On account of the disruption in education due to the corona pandemic, we're opening up our platform for teachers, free of cost. Know More →

UPSC > MicroMacro Economics

Explore popular questions from MicroMacro Economics for UPSC. This collection covers MicroMacro Economics previous year UPSC questions hand picked by experienced teachers.

Q 1.

Correct2

Incorrect-0.67

What is meant by price discrimination?

A

Increase in price of a commodity over time

A situation where the same product is sold to different consumers for different prices

C

Subsidization of a product by the Government to sell it at a lower price

D

General decrease in price of a commodity over time

Explanation

When different consumers pay different prices for the same product, this situation is known as price discrimination.

Q 2.

Correct2

Incorrect-0.67

What is meant by ‘Public Good'?

A

A commodity produced by the Government

A commodity whose benefits are indivisibly spread among the entire community

C

A Government scheme that benefits the poor households

D

Any commodity that is very popular among general public

Explanation

Public good means a commodity or service which is given without profit to everyone in society by government or any organization.

Q 3.

Correct2

Incorrect-0.67

In view of the fact that kerosene is an inferior good in India, what is/are its implication(s)?
1. As households get richer, they consume less kerosene.
2. Over time there is a decline in quality of kerosene.
3. Government needs to stop subsidies on kerosene.
Select the correct answer using the code given below.

1 only

B

1 and 2 only

C

2 and 3 only

D

1, 2 and 3

Explanation

Generally, Kerosene is used as fuel by the poor, as they get prosperity, they use little of this fuel.

Q 4.

Correct2

Incorrect-0.67

Brent index is associated with

crude oil prices

B

copper future prices

C

gold future prices

D

shipping rate index

Explanation

Brent Crude is a major trading classification of sweet light crude oil that serves as a major benchmark price for purchases of oil worldwide. Brent Crude is extracted from the North Sea and comprises Brent Blend, Forties Blend, Oseberg and Ekofisk crudes. The Brent Crude oil marker is also known as Brent Blend, London Brent, and Brent petroleum. The index represents the average price of trading in the 25 days Brent Blend, Forties, Oseberg, Ekofisk (BFOE) market in the relevant delivery month as reported and confirmed by the industry media.

Q 5.

Correct2

Incorrect-0.67

Which one among the following is a fixed cost to a manufacturing firm in the short run?

Insurance on buildings

B

Overtime payment to worker

C

Cost of energy

D

Cost of raw materials

Explanation

In the short run insurance premium are fixed costs because they are independent of the level of production. IK The income elasticity of demand for inferior goods is

Q 6.

Correct2

Incorrect-0.67

The income elasticity of demand for inferior goods is

A

less than one

less than zero

C

equal to one

D

greater than one

Explanation

Inferior goods have a negative (less than 0) income elasticity of demand meaning that demand falls as income rises.

Q 7.

Correct2

Incorrect-0.67

The average fixed cost curve will always be

a rectangular hyperbola

B

a downward sloping convex to the origin curve

C

a downward sloping straight line

D

a U-shaped curve

Explanation

Total fixed costs are constant, so the average fixed cost curve diminishes with the output. Thus, the average fixed cost curve is a rectangular hyperbola.

Q 8.

Correct2

Incorrect-0.67

If the average total cost is declining then

the marginal cost must be less than the average total cost

B

total cost must be constant

C

the average fixed cost curve must be above the average variable cost curve

D

the marginal cost must be greater than the average total cost

Explanation

When marginal cost is less than average cost, the average cost must be falling. When marginal cost exceeds average cost must be rising. The marginal cost and average cost curves are related to each other.

Q 9.

Correct2

Incorrect-0.67

Which of the following statements is/are true?
1. If increase in demand and supply are of equal magnitude, the price will remain unchanged, but the equilibrium quantity will increase.
2. If increase in demand is of greater magnitude than increase in supply, both equilibrium price and equilibrium quantity will increase.
3. If increase in supply is of greater magnitude than increase in demand, equilibrium price will fall but equilibrium quantity will increase.
Select the correct answer using the code given below :

A

only 1

B

1 and 2 only

C

2 and 3 only

1, 2 and 3

Q 10.

