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This section includes InterviewSolutions, each offering curated multiple-choice questions to sharpen your knowledge and support exam preparation. Choose a topic below to get started.
| 6101. |
Define short run costs |
| Answer» SOLUTION :It is the cost SPENT on FIXED FACTORS and variable factors. | |
| 6102. |
Explain how do the following influece demand for a good : (i) Rise in income of the consumer , (ii) Fall in prices of the related goods. |
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Answer» Solution :(i) In case the good is a normal good, a rise in INCOME of the consumer leads to an INCREASE in demand for the good. If the good is an INFERIOR good, a rise in income of the consumer leads to a decrease in demand of the commodity. (ii) If the TWO goods are substitues, then a fall in price of ONE good leads to fall in demand of the other good. On the other hand, if the two goods are complementary goods, a fall in price of one good leads to an increase in demand of the other good. |
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| 6103. |
What do you mean by substitudes ? Give examples of two goods which are substitutes of each other. |
| Answer» Solution :SUBSTITUTES REFER to those goods which can be used in place of one ANOTHER for satisfaction of a particular want. For example : Tea and Coffee , COKE and Pepsi. | |
| 6104. |
Explain implications of Perfect competition. |
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Answer» Solution :1. Large number of sellers and buyers. Note that 'large numbe' is not a specially difined number. However, it has a specific implication. Let us talk about the large numberof sellers first. The words 'largenumber' imply that the numbr of sellers is large enough to render a single seller's share in total market supply of the product insignificant. It has a further implication. Insignificant share means that is only one individual firm reduces or raises its own supply, the prevailing market price remains unaffected. The prevaliing market price is the one which was set through the interaction of market DEMAND and market supply FORCES, for which all the sellers and all the buyers together are responsible. One single seller has no option but to see what it produces at this market determined price. This position of an individual firm in the total market is referred to as price taker. This is a unique feature of a perfectly competitive market. Similarly, the large' number' of buyer also has the sme implication. A single buyer's share in total market demand is so indinigicant that the buyer cannot influence the market price on his own by changing his demand. his demand. This makes a single buyer also price takes. To sum up, the feature 'large number' indicates ineffectiveness of a single seller or a single buyer in influencing the prevailing market price on its own, rendering him simply a price taker. 2. The products of all the firms in hte industry are homogeneous. It means that the buyers treat the products of all the frims in the industry as homogenous. The buyers prodiced by the firms are identical, or treated as identical, or perfectly standardized. The buyers do no distinguish the putput of one firm from that of the other. The impication of this feature is that since the buyers treat the products as identicle they are not ready to pay a different price for the product of any one firm. They will pay the same price for the products of all the firms in the industry. On the other hand, any attempt by a firm to sell its product at a higher price will fail. To sum up, the 'homogenous products' featur ensuresh a uniform price for the products of all the fiems in the industry. 3. Perfect knowledge about markets for outputs and input . The firms have all teh knowledge about the product market and the input markets. Buyers also have perfect knowledge about the product market. Let us take product market first. The implication of perfect knowledge about the product market is that any attempt by any firm to charge a price higher than the prevailing uniform price will fail. The buyers will not pay because they have perfect knowledge. The is no ignorance factor operating in the market. As regardds the knowledge about the input markets, the implicit assumption is that each firm has an equal access to the technology and the imputs used in the technology. No firm has any cost advantage. Cost structure of each firm is the same. All the firms have a uniform cost structure. Since there is uniform price and uniform cost in all firms, and since profits equals cost less price, all the firms earn uniform profits. 