Result Oriented SSC & Bank Exam Preparation Tips: UGC ECONOMICS PAPER III MCQS

Unit-I

TOPICS TO BE COVERED

Theory of Demand-Axiomatic approach, Demand functions, Consumerbehaviour

under conditions of uncertainty

Theory of production

Collusive and non-collusive oligopolies

Different models of objectives of the firm – Baumol, Morris and Williamson

Factor pricing

General equilibrium and Welfare Economics

1. “Demand” refers to

(a) the amount of a good people would take if it were free.

(b) the amount of a good people would want if they had unlimited income.

(d) the amount of a commodity firms will supply for people to buy.

(e) the amount of a good people are prepared to buy, taking account of the good’s price and their

limited incomes.

Ans. c

2. Assertion (A): A rise in the aggregate demand and aggregate supply of goods and services raises national income.

Reason (R) : National income represents the value of aggregate. production in monetary terms.

(a) Both A and R are true and R is the correct explanation of A.

(b) Both A and R are true but R is not the correct explanation of A;

(d) A is false but R is true.

Ans: b

3. Suppose imported and domestic cars are substitutes. If the price of imported cars rises, the

equilibrium price of domestic cars will _________ and the equilibrium quantity produced will

_________.

(a) fall; fall

(b) fall; rise

(d) rise; rise

(e) rise; change in an ambiguous manner

Ans. b

4. Factors that explain the negative relationship in the law of demand are

(a) income and consumer effects.

(b) the substitution effect and the income effect.

(d) the income effect and the effect of more buyers in the market.

(e) none of the above.

Ans. d

5. A shift to the right in the demand curve for shoes could be the result of

(a) an increase in the price of shoes.

(b) a fad during which it became fashionable to go barefoot.

(d) the belief import quotas on shoes will be removed in the future, thereby causing a large fall in the

price of shoes in the future.

(e) None of the above.

Ans. b

6. An exceptional demand curve is one that moves—

(A) Upward to the right

(B) Downward to the right

(D) Vertically

Ans. (A)

7. Production function explains the relationship between—

(A) Initial inputs and ultimate output

(B) Inputs and ultimate consumption

(D) Output and exports

Ans. (A)

8. An increase in the price of a good causes

(a) an increase in the demand for the good.

(b) a decrease in the demand for the good.

(d) an increase in the supply of the good.

(e) a decrease in the quantity supplied of the good.

Ans. c

9. Which of the following would cause an increase in the supply of tires?

(a) an increase in the demand for tires.

(b) a decrease in the demand for tires.

(d) a revolutionary new method of production that allows twice as many tires to be produced from the

same amount of rubber.

(e) government imposition of quotas that exclude producers from the market.

Ans. a

10. A factor that causes the demand curve for a good to shift to the right also causes

(a) the supply curve of the good to shift to the right.

(b) the supply curve of the good to shift to the left.

(d) the demand curve to shift to the left.

(e) none of the above, because there is no general relationship.

11.

The shift in the SS curve to S’S’ is due to an imposition of a tax.

Which of the following areas in the diagram shows excess burden of the tax?

(a) ODIY

(b) SDA

(d) CAD

Ans. (c)

12. Presume there is another baby boom, so that the number of babies born dramatically increases. This

will _________ the price of diapers and _________ quantity produced.

(a) lower; lower

(b) lower; raise

(d) raise; raise

(e) raise; not change

Ans. c

13. Supply curves do not shift if there is a change in the

(a) number of sellers of the good.

(b) technology used to produce the good.

(d) price of resources used to produce the good.

(e) price of other goods.

Ans. c

14. If the government limits the amount of lamb that can be imported into the country, the price of lamb

will _________, and the quantity of lamb consumed will _________.

(a) fall; fall

(b) fall; rise

(d) fall; fall

Ans. c

(e) rise; change in an ambiguous direction

15. Match List I (Market Type) with List-II (Implication) and select the correct answer using the codes given below the lists:

List-I List-II

(Market Type) (Implication)

A. Perfect competition 1. Collusion of firms

B. Monopoly 2. Excess capacity

C. Monopolistic competition 3. Uniform price

D. Oligopoly 4. Blocked entry

Code:

A B C D

(a) 2 4 3 1

(b) 3 1 2 4

(d) 3 4 2 1

Ans. (d)

16. As more industrial robots are installed in television assembly lines, firms are able to produce more

televisions at lower cost. This causes the equilibrium price to _________ and quantity of televisions

to _________.