Correct2

Incorrect-0.67

Surge pricing lakes place when a service provider

raises the price of its product or service as demand outstrips supply

B

follows preset prices immune to demand and supply dynamics

C

fixes a minimum price for its services

D

fixes an average price on the basis of transactions carried over a day

Explanation

Surge pricing occurs when a company raises the price of its product or service if there is an increase in demand and lowers prices when demand is weak. This article looks at two case studies with a view to show what business models a surge pricing strategy is best adopted in

Q 11.

Correct2

Incorrect-0.67

Which one of the following is not an assumption in the law of demand?

A

There are no changes in the taste and preferences of consumers.

B

Income of consumers remains constant.

Consumers are affected by demonstration effect.

D

There are no changes in the price of substitute goods.

Explanation

The law of demand is applicable with the following assumptions.
(1) No change in price of related commodities.
(2) No change in income of the consumer.
(3) No change in taste and preferences, customs, habit and fashion of the consumer.
(4) No change in the size of the population.
(5) No expectation regarding a future change in price.

Q 12.

Correct2

Incorrect-0.67

Which one of the following statements is not correct.

A

When total utility is maximum, marginal utility is zero.

B

When total utility is decreasing marginal utility is negative

C

When total utility is increasing, marginal utility is positive.

When total utility is maximum, marginal and average utlity are equal to each other.

Explanation

When total utility is maximum, marginal utility is zero and it is not equal to average utility.

Q 13.

Correct2

Incorrect-0.67

When some goods or productive factors are completely fixed in amount, regardless of price, the supply curve is

horizontal

B

downward sloping to the right

C

vertical

D

upward sloping to the right

Explanation

Some goods or productive factors are completely fixed in amount, regardless of price. There is only one Mona Lisa by da Vinci. Nature’s original endowment of land can be taken as fixed in amount. In this case, the supply curve is always horizontal.

Q 14.

Correct2

Incorrect-0.67

Who among the following has suggested migration to accrual accounting system from cash-based accounting system in India?

A

I.V. Reddy

B

D.N. Ghosh

C

R.H. Patil

C. Rangarajan

Q 15.

Correct2

Incorrect-0.67

Consider the following actions by the Government:
1. Cutting the tax rates.
2. Increasing the government spending.
3. Abolishing the subsidies.
In the context of economic recession, which of the above actions can be considered a part of the ‘fiscal stimulus' package?

1 and 2 only

B

2 only

C

1 and 3 only

D

1, 2 and 3

Explanation

Fiscal stimulus - Government measures, normally involving increased public spending and lower taxation are aimed at giving a positive jolt to economic activity.

Q 16.

Correct2

Incorrect-0.67

Which one of the following terms is used in Economics to denote a technique for avoiding a risk by making a counteracting transaction?

A

Dumping

Hedging

C

Discounting

D

Deflating

Explanation

Hedging is used in limiting or offsetting the probability of loss from fluctuations in the prices of commodities, currencies or securities.

Q 17.

Correct2

Incorrect-0.67

Which of the following is measured by the Lorenz curve?

A

Population growth rate

B

Inequality of Income

Explanation

Inequality of Income is measured by the Lorenz curve. In economics, the Lorenz curve is a graphical representation of the distribution of income or of wealth. It was developed by Max O. Lorenz in 1905 for representing inequality of the wealth distribution.

Q 18.

Correct2

Incorrect-0.67

{tex}\mathrm{Statement \ I}{/tex} : There has been a sharp decline in savings rate in Indian economy between 2007-2008 to 2015-2016.
{tex}\mathrm{Statement \ II}{/tex}: There has been a fall in household and public savings.

Both the statements are individually true and Statement II is the correct explanation of Statement I

B

Both the statements are individually true but Statement II is not the correct explanation of Statement I

C

Statement I is true but statement II is false

D

Statement I is false but Statement II is true

Explanation

There has been a sharp decline in the savings rate in the Indian economy between 2007-2008 to 2015-2016. The household savings rate could remain stagnant or even decline as financial liabilities increase with greater retail credit penetration.

