Mcqs of Economics Book PDF by Dr. Deepashree Free Download For All Economics Related Exams and Interviews

MCQs
IN
ECONOMICS
FOR CA COMMON PROFICIENCY TEST
MCQS
IN
ECONOMICS
FOR CA COMMON PROFICIENCY TEST
Dr. Deepashree
Reader in Economics
Department of Commerce
Shri Ram College of Commerce
University of Delhi, Delhi
Tata McGraw-Hill Publishing Company Limited

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MCQs in Economics
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Preface
As a teacher and an author of many books on microeconomics,

macroeconomics and Indian economy, I am glad that audience from
various walks of academic life have appreciated my efforts at writing
books that have been of use to them. This has led to my indulgence
in writing a book on General Economics, specially designed to meet
the requirements of the new syllabus of Common Proficiency Test
(CPT) for Chartered Accountant students.
This book is a compilation of Multiple Choice Questions covering
the latest General Economics syllabus. The new syllabus requires
students to have indepth knowledge of every aspect of Economics.
The latest trend is to ask students Multiple Choice Questions (MCQs)
which have four choices which might confuse them. The correct
answer has to be marked with a tick (ü).
This book gives the student a lot of practice. The questions should
be attempted after seriously studying the theoretical contents given in
my main CPT book. I have tried to cover each aspect of every topic
in these MCQs.
Suggestions for further improvement of the book will be thankfully
acknowledged.
DR. DEEPASHREE
Syllabus
General Economics (50 Marks)

Objective:
To ensure basic understanding of economic systems, economic
behaviour of individuals and organizations.
Section One: Microeconomics
1. Introduction to Microeconomics
(a) Definition, scope and nature of Economics
(b) Methods of economic study
(c) Central problems of an economy and Production possibili-
ties curve.
2. Theory of Demand and Supply
(a) Meaning and determinants of demand, Law of demand and
Elasticity of demandprice, income and cross elasticity
(b) Theory of consumers behaviourMarshallian approach and
Indifference curve approach
(c) Meaning and determinants of supply, Law of supply and
Elasticity of supply.
3. Theory of Production and Cost
(a) Meaning and Factors of production
(b) Laws of ProductionThe Law of variable proportions and
Laws of returns to scale.
(c) Concepts of CostsShortrun and longrun costs, Average
and marginal costs, Total, fixed and variable costs.
4. Price Determination in Different Markets
(a) Various forms of marketsPerfect competition, Monopoly,
Monopolistic Competition and Oligopoly
(b) Price determination in these markets.
Section Two: Indian EconomyA Profile
5. Indian EconomyA Profile
(a) Nature of Indian Economy
(b) Role of different sectors-Agriculture, Industry and Services in
the development of the. Indian economy, their problems
and growth
x Syllabus
(c) National Income of IndiaConcepts of national income,

Different methods of measuring national income, Growth of
national income and per capita income in various plans.
(d) Basic understanding of tax system of IndiaDirect and Indi-
rect Taxation.
6. Select Aspects of Indian Economy
(a) PopulationIts size, rate of growth and its implication for
growth
(b) PovertyAbsolute .and relative poverty and main programs
for poverty alleviation
(c) UnemploymentTypes, causes and incidence of unemploy-
ment
(d) InfrastructureEnergy, Transportation, Communication,
Health and Education
(e) Inflation
(f) Budget and Fiscal deficits
(g) Balance of payments
(h) External debts.
7. Economic Reforms in India
(a) Features of economic reforms since 1991
(b) Liberalisation, Privatisation and Disinvestment
(c) Globalisation.
8. Money and Banking
(a) MoneyMeaning and functions
(b) Commercial BanksRole and functions
(c) Reserve Bank of IndiaRole and functions, Monetary policy.
Chapter Plan
Section OneMICROECONOMICS
1. Microeconomics: An Introduction
2. Law of Demand and Elasticity of Demand
3. Theories of Consumer Behaviour
4. Supply
5. Theory of Production
6. Theory of Cost
7. Meaning and Types of Markets
8. Determination of Price
9. Price-output Determination under Different Market Forms
Section TwoINDIAN ECONOMIC DEVELOPMENT
10. Nature of Indian Economy
11. Role of Different Sectors in India
12. National Income in India
13. Basic Understanding of Tax System in India
14. Population
15. Poverty
16. Unemployment
17. Infrastructural Challenges
18. Inflation
19. Budget and Fiscal Deficit in India
20. Balance of Payments
21. External Debt
22. Economic Reforms and Liberalisation
23. Liberalisation, Privatisation and Disinvestment
24. Globalisation
25. Money
26. Commercial Banks
27. The Reserve Bank of India (RBI)
Contents
Preface vii
Syllabus ix
Chapter Plan xi
SECTION ONE
MICROECONOMICS
Unit 1 Introduction to Microeconomics
1. Microeconomics: An Introduction 1.5-1.13
Unit 2 Theory of Demand and Supply
2. Law of Demand and Elasticity of Demand 2.3-2.11
3. Theories of Consumer Behaviour 3.1-3.9
4. Supply 4.1-4.10
Unit 3 Theory of Production and Cost
5. Theory of Production 5.3-5.11
6. Theory of Cost 6.1-6.9
Unit 4 Price Determination of Different Markets
7. Meaning and Types of Markets 7.3-7.10
8. Determination of Price 8.1-8.5
9. Price-output Determination under 9.1-9.8
Different Market Forms
SECTION TWO
INDIAN ECONOMIC DEVELOPMENT
Unit 5 Indian EconomyA Profile
10. Nature of Indian Economy 10.5-10.7
11. Role of Different Sectors in India 11.1-11.3
12. National Income in India 12.1-12.4
13. Basic Understanding of Tax System in India 13.1-13.3
Unit 6 Select Aspects of Indian Economy
14. Population 14.3-14.5
15. Poverty 15.1-15.4
16. Unemployment 16.1-16.3
17. Infrastructural Challenges 17.1-17.4
18. Inflation 18.1-18.4
xiv Contents
19. Budget and Fiscal Deficit in India 19.1-19.3

20. Balance of Payments 20.1-20.4
21. External Debt 21.1-21.3
Unit 7 Economic Reforms in India
22. Economic Reforms and Liberalisation 22.3-22.6
23. Liberalisation, Privatisation and Disinvestment 23.1-23.3
24. Globalisation 24.1-24.4
Unit 8 Money and Banking
25. Money 25.3-25.6
26. Commercial Banks 26.1-26.3
27. The Reserve Bank of India (RBI) 27.1-27.4
Model Test Paper I P.1-P.7
Model Test Paper II P.1-P.8
Section One
Microeconomics
1. Microeconomics: An Introduction
chapter 1
Microeconomics:
An Introduction
Topics Covered
l What is Economics? l Nature of Economics
Is Economics a Science or an Art? l Positive
and Normative Science l Microeconomics and
Macroeconomics l Methods of Constructing
an Economic Theory l Central Economic
Problems l Production Possibility Curve and
Opportunity Cost l Different Economic Systems
1.6 MCQs in Economics
1. Growth definition by Samuelson has:

(a) An element of time in its.
(b) Touches about economic growth and welfare concepts.
(c) Talks about the problem of scarcity of resources.
(d) All of the above
2. Who gave welfare definition of Economics?
(a) Adam Smith (c) Samuelson
(b) Alfred Marshall (d) Robbins
3. Who gave wealth definition of Economics?
4. Who gave scarcity definition of Economics?
5. Who wrote Nature and Significance of Economic Science?
6. Who wrote Nature and Causes of Wealth of Nations?
7. Who said Law of Economics are like the law of tides?
8. Economics is:
(a) A science
(b) An art
(c) Both a science and an art
(d) Neither a science nor an art
9. Positive economics is based on:
(a) Cause and effect of facts
(b) Ethics
(c) Value judgments
Microeconomics: An Introduction 1.7
10. Normative economics is based on:

(a) Cause and effect of facts
(b) Ethics
(c) Value judgments
(d) Both (b) and (c)
11. Chemistry is:
(a) Positive economics
(b) Normative economics
(c) Both positive and normative economics
(d) None of the above
12. Ethics is:
13. Which economics deals with idealistic situation?
14. A rise in price of goods leads to fall in its quantity demanded.
Thus, government showed cheek rise in prices. This statement
refers to:
15. Price theory deals with:
(a) Product pricing
(b) Factor Pricing
(c) Welfare economics
16. Marco economics deals with:

(a) Theory of distribution
(b) Theory of income and employment
(c) Theory of economic growth
17. When we start with particular facts and then makes general
theory, it is called:
(a) Deductive method
(b) Inductive method
(c) Partial equilibrium method
18. Examples of inductive method of economic theory can be:
(a) Malthusian theory of population
(b) Engels law
(c) Law of demand
19. Advantages of deductive method of economic theory can be:
(a) Simple method (b) Universally applicable
(c) Accurate result (d) All of the above
20. Merits of inductive method of economic theory can be:
(a) Realistic and reasonable method
(b) Verifies economic facts
(c) Scientific method
21. Disadvantages of inductive method can be:
(a) Expensive method
(c) Chances of personal bias of the investigators are present
(b) Complex method
22. Economic problem arises because:
(a) Wants are unlimited
(b) Resources are scare
(c) Alternative uses of resources exist
23. Central problem of an economy can be:

(a) What goods to produce and how much to produce
(b) How to produce
(c) For whom to produce
24. Theory of distribution studies the problem of:
(b) How to produce
25. Theory of production studies the problem of:
(b) How to produce
26. Price theory studies the problem of:
(b) How to produce
27. Production possibility curved (PPC) is defined as different com-
bination of goods and services that can be produced by whom
when the resources are fully employed?
(a) Firm (b) Industry
(c) Economy (d) All of the above
28. Assumption of PPC is/are:
(a) There are only two goods
(b) Resources are not specific
(c) Resources are fully employed
29. Shape of PPC is:
(a) Downward sloping concave to the origin
(b) Downward sloping convex to the origin
(c) Downward sloping straight line to the origin
30. Smooth PPC is based on the assumption that:

(a) Infinite production possibilities exist
(b) Limited production possibilities exist
(c) Two production possibilities exist
31. PPC is also called:
(a) Opportunity cost curve
(b) Transformation curve
(c) Production possibility frontier
32. If production of good X rises by 1 unit and that of good Y falls
from 15 to 12.5 units then, marginal opportunity cost of X is:
(a) 27.5 (b) 2.5 (c) 15 (d) 12.5
33. PPC can effectively explain the central problem of:
(a) What to produce (b) How to produce
(c) Economic growth (d) All of the above
34. PP¢ shifts rightwards to P1P1¢. It shows:
(a) Improvement in technology in
good X
(b) Improvement in technology in
good Y
(c) Improvement in technology in both
good X and good Y
(d) Stagnation
35. If earthquake takes place, then what will happen to PPC?
(a) Shift inward (b) Remains same
(c) Shift outward (d) All of the above
Use the figure below to answer Questions 36-39
36. Trade off is shown by:

(a) Point N to M (b) Point R to N
(c) Point N to S (d) Point R to S
37. Which point shows under utilisation of resources?
(a) Point N (b) Point M
(c) Point R (d) Point S
38. Which point is not attainable?
(a) Point N (b) Point M
(c) Point R (d) Point S
39. Slope of PPC between point N and M is:
(a) 3 (b) 20 (c) 2.5 (d) 3.5
40. Price mechanism is:
(a) Interaction of market forces of demand and supply to deter-
mine the price
(b) A mechanism followed by producer is determine the price
(c) A mechanism where both buyers and sellers exercise their
bargaining power and then settle for a price
41. Who gave Invisible Hand theorem?
(a) Robins (c) Karl Marx
(b) Marshall (d) Adam Smith
42. Capitalism brings about:
(a) Rapid economic growth (b) Maximum efficiency
(c) More economic activity (d) All of the above
43. Demerits of capitalism is seen in:
(a) Unequal distribution of income and wealth
(b) Business instability
(c) Consumers exploitation
44. In a mixed economy, what is the motive of producer?
(a) Profit
(b) Societys welfare
(c) Both profit and societys welfare
45. There is absence of role of government in:

(a) Capitalist economy (b) Socialist economy
(c) Mixed economy (d) Primitive economy
46. Capitalism is also called:
(a) Command economy (b) Planned economy
(c) Laissez-faire economy (d) Perfectly competitive economy
47. Socialism is also called:
(a) Free-market economy (b) Laissez-faire economy
(c) Command economy (d) Perfectly competitive economy
48. Socialism means:
(a) No freedom to enterprise
(b) Complete role of government
(c) No competition
49. Socialism brings about:
(a) Optimum utilisation of resources
(b) Satisfaction of consumers need
(c) Equal distribution of income and wealth
50. Demerit of socialism lies in:
(a) Concentration of power in government hand
(b) Bureaucratic set up
(c) Wrong calculation of cost
51. Mixed economy means:
(a) Consumers sovereignty
(b) Freedom of occupation
(c) Competition in the private sector
52. Who takes production decision in India?
(a) Price mechanism
(b) Government
(c) Both price mechanism and government
53. Mixed economy means:

(a) Stability (b) Balanced development
(c) Maximises productivity (d) All of the above
54. Demerits of mixed economy can be seen in:
(a) Inefficiency (b) Corruption
(c) Fear of nationalism (d) All of the above
55. Who said Capitalism contain seeds of its own destruction?
(a) Karl Marx (b) Adam Smith
(c) Ricardo (d) Samuelson
56. If PPC shifts to the left, it means:
(a) Resource are destroyed
(b) More unemployment
(c) Use of outdated technology
57. If PPC shifts to the right, it means:
(a) Discovery of new stock
(b) Advancement in technology
(c) Generation of employment
Solution
1. (d) 2. (b) 3. (a) 4. (d) 5. (d) 6. (a) 7. (b) 8. (c)
9. (a) 10. (d) 11. (a) 12. (b) 13. (b) 14. (c) 15. (d) 16. (d)
17. (b) 18. (d) 19. (d) 20. (d) 21. (d) 22. (d) 23. (d) 24. (c)
25. (b) 26. (a) 27. (c) 28. (d) 29. (a) 30. (a) 31. (d) 32. (b)
33. (d) 34. (c) 35. (a) 36. (a) 37. (c) 38. (d) 39. (a) 40. (a)
41. (d) 42. (d) 43. (d) 44. (c) 45. (a) 46. (c) 47. (c) 48. (d)
49. (d) 50. (d) 51. (d) 52. (c) 53. (d) 54. (d) 55. (a) 56. (d)
57. (d)
2. Law of Demand and Elasticity of Demand
3. Theories of Consumer Behaviour
4. Supply
chapter 2
Law of Demand and

Elasticity of Demand
Topics Covered
l Definition and Features of Demand l Factors
Determining Demand and the Demand
Function l The Law of Demand l Exceptions
to the Law of Demand l From Individual
Demand to Market Demand l Movement:
Expansion or Contraction of Demand l Shift:
Increase or Decrease in Demand l Difference
Between Movement and Shift of the
Demand Curve l Price Elasticity of Demand
l Measurement of Price Elasticity of Demand
l Income Elasticity of Demand l Cross
Elasticity of Demand
1. Demand definition is complete when we have data on:

(a) Price, quantity and time
(b) Income, quantity and time
(c) Price, utility and time
(d) Price, quantity and utility
2. By effective demand, we mean:
(a) Both ability and willingness to buy a commodity
(b) Willingness to buy a commodity
(c) Ability to buy a commodity
(d) Desire to own a commodity
3. Demand function is given as Dx = f (Px , P2, Y, T ). What does T
stand for:
(a) Taxes (b) Tastes
(c) Both taxes and tastes (d) None of the above
4. Who gave ceteris paribus assumption?
(a) Marshall (c) Ricardo
(b) Adam Smith (d) Walras
5. What does ceteris paribus mean?
(a) Other things remaining constant
(b) Price of other goods remaining constant
(c) Other things are simultaneously changing
6. What kind of relationship exist between demand for a good and
price of its substitute goods?
(a) Direct (b) Inverse
(c) No effect (d) Can be direct or inverse
7. What kind of relationship exist between price of a good and
demand of its complementary good?
8. What kind of relationship exist between income and demand of
inferior good?
Law of Demand and Elasticity of Demand 2.5
9. What kind of relationship exist between income and demand of

a normal good?
10. How will demand for a necessity behave with rise in income?
(a) Initially the demand rises and then becomes constant
(b) Initially the demand shows no change and then it rises
(c) Rises
(d) Falls
11. How is law of demand expressed functionally?
(a) Dx = f (Px ), ceteris paribus
(b) Dx = f (Pz ), ceteris paribus
(c) Dx = f (Y ), ceteris paribus
(d) Dx = f (T ), ceteris paribus
12. When demand curve is downward sloping , its slope is :
(a) Negative (b) Positive (c) Constant (d) Zero
13. As consumer has more and more units of a goods, its marginal
utility to him :
(a) Declines (b) Rises (c) Is zero (d) Is maximum
14. Income effect states that as price of a good falls, demand rises
because there is rise in :
(a) Money income (b) Real income
(c) Relative price of other goods (d) Marginal utility
15. Substitution effect states that as price of a good falls, demand
rises because there is rise in :
(a) Money income (b) Real income
(c) Relative price of other goods (d) Marginal utility
16. Giffen good is:
(a) A inferior good
(b) One with high negative income elasticity of demand
(c) Consumed by low-paid workers
17. Veblan good is:

(a) Good of status
(b) Consumed by very high income group
(c) Like diamonds
18. Factor which affects market demand but not individual demand
can be:
(a) Number of consumers in the market
(b) Age and sex composition of population
(c) Distribution of income
19. Law of demand does not hold in case of:
(a) Emergency (b) Expectation of price rise
(c) Conspicuous goods (d) All of the above
20. Contraction of demand is shown by:
(a) Upward movement on the demand curve
(b) Downward movement on the demand curve
(c) Rightward shift of the demand curve
(d) Leftward shift of the demand curve
21. Increase in demand is shown by:
22. Expansion of demand is shown by:
23. When same units are demanded at a higher price, it shows:
(a) Increase in demand (b) Expansion in demand
(c) Decrease in demand (d) Contraction in demand
24. When there is fall in the price of complementary good and rise
in the price of substitute good, it shows:
(a) Increase in demand. (b) Expansion in demand.
(c) Decrease in demand. (d) Contraction in demand.
25. Coefficient of elasticity of demand is negative. It means:
(a) Consumers sometimes buy negative units of a commodity
(b) Price and quantity demanded move in same direction
(c) Law of demand holds
(d) The two goods are complementary to each other
26. Ed =
DQ P Q DQ Q
(a) ◊ (b) DP ◊ (c) DP ◊ P (d) ◊
DP Q DQ P DQ Q DP P
27. Demand is elastic when:

(a) Price level is high
(b) More substitutes are available
(c) Income of the consumer is less
28. The absolute value of the coefficient of elasticity of demand
ranges from:
(a) Zero to infinity
(b) Minus infinity to plus infinity
(c) Zero to infinity
(d) One to infinity
29. The value of cross elasticity of demand ranges from:
(d) One to infinity
30. When cross elasticity of demand is zero, then two goods are:
(a) Substitutes (b) Complements
(c) Not related (d) Perfect complements
31. When cross elasticity of demand is minus infinity, then two

goods are:
32. When cross elasticity of demand is positive, then two goods are:
33. Cross elasticity of demand between two goods X and Z is given
as:
DQ x Pz DQ x Px
(a) e xz = ◊ (b) e xz = ◊
DPz Q x DPz Qz
DQ z Pz DQ x Q x
(c) e xz = ◊ (d) e xz = ◊
DPx Q x DPz Pz
34. Income elasticity is given as:

DQ y Dy Q
(a) ey = ◊ (b) ey = ◊
Dy Q DQ y
DQ Q Dy Q
(c) ey = ◊ (d) ey = ◊
Dy y DQ y
35. When income elasticity of demand is greater than one, then the
good is:
(a) luxury (b) Necessity
(c) Poor quality necessity (d) Inferior good
36. When income elasticity of demand is equal to zero, then the
good is:
(a) Luxury (b) Necessity
37. When income elasticity of demand is between zero and one, the
good is:
38. Geometric method of measuring point elasticity of demand is

given by what ratio on the price axis?
lower segment upper segment
(a) (b)
upper segment lower segment
(c) zero (d) zero
1 lower segment
39. If income of a household rises by 10% and demand rises by 40%
then income elasticity is equal to :
(a) 4 (b) 1
4
(c) 30 percent (d) None of the above
40. When income elasticity of demand is negative, the good is:
41. Price elasticity of demand on a linear demand curve at the x-axis
is equal to :
(a) zero (b) one (c) infinity (d) 0 < Ed < 1
42. Price elasticity of demand on a linear demand curve at the y-axis
is equal to :
(a) Zero (b) One (c) Infinity (d) 0 < Ed < 1
43. Price elasticity of demand of a horizontal demand curve is called:
(a) Perfectly elastic (b) Perfectly inelastic
(c) Elastic (d) Inelastic
44. Price elasticity of demand of a vertical demand curve is called:
(a) Perfectly elastic (b) Elastic
(c) Inelastic (d) Perfectly inelastic
45. When percentage change in quantity demanded is more than the
percentage change in price than demand curve is:
(a) Flatter (b) Steeper
(c) Rectangular (d) Horizontal
46. When percentage change in quantity demanded is less than the
percentage change in price demand curve is:
(a) Flatter (b) Steeper
(c) Rectangular (d) Horizontal
47. Ed = 1 in case of:

(a) Luxuries (b) Normal goods
(c) Necessities (d) Essentials
48. Ed = • in case of:
(a) Nuxuries (b) Normal goods
(c) Necessities (d) Perfect competition
49. Ed = 0 in case of:
(a) Luxuries (b) Normal goods
(c) Necessities (d) Essentials
50. When the same pair of price and quantity figures give two
different values of elasticity of demand, one must apply:
(a) Outlay method (b) Arc method
(c) Geometric method (d) None of the above
Solution
1. (a) 2. (a) 3. (b) 4. (a) 5. (a)
6. (a) If price of rice rises it would cause an increase in demand
for wheat
7. (b) If price of petrol rises it would cause a fall in demand for
car.
8. (b) As income rises, purchasing power rises and consumer sub-
stitutes superior goods for inferior good. Thus, demand for
inferior goods fall.
9. (a) As income rises, consumer buys more of normal goods.
10. (a) 11. (a) 12. (a)
13. (a) It is called law of diminishing marginal utility. The law was
given by Alfred Marshall.
14. (b) Real income is the purchasing power. It is obtained by
dividing money income by the price of the commodity.
15. (c) 16. (d) 17. (d) 18. (d) 19. (d)
20. (a) It shows less quantity demanded at a higher price.
21. (c)
22. (b) It shows more quantity demanded at a lower price.
23. (a) 24. (a) 25. (c) 26. (a) 27. (d) 28. (a) 29. (b) 30. (c)
31. (d) 32. (a) 33. (a) 34. (a) 35. (a) 36. (c) 37. (b) 38. (a)
39. (a) 40. (a) 41. (a) 42. (c) 43. (a) 44. (d) 45. (a) 46. (b)
47. (b) 48. (d) 49. (d) 50. (b)
chapter 3
Theories of Consumer
Behaviour
Topics Covered
l Marginal Utility Approach l Indifference
Curve Theory l Comparison on Marginal Utility
Theory with Indifference Curve Theory
1. In Marginal utility theory, marginal utility of money is:

(a) Rising (b) Constant
(c) Decreasing (d) Rises and then falls
2. In Marginal utility theory, utility is an:
(a) Ordinal concept
(b) Cardinal concept
(c) Both ordinal and cardinal concept
3. As the consumer has more units of a commodity, his total utility
from the commodity:
(a) Increases less than in proportion, reaches a maximum and
then falls
(b) Increases less than in proportion and then falls
(c) Increases more than in proportion and then reaches a maxi-
mum
(d) Falls, becomes zero and then negative
4. MU of the commodity when no commodity is consumed is:
(a) Maximum (b) Falling (c) Constant (d) Rising
5. MU of the commodity becomes negative when TU of the com-
modity is:
(a) Rising (b) Constant (c) Falling (d) Zero
6. When MU of the commodity is zero, slope of TU curve is:
(a) Zero (b) Rising (c) Falling (d) Constant
7. Slope of TU curve is called:
(a) Marginal utility (b) Utility
(c) Average utility (d) None of the above
8. Saturation point means:
(a) TU is rising, and MU is falling
(b) TU is falling and MU is negative
(c) TU is maximum and MU is zero
(d) Falling MU curve
9. Falling MU curve shows which law?
(a) Law of diminishing returns
(b) Law of diminishing marginal rate of substitution
Theories of Consumer Behaviour 3.3
(c) Law of diminishing marginal utility

10. If consumption of the good is not continuous or there are
varieties in the good then which law withhold:
(a) Law of diminishing marginal utility
(b) Law of increasing marginal utility
(c) Law of diminishing returns
(d) Law of constant returns
11. Consumer surplus is the difference between:
(a) Amount consumer is willing to pay minus amount actually
paid by the consumer
(b) Amount consumer actually paid minus the amount consumer
is wiling to pay
(c) Amount consumer actually paid minus the amount charged
by the seller
(d) Amount consumer is willing to pay minus the amount
producer is wanting
12. Marshalls consumer surplus is the area between:
(a) Demand curve and the price axis below the market price
(b) MU curve and the market price
(c) Demand curve and the price axis above the market price
13. The negative portion of MU curve:
(a) Is a part of the demand curve
(b) Is not a part of the demand curve
(c) Is sometimes a part of the demand curve
(d) MU curve is not related to demand curve
14. When MU is falling, TU is:
(a) Rising (b) Falling
(c) Not changing (d) Maximum
15. In MU theory, we assume other things are:
(a) Constant (b) Changing
(c) Changes in the long-run (d) None of the above
16. MRS is defined as:

(a) Amount of good Y given up in exchange for good X such
that total utility is constant
(b) Amount of good X given up in exchange for good Y such
that total utility is constant
(c) Amount of good Y given up in exchange for good X such
that total utility rises
(d) Amount of good Y given up in exchange for good X
17. Indifference mean:
(a) X is preferred to Y
(b) Y is preferred to X
(c) X and Y are equally preferred
18. Scale of preference of a consumer is independent of:
(a) Market price
(b) Scale of preference of other consumer
(c) Income of the consumer
(d) All the above
19. MRS is given by.
(a) DX (b) DX DY (c) DY (d) DY DX.

DY DX
20. Diminishing MRS means:
(a) Consumer wants to give up lesser units of Y in exchange for
good X
(b) Consumer wants to give up more units of Y in exchange for
good X
(c) Consumer wants to give up same units of Y in exchange for
good X
21. Smoothness of indifference curve means:
(a) X and Y are substitutes of each other
(b) X and Y can be consumed in fixed proportions
(c) Perfect divisibility of two goods
(d) Perfect non-divisibility of two goods
22. Higher Indifference curve means:

(a) Consumer has more income
(b) Price of goods have reduced
(c) Higher utility level
23. A downward sloping curve can have the following shape:
(a) Convex (b) Concave
(c) Straight line (d) All of the above
24. A straight downward sloping indifference curve means:
(a) MRS is constant (b) MRS is increasing
(c) MRS is decreasing (d) MRS is zero
25. Decreasing slope of indifference curve is explained by:
(a) Law of diminishing marginal returns
(b) Law of diminishing MRS
(c) Law of demand
(d) Law of constant MRS
26. Budget set is:
(a) Right angled triangle formed by the budget line with the
axes
(b) All points on the budget line
(c) Points inside the budget line
(d) Points on y-axis from where budget line starts and the point
on x-axis where budget line ends
27. While deriving consumers equilibrium, what is given?
(a) Income of the consumer
(b) Price of the commodities
(c) Both income and price
28. Point A is:
(a) Attainable
(b) Not attainable
(c) Desirable and attainable
(d) Desirable and not attainable
29. When MRS is constant, X and Y are:

(a) Not related (b) Perfect substitutes
(c) Perfect complements (d) Inferior goods
30. Upward sloping demand curve can be explained by:
(a) Marginal utility theory (b) Indifference curve theory
(c) Both the above theories (d) None of the above
31. Marginal utility theory can derive the demand curve which is:
(a) Downward sloping (b) Upward sloping
(c) L-Shaped (d) All of the above
32. When two goods are perfect complements, then elasticity of
substitution between the two goods is:
(a) Infinity
(b) One
(c) Zero
(d) Between zero and infinity
33. When MRS of X for Y is equal to the ratio between the price of
the goods, then it is shown by:
(a) Point on highest indifference curves
(b) Point on budget line
(c) Equilibrium point
34. To derive the demand curve, we change the price and see its
effect on quantity demanded. When price is changed, it gener-
ates which two effects?
(a) Price and income effects
(b) Price and substitution effects
(c) Income and substitution effects
35. Which of the following is the property of indifference curves?
(a) They are downward sloping
(b) They are convex to the origin
(c) They are non-intersecting
36. If a consumer is willing to pay Rs 20 for an apple and is able to

buy it for Rs. 15, then the consumer surplus is:
(a) Rs. 35 (b) Rs. 15 (c) Rs. 5 (d) Rs. 20
37. The common assumption of marginal utility and indifference
curve theories is:
(a) Consistency (b) Transitivity
(c) Rationality (d) More is better
38. Which theory assumes ordinality of utility?
(a) Indifference curve theory
(b) Marginal utility theory
(c) None of the above
(d) Both (a) and (b)
39. When MRS is rising, what shape will indifference curve take?
(a) Convex to the origin (b) Concave
(c) Straight line (d) Rising
40. When tax is raised, consumer surplus:
(a) Falls (b) Rises
(c) Remain unchanged (d) Becomes zero
Solution
1. (b) It is the assumption of marginal utility theory that marginal
utility of money is constant.
2. (b) Utility is a cardinal concept in marginal utility theory. It
means it can be measured in money units.
3. (a)
4. (a) It is because the expected utility of the consumer when he
gets the first unit of the commodity is maximum.
5. (c)
6. (a) It is because MU is the slope of TU curve.
7. (a) 8. (c) 9. (c)
10. (b) It is because if a consumer can have the commodity after a

gap of few hours and there is also variety in the commodity
then his MU from additional units of the commodity will
increase.
11. (a) 12. (c)
13. (b) It is because negative quantities are not demanded.
14. (a) 15. (a)
16. (a) It is because MRS = DY
DX
17. (c) That is, both goods X and Y gives equal satisfaction to the
consumer.
18. (d) consumers preference does not get change if there are
changes in price, income or scale of preference of other
consumers.
19. (c)
20. (a) Beause as the consumer moves along a curve, Y becomes a
scarce commodity and X becomes an abundant commodity.
The subjective worth of abundant good X declines and that
of scarce good Y rises.
21. (c) This is the basic assumption behind smoothness of all curves
in economics.
22. (c) 23. (d) 24. (a) 25. (b) 26. (a)
27. (c) These are constraints on which budget line is developed.
28. (d) Desirable because it shows more utility and unattainable
because the budget line does not touch it.
29. (b) When two goods are perfect substitutes then its elasticity of
substitution (es ) is infinity. es is infinity when there is no
change in MRS.
30. (b) Upward sloping demand curve occurs in case of giffen
goods. Indifference curve theory can derive the demand
curve for giffen goods.
31. (a) In MU theory, the demand curve derived is downward
sloping which exists in case of normal goods.
32. (c)
PX
33. (c) Since equilibrium condition is: MRSXY =
PY
34. (c) Price effect = Substitution effect + Income effect.

35. (d)
36. (c) Consumer surplus = amount consumer is willing to pay
amount actually paid
= Rs. 20 Rs. 15
= Rs. 5
37. (c) 38. (a) 39. (b)
40. (a) When tax is raised, price of the commodity rises and
consumer has to actually pay greater amount of money to
buy the commodity. Thus, consumer surplus falls.
chapter 4
Supply
Topics Covered
l Concept of Supply l Factors Determining
Supply l The Law of Supply l From Indi-
vidual Supply to Market Supply l Movement:
Expansion or Contraction of Supply l Shift:
Increase or Decrease in Supply l Difference
Between Movement and Shift of the Supply
Curve l Elasticity of Supply l Measurement
of Elasticity of Supply
1. Stock of a commodity is the:

(a) Total quantity that is available in a market at a certain time
(b) Total quantity that is available with wholesalers at a certain
time
(c) Total quantity that is available with stockists at a certain
time
(d) Total quantity that is available at a certain price
2. Supply is that part of stock which:
(a) Seller is ready to sell at a certain price during a certain time
(b) Seller is ready to sell
(c) Wholesaler is ready to sell to retailers
(d) Wholesaler is ready to sell to buyers
3. Supply function is a functional relationship between quantity
supplied of a commodity and :
(a) Factors affecting supply (b) Price of the commodity
(c) State of technology (d) Government policy
4. Law of supply is functionally given as:
(a) Sx = f (Px ), ceteris paribus
(b) Sx = f (P2 ), ceteris paribus
(c) Sx = f (T ), ceteris paribus
(d) Sx = f (C ), ceteris paribus
5. What is constant in the law of supply?
(a) Price of related goods
(b) State of technology
(c) Cost of production
6. When supply curve is upward sloping, its slope is :
(a) Positive
(b) Negative
(c) First positive then negative
(d) Zero
7. Market supply curve is summation of individual supply
curve:
(a) Horizontal
(b) Vertical
Supply 4.3
(c) Can be both horizontal or vertical

8. Movement along the supply curve is also called:
(a) Change in supply
(b) Change in quantity supplied
(c) Contraction in supply
(d) Income in supply
9. An upward movement along a supply curve shows:
(a) Contraction in supply (b) Decrease in supply
(c) Expansion in supply (d) Increase in supply
10. A rightward shift in supply curve shows:
11. When less quantity is supplied at a lower price, it shows:
12. When same quantity is supplied at a higher price, it shows:
13. When price of substitutes and cost of production rises, it leads
to:
14. When there is fall in expected price of the good and favourable
changes in government policy, it leads to:
15. Who developed the concept of elasticity of supply?
(a) Alfred Marshall (b) A.C. Pigou
(c) Adam Smith (d) Robbins
16. Elasticity of supply is given by the formula:
DQ P Q DQ Q DQ
(a) ◊ (b) DP ◊ (c) ◊ (d)
DP Q DQ P DP P DP
17. Slope of supply curve is given by the formula:

DQ Q
(a) (b) DP (c) P (d)
DP DQ Q p
18. Relationship between slope and elasticity of supply is:
1 ◊P Q
(a) ES = (b) ES = Slope ◊
Slope Q p
(c) ES = 1 ◊Q (d) ES = Slope

Slope P
19. The value of elasticity of supply ranges from:
(a) Zero to infinity (c) Minus infinity to plus infinity
(b) One to infinity (d) Zero to minus infinity.
20. When supply curve is vertical, ES = ?
(a) Zero (b) 1 (c) • (d) ES > 1
21. When supply curve is horizontal, ES = ?
(a) Zero (b) 1 (c) • (d) ES > 1
22. If price of substitute goods fall, then it will lead to:
(a) Increase in supply (b) Decrease in supply
(c) No change in supply (d) None of the above
23. When to a change in price there is lesser change in quantity
supplied then supply curve is:
(a) Upward sloping originating from x-axis
(b) Upward sloping originating from origin
(c) Upward sloping originating from y-axis
(d) Horizontal
24. When to a change in price there is equal change in quantity
(d) Horizontal
25. When to a change in price there is more change in quantity
Supply 4.5

(d) Horizontal
26. Arc elasticity of supply is given by the formula:
q1 - q 2 p + p2 q 1 + q 2 p1 + p 2
(a) ¥ 1 (b) q - q ¥ p - p
q1 + q 2 p1 - p 2 1 2 1 2
q 2 - q 1 p 2 - p1 p1 - p 2 q 1 + q 2
(c) ¥ (d) ¥
q 2 + q 1 p 2 - p1 p1 + p2 q1 - q 2
27. Let price of rice rise for Rs 20 to Rs 40 per kg and quantity sup-
plied rise from 10 kg to 15 kg in a month. Then, ES is = ?
(a) 0.6 (b) 0.8 (c) 0.5 (d) 1
28. Let Q = 40 + 10 p be the supply function then calculate arc ES
between price of Rs 10 and Rs 12:
(a) 4 (b) 1.3 (c) 1.57 (d) 1
29. If price of a good falls from Rs 25 to Rs 20, supply falls from 180
units to 80 units. Calculate ES.:
(a) 2.5 (b) 2.78 (c) 3 (d) 3.5
30. Let ES = 5, P = Rs 60, new price = Rs 100, change in quantity
supplied = 20 units. Find original quantity supplied:
(a) 6 units (b) 26 units (c) 15 units (d) 8 units
31. If value of ES > 1, it is called:
(a) Elastic supply (b) Inelastic supply
(c) Perfectly elastic supply (d) Perfectly inelastic supply
32. If value of ES < 1, it is called:
33. Price of a good falls from Rs 15 to Rs 10 and the supply
decreases from 100 units to 50 units. Calculate ES :
(a) 2 (b) 2.5 (c) 1.5 (d) 1.
34. A seller of potatoes sells 80 quintals a day when the price of
potatoes is Rs 4 per kilogram. The elasticity of supply of
potatoes is known to be 2. How much quantity will this seller
supply when the price rises to Rs 5 per kilogram?
(a) 120 quintals (b) 80 quintals
(c) 40 quintals (d) 60 quintals
35. The co-efficient of elasticity of supply of a commodity is 3. A

seller supplies 20 units of this commodity at a price of Rs 8 per
unit. How much quantity of this commodity will the seller sup-
ply when price rises by Rs 2 per unit?
The supply schedule of a commodity changes as follows in two
cases. Answer question 36 and 37 from the table.
Price Case A: Quantity Case B: Quantity

(Rs.) supplied after change supplied after change
1 20 0
2 40 20
3 60 40
4 80 60
5 100 80
36. Calculate elasticity of supply when price rises from Rs 2 to Rs 3

in Case A:
(a) 1 (b) 1.5 (c) 2 (d) 2.5.
37. Calculate elasticity of supply when price rises from Rs 2 to Rs 3
in Case B:
(a) 1 (b) 2 (c) 3 (d) 2.5.
38. Price elasticity of supply of good is 5. A producer sells 500 units
of this good at Rs.5 per unit. How much will he be willing to
sell at the price of Rs.6 per unit?
39. A firm earns a revenue of Rs 50 when the market price of a
good is Rs 10. The market price increases to Rs 15 and the firm
now earns a revenue of Rs 150. What is the price elasticity of the
firms supply curve?
(a) 2 (b) 1 (c) 3 (d) 4
40. At the market price of Rs 10, a firm supplies 4 units of output.
The market price increases to Rs 30. The price elasticity of the
firms supply is 1.25. What quantity will the firm supply at the
new price?
Supply 4.7
Solution
1. (a) 2. (a) 3. (a) 4. (a) 5. (d) 6. (a) 7. (a) 8. (b)
9. (c)
10. (d)
11. (a)
12. (b)
13. (b) There is leftward shift in supply curve because factors other
than PX are changing adversely
14. (d) 15. (a) 16. (a) 17. (b) 18. (a) 19. (a) 20. (a)
21. (c) 22. (a)
23. (a) It is case of inelastic supply or ES < 1
24. (b) 25. (c) 26. (a)

q1 - q 2 p + p2
27. (a) ES = ¥ 1
q1 + q 2 p1 - p 2
10 15 20 + 40
= ¥
10 + 15 20 - 40
5
= - ¥ 60 =
3 = 0.6
25 -20 5
28. (c) When P = Rs 10, Q = 40 + 10(10) = 40 + 100 = 60 units
When P = Rs 12, Q = 40 + 10(12) = 40 + 120 = 80 units
q1 - q 2 p + p2
ES = ¥ 1
q1 + q 2 p1 - p 2
60 - 80 10 + 12
= ¥
60 + 80 10 - 12
= -20 ¥ 22 = 11 = 1.57
140 -2 7
DQ P
29. (b) ES = ◊
DP Q
= 100 ◊
25
5 180
= 2.78
DQ P
30. (a) ES = ◊
DP Q
20 ◊ 60
5=
40 Q
fi Q = 20 ◊ 60
40 5
fi Q= 6
\ Original quality supplied = 6 units
31. (a) 32. (b)
33. (c) Q = 100 P = 15
Q1 = 50 P1 = 10
DQ = 50 DP = 5
DQ P 50 15
Thus, ES = ¥ = ¥ = 1.5
DP Q 5 100
Supply 4.9
34. (a) Given ES = 2

P = Rs 4 per kg Q = 80 quintals = 8,000 kg
P1 = Rs 5 per kg Q1 = ?
DP = Re 1
The formula for calculating ES is
DQ P
ES = ◊
DP Q
DQ
\ 2= ◊ 4
1 8000
16,000 = 4.DQ
16,000
or DQ = = 4,000 kg = 40 quintals
4
Thus, new quantity which is
Q1 = Q + DQ = 80 + 40 = 120 quintals
35. (a) Given, Q = 20 units
P = Rs 8 per unit
DP = Rs 2 per unit
Es = 3
Let change in supply = DQ
Thus, we have
DQ P
ES = ◊
DP Q
DQ 8
or 3= ◊
2 20
or 8.DQ = 120
or DQ = 120 = 15 units
8
\ Q1 = Q + DQ = 20 + 15 = 35 units
36. (a) Given Q = 40 units P = Rs 2
Q1 = 60 units P1 = Rs 3
DQ = 20 units \ DP = Re 1
DQ P
ES = ◊
DP Q
or ES = 20 ◊ 2
1 40
or ES = 1
37. (b) Given Q = 20 units P = Rs 2

Q1 = 40 units P1 = Rs 3
\ DQ = 20 units \ DP = Re 1
ES = 20 ◊ 2
1 20
or ES = 2
38. (a) Given the values
ES = 5
P = Rs 5 Q = 500 units
P1 = Rs 6 Q1 = ?
\ DP = Re 1
Substituting them in the formula of ES, we obtain:
DQ 5
5= ◊
1 500
fi DQ = 500 \ Q1 = Q + DQ = 500 + 500 = 1000 units
39. (a) When P = 10, R (Revenue) or P ¥ Q = 50
fi Q = 50 = 5
10
when P1 = 15, R1 or P1 ¥ Q1 = 150
fi Q1 =
150 = 10
15
DQ
\ ES = ◊P
DP Q
= 5 ◊ 10 = 2
5 5
40. (a) Given
P = Rs 10 Q = 4 units
P1 = Rs 30 Q1 = ? ES = 1.25
\ DP = Rs 20
DQ P
ES = ◊
DP Q
DQ 10
1.25 = ◊
20 4
fi DQ = 1.25 ¥ 8 = 10 units
The new quantiy supplied will be:
Q1 = DQ + Q = 10 + 4 = 14 units
5. Theory of Production
6. Theory of Cost
chapter 5
Theory of Production
Topics Covered
l What is Production? l Land l Labour
l Capital l Capital Formation and Stages of
Capital Formation l Entrepreneur l Produc-
tion Function l Law of Variable Proportions
l Law of Returns to Scale l Economies and
Diseconomies of Scale l Difference Between
Returns to a Factor and Returns to Scale
1. Creation of economic utility can be:

(a) Form utility (b) Time utility
(c) Place utility (d) All of the above
2. Extraction from earth and transportation are examples of:
3. Storage of food grains and canning of fruits are examples of:
4. Manufacturing process is an example of:
(c) Place utility (d) All of the above.
5. Voluntary services is an example of:
6. Production process determines:
(a) Standard of living of people
(b) Welfare of the society
(c) Prosperity of a nation
7. Goods and services which help in the production process are
called:
(a) Raw materials
(b) Factors of production
(c) Both raw materials and factors of production
(d) Active inputs
8. Factors of production can be:
(a) Land (b) Labour
(c) Organisation (d) All of the above
9. Land is a factor of production:
(a) Primary (b) Derived
(c) Secondary (d) Active
Theory of Production 5.5
10. Land include:

(a) Heat (b) Air
(c) Light (d) All of the above
11. Supply of land is:
(a) Variable (b) Inelastic
(c) Perfectly inelastic (d) Elastic
12. Feature of land is:
(a) It cannot be destroyed
(b) It is a static factor
(c) It has no cost of production
13. When land differs in fertility, it is called:
(a) Heterogeneity of land
(b) Homogeneity of land
(c) Extensive cultivation of land
14. Labour is defined as:
(a) Mental exertion to create or produce goods and services
(b) Physical exertion to create or produce goods and services
(c) Both mental and physical exertion to create and produce
goods and services
15. Feature of labour:
(a) It cannot be stored
(b) Labourer has to work in person
(c) Labourer sells his service
16. Efficiency of labour depends upon:
(a) Skill (b) Physical strength
(c) Training (d) All of the above
17. Labour has to make a choice between:
(a) Work and money (b) Money and leisure
(c) Work and leisure (d) None of the above
18. Labour can move between:

(a) Jobs
(b) Places
(c) Both between jobs and places
19. As wage rises, work hours reduces. It is given by:
(a) Substitution effect (b) Income effect
(c) Output effect (d) Profit effect
20. As wage rises, work hour rises. It is given by:
(a) Substitution effect (b) Income effect
(c) Output effect (d) Profit effect
21. An upward sloping supply curve of labour means:
(a) Substitution effect = Income effect
(b) Substitution effect > Income effect
(c) Substitution effect < Income effect
22. When supply curve of labour is backward bending, it means:
23. Capital include:
(a) Producer goods (b) Inventory of material goods
(c) Consumer goods (d) All of the above
24. Building, bridges and equipments are an example of:
(a) Physical capital (b) Human capital
(c) Circulating capital (d) Floating capital
25. Education, better skill, training and good health are examples of:
(a) Physical capital (b) Human capital
(c) Circulating capital (d) Floating capital
26. Capital is defined as:
(a) All manmade goods used for further production of wealth
(b) All natural resources used for further production of wealth
(c) All inventories used for further production of wealth

(d) All human capital used for further production of wealth
27. What is the difference between capital and income?
(a) Capital is a stock and income is a flow
(b) All capital is not income
(c) Capital is a flow and income is a stock
28. Capital formation is defined as surplus of:
(a) Production over consumption in an accounting year
(b) Consumption over production in an accounting year
(c) Investment over production in an accounting year
(d) Investment over consumption in an accounting year
29. Capital formation leads to:
(a) More productive capacity of an economy
(b) More employment opportunities
(c) More growth of an economy
30. What should be done after savings have been created?
(a) Investment of savings
(b) Mobilisation of savings
(c) Both investment and mobilisation of savings
31. Savings can be done by:
(a) Individuals (b) Corporate sector
(c) Government (d) All of the above
32. Willingness to save by a household depends upon:
(a) Income (b) Desire to earn rate of interest
(c) Farsightedness (d) All of the above
33. Savings by government depends upon:
(a) Finance in social overheads
(b) Finance in economic overheads
(c) Finance required to control inflation
34. Entrepreneur is a person who is a:

(a) Organiser (b) Manager
(c) Risk taker (d) All of the above
35. Function of entrepreneur can be:
(a) To initiate a business enterprise
(b) To take advantages of changes in a dynamic economy
(c) To bear uncertainties
36. Production function means:
(a) Physical relationship between inputs used and output
(b) Technical relationship between inputs used and output
(c) Financial relationship between inputs used and output
(d) Both physical and technical relationship between inputs used
and output
37. Short-run production function means:
(a) At least one factor is in fixed supply
(b) Two factor are in fixed supply
(c) All factors are in fixed supply
(d) One factor is in variable supply
38. When TP is falling, then MP is:
(a) Falling (b) Negative (c) Zero (d) Maximum
39. When TP is maximum, MP is:
40. When TP is at its point of inflexion, the MP is:
41. When AP = MP, AP is:
42. Law of Variable Proportions holds when:
(a) State of technology is same
(b) All units of variable factor are homogeneous
(c) There is at least one fixed factor
43. Stage II of law of Variable Proportions is called:

(a) Diminishing returns (b) Decreasing returns
(c) Falling returns (d) Negative returns
44. In stage II of law of Variable Proportions, both AP and MP are:
(a) Falling but positive
(b) Rising
(c) Falling and become negative
45. Marketing economies arises because a large firm:
(a) Has bargaining power
(b) Can grant margins to wholesalers
(c) Can take up advertising
46. Technical economies can be:
(a) Economies of superior techniques
(b) Economies of increased dimensions
(c) Economies of linked processes
47. Decreasing return to scale occurs when:
(a) Output falls
(b) Output rises in less than proportion to increase in inputs
(c) Returns are decreasing because inputs are not there
48. Returns to scale occur:
(a) In the long-run
(b) When all inputs are increased
(c) When the increase in inputs is in the same proportion
49. Which is the best stage in returns to scale:
(a) Increasing returns
(b) Constant returns
(c) Decreasing returns
50. Which is the best stage in law of Variable Proportions:

(a) Increasing returns (b) Diminishing returns
(c) Constant returns (d) Negative returns
Solution
1. (a) 2. (c) 3. (b) 4. (a) 5. (d) 6. (d) 7. (b) 8. (d)
9. (a)
10. (d) Land is a primary factor which includes besides physical
territory, all natural resources such as water, sunshine,
rainfalls, wind, sea, air, heat, light, minerals, etc.
11. (c) Land is a gift of god. Its supply is perfectly inelastic. Man
cannot increase its supply.
12 (d)
13. (a) Land differs in fertility. Two pieces of land possess different
fertilities.
14. (c) 15. (d) 16. (d) 17. (c)
18. (c) It is called occupational and geographical mobility of labour.
The figure will answer questions 19 to 22.
19. (b)
20. (a)
21. (b) It means as wage rate rises, supply of labour rises
22. (c) 23. (d) 24. (a) 25. (b) 26. (a) 27. (a) 28. (a) 29. (a)
30. (b) 31. (d) 32. (d) 33. (d) 34. (d) 35. (d) 36. (d) 37. (a)
Figure will help to answer questions 38 to 41.
38. (b) 39. (c) 40. (d) 41. (d)

42. (d) 43. (a)
44. (a)
45. (d) 46. (a) 47. (b) 48. (d) 49. (d) 50. (b)
chapter 6
Theory of Cost
Topics Covered
l Cost Concepts l Short-Run Cost Curves
1. Production function together with determines the cost

of the commodity:
(a) Profit margin (b) Factor prices
(c) Depreciation charges (d) All of the above
2. Cost of a commodity together with determines price of
the commodity:
(a) Profit margin (b) Factor prices
(c) Depreciation charges (d) All of the above
3. The supply curve together with determines equilib-
rium price and quantity:
(a) Demand curve (b) Cost of production
(c) Profit margin (d) Production function
4. Cost functions are derived from
(a) Price theory (b) Production function
(c) Demand function (d) None of the above
5. While drawing cost curves, what is held constant?
(a) State of technology
(b) Price of factor
(c) Both state of technology and price of factors
6. Cost of next best alternatives opportunity given up is called:
(a) Outlay cost (b) Opportunity cost
(c) Explicit cost (d) Implicit cost
7. cost is a payment concept
(a) Explicit (b) Implicit
(c) Opportunity (d) None of the above
8. Explicit cost is also the:
(a) Accounting cost (b) Direct cost
(c) Outlay cost (d) All of the above
9. Accounting cost + normal return on capital invested by an entre-
preneur himself =
(a) Explicit cost (b) Economic cost
(c) Imputed cost (d) Direct cost
Theory of Cost 6.3
10. Fixed cost is also called:

(a) Sunk cost (b) Supplementary cost
(c) Overhead cost (d) All of the above
11. Fixed cost is like:
(a) Overhead expenses
(b) Salaries
(c) Depreciation of machinery
12. TC curve is shaped starting from .
(a) InverseS, origin
(b) InverseS, total fixed cost level
(c) Straight line, average fixed cost level
(d) Straight line, total fixed cost level
13. AVC is defined as:
(a) Variable cost per unit of output produced
(b) Cost of one unit of output produced
(c) Additional cost of one unit of output produced
14. When AC = MC, AC is .
(a) Minimum (b) Falling (c) Rising (d) Maximum
15. Total cost at zero level of output will be = ?
(a) TFC (b) TVC (c) AC (d) AFC
16. MC curve is shaped.
(a) L-shaped (b) Straight line
(c) U-shaped (d) Inverse S-shaped
17. Reason for the shape of MC curve is:
(a) Law of Variable Proportions
(b) Returns to Scale
(c) Law of diminishing cost
(d) Law of increasing cost
18. There is a range when AC is falling and .
(a) MC is rising (b) TC is rising
(c) AVC is constant (d) None of the above
19. The distance between TVC and TC is .