(a) fall; fall

(b) fall; rise

(d) rise; rise

(e) change, but we cannot predict whether they will rise or fall 28 Gregory • Essentials of Economics, Sixth Edition

Ans. c

17. If two goods are substitutes, an increase in the price of one causes

(a) no change in the other product’s demand curve.

(b) an ambiguous change in the other good’s demand curve.

(d) a decrease in demand for the other good.

(e) a shift to the right in the other good’s demand curve.

Ans. b

18. Which of the following increases the elasticity of demand?

(a) the absence of substitutes for the good.

(b) when only a small portion of the consumers’ budgets are spent on the good.

(d) all of the above.

(e) none of the above.

Ans. a

19. In the Kinked Demand Curve Model, suppose MC curve shifts upward in the discontinuous range of MR curve.

Which one of the following is correct? At equilibrium,

(a) price rises but quantity remains the same

(b) price and quantity both remain the same

(d) price and quantity both rise

Ans. (b)

20. Historically, governments have taxed goods and services that:

(a) have elastic demand curves

(b) have elastic supply curves

(d) have inelastic demand curves

(e) none of the above

Ans. c

21. Consider the following statements:

A. The shape of a unitary elastic demand curve is a rectangular hyperbola.

B. The shape of a perfectly elastic demand curve is a rectangular hyperbola.

C. Perfectly inelastic demand curve is parallel to the price axis.

D. Perfectly elastic demand curve is parallel to the quantity axis.

Which of the statements given above are correct?

(a) A and B

(b) A, C and D

(d) B and D

Ans (b)

22. Which one of the following statements is correct?

A straight line demand curve (cutting both the axis) is elastic

(a) throughout the length of the demand curve

(b) at the mid-point

(d) above the mid-point towards the price axis

Ans. (d)

23. Under perfect competition, supply curve is identified as which one of the following?

(a) Rising portion of marginal cost curve

(b) Rising portion of average total cost curve

(d) Portion of marginal cost above the average variable cost curve

Ans. (d)

24. Which one of the following is the correct sequence of magnitude of minima in ascending order in marginal cost (MC) curve, average cost (AC) curve and average variable cost (AVC) curve?

(a) MC, AVC, AC

(b) AVC, AC, MC

(d) AC, MC, AVC

Ans. (a)

25. Consider the following statements:

A. The vertical distance from average cost (AC) curve to average variable cost (%&VC) curve is average fixed cost (AEC).

B. AVC curve, AC curve and marginal cost (MC) curve are ‘U shaped.

C. AFC curve is horizontal to ‘X’ axis.

Which of the statements given above are correct?

(a) 1 and 2

(b) 2 and 3

(d) 1, 2 and 3

Ans. (a)

26. Short-run marginal cost of a firm does not contain any element of which of the following?

(a) Costs of raw materials

(b) Salaries of the managerial staff

(d) Cost of fuel for operating machines engaged in production.

Ans. (c)

27. Suppose a fisherman has a fishing net and a boat. He alone hunts fish in sea for which he has to pay no license fee etc. Fish, caught by him, will have which one of the following?

(a) Zero economic cost of production as he makes no out-of-pocket payment to anybody and is working of his own

(b) Negative economic cost of production because he enjoys fishing and has to make no payment

(c) Positive cost of production due to his sacrificing the opportunity of working elsewhere and renting out fishing net and boat etc

(d) Infinite cost of production

Ans. (a)

28. Income consumption line of the ‘Consumer Theory’ is analogous in ‘Production Theory’ to which one of the following?

(a) Expansion path

(b) Isoquant line

(d) Isocost line

Ans. (a)

29. Which of the following is not correct in respect of Cobb-Douglas production function?

(a) It was originally based on the empirical study of US manufacturing industry.

