual price they do pay. If a consumer would be
willing to pay more than the current asking price,
then they are getting more benefit from the purchased
product than they spent to buy it.


102. Under Perfect Competition
(1) Marginal Revenue is less than the Average Revenue
(2) Average Revenue is less than the Marginal Revenue
(3) Average Revenue is equal to the Marginal Revenue
(4) Average Revenue is more than the Marginal Revenue
Answer:
102. (3) Perfect competition describes markets such that
no participants are large enough to have the market
power to set the price of a homogeneous product. In
the short run, perfectly-competitive markets are not
productively efficient as output will not occur where
marginal cost is equal to average cost (MC=AC). They
are allocatively efficient, as output will always occur
where marginal cost is equal to marginal revenue
(MC=MR).


103. It is prudent to determine the size of the output when the industry is operating in the stage of
(1) increasing returns
(2) constant returns
(3) diminishing returns
(4) negative returns
Answer:
103. (3) In economics, diminishing returns (also called diminishing marginal returns) is the decrease in the
marginal (per-unit) output of a production process as
the amount of a single factor of production is increased, while the amounts of all other factors of production stay constant. This law plays a central role in
production theory.


104. Total fixed cost curve is
(1) Vertical
(2) Horizontal
(3) Positively Sloping
(4) Negatively sloping
Answer:
104. (2) The Total Fixed Cost Curve is a curve that graphically represents the relation between total fixed cost
incurred by a firm in the short-run product of a good
or service and the quantity produced. This curve is
constructed to capture the relation between total fixed
cost and the level of output, holding other variables,
like technology and resource prices, constant. Because total fixed cost are, in fact, fixed, the total fixed
cost curve is, in fact, a horizontal line.


105. Economic rent does not arise when the supply of a factor unit is
(1) Perfectly inelastic
(2) Perfectly elastic
(3) Relatively elastic
(4) Relatively inelastic
Answer:
105. (2) Economic rent in the sense of surplus over transfer earnings arise when the supply of the factor units
is less than perfectly elastic or not perfectly elastic.
When the supply of factor units is perfectly elastic,
there is no surplus or economic rent and the actual
earnings and transfer earnings are equal. In such a
scenario, at a given price or remuneration, the entrepreneur can engage any number of factor units.


106. Perfect competition means
(1) large number of buyers and less sellers
(2) large number of buyers and sellers
(3) large number of sellers and less buyers
(4) None of these
Answer:
106. (2) The fundamental condition of perfect competition
is that there must be a large number of sellers or
firms. Homogeneous Commodity is the second fundamental condition of a perfect market.


107. Bread and butter, car and petrol are examples of goods which have
(1) composite demand
(2) joint demand
(3) derived demand
(4) autonomous demand
Answer:
107. (3) Derived demand is a term in economics, where
demand for one good or service occurs as a result of
the demand for another intermediate/final good or
service. This may occur as the former is a part of
production of the second. For example, demand for
coal leads to derived demand for mining, as coal must
be mined for coal to be consumed. As the demand for
coal increases, so does its price.


108. If the main objective of the government is to raise revenue, it should tax commodities with
(1) high elasticity of demand
(2) low elasticity of supply
(3) low elasticity of demand
(4) high income elasticity of demand
Answer:
108. (3) The Ramsey rule states that commodities with low
elasticities of demand should be taxed at higher rates
than commodities with high elasticities of demand.
However, low-income people might spend a higher
proportion of their incomes on commodities with low
elasticities of demand (food, clothing, and so on) than
might high-income people. Consequently, following the
Ramsey rule may result in a regressive taxation
scheme society may view as inequitable.


109. Monopoly means
(1) single buyer
(2) many sellers
(3) single seller
(4) many buyers
Answer:
109. (3) A Monopoly exists when a specific person or enterprise is the only supplier of a particular commodity, This contrasts with a monopsony which relates to
a single entity's control of a market to purchase a
good or service, and with oligopoly which consists of
a few entities dominating an industry. Monopolies are
thus characterized by a lack of economic competition
to produce the good or service and a lack of viable
substitute goods


110. Marginal cost is the
(1) cost of producing a unit of output
(2) cost of producing an extra unit of output
(3) cost of producing the total output
(4) cost of producing a given level of output
Answer:
110. (2) Marginal cost is the change in total cost that arises when the quantity produced changes by one unit.
That is, it is the cost of producing one more unit of a
good. In general terms, marginal cost at each level of
production includes any additional costs required to
produce the next unit.