(a) Vertical, TFC (b) Horizontal, TFC
(c) Horizontal, AFC (d) Vertical, AFC
20. How many costs exist in the long-run ?
(a) 1 (b) 3 (c) 2 (d) 7
21. How many costs exist in the short-run?
(a) 1 (b) 3 (c) 2 (d) 7
22. What is reserve capacity?
(a) It is the built-in-capacity to produce at minimum cost a range
of output
(b) It is the difference between equilibrium output and least cost
output
(c) It is the capacity of a plant to produce
23. What happens when the most appropriate plant size is not built?
(a) Cost rises (b) Production falls
(c) Profit rises (d) All of the above
24. Any point above long-run AC is .
(a) Showing more cost (c) Inefficient
(b) Attainable (d) All of the above
25. Long-run AC curve is also called:
(a) Planning curve (b) Envelope curve
(c) Cost frontier (d) All of the above
From the Table given below, answer question 26 to Question 31
Units TC
0 80
1 100
2 118
3 140
26. What is the value of TFC when 1 unit of output is produced?

(a) 100 (b) 80 (c) 10 (d) 50
27. What is TVC when 1 unit of output is produced?
(a) 20 (b) 30 (c) 38 (d) 60
Theory of Cost 6.5
28. What is the value of AFC when 2 units of output are produced?
(a) 80 (b) 100 (c) 40 (d) 0
29. What is the value of AVC when 3 units of output are produced?
(a) 20 (b) 19 (c) 30 (d) 3
30. What is the value of MC when 2 units of output are produced?
(a) 18 (b) 20 (c) 22 (d) 24
31. What is the value of TVC when 3 units of output are produced?
(a) 60 (b) 20 (c) 38 (d) 30
32. (AC AVC) ¥ output = ?
(a) TFC (b) AC (c) AFC (d) TVC
33. When long-run AC is falling, it is tangent to of the
short-run AC curve:
(a) Falling portion
(b) Rising portion
(c) Minimum point
(d) Can be any of the situation given above.
34. When long-run AC is minimum, it is tangent to of the
short run AC curve:
(a) Falling portion
(b) Rising portion
(c) Minimum point
35. When long-run AC is rising, it is due to:
(a) Law of variable proportion
(b) Decreasing returns
(c) Diminishing returns
(d) Negative returns
36. Suppose a correct choice is made in selecting the plant size to
produce the commodity. It will lead to:
(a) Less cost
(b) More profit
(c) Efficiency
37. When both AC and MC are falling, falls at a faster rate.

(a) AC (b) MC (c) AVC (d) AFC
38. When both AC and MC are rising, rises at a faster rate:
(a) AC (b) MC (c) AVC (d) AFC
39. AC cannot cut AVC because:
(a) AC includes AFC
(b) AFC is a rectangular hyperbola
(c) Both the above points
40. Which costs are absent in the long-run?
(a) AFC (b) TFC
(c) Both AFC and TFC (d) TVC
Solution
1. (b) 2. (a) 3. (a) 4. (b) 5. (c) 6. (b) 7. (a) 8. (d)
9. (b) 10. (d) 11. (d)
12. (b)
13. (a) 14. (a) 15. (a) 16. (c)

17. (a)
Theory of Cost 6.7
18. (a)
19. (a)
20. (b) These are long-run AC, long-run MC and long run TC
21. (d) These are TC, TFC, TVC, AC, AFC, AVC and MC
22. (a) 23. (a) 24. (d) 25. (d)
In the Table, we have the following calculation
Output TC TFC AFC TVC AVC MC
(Rs) (Rs) (Rs) (Rs) (Rs) (Rs)
0 80 80 ** 0 — —
1 100 80 80 20 20 20
2 118 80 40 38 19 18
3 140 80 26.67 60 20 22
26. (b) 27. (a) 28. (c) 29. (a) 30. (a) 31. (a)
32. (a) It is because TFC = AFC ¥ output

See the figure for question 33 and 34
33. (a) 34. (c) 35. (b) 36. (d)

For question 37, 38 see the figure
37. (b) 38. (b)

Theory of Cost 6.9
For question 39 see the figure.
39. (c)
40. (c)
7. Meaning and Types of Markets
8. Determination of Price
9. Price-output Determination under Different Market
Forms
chapter 7
Meaning and Types of

Markets
Topics Covered
l Meaning of Market l Extent of Market
l Value and Price l Classification of Market
Structures l Concept of Revenue l Behavioural
Principles
1. Durable goods will have:

(a) Wider market (b) Narrow market
(c) Local market (d) State level market
2. Perishable goods will have a:
(c) International (d) State level market
3. A commodity which is less bulky and expensive will have a:
4. If the size of production expands, it will have a:
5. If the commodities have universal demand, it will have a:
6. If money, banking and financial institution are developed, it will
help in having a:
7. Homogenous product exist under:
(a) Perfect competition
(b) Monopoly
(c) Monopolistic competition
8. One seller exist under:
(b) Monopoly
9. Selling cost is zero under:
(b) Monopoly
Meaning and Types of Markets 7.5

10. Limited monopoly power of making the price exist under:
(b) Monopoly
11. Large amount of selling cost is incurred under:
(b) Monopoly
12. Commodity is unique with no close substitutes under:
(b) Monopoly
13. Entry is restricted under:
(b) Monopoly
14. Demand curve is perfectly elastic under:
(b) Monopoly
15. Demand curve is elastic under:
(b) Monopoly
16. Demand curve is inelastic under:

(b) Monopoly
17. Differentiated but close substitutes exist under:
(b) Monopoly
18. Selling cost is insignificant under:
(b) Monopoly
19. Number of firms is large under:
(b) Oligopoly
(d) Both perfect and monopolistic competition
20. Few firms exist under:
(b) Oligopoly
(d) Both perfect and monopolistic competition.
21. Perfect mobiliy of factors exist under:
(b) Oligopoly
(d) Both perfect competition and oligopoly
22. Entry and exit is free under:
(b) Monopoly

(d) Both perfect and monopolistic competition
23. Entry and exit is restricted under:
(a) Monopoly
(b) Oligopoly
(c) Both monopoly and oligopoly
(d) Perfect competition
24. Demand curve is undefined under:
(a) Monopoly
(b) Oligopoly
25. Heavy selling cost is incurred under:
(a) Monopolistic competition
(b) Both monopolistic competition and oligopoly
(c) Monopoly
(d) Oligopoly
26. Which market structure has considerable degree of monopoly
power?
(a) Oligopoly (b) Monopolistic competition
(c) Perfect competition (d) Monopoly
27. In which market structure, price and output solution is indeter-
minate?
(a) Oligopoly (b) Monopolistic competition
(c) Perfect competition (d) Monopoly
28. When there are two sellers what is the market structure called?
(a) Oligopoly (b) Monopoly
(c) Trupoly (d) Duopoly
29. In which market structure, the concept of industry is undefined?
(b) Monopoly
(d) Duopoly
30. What word is used instead of industry in monopolistic competi-

tion?
(a) Product firm (b) Competing firm
(c) Cluster (d) Group
31. Who coined the term monopolistic competition?
(a) Chamberlin (b) Joan Robinson
(c) Robbins (d) Marshall
32. What makes pure competition a perfect market?
(a) Perfect knowledge
(b) Perfect mobility of factors of production
(c) Absence of transportation cost
33. What brings about pure competition?
(a) Large number of buyers and sellers
(b) Homogenous product
(c) Free entry and exit of firms
34. Homogenous product means product are:
(a) Perfect substitutes
(b) Identical
(c) Cross elasticity between products is infinity
35. Homogenous product means products are:
(a) Similar (b) Close substitutes
(c) Quite alike (d) None of the above
36. Monopoly means:
(a) Single firm (b) No close substitutes
(c) Barriers to entry (d) All of the above
37. Discriminating monopoly means:
(a) Different prices are changed
(b) Consumers might be same or different
(c) Commodity is same
38. Monopolistic competition means:

(a) Large number of sellers
(b) Product differentiation
39. Oligopoly means:
(a) Few sellers
(b) Barriers to entry
(c) Mutual interdependence
40. When elasticity of demand is one, MR is ?
(a) Zero (b) Positive (c) Negative (d) Maximum
41. When demand is elastic, MR is ?
42. When demand is inelastic, MR is ?
43. Relationship between MR, AR and elasticity of demand is:
Ê ˆ
(a) AR = MR Ê 1 - 1 ˆ (b) MR = e Á 1 - 1 ˜
Ë e¯ Ë p¯
(c) MR = AR Ê 1 - 1 ˆ (d) MR = AR (1 e)
Ë e¯
44. What is the basic principle of all market conditions?

(a) A firm should produce only if
TR ≥ TVC
(b) To maximise profit, firm must produce where
MR = MC
(c) Slope of MC should be more than slope of MR
45. AR is always equal to ?
(a) Revenue (b) Price (c) Cost (d) Profit
Solution
1. (a) 2. (b) 3. (a) 4. (a) 5. (a) 6. (a) 7. (a) 8. (b)
9. (a) 10. (c) 11. (c) 12. (b) 13. (b) 14. (a) 15. (c) 16. (b)
17. (c) 18. (b) 19. (d) 20. (b) 21. (a) 22. (d) 23. (c) 24. (b)
25. (b) 26. (b) 27. (a) 28. (d) 29. (c) 30. (d) 31. (a) 32. (d)
33. (d) 34. (d) 35. (d) 36. (d) 37. (d) 38. (d) 39. (d) 40. (a)
41. (b) 42. (c) 43. (c) 44. (d) 45. (b)
chapter 8
Determination of Price
Topics Covered
l Equilibrium Price l Effects of Changes in
Demand and Supply on Equilibrium Price
1. When demand is equal to supply, the price is called:

(a) Equilibrium price
(b) Market Price
(c) Both equilibrium price and market price
2. Who said that demand and supply are like two blades of a pair
of scissors ?
(a) Adam Smith (b) Marshall
(c) Ricardo (d) Samuelson
3. In the long-run, plays a more active roles in determining
price.
(a) Supply (b) Demand (c) Profit (d) Cost
4. In the period, supply is fixed.
(a) Short (b) Very short
(c) Long (d) Very long
5. In the very short period, is more active in determining
price.
(a) Supply (b) Demand (c) Profit (d) Cost
6. The maximum price consumer is willing to pay to maximise
satisfaction is equal to:
(a) MU of the commodity
(b) MC of the commodity
(c) Purchasing power of the consumer
7. The minimum price acceptable to the producer to maximise
profit is equal to:
(a) MU of product (b) MC of production
(c) Marginal revenue (d) TU of product
8. At a price above the equilibrium price, there is:
(a) Excess supply (b) Excess demand
(c) Ceiling (d) Flooring
9. At a price below the equilibrium price, there is:
(a) Excess supply (b) Excess demand
(c) Ceiling (d) Flooring
Determination of Price 8.3
10. Equilibrium price and output changes when:

(a) Demand changes
(b) Supply changes
(c) Both demand and supply changes
11. When demand increases with no change in supply, equilibrium
price and quantity .
(a) Rises, rises (b) Rises, falls
(c) Falls, falls (d) Falls, rises
12. When demand decreases and there is no shift in supply, the
equilibrium price and quantity .
13. When supply increases and there is no change in demand, then
(a) Falls, rises (b) Rises, falls
(c) Rises, rises (d) Falls, falls
14. When supply decreases and there is no change in demand, then
(a) Falls, rises (b) Rises, falls
(c) Rises, rises (d) Falls, falls
15. When both demand and supply increases in the same propor-
tion then equilibrium price will .
(a) Remain the same (b) Rise
(c) Fall (d) None of the above
16. When both demand and supply decreases in the same propor-
tion, then equilibrium price will .
tion then equilibrium quantity will .
18. When both demand and supply decrease in the same propor-
tion, then the equilibrium quantity will .
19. When increase in demand is more than increase in supply, then
equilibrium price will .
20. When increase in demand is more than increase in supply, then
equilibrium quantity will .
21. When increase in demand is less than increase in supply, then
23. When decrease in demand is more than decrease in supply, then
24. When decrease in demand is more than decrease in supply, then
25. When increase in demand is equal to decrease in supply, then
Determination of Price 8.5
26. When increase in demand is equal to decrease in supply, then

27. When decrease in demand is equal to increase in supply, then
29. Change in demand means demand can have:
(a) Increase (b) Decrease
(c) Expansion (d) Increase or decrease
30. Change in supply means supply can have:
(a) Increase (b) Expansion
(c) Contraction (d) Expansion or contraction
Solution
1. (c) 2. (b) 3. (a) 4. (b) 5. (b) 6. (a) 7. (b) 8. (a)
9. (b) 10. (d) 11. (a) 12. (c) 13. (a) 14. (b) 15. (a) 16. (a)
17. (b) 18. (c) 19. (b) 20. (b) 21. (c) 22. (b) 23. (c) 24. (c)
25. (b) 26. (a) 27. (c) 28. (a) 29. (d) 30. (a).
chapter 9
Price–Output Determination
Under Different Market Forms
Topics Covered
l Pricing under Perfect Competition l Pricing
Under Monopoly l Pricing under Discrimi-
nating Monopoly l Pricing under Monopolis-
tic Competition l Pricing under Oligopoly
l Comparison Between Perfect Competition and
Monopoly l Comparison Between Perfect
Competition and Monopolistic Competition
9.2 MCQs in Economicst
1. Total revenue is defined as:

(a) Revenue per unit of commodity
(b) Addition to revenue when one more unit of the commodity
is sold
(c) Proceeds from the sale of the commodity
2. Average revenue is defined as:
is sold
3. Marginal revenue is defined as:
is sold
4. Under perfect competition, shape of TR curve is:
(a) Horizontal
(b) Inverted-U shaped
(c) Straight positively sloping line from origin
(d) Inverse-S shaped
5. Under monopoly, shape of TR curve is:
(a) Horizontal
6. Under monopolistic competition, shape of TR curve is:
(a) Horizontal
PriceOutput Determination Under Different Market Forms 9.3
7. Under perfect competition, MR curve:

(a) Coincides with demand curve
(b) Starts from the same point as the demand curve but falls at
twice the rate
(c) Vertical
(d) Inverted-U shaped
8. Under monopoly, MR curve:
(a) Coincide with demand curve
twice the rate
(c) Vertical
9. Under monopolistic competition, MR curve:
(a) Coincide with demand curve
twice the rate
(c) Vertical
10. What is the equation to find total profit?
(a) TR minus TC (b) Revenue minus Cost
(c) MR minus MC (d) AR minus AC
11. Total profit is maximum when:
(a) Horizontal gap between TR and TC is maximum
(b) Vertical gap between TR and TC is maximum
(c) Both vertical and horizontal gap between TR and TC is
maximum
12. What is the basic condition regarding slope of MR and MC curve
for equilibrium?
(a) Slope of MC > Slope of MR
(b) Slope of MC < Slope of MR
(c) Slope of MC = Slope of MR
13. How do you get the slope condition of MR and MC curve?

