Principle of Economics
1 .What is price discrimination? Under what necessary conditions can price discrimination be practiced?
2 .Explain the concept of consumer’s surplus. How is it related to utility?
3 .Distinguish between factors causing movement and shift in the supply curve.
Case Study
An Oil Crisis Provoked Policy Dilemma
The sudden increase in the price of crude oil by the OPEC countries has put India in a fix. To top it, the Finance Ministry which had increased the market price of LPG and SKO (kerosene) had to partially roll it back, the former by Rs 10 and the latter by Re 1 under political pressure. This means the burden on the Union Budget has increased on both grounds, one because of an increase in the oil price internationally and second, because of the subsidy on petroleum products. All of these will result in an additional burden of Rs 560 crore, a burden which is unbearable, given the present situation of the Central Government's deficit. The fiscal deficit stands at a figure of 5.6 per cent as against the target of 4.5 per cent. The situation by all standards is alarming. Some suggested that a temporary cut should be made in the import of crude oil, but this is a straight invitation to a supply shock inflation, such that not only the prices in the economy go up, but there is a shortfall in the supply of various products including LPG, SKO, HSD (diesel), etc., a situation totally avoidable by all means. A more plausible argument was put forward by some other people in the Finance Ministry, that of restructuring so that more emphasis is laid automatic stabilizers, various direct taxes like income tax, corporate tax, etc. The argument that was put forward was, the industry was out of recession and corporate income seemed to be on a pick. The export sector was also booming with a growth rate of 15 per cent. All these have a positive impact on the GDP growth rate (though the agricultural sector seemed to be pulling along without much growth in the services sector). The GDP at market price seemed to grow at an impressive rate of 7 per cent (whereas the GDP at factor cost was growing only at 6.25 per cent). All these make the industrial as well as the external sector, a good source of taxation; Ministry officials further said, in the face of a surging fiscal deficit, mainly due to interest repayment, the burden of government-increased taxation seems inevitable, and one is lucky that at least two sectors are doing well.
However, the officials seem to have missed one point: a direct tax like income or corporate tax, which moves proportionally with the rising income has a dampening effect on not only the overall industrial and corporate atmosphere, but the total effect is a multiple of the initial tax burden as it affects the investment multiplier value negatively. Taxing the export sector also creates a negative multiplier effect. People from the ministry seem to face a real dilemma. An increase in such proportional direct taxes make them instantaneously richer by Rs 9,000 to12,000 crore, but there is a risk of putting the country back on yet another industrial slowdown. However, allowing further deficit in the budget is also by no means desirable.
1. Discuss the kind of inflation the country might face if there is a shortage of crude oil in the economy.
2. How does a direct proportional tax have a negative multiplier effect on the economy's level of income?
Question No. 1 Marks - 10
________________________________________
The rate at which one input can be reduced per additional unit of the other input while holding output constant is measured by the:
Options
a) Marginal rate of substitution.
b) Marginal rate of technical substitution.
c) Average product of the input.
d) None of the given options.
Question No. 2 Marks - 10
________________________________________
All of the following are determinants of supply except:
Options
a) Price
b) Income levels
c) Objectives of the firm
d) Level of technology
Question No. 3 Marks - 10
________________________________________
Demand function is given as Dx=f(Px, Pr,Y,T) What does T stand for:
Options
a) Taxes
b) Tastes
c) Both Taxes and Tastes
d) None
Question No. 4 Marks - 10
________________________________________
What kind of relationship exist between demand for a good and price of its substitute goods?
Options
a) Direct
b) Inverse
c) No effect
d) Can be direct or inverse
Question No. 5 Marks - 10
________________________________________
What kind of relationship exist between demand for a good and price of its complementary
goods?
a) Options
b) Direct
c) Inverse
d) No effect
e) Can be direct or inverse
Question No. 6 Marks - 10
________________________________________
Degree of responsiveness of demand to a change in any of its determinants is called
Options
a) Elasticity of demand
b) Law of demand
c) Law of supply
d) Elasticity of supply
Question No. 7 Marks - 10
________________________________________
………. tells us about the , ‘direction’ of change in demand in response to a change in any of its determinants; it , however does not tells us anything about the ‘ magnitude’ of change
Options
a) Law of demand
b) Demand function
c) Both
d) None
Question No. 8 Marks - 10
________________________________________
The value of elasticity coefficient varies between zero and ………
Options
a) Infinity
b) One
c) Both
d) None
Question No. 9 Marks - 10
________________________________________
Elasticity of supply is defined as the ……of percentage change in quantity supplied and the percentage change in the price of the commodity
Options
a) Ratio
b) Addition
c) Multiplication
d) None of the above
Question No. 10 Marks - 10
________________________________________
Perishable goods cannot store and thus, entire stock of such goods must be disposed of within very short period, whatever may be price. Hence the nature of supply of such goods is –
Options
a) Elastic
b) inelastic
c) unitary elastic
d) none
Question No. 11 Marks - 10
________________________________________
In Marginal utility theory, utility is an:
Options
a) Ordinal concept
b) Cardinal concept
c) Both ordinal and cardinal concept
d) None of the above
Question No. 12 Marks - 10
________________________________________
MU of the commodity becomes negative when TU of the commodity is:
Options
a) Rising
b) Constant
c) Falling
d) zero
Question No. 13 Marks - 10
________________________________________
Falling MU shows which law?