111. Under full cost pricing, price is determined
(1) by adding a margin to the average cost
(2) by comparing marginal cost and marginal revenue
(3) by adding normal profit to the marginal cost
(4) by the total cost of production
Answer:
111. (1) Full cost pricing is a practice where the price of a
product is calculated by a firm on the basis of its
direct costs per unit of output plus a markup to cover overhead costs and profits. Having worked out
what average total cost would be if the level of output
expected for the next period of time were actually
achieved, firms add to this a 'satisfactory' profit margin. This is known as 'full-cost' pricing. The price is
equal to 'full' cost, including an acceptable profit.


112. What is selling cost ?
(1) Cost incurred on transportation of commodities to market
(2) Cost incurred on promoting the sale of the product
(3) Cost incurred on commission and salaries personnel
(4) Cost incurred on advertisement
Answer:
112. (2) Selling cost is total cost of marketing, advertising,
and selling a product. It differs from the production
cost which is incurred to produce goods.


113. Who said, “Economics is the Science of Wealth” ?
(1) Robbins 
(2) J.S. Mill
(3) Adam Smith
(4) Keynes
Answer:
113. (3) It was Adam Smith who conceptualized Economics as a science of wealth. Elaborating upon the scope
and fundamental conceptualizations of the new science, he then called political economy as "an inquiry
into the nature and causes of the wealth of nations.”


114. A fall in demand or rise in supply of a commodity–
(1) Increases the price of that commodity
(2) decreases the price of that commodity
(3) neutralises the changes in the price
(4) determines the price elasticity
Answer:
114. (2) The four basic laws of supply and demand are: (a)
If demand increases and supply remains unchanged,
a shortage occurs, leading to a higher price; (b) If
demand decreases and supply remains unchanged,
a surplus occurs, leading to a lower price; (c) If demand remains unchanged and supply increases, a
surplus occurs, leading to a lower price; and (d) If
demand remains unchanged and supply decreases,
a shortage occurs, leading to a higher price.ECONOMICS
SGAE–608


115. The relationship between the value of money and the price level in an economy is
(1) Direct 
(2) Inverse
(3) Proportional 
(4) Stable
Answer:
115. (2) The basic causal relationship between the price
level and the value of money is that as the price level
goes up, the value of money goes down. The "value of
money" refers to what a unit of money can buy whereas
the "price level" refers to the average of all of the
prices of goods and services in a given economy.


116. Consumer’s sovereignty means:
(1) consumers are free to spend their income as they like.
(2) consumers have the power to manage the economy.
(3) consumer’s expenditures influence the alloca tion of resources.
(4) consumer goods are free from government control.
Answer:
116. (1) Consumer sovereignty means that buyers ultimately
determine which goods and services remain in production. In unrestricted markets, those with income
or wealth are able to use their purchasing power to
motivate producers. So ultimately it means how the
consumers want to spend their incomes.


117. The situation in which total Revenues equals total cost, is known as :
(1) Monopolistic competition
(2) Equilibrium level of output
(3) Break even point
(4) Perfect competition
Answer:
117. (3) In economics and cost accounting, the break-even
point (BEP) is the point at which cost or expenses
and revenue are equal: there is no net loss or gain,
and one has "broken even.”


118- Demand curve of a firm under perfect competition is :
(1) horizontal to ox-axis
(2) negatively sloped
(3) positively sloped
(4) U – shaped
Answer:
118. (1) Under Perfect Competition, the firm faces a horizontal demand curve. It can sell any quantity desired
at the market price, but cannot sell anything above
the market price.


119. The marginal revenue of a monopolist is:
(1) more than price
(2) equal to price
(3) less than price
(4) less than marginal cost
Answer:
119. (3) A monopolist's marginal revenue is always less
than or equal to the price of the good. Marginal revenue is the amount of revenue the firm receives for
each additional unit of output. It is the difference
between total revenue - price times quantity - at the
new level of output and total revenue at the previous
output (one unit less).


120. A horizontal demand curve is
(1) ralatively elastic
(2) perfectly inelastic
(3) perfectly elastic
(4) of unitary elasticity
Answer:
120. (3) The demand curve facing a perfectly competitive
firm is flat or horizontal. This is because all firms in
perfect competition are by definition selling an identical (homogeneous) product. A horizontal demand curve
is a flat curve with a slope of zero. It is a perfectly
elastic demand curve. Because the slope of the curve
is zero, it is impossible for the price to change in the
market.


121- The theory of monopolistic competition has been formulated in the United States of America by
(1) Joan Robinson
(2) Edward Chamberlin
(3) John Bates Clark
(4) Joseph Schumpeter
Answer:
121. (2) In treatments of monopolistic competition, Edward
Chamberlin and Joan Robinson are usually credited
with simultaneously and independently developing the
theory of monopolistic or imperfect competition. Chamberlin published his book ‘The Theory of Monopolistic Competition’ in 1933, the same year that Joan
Robinson published her book on the same topic: ‘The
Economics of Imperfect Competition,’ so these two
economists can be regarded as the parents of the
modern study of imperfect competition.