(a) By finding second derivative of profit and making it less
than zero
(c) By finding second derivative of profit and making it more
than zero
(b) By finding second derivative of profit and making it equal to
zero
14. When MR is a horizontal line, its slope is
(a) Zero (b) One (c) Infinity (d) Positive
15. Under perfect competition, MR curve is:
(a) Horizontal (b) Vertical (c) Horizontal(d) Rising
16. Accounting profit = Total revenue minus .
(a) Total explicit cost (b) Total implicit cost
(c) Total cost (d) Average cost
17. When AR is above AC, firm earns:
(a) Supernormal profit (b) Loss
(c) Breakeven point (d) Minimise losses
18. When AR = AC, firm is at:
(a) Supernormal profit point (b) Loss making point
(c) Breakeven point (d) Minimise losses point
19. When AC is more than AR, what is the firm doing?
(a) Making supernormal profit
(b) Incurring loss
(c) Having breakeven point
(d) Minimising losses
20. When AR passes through some point between minimum AVC
and AC, it is called:
(a) Supernormal profit (b) Loss
(c) Breakeven point (d) Minimising losses
21. When AR passes through minimum point of AVC, it is called:
(a) Breakeven point (b) Shutdown point
(c) Normal profit point (d) Supernormal profit point
22. What does perfectly competitive industry earn in the longrun?

(a) Normal profit (b) Breakeven point
(c) No profit, no loss (d) All of the above
23. Breakeven point means:
(a) AR = AC (b) TR = TC
(c) No profit, no loss (d) All of the above
24. From where does the demand curve pass in case of perfectly
competitive industry in the longrun?
(a) From the minimum point of long-run AC curve
(b) From the minimum point of short-run AC curve
(c) From the falling portion of short-run AC curve
(d) From the minimum point of MC curve
25. Long-run equilibrium condition of perfect competition can be
written as:
(a) MR = LMC = SMC = LAC = SAC
(b) MR = SMC
(c) MR = LAC
(d) P = LAC
Let cost of production for 500 units of a commodity be Rs 10,000. The
entrepreneur has invested Rs 30,000 in the business. The normal rate
of return in market is 10%. Answer question number 26 to 28.
26. What will happen to the firm when it charges price of Rs 30?
(a) It will earn normal profit
(b) It will earn supernormal profit
(c) It will incur losses
(d) It will shut down
27. What will happen to the firm when it changes prices of Rs.35?
28. What will happen to the firm when it charges price of Rs 22?

29. Monopoly is caused by:
(a) Control of resources (b) Legal barriers
(c) Economics of scale (d) All of the above
30. The monopoly firm is a:
(a) Price fixer (b) Price maker
(c) Price searcher (d) All of the above
31. For price discrimination, it is essential that:
(a) There is no contact among buyers
(b) There is imperfect competition in the market
(c) The elasticity of demand is different in different markets
32. In the longrun, monopoly:
(a) Can earn supernormal profit
(b) Can earn normal profit
(c) Cannot incur losses
33. In the long-run, monopolistic competition:
(a) Can earn supernormal profit
(b) Can earn normal profit
(c) Cannot incur losses
34. In the long-run, monopolistic competition will have:
(a) AR = AC
(b) MR = MC
(c) Slope of MC > Slope of MR
(a) No excess capacity (b) Excess capacity
(c) Reserve capacity (d) No reserve capacity
36. Excess capacity is the differences between:

(a) Least cost output and profit maximising output
(b) Maximum capacity and minimum capacity to produce
(c) AR minus AC
37. Excess capacity does not exist under:
(a) Perfect competition (b) Monopolistic competition
(c) Theory of wages (d) Theory of rent
38. Oligopoly is caused by:
(a) Huge capital investment
(b) Absolute cost advantage to the existing firms
(c) Mergers
39. Assumption of Sweezy kinked demand curve model is:
(a) Oligopolists do not cooperate
(b) Oligopolists match price cuts
(c) Oligopolists do not match price rises
40. In Sweezy kinked-demand curve model, firms prefer to compete
on the basis of:
(a) Quality (b) Product design
(c) Advertisement (d) All of the above
41. The Kink in the demand curve occurs at the:
(a) Prevailing price
(b) Prevailing output
(c) Prevailing price and output
(d) Price which is determined by the model
42. Above the kink, the demand curve is:
(a) Elastic
(b) Inelastic
(c) Perfectly elastic
(d) Perfectly inelastic
43. Below the kink, the demand curve is:

(a) Elastic (b) Inelastic
(c) Perfectly elastic (d) Perfectly inelastic
44. Sweezys kinked demand curve model shows that prices are:
(a) Rigid in an oligopolistic market
(b) Fixed in an oligopolistic market
(c) Sticky in an oligopolistic market
45. Sweezys model has been criticised because:
(a) It does not explain price determination
(b) It does not explain demand determination
(c) It does not explain MR curve determination
Solution
1. (c) 2. (a) 3. (b) 4. (c) 5. (b) 6. (b) 7. (a) 8. (b)
9. (b) 10. (a) 11. (b) 12. (a) 13. (a) 14. (a) 15. (a) 16. (a)
17. (a) 18. (c) 19. (b) 20. (d) 21. (b) 22. (d) 23. (d) 24. (a)
25. (a)
26. (a) It is because AR = AC = Rs 30.
27. (b) It is because supernormal profit = AR AC = 35 30 = Rs 5
per unit.
28. (c) It is because loss per unit = AC AR = 30 22 = Rs 8 per
unit.
29. (d) 30. (d) 31. (d) 32. (d) 33. (b) 34. (d) 35. (b) 36. (a)
37. (a) 38. (d) 39. (d) 40. (d) 41. (a) 42. (a) 43. (b) 44. (d)
45. (a)
Section Two
Indian Economic
Development
10. Nature of Indian Economy
11. Role of Different Sectors in India
12. National Income in India
13. Basic Understanding of Tax System in India
chapter 10
Nature of Indian Economy
Topics Covered
l India as an Under-developed Economy
l India as a Developing Economy l India as
a Mixed Economy
1. Every poor person in the world is an Indian:

(a) Second (b) Third (c) Tenth (d) Fourth
2. India is passing through the phase of population :
(a) Explosion (b) Control
(c) Stability (d) None of the above
3. If an economy is undeveloped, it means:
(a) Agriculture is the main occupation
(b) Standard of living of people is low
(c) Production techniques are backward and obsolete
4. Inequality of income is measured by:
(a) Human development index
(b) Gini coefficient
(c) Per capita income
(d) Physical quality of life index
5. What was Indias rank in HDI in 2006?
(a) 126 (b) 127 (c) 130 (d) 145
6. When and by whom was HDI introduced?
(a) In 1990 by UNDP (b) In 1989 by World bank
(c) In 1990 by UNO (d) In 1989 by IMF
7. Indicator of HDI is:
(a) Iongevity (b) Educational attainment
(c) Standard of living (d) All of the above
8. Gini coefficient for India is:
(a) 0.33 (b) 1 (c) 0.4 (d) 0.9
9. What makes India a developing economy?
(a) Rise in national income (b) Rise in per capita income
(c) Growing capital income (d) All of the above
10. What makes India an undeveloped economy?
(a) Low human development
(b) High poverty level
(c) Dominant agriculture sector
Nature of Indian Economy 10.7
11. Social overhead capital include:

(a) Education system
(b) Health and medical facilities
(c) Transport
12. Unemployment is million people in 200405:
(a) 34.74 (b) 40 (c) 40.85 (d) 35.72
13. Gross domatic saving is percent of GDP in 200607:
(a) 34.8 (b) 40 (c) 28 (d) 28.8
14. Gross capital formation percent in 200607:
(a) 35.9 (b) 39 (c) 40 (d) 34
15. UNDP stands for:
(a) United Nation Development Programme
(b) United Nation Development Policy
(c) United Nation Development Portfolio
Solution
1. (b) 2. (a) 3. (d) 4. (b) 5. (a) 6. (a) 7. (d) 8. (a)
9. (a) 10. (d) 11. (d) 12. (a) 13. (a) 14. (a) 15. (a)
chapter 11
Role of Different Sectors in

India
Topics Covered
l Role of Agriculture in India l Role of Industry
in India l Pattern of Industrial Development
since Independence l Problems of Industrial
Development in India l Services
1. How does agriculture provide the basis for industrial develop-

ment?
(a) By providing jute and cotton
(b) By providing herbs
(c) By providing oilseeds
2. Agriculture export item is:
(a) Spices (b) Cotton
(c) Tea (d) All of the above
3. Which trade and service depends upon agricultural operation?
(a) Cold storage (b) Warehouse
(c) Transport (d) All of the above
4. Green resolution stressed upon:
(a) Use of HYV seeds (b) Use of fertilizers
(c) Use of pesticides (d) All of the above
5. Green revolution was restricted to crops:
(a) 2 (b) 3 (c) 5 (d) 4
6. Green revolution is also called:
(a) Wheat resolution (b) White resolution
(c) Golden resolution (d) All of the above
7. Green revolution was adopted in:
(a) 1960 (b) 1966 (c) 1970 (d) 1961
8. Non-crop sector is like:
(a) Fishery (b) Horticulture
(c) Animal husbandry (d) All of the above
9. Agriculture is getting diversified. It is clear from:
(a) Rise in share of non-crop sectors
(b) Rise in area cultivated under commercial crops
(c) Rise in area cultivated under superior cereals
10. Reorganisation of agriculture means:
(a) Redistribuion of land (b) Consolidation of holdings
(c) Cooperative farming (d) All of the above
Role of Different Sectors in India 11.3
11. Problem of marketing lies in:

(a) Inadequate warehousing
(b) Multiplicity of middlemen
(c) Lack of adequate finance
12. Problem of industrial development is seen in:
(a) Regional imbalances (b) Sectoral imbalances
(c) Industrial sickness (d) All of the above
13. Problem of service sector is seen in:
(a) Lack of support system
(b) Infrastructural problem
(c) Poor quality of IT services
14. India has the largest scientific and technical manpower
in the world.
(a) Second (b) Third (c) Fourth (d) Fifth
15. Service sector gives employment percent of working
poplation.
(a) 22.5 (b) 20 (c) 26 (d) 27
Solution
1. (d) 2. (d) 3. (d) 4. (d) 5. (c) 6. (a) 7. (b) 8. (d)
9. (d) 10. (d) 11. (d) 12. (d) 13. (d) 14. (a) 15. (a)
chapter 12
National Income in India
Topics Covered
l Different Concepts of National Income and
Output l Methods of Measuring National
Income l Estimation of National Income in
India l Problems in the Estimation of
National Income in India l Analysis of Indian
Economy as seen from National Income Data
l GNP and NNP as a Measure of Welfare
1. National income is also called:

(a) NNP at factor cost (b) GNP at factor cost
(c) GDP at factor cost (d) GDP at market price
2. GDP at market price:
(a) Is a flow concept
(b) Is at current prices
(c) Excludes transfer payments
3. GDP excludes:
(a) Net factor income from abroad (NFIA)
(b) Depreciation
(c) Value added by multinational companies in India
4. NNPfc = Domestic factor income + :
(a) Net indirect tax (b) NFIA
(c) Mixed income (d) Operating surplus
5. Domestic factor income include:
(a) Compensation of employees
(b) Operating surplus
(c) Mixed income
6. Personal income is sum total of income actually received by
person from all sources in the form of current transfer payments
and :
(a) Rent (b) Factor incomes
(c) Profit (d) Wages
7. In a circular flow of income, we have:
(a) Production (b) Distribution
(c) Disposition (d) All of the above
8. Income method of measuring national income is also called:
(a) Factor payment method
(b) Industrial origin method
(c) Income disposal method
National Income in India 12.3
9. Expenditure method of measuring national income is also called:

10. Value added method of measuring national income is also called:
11. Gross domestic capital formation = Gross domestic fixed capital
formation + Changes in stock + :
(a) Net acquisition of valuables
(b) Government final consumption expenditure
(c) Private final consumption expenditure
12. Problem in estimating national income in India is seen in:
(a) Unreliable data (b) Double counting
(c) Conceptual difficulty (d) All of the above
13. Net export is:
(a) Difference between export and import of a country during
one year
(b) Difference between export and import of a country during
six months
(c) Difference between export and import of a country during
plan period
14. Income from property may be:
(a) Rent
(b) Royalty
(c) Interest
15. Compensation in kind can be:

(a) CCA (b) Dearness allowance
(c) Rent (d) None of the above
Solution
1. (a) 2. (d) 3. (a) 4. (b) 5. (d) 6. (b) 7. (d) 8. (a)
9. (c) 10. (b) 11. (a) 12. (d) 13. (a) 14. (d) 15. (d)
chapter 13
Basic Understanding of Tax

System in India
Topics Covered
l Public Revenue in India l Tax Revenues
l Principles of a Good Tax System l Tax
Structure in IndiaFeatures and Evaluation
l MODVAT, VAT and CENVAT l Chelliah
Committee on Tax Reform l Non-Tax
Revenues
1. Non-tax revenue can be in the form of:

(a) Currency (b) Dividend
(c) Interest receipts (d) All of the above
2. Chelliah Committee of tax reform wanted:
(a) To improve tax compliance
(b) To rationalise excise duties
(c) To rationalise custom tariff
3. Drawback of CENVAT is seen in:
(a) Its inadequate coverage (b) It leaves scope for tax evasion
(c) Complicated procedure (d) All of the above
4. Merits of VAT is seen in:
(a) Higher revenue growth
(b) More transparency
(c) Rationalisation of overall tax burden
5. Objective of MODVAT is:
(a) To simplify export procedure
(b) To avoid repetitive payment of duties from raw material to
the final product stage
(c) To avoid payment of interest at different stages of excise
duties
6. Demerit of MODVAT is that:
(a) It encourages tax evasion
(b) It creates confusion among industrial circles
(c) It is not cost reducing
7. Merit of MODVAT is:
(a) It avoids cascading effect of an indirect tax
(b) It encourages export
(c) It benefits producers
Basic Understanding of Tax System in India 13.3
8. Direct tax is like:

(a) Income tax (b) Wealth tax
(c) Estate duty (d) All of the above
9. Merit of direct tax is that:
(a) It is progressive (b) It is elastic
(c) It has social objective (d) All of the above
10. Demerit of direct tax is that:
(a) It is inconvenient (b) It has limited coverage
(c) It discourages work (d) All of the above
11. Indirect tax is like:
(a) Excise duty (b) Custom duty
(c) Sales tax (d) All of the above
12. Merit of indirect tax is that:
(a) It promotes social welfare
(b) It has wide coverage
(c) It is convenient to pay
13. Demerit of indirect tax is that:
(a) It is regressive
(b) It is uneconomical
(c) It has an element of uncertainty
14. Indian tax system does not satisfy the canon of:
(a) Economy (b) Flexibility
(c) Productivity (d) All of the above
15. In India, tax evasion is as high as percent.
(a) 5 (b) 10 (c) 15 (d) 20
Solution
1. (d) 2. (d) 3. (d) 4. (d) 5. (d) 6. (d) 7. (d) 8. (d)
9. (d) 10. (d) 11. (d) 12. (d) 13. (d) 14. (d) 15. (d)
14. Population
15. Poverty
16. Unemployment
17. Infrastructural Challenges
18. Inflation
19. Budget and Fiscal Deficit in India
20. Balance of Payments
21. External Debt
chapter 14
Population
Topics Covered
l Introduction l Theory of Population
l Evaluation of Indias Population Trends
According to Population Theory l Indias
Population Growth and its Effects on Economic
Development l Demographic Profile of
India l Population Policies of the Government
of India
1. According to stage II of demographic transition theory:

(a) There is sharp decline in both birth rate and death rate
(b) There is sharp decline in death rate
(c) There is sharp decline in birth rate
(d) There is gradual fall in death rate
2. Stage III of demographic transition occurs in:
(a) Primitive agrarian economies
(b) Developed economies
(c) Developing economies
(d) Less developed economies
3. Population growth has led to:
(a) Low per capita income (b) Increase in illiteracy
(c) Energy crisis (d) All of the above
4. The census is carried out every :
(a) year (b) 2 years (c) 10 years (d) 5 years
5. Lowest growth rate of population was recorded in:
(a) Nagaland (b) Kerala
(c) Chandigarh (d) Punjab
6. Highest growth rate of population was recorded in:
(a) Nagaland (b) Kerala
(c) Chandigarh (d) Punjab
7. Highest density is person per sq km:
(a) 904 (b) 324 (c) 500 (d) 400
8. Highest density is recorded in:
(a) West Bengal (b) Kerala
(c) Nagaland (d) Punjab
9. Sex ratio is females per 1000 males as per census 2001.
(a) 933 (b) 950 (c) 940 (d) 970
10. Highest literacy rate is recorded in:
(a) Kerala (b) Bihar
(c) Maharashtra (d) Haryana
Population 14.5
11. Lowest literacy rate is recorded in:

(a) Kerala (b) Bihar
(c) Maharashtra (d) Haryana
12. The proportion of working population to the total population is
shown by:
(a) Birth rate (b) Death rate
(c) Life expectancy (d) Age composition
13. Reasons for decline in death rate are:
(a) Control of famines (b) Control of diseases
(c) Better medical facilities (d) All of the above
14. Social factor of high birth rate is:
(a) Joint family system
(b) Lower age at the time of marriage
(c) Religious and social superstitions
15. Economic factor of high birth rate is:
(a) Poverty
(b) Lower age at the time of marriage
(c) Religious and social superstitions
Solution
1. (b) 2. (b) 3. (d) 4. (c) 5. (b) 6. (a) 7. (a) 8. (a)
9. (a) 10. (a) 11. (b) 12. (d) 13. (d) 14. (d) 15. (a)
chapter 15
Poverty
Topics Covered
l Absolute and Relative Poverty l Concept of
Poverty and Poverty Line l Extent of Poverty
l Causes of Poverty l Measures to Eliminate
Poverty
1. The estimated calorie intake of a rural person is:

(a) 2400 calories (b) 2200 calories
(c) 2100 calories (d) 2000 calories
2. The estimated calorie intake of a urban person is:
(a) 2400 calories (b) 2100 calories
(c) 2000 calories (d) 2200 calories
3. In 1999-2000, poverty line was defined for rural area as con-
sumption worth:
(a) Rs 454 (b) Rs 545 (c) Rs 328 (d) Rs 238
4. In 1999-2000, the poverty line was defined for urban area as
consumption worth:
(a) Rs 455 (b) Rs 545 (c) Rs 328 (d) Rs 238
5. Which programme is for the benefit of the elderly?
(a) Public Distribution System
(b) Social Assistance Programme
(c) Pradhan Mantri Gram Sadak Yojana
(d) National Food for Work Programme
6. Head Count Ratio is:
(a) Number of poor as a proportion of people living below the
poverty line
(b) Number of people who are living above the poverty line
(c) Number of rural people depending on agriculture as their
source of livelihood
(d) None of above
7. Official data on poverty is made available by:
(a) Planning Commission
(b) Finance Ministry
(c) Central Statistical Organisation
(d) Rajya Sabha
8. Causes of rural poverty are:
(a) Unequal distribution of land
(b) Failure to implement land reforms
(c) Low status of women
(d) All of above
Poverty 15.3
9. Causes of urban poverty are:

(a) High level of migration
(b) Presence of educated unemployed youth
(c) Inequality in the distribution of urban property
10. Measures to eliminate poverty can be:
(a) Control of population growth rate
(b) Rise in growth rate of economic development
(c) Increase in the rate of capital formation
11. Absolute poverty is measured by:
(a) Gini coefficient (b) Lorenz curve
(c) Poverty line (d) All of the above
12. Relative poverty is measured by:
(a) Gini coefficient (b) Poverty line
(c) Jail cost of living (d) Calorie intake
13. Income poverty means::
(a) Lack of necessities of material well being
(b) Denial of opportunity for living a tolerable life
(c) Lack of food
(d) Lack of job
14. Human poverty is:
(a) Lack of necessities of material well being
(b) Denial of opportunity for living a tolerable life
(c) Lack of food
(d) Lack of job
15. You can identify poor on the basis of:
(a) Occupation (b) Ownership of assets
(c) Both the above (d) Food habits
16. Chronic poor are:
(a) Always poor
(b) Usually poor
(c) Never poor
(d) May be always poor or usually poor
17. Transient poor are:

(a) Occasionally poor
(b) Churning poor
(c) May be occasionally poor or churning poor
(d) Never poor
18. Never poor people live:
(a) On the poverty line (b) Above the poverty line
(c) Below the poverty line (d) None of the above
19. Minimum means of subsistence includes:
(a) Satisfactory nutritional diet.
(b) Minimum clothing, housing and furniture
(c) Minimum health facilities, clean water and education
20. Flaw in anti-poverty programme is seen in:
(a) Inadequate financial limits
(b) Lack of accountability
(c) Poor targeting
Solution
1. (a) 2. (b) 3. (c) 4. (a) 5. (b) 6. (a) 7. (a) 8. (d)
9. (d) 10. (d) 11. (c) 12. (a) 13. (a) 14. (b) 15. (c) 16. (d)
17. (c) 18. (b) 19. (d) 20. (d)
chapter 16
Unemployment
Topics Covered
l Meaning and Types of Unemployment
l Measurement of Unemployment l Magnitude
of Unemployment l Causes of Unemployment
in India l Measures to Solve Unemployment
Problem
1. Those people who work in their own business or profession are

called:
(a) Selfemployed workers (b) Casual workers
(c) Regular workers (d) None of the above
2. Those people who are not hired by their employers on a regular
basis and do not get social security benefits are called:
(a) Self-employed workers (b) Casual workers
3. Those people who are hired by their employers on a permanent
basis and get social security benefits are called:
(a) Self-employed workers (b) Casual workers
4. Low employment among women is a reflection of:
(a) Economic backwardness of a country
(b) Use of capital intensive technology
(c) Cultural and social norms of a country
5. Major source of livelihood for people in India is:
(a) Self-employment (b) Hired employment
(c) Both of the above (d) None of the above
6. In the urban areas, which sector is the main source of liveli-
hood:
(a) Primary sector (b) Secondary sector
(c) Tertiary sector (d) All of the above
7. In a formal sector, how many workers must be employed:
(a) 10 or more (b) Less than 10
(c) Less than 4 (d) 4 or more
8. In an informal sector, how many workers must be employed:
9. Social security benefits are given to workers in:
(a) Formal sector (b) Informal sector
Unemployment 16.3
10. Workers cannot form trade union and are not protected by
labour law in which sector:
(a) Formal sector (b) Informal sector
11. Rural unemployment can be:
(a) Open unemployment
(b) Seasonal unemployment
(c) Disguised unemployment
12. Urban unemployment can be:
(a) Industrial unemployment
(b) Educated unemployment
(c) Technological unemployment
13. People who have not updated their skills in the latest technol-
ogy are called:
(a) Industrially unemployed
(b) Technologically unemployed
(c) Educationally unemployed
14. Cause of rural unemployment may be:
(a) Backwardness of agriculture
(b) Population pressure
(c) Lack of financial resources
15. Cause of urban unemployment may be:
(a) Slow growth process
(b) Faulty employment planning
(c) More use of foreign technology
Solution
1. (a) 2. (b) 3. (c) 4. (a) 5. (a) 6. (c) 7. (a) 8. (b)
9. (a) 10. (b) 11. (d) 12. (d) 13. (b) 14. (d) 15. (d)
chapter 17
Infrastructural Challenges
Topics Covered
l Energy l Transportation l Communication
l Health l Education
1. Energy, transport and communication are a type of:

(a) Social infrastructure (b) Economic infrastructure
(c) Political infrastructure (d) All of the above
2. Health, education and housing are a type of:
(a) Social infrastructure (b) Economic infrastructure
(c) Political infrastructure (d) All of the above
3. Infrastructure helps in:
(a) Raising ability to work
(b) Raises size of the market
(c) Raises economic development
4. India invests what percent of its GDP on infrastructure?
(a) 5 (b) 7 (c) 10 (d) 12
5. Firewood and dried dung are examples of:
(a) Commercial source of energy
(b) Non-commercial source of energy
(c) Non-conventional source of energy
6. Solar energy, wind energy and tidal energy are examples of:
7. Agriculture sector has share of 9% in total commercial energy. It
shows that:
(a) People are smart users of energy
(b) Agriculture has low degree of mechanisation
(c) There is development of advanced energy efficient technol-
ogy in agriculture
8. Which two types of sources of energy are encouraged by policy
makers?
(a) Hydel and solar (b) Tidal and wind
(c) Hydel and wind (d) Solar and wind
Infrastructural Challenges 17.3
9. Operational efficiency of a thermal plant is measured by:

(a) PLF (b) CLF (c) LPF (d) FLP
10. Compact fluorescent lamp (CFL) consumes percent
less power than ordinary bulb:
(a) 80 (b) 40 (c) 20 (d) 50
11. Indian system of medicine consist of six systems of Indian medi-
cine called:
(a) AYNUSH (b) ACCORD
(c) AYUSH (d) None of the above
12. States which are lagging behind in health care facilities are:
(a) Bihar and Rajasthan
(b) Kerala and Gujarat
(c) Maharashtra and Arunachal Pradesh
13. Indias road transport is largest in the world:
(a) Fifth (b) Third (c) Second (d) Tenth
14. Indians coastline has how many major ports?
(a) 10 (b) 15 (c) 12 (d) 5
15. India has largest merchant and shipping fleet in the
world:
(a) 17 (b) 10 (c) 1 (d) 4
16. Two PSUs in telecom sector are:
(a) BSNL and MTNL (b) MTNL and TRAI
(c) TRAI and NIXI (d) BSNL and TRAI
17. Indias postal service started in the year :
(a) 1837 (b) 1847 (c) 1947 (d) 1930
18. Greenfield airports are constructed in:
(a) Hyderabad (b) Bangalore
(c) Goa (d) All of the above
19. An international Greenfield airport is at:
(a) Kochi (b) Delhi
(c) Bangalore (d) Chennai
20. PLF is lowest in:

(a) North-Eastern region (b) Northern region
(c) Southern region (d) Western region
Solution
1. (b) 2. (a) 3. (d) 4. (a) 5. (b) 6. (c) 7. (b) 8. (c)
9. (a) 10. (a) 11. (c) 12. (a) 13. (c) 14. (c) 15. (a) 16. (a)
17. (a) 18. (d) 19. (a) 20. (a)
chapter 18
Inflation
Topics Covered
l Meaning of Inflation l Types of Inflation
l Review of Price Trends in India l General
Causes of Inflation in India l Consequences
of Inflation and Deflation l Measures to Check
Inflation
1. When price rises without any government control over them, it

is called:
(a) Supressed inflation (b) Open inflation
(c) Deflation (d) Galloping inflation
2. When price rises but they remain under control because of
government intervention, it is called:
3. When price are falling and value of money is rising, it is called:
4. When price rises by 8 to 10% per annum and, as a result, savings
are less, it is called:
5. Cause of demand-pull inflation may be:
(a) Growth of black money (b) Rise in population
(c) Rise in money supply (d) All of the above
6. In case of demandpull inflation:
(a) Demand curve shifts to the right
(b) Demand curve shifts to the left
(c) Supply curve shifts to the left
(d) Supply curve shifts to the right
7. In case of cost-push inflation:
8. Cost-push inflation is due to:
(a) Higher wages (b) Higher profit margin
(c) Higher tax (d) All of the above
9. In stagflation:
(a) Prices are rising and output is falling
Inflation 18.3
(b) Prices are stagnating

(c) Output is stagnating
(d) Both prices and output are stagnating.
10. Inflation is measured by:
(a) Wholesale Price Index
(b) Consumer Price Index
(c) National Income Deflation
11. Inflation results in:
(a) Higher capital formation
(b) Benefit for producers
(c) Benefit for farmers
12. Dangers of inflation may be:
(a) Rise in inequality of income and wealth
(b) High cost economy
(c) Loss of tax revenue
13. Monetary measures to control inflation can be:
(a) Raise bank rate
(b) Raise cash reserve rate
(c) Raise marginal requirement
14. Cash Reserve Ratio is defined as that portion of total deposits
which a commercial bank is required to keep with :
(a) Itself (b) RBI
(c) Other banks (d) Public
15. Satutory Liquidity Ratio is defined is that portion of total deposits
which a commercial bank has to keep with :
(a) Itself (b) RBI
(c) Other banks (d) Public
16. Bank rate is that rate of interest at which lends to :
(a) RBI, commercial banks
(b) Commercial banks, public

(c) RBI, government
(d) Commercial banks, government
17. When bank rate is raised then:
(a) People prefer to deposit in banks
(b) People prefer to borrow from banks
(c) Government prefer to borrow from banks
(d) Commercial banks prefer to deposit in RBI
18. Open Market Operation is defined as:
(a) Buying and selling of eligible securities in the bill market by
the RBI
(b) Buying and selling of eligible securities in the bill market by
the commercial banks
(c) Buying and selling of shares by the RBI
(d) Buying and selling of shares by the banks
19. Fiscal measures to control inflation can be:
(a) Raising the rates of all taxes
(b) Reducing government expenditure
(c) Reducing non-developmental expenditure
20. Public expenditure is incurred to:
(a) Preserve the society
(b) Improve the quality of life of people
(c) Improve standard of living of people
Solution
1. (b) 2. (a) 3. (c) 4. (d) 5. (d) 6. (a) 7. (c) 8. (d)
9. (a) 10. (d) 11. (d) 12. (d) 13. (d) 14. (b) 15. (a) 16. (a)
17. (a) 18. (a) 19. (d) 20. (d)
chapter 19
Budget and Fiscal Deficit in

India
Topics Covered
l Meaning of Budget l Types and Calcula-
tion of Various Deficits in the Union Budget
l Conclusions
1. Budget is placed before:

(a) Lok Sabha
(b) Rajya Sabha
(c) Both Lok Sabha and Rajya Sabha
(d) Parliament
2. Budget is a:
(a) Financial statement (b) Monetary statement
(c) Political statement (d) All of the above
3. Which article of the constitution takes about the budget?
(a) Article 110 (b) Article 111
(c) Article 112 (d) Article 113
4. One year period from 1 April to 31 March of next year is called:
(a) Monetary year (b) Fiscal year
(c) Plan year (d) Tax year
5. Surplus budget takes place:
(a) When receipts are more than expenditure
(b) When tax revenue is more than expenditure
(c) When capital receipt is more than capital expenditure
(d) When expenditure is more than receipts
6. Tax revenue may come from:
(a) Tax on income and expenditure
(b) Tax on property and capital transactions
(c) Tax on goods and services
7. Revenue expenditure may be on:
(a) Subsidies (b) Non-interest expenditure
(c) Interest expenditure (d) All of the above
8. Capital receipts may come from:
(a) Market borrowings (b) Provident funds
(c) Recoveries of loans (d) All of the above
9. Capital expenditure may be on:
(a) Loans and advances
(b) External loans raised by the central government
Budget and Fiscal Deficit in India 19.3
(c) Subsidies
10. Total expenditure minus budgetary deficit = :
(a) Total receipts (b) Revenue receipts
(c) Capital receipts (d) All of the above
11. Fiscal deficit minus borrowings and other liabilities = :
(a) Revenue deficit (b) Budgetary deficit
(c) Capital deficit (d) None of the above
12. Direct tax can be:
(a) Gift tax (b) Wealth tax
(c) Corporation tax (d) All of the above
13. Indirect tax can be:
(a) Excise duty (b) Entertainment tax
(c) Tax on services (d) All of the above
14. Revenue expenditure may be:
(a) Salaries (b) Pensions
(c) Grants (d) All of the above
15. Developmental expenditure can be on:
(a) Education (b) Social welfare
(c) Scientific research (d) All of the above
Solution
1. (c) 2. (a) 3. (c) 4. (b) 5. (a) 6. (d) 7. (d) 8. (d)
9. (a) 10. (a) 11. (b) 12 (d) 13. (d) 14. (d) 15. (d)
chapter 20
Balance of Payments
Topics Covered
l Meaning of Balance of Trade and Balance of
Payments l Components of Balance of
Payment l Difference between BOP and
BOT l Trends in Indias Balance of
Payments l Measures to Improve Indias
Balance of Payment Position
1. Difference in the value of import and export of good is called:

(a) Balance of payments (b) Balance of trade
(c) Foreign trade (d) Export-import difference
2. A systematic record of a countrys external transactions over a
period of one year is called:
(a) Balance of payments (b) Balance of trade
(c) Foreign trade (d) Export-import difference
3. Current account of BOP records transactions relating to:
(a) Exchange of goods (b) Exchange of services
(c) Unilateral transfers (d) All of the above
4. Current transactions are of nature:
(a) Flow
(b) Stock
(c) Both flow and stock
5. Capital transactions are of nature:
(a) Flow
(b) Stock
(c) Both flow and stock
6. Invisibles may be:
(a) Services (b) Investment income
(c) Transfer payments (d) All of the above
7. Capital account may be:
(a) Private capital (b) Banking capital
(c) Official capital (d) All of the above
8. Amortization of capital means:
(a) Purchase and resale of securities sold to the foreigners
(b) Purchase and resale of securities sold to the people of the
country
(c) Only resale of securities sold to the people of the country
(d) Only purchase of securities sold to the people of the country
Balance of Payments 20.3
9. Transfer payments may be:

(a) Donations
(b) Grants in cash by foreign governments
(c) Contributions from UN, WHO, etc.
10. Miscellaneous invisibles may be:
(a) Royalties (b) Management fees
(c) Subscription to journals (d) All of the above
11. Miscellaneous errors and omissions means:
(a) Incomplete data
(b) Inaccurate data
(c) Both incomplete and inaccurate data
12. Devaluation makes:
(a) Export profitable
(b) Import profitable
(c) Both export and import profitable
13. Indias BOP position can be improved by:
(a) Import reduction and substitution
(b) Export promotion
(c) Trapping invisible
14. Imports of should be reduced.
(a) Cosmetics (b) Sanitary goods
(c) Food items (d) All of the above
15. Exports can be promoted by:
(a) Exploring and identifying new markets
(b) Relaxation of controls on export of commodities
(c) Special facilities should be given in traditional and non-
traditional items
Solution
1. (b) 2. (a) 3. (d) 4. (a) 5. (b) 6. (d) 7. (d) 8. (a)
9. (d) 10. (d) 11. (c) 12. (a) 13. (d) 14. (d) 15. (d)
chapter 21
External Debt
Topics Covered
l Meaning of Public Debt l Importance and
Reasons for Public Debt l Dangers of Public
Debt l Growth of Public Debt in India
Dimensions, Causes and Effects
1. External debt may include:

(a) NRI deposits
(b) Commercial borrowing from abroad
(c) Borrowings from IMF, world bank etc
2. Public debt means:
(a) Loans raised by government
(b) Loans raised by commercial banks
(c) Loans raised by RBI.
(d) Loans raised by private sector
3. Reasons for public debt may be:
(a) To fight depression (b) To control inflation
(c) To finance war (d) All of the above
4. Dangers of public debt may be:
(a) It is a threat to political freedom
(b) It is a burden on common man
(c) It results in drain of wealth
5. Rise in public debt is due to:
(a) Rise in development expenditure
(b) Rise in defence expenditure
(c) Rise in debt servicing
6. Debt trap means:
(a) More aid is needed to meet the debt servicing requirements
(b) More debt is needed to finance developmental expenditure
(c) More debt is needed to finance war expenses
7. India has the highest share of concessional debt among
the top 15 most debted countries.
(a) Second (b) Third (c) Fourth (d) Fifth
8. Importance of public debt is that:
(a) It helps in financing public enterprises
External Debt 21.3
(b) It helps in expansion of education

(c) It helps in creation of infrastructrual facilities
9. India is largest debtor in the world in 2006. (Economic
survey 200708)
(a) Fifth (b) Third (c) Fourth (d) Eighth
10. Total external debts is percent of GNI in 2006.
(a) 17.9 (b) 20 (c) 18 (d) 19
11. India had the lowest debt service ratio among top 10
debtor countries in 2006 (Economic survey 200708).
(a) Second (b) Third (c) Fifth (d) Fourth
12. Rise in total external debt is due to:
(a) Rise in external commercial borrowings
(b) NRI deposits
(c) Short-term debt
13. Indias rate of commercial debt to total debt (in percent) in 2006
was:
(a) 23.3 (b) 25 (c) 25.8 (d) 28
14. Indias debt service ratio (in percent) in 2006 was:
(a) 4.8 (b) 5.8 (c) 6.8 (d) 7.8
15. India has lowest ratio of shortterm debt to total debt.
(a) Fourth (b) Second (c) Third (d) Fifth
Solution
1. (d) 2. (a) 3. (d) 4. (d) 5. (d) 6. (a) 7. (a) 8. (d)
9. (a) 10. (a) 11. (a) 12. (d) 13. (a) 14. (a) 15. (a)
22. Economic Reforms and Liberalisation
23. Liberalisation, Privatisation and Disinvestment
24. Globalisation
chapter 22
Economic Reforms and

Liberalisation
Topics Covered
l Background of Economic Reforms in 1991
l Industrial Sector Reforms l Financial Sector
Reforms l External Sector Reforms l Impact
of Economic Reforms
1. Economic reforms started in the year:

(a) 1990 (b) 1991 (c) 1980 (d) 2007
2. Before economic reforms, inflation was at:
(a) 16.8% (b) 6% (c) 6.8% (d) 3.4%
3. Economic reforms are reforms in the:
(a) Industrial sector (b) Financial sector
(c) Fiscal sector (d) All sectors of an economy
4. New economic policy is also called:
(a) Economic reforms
(b) New industrial policy
(c) Amendment in MRTP Act
(d) Reforms in small scale sector
5. New economic policy is a policy of:
(a) Liberalisation (b) Globalisation
(c) Privatisation (d) All of the above
6. Abolition of industrial licensing is a part of:
(a) Liberalisation policy (b) Globalisation policy
(c) Privatisation policy (d) All of the above
7. Industrial licensing has been abolished except for a list of how
many industries?
(a) 6 (b) 8 (c) 12 (d) 10
8. Number of industries reduced for public sector is:
(a) 3 (b) 6 (c) 8 (d) 10
9. MRTP stands for:
(a) Monopolies and Restrictive Trade Practices
(b) Monopolistic and Restrictive Trade Practices
(c) Monopoly and Reserved Trade Practices
(d) Monopolies and Restrictive Trade Policy
10. Financial sector includes:
(a) Banking and nonbanking financial institutions
(b) Stock exchange market
(c) Foreign exchange market
Economic Reforms and Liberalisation 22.5
11. SEBI stands for:

(a) Statutory Exchange Board of India
(b) Securities and Exchange Board of India
(c) Securities and Exchange Bureau of Investigation
(d) State Exchange Bank of India
12. FERA stands for:
(a) Foreign Exchange Regulation Act
(b) Foreign Exchange Regulatory Authority
(c) Firms Exchange and Regulation Authority
(d) Forward Exchange and Regulation Act
13. Policy started to promoted agricultural exports is:
(a) Vishesh Krishi Upaj Yojana
(b) Export promotion cell for Agricultural Products
(c) Vishesh Vikas Yojana
(d) Krishi Anaj Yojana
14. FEMA stands for:
(a) Foreign Earnings Management Act
(b) Foreign Exchange Management Act
(c) Foreign Exchange and Management Activities
(d) Forward Earning and Management Act
15. EPCG stands for:
(a) Export Promotion Capital Goods
(b) Export Promotion Council of the Government
(c) Earnings Promotion Capital Goods
(d) Export Promotion of Countrys Goods
16. Devaluation means:
(a) Lowering in the official value of a currency with respect to
gold or foreign currency
(b) Raising in the official value of a currency with respect to
gold or foreign currency
(c) Both of the above
17. Economic reforms are also called:

(a) First generation reforms
(b) Second generation reforms
(c) Third generation reforms
18. Economic reforms led to rural distress because:
(a) Public investment in infrastrure of the agricultural sector has
been reduced
(b) International competition for Indian farmers has increased
(c) Removal of subsidies has raised cost of production
19. The result of economic reforms is seen in:
(a) Rise in GDP growth
(b) Rise in foreign exchange reserves
(c) Control of inflation
20. Failure of economic reforms is seen in:
(a) Agricultural crisis
(b) Protecting the environment
(c) Slowdown in industrial growth
Solution
1. (b) 2. (a) 3. (d) 4. (a) 5. (d) 6. (a) 7. (a) 8. (a)
9. (a) 10. (d) 11. (b) 12. (a) 13. (a) 14. (b) 15. (a) 16. (a)
17. (a) 18. (d) 19. (d) 20. (d)
chapter 23
Liberalisation, Privatisation
and Disinvestment
Topics Covered
l Liberalisation l Privatisation l Disinvestment
1. Objectives of privatisation policy are:

(a) To improve the governments financial position
(b) To improve the performance of an enterprise
(c) To reduce the burden on public administration
2. Some navratnas PSUs are:
(a) BPCL, ONGC (b) SAIL, MTNL
(c) BHEL, NTPC (d) All of the above
3. Government has granted more financial and managerial autonomy
to how many mini ratnas ?
(a) 97 (b) 100 (c) 200 (d) 90
4. Privatisation has led to:
(a) Reduction in budgetary deficit
(b) Accountability in PSUs
(c) Efficiency in PSUs
5. The criticism of privatisation is that:
(a) It has led to growth of monopoly power in the hands of big
business houses
(b) It has no social welfare objectives
(c) It does not take up risky projects
6. Main methods of disinvestment are:
(a) Minority sale (b) Strategic sale
7. When the governments own financial institutions buy the
governments stake in select PSUs and hold them until a third
buyer comes up, it is called:
(a) Strategic sale (b) Warehousing
(c) Golden share (d) Cross-holding
8. What were issued to tap overseas markets ?
(a) Public issue
(b) Private issue
Liberalisation, Privatisation and Disinvestment 23.3
(c) GDRs (Global Depository Receipts)

(d) GDRs (Governments Deposit Revenue)
9. When government retains stake upto 26% in the PSU to protect
its interest, it is called:
(a) Warehousing (b) Cross-holding
(c) Golden share (d) Strategic sale
10. When the government sells a major portion of its stake to a
strategic buyer and also gives out the management control, it is
called:
(a) Strategic sale (b) Cross-holding
(c) Warehousing (d) Golden share
Solution
1. (d) 2. (d) 3. (a) 4. (d) 5. (d) 6. (c) 7. (b) 8. (c)
9. (c) 10. (a)
chapter 24
Globalisation
Topics Covered
l Meaning and Parameters of Globalisation
l Case for Globalisation l Case Against
Globalisation l Measures Toward Globalisation
l Effects of Globalisation on Indian Economy
l Main Organisations for Facilitating Globalisation
1. Some of the problems of globalisation are:

(a) Devastation of local producers
(b) Mounting strikes
(c) Small businesses are adversely affected
2. Outsourcing means:
(a) Obtaining goods and services by contract from an outside
source
(b) Obtaining goods by contract from an outside source
(c) Obtaining services by contract from an outside source
3. Company/companies offering BPO or call centers services are:
(a) Genpact (b) HCL
(c) WIPRO (d) All of the above
4. Some services outsourced from India are:
(a) Banking services
(b) Voice-based business processes
(c) Music recording
5. Advantage of outsourcing is:
(a) It is cheaper to contract services from developing countries
(b) There is easy availability of skilled manpower at lower wage
rate
6. What percent share of global BPO industry does India have?
(a) 46% (b) 50% (c) 60% (d) 40%
7. Main multilateral economic organisations for facilitating
globalisation are:
(a) IMF (b) World bank
(c) WTO (d) All of the above
8. Globalisation means:
(a) Removal of controls and restrictions
Globalisation 24.3
(b) Growing economic interdependence among countries in the

world
(c) Selling the PSUs to global investors
9. Globalisation has brought about:
(a) New efficient production methods
(b) New world order
(c) Human development
10. India is a favourite outsourcing destination because:
(a) It can easily provide skilled people
(b) The price charged by Indians is relatively less
(c) India has the advantage of time difference as it is located on
the other side of the developed countries
11. IMF started its operations from:
(a) March 1947 (b) March 1946
(c) Feb. 1947 (d) Feb. 1945
12. One of the main objective of IMF is to:
(a) Bring stability in the international financial system
(b) Bring equilibrium in the balance of payments
(c) Implement multilateral trade agreements
13. World Bank is also called:
(a) IBRD (b) Asian Development Bank
(c) Bank of America (d) None of the above
14. Headquarters of World Bank is in:
(a) London (b) Canada
(c) Washington, D.C. (d) Australia
15. GATT stands for:
(a) General Act on Trade and Tariff
(b) General Agreement on Trade and Tariff
(c) General Agreement on Tariff and Trade
(d) Governments Agreement on Tariff and Trade

16. Bilateral Trade is a trade agreement involving:
(a) Two countries (b) All countries
(c) Five countries (d) None of the above
17. Tariff barriers are impored on:
(a) Import to make them relatively costly
(b) Export to make them relatively cheaper
(c) Both import and export
18. Most debated parameter of globalisation at WTO or any other
forum is:
(a) Free flow of labour
(b) Free flow of capital
(c) Free flow of goods and services
(d) Free flow of technology
19. Current membership of IMF is:
(a) 184 countries (b) 180 countries
(c) 149 countries (d) None of the above
20. Current membership of WTO is:
Solution
1. (d) 2. (a) 3. (d) 4. (d) 5. (c) 6. (a) 7. (d) 8. (b)
9. (d) 10. (d) 11. (a) 12. (a) 13. (a) 14. (c) 15. (c) 16. (a)
17. (a) 18. (a) 19. (a) 20. (a)
25. Money
26. Commercial Banks
27. The Reserve Bank of India (RBI)
chapter 25
Money
Topics Covered
l Importance of Money l Definition of
Money l Functions of Money l Indian
Monetary System l Definition of Money
Supply l Money Stock in India
1. Barter system suffered from:

(a) Lack of common measure of value
(b) Lack of double coincidence of wants
(c) Difficulty in storage of extra goods
2. Functional definition of money means money is a:
(a) Medium of exchange
(b) Measure of value
(c) Standard of deferred payments
3. Narrow definition of money is based upon the function of money
as:
4. When money works as a common denominator into which the
values of all goods and services are expressed, it is which func-
tion of money?
5. Which function of money removes the difficulty of double coin-
cidence of wants?
6. India is on currency standard:
(a) Paper (b) Metal (c) Foreign (d) Dollar
7. RBI has the sole right to issue currency notes other than:
(a) Rs 5 note (b) Rs 10 note
(c) Re 1 note (d) None of the above
Money 25.5
8. India is following reserve system in note issuing:

(a) Balanced (b) Maximum
(c) Minimum (d) Neutral
9. Paper currency is :
(a) Convertible
(b) Partially convertible
(c) Inconvertible
(d) Both convertible and inconvertible
10. Money supply is defined as:
(a) Stock of money held by public at a point of time in an
economy
(b) Flow of money held by public at a point of time in an
economy
(c) Flow of money held by government at a point of time in an
economy
(d) Stock of money held by government at a point of time in an
economy
11. Money supply consists of:
(a) Currency
(b) Deposit
(c) Both currency and deposit
12. What is excluded from money supply?
(a) Gold held with Central Bank
(b) Coins and currency held by commercial banks as their cash
reserves
(c) Cash held by the government in treasury
13. C + DD + OD = ?
(a) M1 (b) M2 (c) M3 (d) M4
14. Which measure of money supply lays stress on medium of
exchange function of money?
(a) M1 (b) M2 (c) M3 (d) M4
15. Which measure of money supply lays stress on the store of value
function of money?
(a) M1 (b) M2 (c) M3 (d) M4
Solution
1. (d) 2. (d) 3. (a) 4. (b) 5. (a) 6. (a) 7. (c) 8. (c)
9. (c) 10. (a) 11. (c) 12. (d) 13. (a) 14. (a) 15. (c).
chapter 26
Commercial Banks
Topics Covered
l BankingAn Introduction l Functions of a
Bank l Essentials of a Sound Banking
System l Commencial BanksMeaning
and Functions l Nationalisation of Banks
l Commercial Banks after Nationalisation
l Importance and Shortcomings of Commercial
Banking in India
1. Who can create credit?

(a) Commercial banks (b) RBI
(c) Private banks (d) Foreign banks
2. Which act defines a banking company as one which transacts
the business of banking in any state of India and the world?
(a) The Banking Companies Act, 1949
(b) The Banking Companies Act, 1948
(c) The Banking Companies Act, 1947
(d) The Banking Act, 1948
3. Deposit received by bank can be:
(a) Demand deposit (b) Fixed deposit
(c) Saving deposit (d) All of the above
4. Lending by bank can be:
(a) In the form of cash credit
(b) In the form of overdrafts
(c) In the form of discounting bills of exchange
5. Agency services can be:
(a) Purchase and sale of shares and securities
(b) Making regular payments such as insurance premium
(c) Collection of cheques and bills
6. A sound banking system should have:
(a) Marketability (b) Dispersal
(c) Diversification of risk (d) All of the above
7. Function of commercial bank can be:
(a) Credit creation (b) Transfer of funds
(c) Receiving deposits (d) All of the above
8. Fixed deposit is also called:
(a) Demand deposit (b) Time deposit
(c) Cumulative deposit (d) Accumulated deposit
9. Current account deposit is also called:
Commercial Banks 26.3

10. Saving bank deposit is also called:
11. A bank can provide:
(a) Trade information and statistics
(b) Project reports
(c) Safe keeping of valuables
12. Shortcoming of banks at the time of independence was that they:
(a) Did not work for nations interest
(b) Catered to the needs of few big industrial houses
(c) Ignored small scale industries and agriculture
13. Aim of nationalising banks is to:
(a) Encourage new class of entrepreneurs.
(b) Give professional touch to management.
(c) Remove control by few.
(d) All of the above.
14. Shortcoming of commercial banks is seen in:
(a) Excessive overdues. (b) Poor customer service.
(c) Regional disparity. (d) All of the above.
15. Achievement of nationalisation of banks is seen in:
(a) Rise in branches operating in unbanked and rural areas.
(b) Rise in bank lending.
(c) Diversification of funds.
(d) All of the above.
Solution
1. (a) 2. (a) 3. (d) 4. (d) 5. (d) 6. (d) 7. (d) 8. (b)
9. (a) 10. (c) 11. (d) 12. (d) 13. (d) 14. (d) 15. (d)
chapter 27
The Reserve Bank of India

(RBI)
Topics Covered
l Central BankAn Introduction l Definition
of Central Bank l Functions of Reserve Bank
of India l Reserve Bank of IndiaIts Role
l Comparison between Central Bank and
Commercial Bank l Meaning and Objectives
of Monetary Policy
1. Central bank promotes commercial banking by:

(a) Providing cheap rediscounting facilities to commercial banks
(b) Providing liberalised rediscounting facilities to commercial
banks
(c) Giving subsidies to new banks
2. Central bank develops longterm financial institutions like:
(a) IDBI (b) IFCI
(c) ICICI (d) All of the above
3. Which Act has given control and supervision powers to RBI over
commercial banks and co-operative banks?
(a) RBI Act, 1934
(b) Banking Regulation Act, 1959
(c) Both RBI Act 1934 and Banking Regulation Act 1959
(d) Banking Regulation Act, 1960
4. What can RBI do to improve efficiency of the banking system?
(a) It can being about compulsory amalgamation of weak banks
(b) It can claim for compulsory liquidation
(c) It can expedite winding up of proceedings to safeguard the
interest of depositors
5. The merit of issuing notes with RBI can be seen in:
(a) Uniformity in note issue (b) Stability in currency
(c) Control of credit (d) All of the above
6. When RBI acts a banker to the government, what does it do?
(a) RBI keeps bank accounts of the government
(b) RBI carries out government transactions
(c) RBI advises the government on all financial and monetary
matters
7. When RBI is lender of last resort, what does it mean?
(a) RBI advances necessary credit against eligible securities
(b) Commercial banks give fund to the RBI
The Reserve Bank of India (RBI) 27.3
(c) RBI advances money to public whenever there is any emer-

gency
8. Central bank credit.
(a) Create (b) Controls
(c) Restricts (d) None of the above
9. credit policy promotes investment.
(a) Dear (b) Cheap (c) Restricted (d) Green
10. policy refers to policy measures taken by RBI to con-
trol and regulate money supply.
(a) Credit (b) Financial (c) Monetary (d) Fiscal
11. Quantitative instrument of RBI can be:
(a) Bank Rate policy (b) Cash Reserve Ratio
(c) Statutory Liquidity Ratio (d) All of the above
12. Objective of monetary policy is to:
(a) Control inflation
(b) Discourage hoarding of commodities
(c) Encourage flow of credit into neglected sector
13. CRR is percent in 2007.
(a) 7.5 (b) 7 (c) 5 (d) 5.5
14. IDBI stands for:
(a) Industrial Development Bank of India
(b) Indian Development Bank for Industries
(c) Industrial Development Bureau of India
15. IFCI stands for:
(a) Industrial Finance Corporation of India
(b) Investment Finance Corporation of India
(C) Infrastructure Finance Corporation of India
(D) None of the above
Solution
1. (d) 2. (d) 3. (c) 4. (d) 5. (d) 6. (d) 7. (a) 8. (b)
9. (b) 10. (c) 11. (d) 12. (d) 13. (a) 14. (a) 15. (a)
Model Test Paper I
1. Who wrote Nature and Significance of Economic Science?