(b) It is a linearly homogeneous production function, taking into account two factors, labour and capital, for the entire output of the manufacturing industry.

(c) It tells us that output depends upon labour and capital, and that part of output which cannot be explained by labour and capital, is attributed to the residual.

(d) It is based on the assumption of operation of law of diminishing returns.

Ans. (d)

30. Which one of the following statements is correct?

In a production process with two factors, land and labour, if the marginal productivity of land is negative, then it is in

(a) the stage I for land and stage II for labour

(b) the stage II for land and labour

(d) the stage I for labour and stage III for land

Ans. (b)

31. Match List- I (Concept) with List -II (Economist) and select the correct answer using the codes given below the lists:

List I List II

(Concept) (Economist)

A. Liquidity trap 1. M. Friedman

B. Demonstration effect 2. A.C. Pigou

C. Permanent income hypothesis 3. J. Duesenberry

D. Wealth effect 4. J.M. Keynes

Code:

A B C D

(a) 4 3 1 2

(b) 1 2 4 3

(d) 1 3 4 2

Ans. (a)

32. Which one of the following statements is correct? J.M. Keynes assumed that supply of money as a function of rate of interest is

(a) perfect elastic

(b) highly elastic

(d) perfectly inelastic

Ans. (a)

33.

In the graph given above, what does the point B indicate?

(a) Excess supply in the goods market and excess demand in the money market

(b) Excess demand in the goods market and excess supply in the money market

(d) Excess demand in both goods and money market

Ans. (b)

34. Which one of the following is the most important determinant of speculative demand for money?

(a) Income

(b) Interest rate

(d) Prices

Ans. (b)

35. Match List-I with List-II and select the correct answer by using the code given below the lists:

List-I List -II

(Model) (Proposition)

A. Marxist model of economic development 1.Give importance tonon-economic variables

B. Harrod-Domar growth model 2. Flexible capital-output ratio is assumed

C. Solow’s growth model 3. Productive capacity is equal toaggregate demand

D. Kaldor’s growth model 4. Structural Mal –adjustment in a

growing economy

Code:

A B C D

(a) 4 2 3 1

(b) 1 3 2 4

(d) 1 2 3 4

Ans. (c)

36. In which of the following y was the highest growth of general index of industrial production in India registered?

(a) 2001-02

(b) 2002-03

(d) 2004-05

Ans. (d)

37. Assertion (A): An oligopolist faces demand curve which has a kink at the level of the prevailing price.

Reason (R): The segment of the demand curve above the prevailing price level or kink is highly inelastic and the segment of the demand curve below the prevailing price level is elastic.

Codes:

(a) Both A and R are individually true and. R is the correct explanation of A

(b) Both A and It are individually true but R is not the correct explanation of A

(d) A is false but R is true

Ans. (c)

38. In the figure shown below, MN and QR are two straight line demand curves parallel to each other.

Consider the following statements

1. The slope and elasticity of demand is same on the demand curves MN and QR, at the price P0

2. The slopes are same but elasticity of demand is more on demand curve MN than demand curve QR, at price

3. Elasticities of demand are same but slope of demand curve MN is less than that of QR at the price P

Which of the statements given above is/are correct?

(a) 1 only

(b) 2 only

(d) 2 and 3

Ans. (b)

39. Which one of the following statements is correct?

(a) Demand for factors of production is an independent demand

(b) Demand for factors of production is a derived demand

(d) Demand for factors of production is same as the demand for commodities

Ans. (b)

40. Which one of the following statements is correct? An increase in money supply in Keynesian framework results in

(a) a higher level of income and a higher rate of interest

(b) a lower level of income and a lower rate of interest

(d) a lower level of income and a higher rate of interest

Ans. (c)

41. Which one of the following statements is correct?

A fall in the money supply results in the

(a) rightward shift in the IS curve

(b) rightward shift in the LM curve

(d) leftward shift in the LM curve only

Ans. (d)

42. Which one of the following statement is correct?

According to Say’s law of market.