122- Production Function relates to:
(1) costs to outputs
(2) costs to inputs
(3) inputs to outputs
(4) wage level to profits
Answer:
122. (3) In microeconomics and macroeconomics, a production function is a function that specifies the output of a firm, an industry, or an entire economy for
all combinations of inputs. The primary purpose of
the production function is to address allocative efficiency in the use of factor inputs in production and
the resulting distribution of income to those factors.


123. Under increasing returns the supply curve is
(1) positively sloped from left to right
(2) negatively sloped from left to right
(3) parallel to the quantity-axis
(4) parallel to the price -axis
Answer:
123. (1) Supply curve, in economics, is a graphic represen-tation of the relationship between product price
and quantity of product that a seller is willing and
able to supply. Product price is measured on the vertical axis of the graph and quantity of product supplied on the horizontal axis. In most cases, as when
there is increasing returns, the supply curve is drawn
as a slope rising upward from left to right, since product price and quantity supplied are directly related
(i.e., as the price of a commodity increases in the
market, the amount supplied increases).


124. The degree of monopoly power is to be measured in terms of the firm’s
(1) normal profit
(2) supernormal profit
(3) both normal and supernormal profit
(4) selling price
Answer:
124. (2) Monopoly power implies the amount of discretion
which a monopolist possesses to fix up the prices of
his products and degree of control over his output
decisions. According to J.S. Bains, the degree of
monopoly power can be measured by the monopoly
firm's super-normal profit.


125. Who propounded the Innovation theory of profits ?
(1) J.A. Schumpeter
(2) P.A. Samuelson
(3) Alfred Marshall
(4) David Ricardo
Answer:
125. (1) Schumpeter’s (1934) original theory of innovative
profits emphasized the role of entrepreneurship (his
term was entrepreneurial profits) and the seeking out
of opportunities for novel value-generating activities
which would expand (and transform) the circular flow
of income. It did so with reference to a distinction
between invention or discovery on the one hand and
innovation, commercialization and entrepreneurship
on the other. This separation of invention and innovation marked out the typical nineteenth century institutional model of innovation, in which independent
inventors typically fed discoveries as potential inputs
to entrepreneurial firms.


126. Under perfect competition, the industry does not have any excess capacity because each firm produces at the minimum point on its
(1) long-run marginal cost curve
(2) long-run average cost curve
(3) long-run average variable cost curve
(4) long-run average revenue curve
Answer:
126. (2) Under perfect competition, the firms operate at
the minimum point of long-run average cost curve. In
this way, the actual long-run output of the firm under
monopolistic competition falls short of what is produced under perfect competition which can be considered the socially ideal output. This gives the measure of excess capacity which lies unutilized under
imperfect competition.


127. Exploitation of labour is said to exist when
(1) Wage = Marginal Revenue Product
(2) Wage < Marginal Revenue Product
(3) Wage > Marginal Revenue Product
(4) Marginal Revenue Product = 0
Answer:
127. (2) The term "exploitation" is used to denote the payment to labor of a wage less than its marginal revenue product. Under monopolistic competition, all factors are exploited in this sense. All firms hire labour
until the marginal revenue product equals the marginal factor cost.


128. Cost of production of the producer is given by:
(1) sum of wages paid to labourers.
(2) sum of wages and interest paid on capital.
(3) sum of wages, interest, rent and supernormal profit.
(4) sum of wages, interest, rent and normal profit.
Answer:
128. (4) The following elements are included in the cost of
production: (a) Purchase of raw machinery, (b) Installation of plant and machinery, (c) Wages of labor, (d)
Rent of Building, (e) Interest on capital, (f) Wear and
tear of the machinery and building, (g) Advertisement
expenses, (h) Insurance charges, (i) Payment of taxes, (j) In the cost of production, the imputed value of
the factor of production owned by the firm itself is
also added, (k) The normal profit of the entrepreneur
is also included In the cost of production.


129. The market price is related to :
(1) very short period
(2) short period
(3) long period
(4) very long period
Answer:
129. (1) Marshall was the first economist who analyzed the
importance of time in price determination. Market
period is a very short period in which supply being
fixed, price is determined by demand. The time period is of few days or weeks in which the supply of a
product can be amplified out of given stock to match
the demand. This is possible for durable goods.