2. Economics is:
(a) A science
(b) An art
(c) Both a science and an art
(d) Neither a science nor an art
3. A rise in price of goods leads to fall in its quantity demanded.
Thus, government showed cheek rise in prices. This statement
refers to:
4. Disadvantages of inductive method can be:
(a) Expensive method
(c) Chances of personal bias of the investigators are present
(b) Complex method
5. PP¢ shifts rightwards to P1P1¢. It shows:
(a) Improvement in technology in good X
(b) Improvement in technology in good Y
(c) Improvement in technology in both good X and good Y
(d) Stagnation
P.2 MCQs in Economics
6. Demand function is given as Dx = f (Px , P2, Y, T ). What does T

stand for:
(a) Taxes (b) Tastes
(c) Both taxes and tastes (d) None of the above
7. Coefficient of elasticity of demand is negative. It means:
(a) Consumers sometimes buy negative units of a commodity
(b) Price and quantity demanded move in same direction
(c) Law of demand holds
(d) The two goods are complementary to each other
8. Income elasticity is given as:
DQ y Dy Q
(a) ey = ◊ (b) ey = ◊
Dy Q DQ y
DQ Q Dy Q
(c) ey = ◊ (d) ey = ◊
Dy y DQ y
9. Saturation point means:

(a) TU is rising, and MU is falling
(b) TU is falling and MU is negative
(c) TU is maximum and MU is zero
(d) Falling MU curve
10. MRS is given by.
(a) DX (b) DX DY (c) DY (d) DY DX.

DY DX
11. Budget set is:
(a) Right angled triangle formed by the budget line with the
axes
(b) All points on the budget line
(c) Points inside the budget line
(d) Points on y-axis from where budget line starts and the point
on x-axis where budget line ends
12. When tax is raised, consumer surplus:
(a) Falls (b) Rises
(c) Remain unchanged (d) Becomes zero
Model Test Paper I P.3
13. What is constant in the law of supply?

(a) Price of related goods
(b) State of technology
(c) Cost of production
14. When same quantity is supplied at a higher price, it shows:
15. Arc elasticity of supply is given by the formula:
q1 - q 2 p + p2 q 1 + q 2 p1 + p 2
(a) ¥ 1 (b) q - q ¥ p - p
q1 + q 2 p1 - p 2 1 2 1 2
q 2 - q 1 p 2 - p1 p1 - p 2 q 1 + q 2
(c) ¥ (d) ¥
q 2 + q 1 p 2 - p1 p1 + p2 q1 - q 2

17. When land differs in fertility, it is called:
(a) Heterogeneity of land
(b) Homogeneity of land
(c) Extensive cultivation of land
18. When supply curve of labour is backward bending, it means:
19. When TP is falling, then MP is:
20. TC curve is shaped starting from .
(a) InverseS, origin
(b) InverseS, total fixed cost level
(c) Straight line, average fixed cost level
(d) Straight line, total fixed cost level
21. What is reserve capacity?

(a) It is the built-in-capacity to produce at minimum cost a range
of output
(b) It is the difference between equilibrium output and least cost
output
(c) It is the capacity of a plant to produce
22. When long-run AC is rising, it is due to:
(a) Law of variable proportion
(b) Decreasing returns
(c) Diminishing returns
(d) Negative returns
23. If the commodities have universal demand, it will have a:
24. Demand curve is perfectly elastic under:
(b) Monopoly
25. Demand curve is undefined under:
(a) Monopoly
(b) Oligopoly
26. When demand decreases and there is no shift in supply, the

29. Under perfect competition, shape of TR curve is:
(a) Horizontal
30. When AR passes through minimum point of AVC, it is called:
(a) Breakeven point (b) Shutdown point
(c) Normal profit point (d) Supernormal profit point
(a) AR = AC
(b) MR = MC
(c) Slope of MC > Slope of MR
32. Inequality of income is measured by:
(a) Human development index
(b) Gini coefficient
(c) Per capita income
(d) Physical quality of life index
33. Green revolution was restricted to crops:
(a) 2 (b) 3 (c) 5 (d) 4
34. In a circular flow of income, we have:
(a) Production (b) Distribution
(c) Disposition (d) All of the above
35. Demerit of direct tax is that:
(a) It is inconvenient (b) It has limited coverage
(c) It discourages work (d) All of the above
36. Population growth has led to:
(a) Low per capita income (b) Increase in illiteracy
(c) Energy crisis (d) All of the above
37. Head Count Ratio is:

(a) Number of poor as a proportion of people living below the
poverty line
(b) Number of people who are living above the poverty line
(c) Number of rural people depending on agriculture as their
source of livelihood
(d) None of above
38. In an informal sector, how many workers must be employed:
39. Firewood and dried dung are examples of:
40. When price rises by 8 to 10% per annum and, as a result, savings
are less, it is called:
41. Capital expenditure may be on:
(a) Loans and advances
(b) External loans raised by the central government
(c) Subsidies
42. Capital transactions are of nature:
(a) Flow (b) Stock
(c) Both flow and stock (d) None of the above
43. Dangers of public debt may be:
(a) It is a threat to political freedom
(b) It is a burden on common man
(c) It results in drain of wealth
44. FEMA stands for:

(a) Foreign Earnings Management Act
(b) Foreign Exchange Management Act
(c) Foreign Exchange and Management Activities
(d) Forward Earning and Management Act
45. When government retains stake upto 26% in the PSU to protect
its interest, it is called:
(a) Warehousing (b) Cross-holding
(c) Golden share (d) Strategic sale
46. Advantage of outsourcing is:
(a) It is cheaper to contract services from developing countries
(b) There is easy availability of skilled manpower at lower wage
rate
47. Current membership of IMF is:
48. Which function of money removes the difficulty of double coin-
cidence of wants?
49. Agency services can be:
(a) Purchase and sale of shares and securities
(b) Making regular payments such as insurance premium
(c) Collection of cheques and bills
50. What can RBI do to improve efficiency of the banking system?
(a) It can being about compulsory amalgamation of weak banks
(b) It can claim for compulsory liquidation
(c) It can expedite winding up of proceedings to safeguard the
interest of depositors
Model Test Paper II
1. Who gave wealth definition of Economics?

2. Ethics is:
3. When we start with particular facts and then makes general
theory, it is called:
(a) Deductive method
(b) Inductive method
(c) Partial equilibrium method
4. Merits of inductive method of economic theory can be:
(a) Realistic and reasonable method
(b) Verifies economic facts
(c) Scientific method
5. If earthquake takes place, then what will happen to PPC?
(a) Shift inward (b) Remains same
(c) Shift outward (d) All of the above
6. What kind of relationship exist between demand for a good and
price of its substitute goods?
7. Expansion of demand is shown by:

8. The absolute value of the coefficient of elasticity of demand
ranges from:
(d) One to infinity
9. As the consumer has more units of a commodity, his total utility
from the commodity:
(a) Increases less than in proportion, reaches a maximum and
then falls
(b) Increases less than in proportion and then falls
(c) Increases more than in proportion and then reaches a maxi-
mum
(d) Falls, becomes zero and then negative
10. Consumer surplus is the difference between:
(a) Amount consumer is willing to pay minus amount actually
paid by the consumer
(b) Amount consumer actually paid minus the amount consumer
is wiling to pay
(c) Amount consumer actually paid minus the amount charged
by the seller
(d) Amount consumer is willing to pay minus the amount
producer is wanting
11. While deriving consumers equilibrium, what is given?
(a) Income of the consumer
(b) Price of the commodities
(c) Both income and price
Model Test Paper II P.3
12. When MRS is rising, what shape will indifference curve take?
(a) Convex to the origin (b) Concave
(c) Straight line (d) Rising
13. Supply is that part of stock which:
(a) Seller is ready to sell at a certain price during a certain time
(b) Seller is ready to sell
(c) Wholesaler is ready to sell to retailers
(d) Wholesaler is ready to sell to buyers
14. If value of ES < 1, it is called:
15. A firm earns a revenue of Rs 50 when the market price of a
good is Rs 10. The market price increases to Rs 15 and the firm
now earns a revenue of Rs 150. What is the price elasticity of the
firms supply curve?
(a) 2 (b) 1 (c) 3 (d) 4
17. Feature of labour:
(a) It cannot be stored
(b) Labourer has to work in person
(c) Labourer sells his service
18. What should be done after savings have been created?
(a) Investment of savings
(b) Mobilisation of savings
(c) Both investment and mobilisation of savings
19. Short-run production function means:
(a) At least one factor is in fixed supply
(b) Two factor are in fixed supply
(c) All factors are in fixed supply
(d) One factor is in variable supply
20. When AC = MC, AC is .

(a) Minimum (b) Falling (c) Rising (d) Maximum
21. Any point above long-run AC is .
(a) Showing more cost (c) Inefficient
(b) Attainable (d) All of the above
22. When long-run AC is falling, it is tangent to of the
short-run AC curve:
(a) Falling portion
(b) Rising portion
(c) Minimum point
23. When there are two sellers what is the market structure called?
(a) Oligopoly (b) Monopoly
(c) Trupoly (d) Duopoly
24. What brings about pure competition?
(a) Large number of buyers and sellers
(b) Homogenous product
25. Relationship between MR, AR and elasticity of demand is:
Ê ˆ
(a) AR = MR Ê 1 - 1 ˆ (b) MR = e Á 1 - 1 ˜
Ë e¯ Ë p¯
(c) MR = AR Ê 1 - 1 ˆ (d) MR = AR (1 e)
Ë e¯
26. The maximum price consumer is willing to pay to maximise
satisfaction is equal to:
(a) MU of the commodity
(b) MC of the commodity
(c) Purchasing power of the consumer
tion then equilibrium price will .
28. Change in supply means supply can have:

(a) Increase (b) Expansion
(c) Contraction (d) Expansion or contraction
29. Under monopolistic competition, shape of TR curve is:
(a) Horizontal
30. For price discrimination, it is essential that:
(a) There is no contact among buyers
(b) There is imperfect competition in the market
(c) The elasticity of demand is different in different markets
31. The Kink in the demand curve occurs at the:
(a) Prevailing price
(b) Prevailing output
(c) Prevailing price and output
(d) Price which is determined by the model
32. When and by whom was HDI introduced?
(a) In 1990 by UNDP (b) In 1989 by World bank
(c) In 1990 by UNO (d) In 1989 by IMF
33. Green resolution stressed upon:
(a) Use of HYV seeds (b) Use of fertilizers
(c) Use of pesticides (d) All of the above
34. Domestic factor income include:
(a) Compensation of employees
(b) Operating surplus
(c) Mixed income
35. Indirect tax is like:
(a) Excise duty (b) Custom duty
(c) Sales tax (d) All of the above
36. Stage III of demographic transition occurs in:

(a) Primitive agrarian economies
(b) Developed economies
(c) Developing economies
(d) Less developed economies
37. Official data on poverty is made available by:
(a) Planning Commission
(b) Finance Ministry
(c) Central Statistical Organisation
(d) Rajya Sabha
38. Low employment among women is a reflection of:
(a) Economic backwardness of a country
(b) Use of capital intensive technology
(c) Cultural and social norms of a country
39. Agriculture sector has share of 9% in total commercial energy. It
shows that:
(a) People are smart users of energy
(b) Agriculture has low degree of mechanisation
(c) There is development of advanced energy efficient technol-
ogy in agriculture
40. In case of cost-push inflation:
41. Revenue expenditure may be on:
(a) Subsidies (b) Non-interest expenditure
(c) Interest expenditure (d) All of the above
42. Amortization of capital means:
(a) Purchase and resale of securities sold to the foreigners
(b) Purchase and resale of securities sold to the people of the
country
(c) Only resale of securities sold to the people of the country

(d) Only purchase of securities sold to the people of the country
43. Debt trap means:
(a) More aid is needed to meet the debt servicing requirements
(b) More debt is needed to finance developmental expenditure
(c) More debt is needed to finance war expenses
44. EPCG stands for:
(a) Export Promotion Capital Goods
(b) Export Promotion Council of the Government
(c) Earnings Promotion Capital Goods
(d) Export Promotion of Countrys Goods
45. When the government sells a major portion of its stake to a
strategic buyer and also gives out the management control, it is
called:
(a) Strategic sale (b) Cross-holding
(c) Warehousing (d) Golden share
46. Some services outsourced from India are:
(a) Banking services
(b) Voice-based business processes
(c) Music recording
47. Current membership of WTO is:
48. When money works as a common denominator into which the
values of all goods and services are expressed, it is which func-
tion of money?
49. Current account deposit is also called:

50. When RBI is lender of last resort, what does it mean?
(a) RBI advances necessary credit against eligible securities
(b) Commercial banks give fund to the RBI
(c) RBI advances money to public whenever there is any emer-
gency

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MCQs

Tata McGraw-Hill Publishing Company Limited

Copyright © 2009, by Tata McGraw-Hill Publishing Company Limited. No part of this

This edition can be exported from India only by the publishers,

ISBN (13 digits): 978-0-07-026434-2

Managing Director: Ajay Shukla

Cover Printer: Rashtriya Printers

As a teacher and an author of many books on microeconomics,

General Economics (50 Marks)

(c) National Income of IndiaConcepts of national income,

19. Budget and Fiscal Deficit in India 19.1-19.3

1. Growth definition by Samuelson has:

10. Normative economics is based on:

16. Marco economics deals with:

23. Central problem of an economy can be:

30. Smooth PPC is based on the assumption that:

36. Trade off is shown by:

45. There is absence of role of government in:

53. Mixed economy means:

Law of Demand and

1. Demand definition is complete when we have data on:

9. What kind of relationship exist between income and demand of

17. Veblan good is:

27. Demand is elastic when:

31. When cross elasticity of demand is minus infinity, then two

34. Income elasticity is given as:

38. Geometric method of measuring point elasticity of demand is

47. Ed = 1 in case of:

1. In Marginal utility theory, marginal utility of money is:

(c) Law of diminishing marginal utility

16. MRS is defined as:

(a) DX (b) DX  DY (c) DY (d) DY  DX.

22. Higher Indifference curve means:

29. When MRS is constant, X and Y are:

36. If a consumer is willing to pay Rs 20 for an apple and is able to

10. (b) It is because if a consumer can have the commodity after a

34. (c) Price effect = Substitution effect + Income effect.

1. Stock of a commodity is the:

(c) Can be both horizontal or vertical

17. Slope of supply curve is given by the formula:

(c) ES = 1 ◊Q (d) ES = Slope

(c) Upward sloping originating from y-axis

35. The co-efficient of elasticity of supply of a commodity is 3. A

Price Case A: Quantity Case B: Quantity

36. Calculate elasticity of supply when price rises from Rs 2 to Rs 3

24. (b) 25. (c) 26. (a)

34. (a) Given ES = 2

37. (b) Given Q = 20 units P = Rs 2

1. Creation of economic utility can be:

10. Land include:

18. Labour can move between:

(c) All inventories used for further production of wealth

34. Entrepreneur is a person who is a:

43. Stage II of law of Variable Proportions is called:

50. Which is the best stage in law of Variable Proportions:

Figure will help to answer questions 38 to 41.

38. (b) 39. (c) 40. (d) 41. (d)

1. Production function together with determines the cost

10. Fixed cost is also called:

(c) National Income of IndiaConcepts of national income,

(a) DX (b) DX DY (c) DY (d) DY DX.

22. What does perfectly competitive industry earn in the longrun?

(d) Governments Agreement on Tariff and Trade