4. Freedom to firms to enter or to leave the industry in the long run. Freedom of entry means that there are no artificital barriers and anatural barries the way of a new firm wishing to enter into industry. The artificial barriers may take the form of patent rights, legal restrictions etc. The natural barrier may take the form of huge capital expenditure required to start a new firm, which the firm wishing to enter is not able to arrange. Freedom of exit means no barriers in the way of a firm deciding to leave the industry. Government rules,labour laws, loss of huge fixed capital etc. do not come in the way. The freedom of entry and exit of firms has an important. This ensures that no firm can earn above NORMAL profits in the long run. Each firm earns just the normal profits, i.e., minimum necessary to carry on business. In Microeconomics, normal profits is treated an opportunity cost, and THEREFORE, counted in calculation of total cost. Since profit equals total REVENUE minus total cost, normal profit means zero economic profit. Why? Let us explain. Now suppose the existing firms are incurring losses. The fiems start leaving. The indusltry's output starts falling, price starts going up, and all this continues till losses are wiped out. The remaining firms in the industry then once again earn just the normal profits. Only zwro economic profit in the long run is the basic outcome of a perfectly competitive market. |
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| 6105. |
What is the general profit maximising condition for a producer (MR and MCapproach) ? |
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Answer» SOLUTION :(i) MC = MR and (II) MC CURVE cuts the MR curve from below (i.e., MC is rising after equilibrium). |
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| 6106. |
What is the formula to find out arithmetic mean through Short-cut Method in individual series? |
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Answer» `BARX=(sumX)/N` |
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| 6107. |
Explain the meaning and need for ''Price Floor'' with the help of diagram. Explain Buffer Stock as a tool of price floor. |
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| 6108. |
Explain the meaning and need for 'Maximum Price Ceiling'. |
| Answer» Solution :When government imposes an upper limit on the PRICE of a GOOD, it is CALLED Price CEILING. It is generally imposed on essential items and is fixed below the market determined price. The reason being the equilibrium price is too high for the common people to AFFORD. | |
| 6109. |
In which market from are the prodicts homogeneous ? |
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| 6110. |
In a monopoly market there are: |
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Answer» No subsititutes |
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| 6111. |
In case of __________ distribution , frequency curve will be bell - shaped. |
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| 6112. |
Comment on the shape of the MR curve in case the TR curve is a (i) positively sloped straight line, (ii) horizontal straight line. |
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Answer» Solution :(i) MR curve will be a horizontal straight line parallel to X-axis because positively sloped straight line TR curve indicates that revenue from every additional UNIT sold (i.e. MR) remains same for every level of output. (ii) When TR curve is a horizontal striaght line, MR will be ZERO. It happens because horizontal TR indicates that TR remains same at levels of output. It is possible only when revenue from additional unit sold (i.e. MR) is zero. MR curve COINCIDES with X-axis. |
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| 6113. |
____ is a graphical presentation of a frequency distribution of a continuous series .(Histogram / Polygon) |
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| 6114. |
Identify the correct MR curve from the following options when price remains same with ris in output : |
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Answer»
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| 6115. |
Name the consumer groups for which consumer price index number is computed. |
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Answer» Solution :The consumer groups for which consumer PRICE INDEX, in india, is computed are: (i) IndustrialWorkers (IW), (II) Urban-Non Manual EMPLOYEES (UNME), and (iii) AgriculturalLabourers (AL). |
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| 6116. |
When is a firm called price take? |
| Answer» Solution :The FIRMS is called price taker when it has to ADOPT the price determined by MARKET DEMAND nad market supply. | |
| 6117. |
If the price of a substitute (Y) of good X increases, what impact does it have on the equilibrium price and quantity of good X? |
| Answer» Solution :An INCREASE in PRICE of a substitute(Y) of GOOD X will directly affect the equilibrium price and quantity of good X. Rise in price of Y will make X relatively cheaper and DEMAND for X will rise. It will lead to excess demand. It will lead to increase in both equilibrium price and equilibrium quantity. | |
| 6118. |
Explain the 'interdependence between firms' characteristic of oligopoly market. OR What difference does it make to the market when we say that firms are interdependent in oligopoly? Explain |
| Answer» Solution :Firms under oligopoly are interdependent. Interdependence means that actions of one firm AFFECT the actions of other firms. A firm considers the action and REACTION of the RIVAL firms while determining its price and output LEVELS. A CHANGE in output or price by one firm evokes reaction from other firms operating in the market. | |