(a) demand creates its own supply

(b) supply creates its own demand

(d) demand and supply are never equal

Ans. (b)

43. Consider the following statements

1. The equilibrium between the aggregate demand and aggregate supply may take place at a point of less-than-full employment in an economy.

2. The .size of deficient demand is inversely proportional to the deflationary gap.

Which of the statements given above is/are correct?

(a) 1 only

(b) 2only

(d) Neither 1 nor 2

Ans. (a)

44. With whom, among the following, is the theory that the rate of interest is also a factor for transaction demand for money, associated?

(a) Baumol and Tobin

(b) Pigou

(d) Samuelson

Ans. c

45. Effective demand is that level of demand at which:

(a) aggregate demand is fore than aggregate supply

(b) aggregate demand is less than aggregate supply

(d) output is maximum

Ans. b

46. Consider the following statements:

I. Pigou held the view that employment depends upon money wages and could be substantially increased by curtailing wages.

2. Keynes held the view that employment depends upon the level of effective demand which can be increased by leaving money intact. - -

Which of the statements given above is correct?

(a)1 only

(b) 2 only

(c)Both 1 and 2

(d) Neither 1 and 2

Ans. c

47. Consider the following statements:

I. Bond price and interest rate vary indirectly.

2. A tax on personal income reduces disposable income.

3. According to Say’s Law, demand creates its own supply.

Which of the statements given above are correct?

(a)1 and 2

(b)2 and 3

(d) 1,2 and 3

Ans. a

48 The term ‘Animal Spirit’ was used by Keynes for?
(A) Consumption
(B) Investment
(C) Income
(D) Interest

Ans. a

49.The concept of ‘costing margin’ in the pricing theory was introduced by?
(A)Andrews
(B) Baumol
(C)Cournot
(D) Williamson

Ans. b

50.The Keynesian theory of employment provides the solution of?
(A) Frictional unemployment
(B) Disguised unemployment
(C) Cyclical unemployment
(D) Seasonal unemployment

Ans c

51. Under monopolistic competition the cross elasticity of demand for the product of a firm will be?
(A) Perfectly elastic
(B) Perfectly inelastic
(C) Highly elastic
(D) Highly inelastic

Ans. c

52. The following theory is treated as ‘the third root of the logical theory of demand’?
(A) Diminishing marginal utility theory
(B) Equi-marginal utility theory
(C) Revealed preference theory
(D) Theory of consumer’s surplus

Ans. c

53. The price of a commodity will increase if the increase in demand is?
(A) More than increase in supply
(B) Less than increase in supply
(C) Equal to the increase in supply
(D) Not related to the increase in supply,

Ans. a

54. In the theory of kinked demand curve, the lower segment of the demand curve is?
(A) Perfectly inelastic
(B) Perfectly elastic
(C) Highly elastic
(D) Less elastic

Ans. d

55. Which of the following demand curves is not a constant elasticity curve?
(A) Vertical
(B) Horizontal
(C) Linear
(D)Rectangular hyperbola

Ans. c

56. For a unitary elastic demand curve, when price increases ,the amount spent by a consumer on a /good?
(A) Decreases
(B) Increases
(C) Remains unchanged
(D) Becomes zero

Ans. c

58. The term rainy day’ used by Keynes is related with?
(A) Effective demand
(B) Precautionary demand
(C) Investment multiplier
(D) Inflationary gap

Ans. b

59. A producer’s surplus is equal to?
(A) AR—MC
(B) AR—AC
(C) AR-MR
(D) TR—TC

Ans. b

60. The cross elasticity of demand for substitute commodities is always?
(A)Positive
(B) Negative
(C)Zero
(D) Infinite

Ans. a

61. Under the first degree of price discrimination in discriminating monopoly, the consumer’s surplus will be?
(A)Zero
(B) Maximum
(C) Minimum
(D) Indeterminate

Ans. a

62.A rational consumer moves to a higher indifference curve due to?
(A) Monotonic preference
(B) Polytonic preference
(C) Convex preference
(D) Concave preference

Ans. c

Result Oriented SSC & Bank Exam Preparation Tips

Thursday, April 11, 2013

UGC ECONOMICS PAPER III MCQS - UNIT 1

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