Options
a) Law of diminishing returns
b) Law of diminishing marginal rate of substitution
c) Law of diminishing marginal utility
d) None of the above
Question No. 14 Marks - 10
________________________________________
Slope of TU curve is called
Options
a) Reginal utility
b) Utility
c) Average utility
d) None
Question No. 15 Marks - 10
________________________________________
Indifference mean:
Options
a) X is preferred to Y
b) Y is preferred to X
c) X and Y are equally preferred
d) None
Question No. 16 Marks - 10
________________________________________
Higher Indifference curve means:
Options
a) Consumer has more income
b) Price of goods have reduced
c) Higher utility level
d) All of the above
Question No. 17 Marks - 10
________________________________________
MRS is given by :
Options
a) ΔX/ ΔY
b) ΔX- ΔY
c) ΔY/ ΔX
d) ΔY- ΔX
Question No. 18 Marks - 10
________________________________________
When tax is raised, consumer surplus:
Options
a) Falls
b) Rises
c) Remain unchanged
d) Becomes Zero
Question No. 19 Marks - 10
________________________________________
Consumer surplus is the difference between:
Options
a) Amount consumer is willing to pay minus amount actually paid by the consumer
b) Amount consumer actually paid minus the amount consumer is willing 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.
Question No. 20 Marks - 10
________________________________________
The common assumption of marginal utility and indifference curve theories is:
Options
a) Consistency
b) Transitivity
c) Rationality
d) More is better
Question No. 21 Marks - 10
________________________________________
Factors of production can be :
Options
a) Land
b) Labour
c) Organisation
d) All of the above
Question No. 22 Marks - 10
________________________________________
Production function means:
Options
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
Question No. 23 Marks - 10
________________________________________
Short –run production function means
Options
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
Question No. 24 Marks - 10
________________________________________
Law of variable proportion holds when
Options
a) State of technology is same
b) All units of variable factor are homogeneous
c) There is at least one fixed factor
d) All of the above
Question No. 25 Marks - 10
________________________________________
Returns to scale occur :
Options
a) In the long –run
b) When all inputs are increased
c) When the increase in inputs is in the same proportion
d) All of the above
Question No. 26 Marks - 10
________________________________________
Cost of next best alternatives opportunity given up is called
Options
a) Outlay cost
b) Opportunity cost
c) Explicit Cost
d) Implicit Cost
Question No. 27 Marks - 10
________________________________________
Fixed cost is also called:
Options
a) Sunk cost
b) Supplementary cost
c) Overhead Cost
d) All of the above
Question No. 28 Marks - 10
________________________________________
MC curve is ……… shaped.
Options
a) L-shaped
b) Straight line
c) U –shaped
d) Inverse S-shaped
Question No. 29 Marks - 10
________________________________________
Long-run AC curve is also called:
Options
a) Planning curve
b) Envelop curve
c) Cost frontier
d) All of the above
Question No. 30 Marks - 10
________________________________________
Total cost at zero level of output will be= ………….?
Options
a) TFC
b) TVC
c) AC
d) AFC
Question No. 31 Marks - 10
________________________________________
Homogenous product exists under:
Options
a) Perfect Competition
b) Monopoly
c) Monopolistic Competition
d) All of the above
Question No. 32 Marks - 10
________________________________________
One seller exists under:
Options
a) Perfect Competition
b) Monopoly
c) Monopolistic Competition
d) All of the above
Question No. 33 Marks - 10
________________________________________
Monopolistic competition means:
Options
a) Large number of sellers
b) Product differentiation
c) Free entry and exit of firms
d) all of the above
Question No. 34 Marks - 10
________________________________________
Homogenous product means product are:
Options
a) Perfect substitutes
b) Identical
c) Cross elasticity between products is infinity
d) All of the above
Question No. 35 Marks - 10
________________________________________
Discriminating monopoly means:
Options
a) Different prices are charged
b) Consumers might be same or different
c) Commodity is same
d) All of the above
Question No. 36 Marks - 10
________________________________________
What brings about pure competition?
Options
a) Large number of buyers and sellers
b) Homogenous product
c) Free entry and exit of firms
d) All of the above
Question No. 37 Marks - 10
________________________________________
Who coined the term monopolistic competition?
Options
a) Chamberlin
b) Joan Robinson
c) Robbins
d) Marshall
Question No. 38 Marks - 10
________________________________________
What is the basic principle of all market conditions?
Options
a) A firm should produce only if TR>TC
b) To maximise profit, firm must produce where MR=MC
c) Slope of MC should be more than slope of MR
d) All of the above
Question No. 39 Marks - 10
________________________________________
In economics , …………………measures the payments that flow between any individual country and all other countries
Options
a) Exchange Rate
b) BOP
c) Both of the above
d) None
Question No. 40 Marks - 10
________________________________________
A term commonly used to refer to a central banks operations which mitigates the two potentially undesirable effects of inbound capital (currency appreciation and inflation) is-
Options
a) Sterilisation
b) Open market operations
c) Exchange Rate
d) none
Solve by www.solvezone.in contact for more detail - 8882309876