| 6119. |
What do you mean by the problem of scarcity ? |
| Answer» SOLUTION :PROBLEM of scarcity MEANS INSUFFICIENT availability of resources in relation to DEMAND for the resources. | |
| 6120. |
What is the problem of what to produce ? |
| Answer» SOLUTION :It is a problem of selection of DIFFERENT GOODS and their quantities with the AVAILABLE resources. | |
| 6121. |
Give two examples of variable costs. |
| Answer» Solution :(i) Expenditure on RAW MATERIALS, (II)Wages of CASUAL labour. | |
| 6122. |
Production function is an expression of : |
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Answer» Output |
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| 6123. |
The followingdiagramshowsthe suppluycurveofthreecommodities : A , B and C . Ranktheir price elasticityof supply |
| Answer» Solution : Commodity A: Highly ELASTIC Supply `(E_(s) GT 1)`, Commodity B: Unitary Elastic Supply `(E_(s) =1)`, Commodity C: Less Elastic Supply `(E_(s) lt 1)`. | |
| 6124. |
When we add up utility derived from each successive unit, we get total utility. |
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| 6125. |
Consumer equilibrium through indifference curve analysis is based on |
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Answer» CARDINAL utility |
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| 6126. |
Index numbers measure relative changes in the variables over time. "" (True/False) |
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| 6127. |
What is meant by mean deviation? What are its main characteristics? |
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Answer» Solution :Mean deviation is the arithmetic average of the DEVIATIONS of all the values taken from some average value (mean, median, mode) of the series, IGNORING signs ( + or - ) of deviations. Characterstics :- 1. SImple. 2. BASED on all values. 3. Less effect on EXTREME Values. |
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| 6128. |
Show that there is inverse relation between price of a commodity and its quantity demanded . UseUtility Analysis. |
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Answer» Solution :ASSUMING that the CONSUMER CONSUMES only two goods X andY and is in equilibrium. Then,`(MU_(x))/(P_(x))=(MU_(y))/(P_(y))` Now suppose Px FALLS ,then`(MU_(x))/(P_(x))gt(MU_(y))/(P_(y))` Since per rupee marginal utility of Xisgreater than per rupee marfinal utility of Y , the consumer will buymoreofX . Itshows inverse relation between price of X and DEMAND for X. |
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| 6129. |
A cosumer consumes only two good . Explain consumer's equilibrium with the help of utilityanalysis. |
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Answer» Solution :Assuming that only two goods the consumer consumes are X and Y , the conditions of equilibrium are : (i)`(MU_(x))/(P_(x))=(MU_(y))/(P_(y))` (II)MUof a goodfalls as more of it is consumed Explaination: (i)Suppose`(MU_(X))/(P_(X))GT(MU_(y))/(P_(Y))` .Theconsumer will not be in equilibrium because per rupee MUof X isgreater than per rupee MU ofY. This will induce the consumer to BUY more of X by reducing expenditure on Y. It will lead to FALL in MUxand rise in MUy . This will continuetill`(MU_(x))/(P_(x))=(MU_(y))/(P_(y))`. (ii)Unless MUfalls ae more of a good isconsumed the consumer will not reach equilibrium. `("Explanation based on "(MU_(x))/(P_(x))lt(MU_(y))/(P_(y))" is ALSO correct".)` |
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| 6130. |
Explain in brief, the following kinds of price elasticities of demand: (i) Highly elastic demand, (ii) Less Elastic Demand, (iii) Unitary elastic demand. |
| Answer» Solution :1. High elastic demandDemand is said to be high elastic when even a small change in the PRICE of a commodity leads to a considerable extension/contraction of the amount DEMANDED of it.2. Low elastic demandWhen even a substantial change in price BRINGS only a small extension/contraction in demand, it is said to be less elastic.3.Unitary elastic demandWhen a small change in price of a product causes a major change in its demand, it is said to be perfectly elastic demand. In perfectly elastic demand, a small RISE in price results in fall in demand to zero, while a small fall in price causes increase in demand to infinity. In such a case, the demand is perfectly elastic or ep = 00. | |
| 6131. |
When price of one or both the goods consumer consumes falls, the consumer's utility level at equilibrium in the IC analysis. |
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Answer» FALLS |
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| 6132. |
Will a profit-maximising firm in a competitive market ever produce a positive level of output in the renge where the marginal cost is falling ? Give an explanation. |
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| 6133. |
Define weighted arithmetic mean. |
| Answer» Solution :Weighted arithmetic mean is the mean of weighted items of the series. DIFFERENT items are accorded different WEIGHTS DEPENDING on their relative importance. The weighted sum of the items is DIVIDED by the sum of the weights. | |