Q 19.

Correct2

Incorrect-0.67

Inflation is caused by

A

Increase in supply of goods

B

Increase in cash with the government

C

Decrease in money supply

Increase in money supply

Explanation

Inflation is increased in the prices of commodities. It is caused due to decrease in supply and increase in demand of commodities. So when money supply in the economy increases it means people have more purchasing capacity and thus demand increases which results in inflation.
Some factors affecting inflationary pressure.
(i) Rising Property prices {tex}\rightarrow{/tex} Increased consumer wealth {tex}\rightarrow{/tex} Demand-pull inflation risk
(ii) Increasing World oil price {tex}\rightarrow{/tex}High cost for Business{tex}\rightarrow{/tex} Cost pull inflation risk
(iii) Depreciatry exchange rate {tex}\rightarrow{/tex} increased import price+rising export {tex}\rightarrow{/tex} Cost-push and Demand pull inflation risk

Q 20.

Correct2

Incorrect-0.67

The process of curing inflation by reducing money supply is called

A

Cost-push inflation

B

Down-pull inflation/Demand pull inflation

Disinflation

D

Reflation

Explanation

The process of curing inflation by reducing money supply is called disinflation. Disinflation is a decrease in the rate of inflation - a slowdown in the rate of increase of the price level of goods and services in GDP. Cost pull inflation - It is caused by an increase in prices of inputs like Labour, raw material, etc. The increased price of the factors of production leads to a decreased supply of Goods. Demand-pull inflation - It is asserted to rise when Aggregate demand in an economy outpaces aggregate supply. It involves inflation rising as real GDP rises and unemployment falls.

Q 21.

Correct2

Incorrect-0.67

The term stagflation refers to a situation where

A

growth has no relation with the change in price

B

rate of growth and prices both are decreasing

C

rate of growth is faster than the rate of price increase

rate of growth is slower than the rate of price increase

Explanation

Stagflation occurs when the economy isn’t growing but prices are increasing, which is not a good situation for a country' to be in. Stagflation - Persistant high inflation combined with high unemployment and stagnant demand in a country’s economy.

Q 22.

Correct2

Incorrect-0.67

During period of inflation, rates should

Increase

B

Decrease

C

Remain constant

D

Fluctuate

Explanation

During inflation interest rates should increase so that the investor invests more in lieu of higher interest-earning thus money supply reduce which can reduce inflation. Similarly higher interest rates means credit becomes costly so that again supply of money reduces which helps in curbing inflation.

Q 23.

Correct2

Incorrect-0.67

In the paralance of economy/commerce, what is the ‘Gilt-edged market'?

A

Gold and Silver market

B

Industrial securities market

Market of safe securities

D

Market of software technology products

Explanation

In the parlance of economy. Gilt-edged market is called market of safe securities. “Gilt-edged” denotes high-grade securities, consequently carrying low yields.

Q 24.

Correct2

Incorrect-0.67

Inflation in India is measured on which of the following indexes/indicators?

A

Cost of Living Index (CLI)

B

Consumer Price Index (CPI)

C

Gross Domestic Product (GDP)

Wholesale Price Index (WPI)

Explanation

Inflation in India is measured on the Wholesale Price Index (WPI). The wholesale price index (WPI) is based on the wholesale price of a few relevant commodities of over commodities available.
{tex}\mathrm{Cost \ of \ Living \ Index}{/tex} - It is a theoretical price index that measures relative cost of living over time or regions.
{tex}\mathrm{Consumer \ Price \ Index}{/tex} - It is a measure that examines the weightest average of prices of a basket of consumer goods & services such as transportation food and medical care.

Q 25.

Correct2

Incorrect-0.67

Which one among the following pairs is not correctly matched?

A

When total product increases at an increasing rate: Marginal product increases

B

When total product increases at a diminishing rate: Marginal product declines

C

When total product reaches its maximum: Marginal product becomes zero

When total product begins to decline: Marginal product becomes positive