130. Equilibrium price is the price when :
(1) supply is greater than demand
(2) supply is less than demand
(3) demand is very high
(4) supply is equal to demand
Answer:
130. (4) The equilibrium price is the price where the goods
and services supplied by the producer equals the
goods and services demanded by the customer(s).
How the equilibrium price is achieved is through the
'Invisible Hand', or market forces of the economy.


131. Elasticity of demand measures the responsiveness of the quantity demanded of a goods to a
(1) change in the price of the goods
(2) change in the price of substitutes
(3) change in the price of the complements
(4) change in the price of joint products
Answer:
131. (1) Price elasticity of demand is a measure of responsiveness of the quantity of a good or service demanded to changes in its price. This measure of elasticity
is sometimes referred to as the own-price elasticityECONOMICS
SGAE–609
of demand for a good, i.e., the elasticity of demand
with respect to the good's own price, in order to distinguish it from the elasticity of demand for that good
with respect to the change in the price of some other
good, i.e., a complementary or substitute good.


132. Which of the following is not a fixed cost ?
(1) Salaries of administrative staff
(2) Rent of factory biilding
(3) Property taxes
(4) Electricity charges
Answer:
132. (1) Fixed costs are business expenses that are not
dependent on the level of goods or services produced
by the business. They tend to be time-related, such
as salaries or rents being paid per month, and are
often referred to as overhead costs. The salaries of
administrative staff are variable costs.


133. In which market structure is the demand curve of the market represented by the demand curve of the firm ?
(1) Monopoly
(2) Oligopoly
(3) Duopoly
(4) Perfect Competition
Answer:
133. (1) Because the monopolist is the market's only supplier, the demand curve the monopolist faces is the
market demand curve. The market demand curve is
downward sloping, reflecting the law of demand. The
fact that the monopolist faces a downward-sloping
demand curve implies that the price a monopolist can
expect to receive for its output will not remain constant as the monopolist increases its output.


134. Which of the following is an inverted ‘U’ shaped curve ?
(1) Average cost
(2) Marginal cost
(3) Total cost
(4) Fixed cost
Answer:
134. (1) In economics, a cost curve is a graph of the costs
of production as a function of total quantity produced.
Both the Short-run average total cost curve (SRAC)
and Long-run average cost curve (LRAC) curves are
typically expressed as U-shaped. However, the shapes
of the curves are not due to the same factors.


135. Which one of the following is having elastic demand ?
(1) Electricity 
(2) Medicines
(3) Rice 
(4) Match boxes
Answer:
135. (1) In economics, the demand elasticity refers to how
sensitive the demand for a good is to changes in other economic variables. The demand for those goods
having more than one use is said to be elastic. Electricity can be used for a number of purposes like
heating, lighting, cooking, cooling etc. If the electricity bill increases people utilize electricity for certain
important urgent purpose and if the bill falls people
use electricity for a number of other unimportant uses.
Thus the demand for electricity is elastic.


136. For an inferior good, demand falls when
(1) price rises 
(2) income rise
(3) price falls 
(4) income falls
Answer:
136. (2) In economics, income elasticity of demand measures the responsiveness of the demand for a good
to a change in the income of the people demanding
the good. An Inferior good is a good that decreases in
demand when consumer income rises, unlike normal
goods, for which the opposite is observed. Normal
goods are those for which consumers' demand increases when their income increases.


137. The marginal propensity to consume lies between
(1) 0 to 1 
(2) 0 to ¥
(3) 1 to ¥ 
(4) ¥ to ¥
Answer:
137. (1) The Marginal Propensity to Consume (MPC) is
measured as the ratio of the change in consumption
to the change in income, thus giving us a figure between 0 and 1. The MPC can be more than one if the
subject borrowed money to finance expenditures higher than their income. One minus the MPC equals the
marginal propensity to save.


138. Wage fund theory was propounded by
(1) J.B. Say 
(2) J.S. Mill
(3) J.R. Hicks 
(4) J.M. Keynes
Answer:
138. (2) J.S. Mill developed the wages-fund theory. This
theory of wage was an attempt to show that in certain
circumstances wages could rise above subsistence
level. According to this theory a fund of capital has to
be accumulated in advance before wage could be paid.
This fund of capital is called wages-fund out of which
wages are paid to labourers.


139. The expenses on advertising is called
(1) Implicit cost 
(2) Surplus cost
(3) Fixed cost 
(4) Selling cost
Answer:
139. (4) Selling cost is total cost of marketing, advertising,
and selling a product. It differs from the production
cost which is incurred to produce goods. Selling cost
influences the commercial desire to purchase a commodity.


140. Name the curve which shows the quantity of products a seller wishes to sell at a given price level.
(1) Demand curve
(2) Cost curve
(3) Supply curve
(4) None of these

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