| 6134. |
Average variable cost curve is a U-shapedcurve. |
| Answer» Solution :True. Average variable COST is a U-shaped curve as it INITIALLY falls, then remains constant for a while and FINALLY starts increasing. It happens due to three phases of Law of Variable PROPORTION.. | |
| 6135. |
"When marginal revenue is positive and constant, both average and total revenue rate", whereas average revenue will be constant. |
| Answer» Solution :No, I do not agree with the given STATEMENT. Only TOTAL revenue will INCREASES at constant RATE, whereas, AVERAGE revenue will be constant. | |
| 6136. |
Large number of technical training institutions have been started by the government. State its economic value in the context of production possibilities frontier. |
| Answer» Solution :The ECONOMIC value of technical is that it raises the PRODUCTION potential of the COUNTRY by raising the efficiency of the LABOUR. | |
| 6137. |
Identify positive or normative statements from the following : India government should design new polices to control inflation |
| Answer» SOLUTION :NORMATIVE statementsbecause it is ADVICE | |
| 6138. |
A chemical fertiliser manufacturing company estimated its annual cost of production to be Rs. 20 lakh. The cost included expenditure incurred on factor and non factor inputs. However industrial waste is causing water pollution for which no provision is made by the company. comment. |
| Answer» Solution :Cost of PRODUCTION is not the money cost of production only. A PRODUCER who is only concerned with the money cost of production and not with social cost and environment loss in not doing justice to the society. This producer is ignoring loss of biodiversity and water pollution caused by his production activity. He should follow the emission standards regarding SUPPLY of toxic SUBSTANCES into the water fixed by the government so that water pollution can be kept under check. | |
| 6139. |
Give an example of a series which has no mode. |
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Answer» |
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| 6141. |
Mention two situations in which an increase in supply of a commodity will not affect its equilibrium price. |
| Answer» Solution :(i) When demand also INCREASES in the same PROPORTION, (ii) When demand is perfectly ELASTIC. | |
| 6142. |
At the point of equilibrium MC should be |
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Answer» rising |
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| 6143. |
What is meant by variable factor and fixed factor ? Give Two examples of each. |
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Answer» Solution :Variable factors are the factors of production which VARY with the level of output. For example, LABOUR and Raw material. Fixed factors are the factors which remain fixed THROUGHOUT the production PROCESS. For example, Land and Machinery. |
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| 6144. |
Price elasticity of demand of a product of a firm under monopolistic competition as compared to monopoly is comparatively: |
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Answer» Higher |
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| 6145. |
Define marginal utility. |
| Answer» SOLUTION :In ECONOMICS, UTILITY is the satisfaction or benefit DERIVED by consuming a product; thus the marginal utility of a goods or SERVICE is the change in the utility from an increase in the consumption of that good or service | |
| 6146. |
Explain the implications of the follwing in oligopoly market: (a) Barriers to entry of new firms (b) A few or a few big sellers |
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Answer» SOLUTION :(a) The main implication of barriers to entry is that such barriers allow only a limited number of FIRMS into oligopoly INDUSTRIES. Such barriers may be in the form of huge capital REQUIREMENTS, patent RIGHTS, availability of crucial raw material etc. (b)A few or few big sellers has the implications that each big seller contributes a fairly large share of total output. This gives an individual seller the power of influencing the market price by changing own output. |
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| 6147. |
What is the marginal product of an input ? |
| Answer» SOLUTION :Marginal PRODUCT refers to addition to total product, when one more UNIT of variable factor is EMPLOYED. | |
| 6148. |
What is oligopoly ? |
| Answer» Solution :OLIGOPOLY refers to a market SITUATION in which there are a few firms selling HOMOGENEOUS or differentiated products. There is price RIGIDITY. | |
| 6149. |
A consumer consumes only two goods X and Y . On planning to spend the whole of income on these two goods he finds MU_(x)=6 utils and MU_(y)=4 utils, P_(x) and P_(y)are rupees 4 and 6 per unit respectively. In this situation the consumer will : |
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Answer» Stick to his plan |
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| 6150. |
What induces new firms to enter an industry? |
| Answer» SOLUTION :ABNORMAL PROFITS, i.e. above NORMAL PROFIT | |
