Economics: CUET Mock Test - 1 - CUET MCQ

Exchange of Commodity for Commodity is known as Barter System of Exchange which was followed before the evolution of money.

(A) Market Economy: In a market economy, decisions are guided by price signals (supply and demand), not central control. Matches with (II).
(B) Centrally Planned Economy: Here, the government controls all production and distribution decisions. Matches with (I).
(C) Mixed Economy: This system blends features of both market and centrally planned economies. Matches with (III).
(D) Free Market: In a free market, buyers and sellers exchange goods and services without interference. Matches with (IV).

(A) PPF: The Production Possibility Frontier shows the maximum combinations of two goods an economy can produce with given resources. Matches with (I).
(B) Scarcity: This refers to the limited availability of resources compared to unlimited wants. Matches with (II).
(C) Choice: This involves selecting one option over another due to scarcity. Matches with (III).
(D) Economic Growth: This is represented by an outward shift of the PPF due to better resources or technology. Matches with (IV).

(A) Microeconomics: Focuses on individual markets, firms, and consumers. Matches with (II).
(B) Macroeconomics: Studies economy-wide phenomena like GDP, inflation, and unemployment. Matches with (I).
(C) Aggregate Demand: Refers to the total demand for goods and services in an economy. Matches with (III).
(D) Consumer Behaviour: Examines how individuals make purchasing decisions. Matches with (IV).

(A) What to produce? This refers to deciding which goods and services an economy should produce, which involves allocating resources accordingly. Matches with (I).
(B) How to produce? This involves choosing the production technique, such as whether to use labor-intensive or capital-intensive methods. Matches with (II).
(C) For whom to produce? This is about determining how goods and services are distributed among individuals in society. Matches with (III).
(D) Opportunity Cost: This is the cost of forgoing the next best alternative when making a choice. Matches with (IV).

• Monopoly: A monopoly is a firm who is the sole seller of its product, and where there are no close substitutes. An unregulated monopoly has market power and can influence prices. Examples: Microsoft and Windows, DeBeers and diamonds, your local natural gas company.

• Perfect Competition: Perfect competition is an ideal type of market structure where all producers and consumers have full and symmetric information, no transaction costs, where there are a large number of producers and consumers competing with one another. Perfect competition is theoretically the opposite of a monopolistic market. Examples of this perfect market structure are: A large number of buyers. A large number of sellers. Every participant is a price taker, not having the ability to influence market prices.

• Monopolistic competition: Monopolistic competitive markets have highly differentiated products; have many firms providing the good or service; firms can freely enter and exits in the long-run; firms can make decisions independently; there is some degree of market power; and buyers and sellers have imperfect information.

Only Option D is the correctly matched statement. Perfume Industry → 4. Monopolistic Competition, 

• The main economic issue comes from the limited availability of resources compared to the endless desires of people.
• This situation forces us to make decisions about which goods and services to create.
• We must also think about how to produce these goods and services.
• Another important question is who will receive these products.
• This challenge of making choices is essential for every economy.
• It is influenced by the fact that resources are not infinite.
• Therefore, the correct answer is Option B.

• The concept of opportunity cost explains the decision-making process when choosing between two alternatives, such as a teacher deciding between teaching more hours or spending time on personal development.
• The opportunity cost is the value of the next best alternative that is forgone in making a decision.

One of the characteristics of economic resources is scarcity. The other characteristic is that they have alternative uses.

Economic resources are essential for producing goods and services. Here are some key points about their characteristics:

• Scarcity: Resources are limited in supply.
• Alternative Uses: Resources can be used in different ways to produce various goods and services.
• Every society must decide how to allocate these scarce resources effectively.
• Choices must be made about which goods and services to produce based on societal needs.

Understanding these characteristics helps in understanding the fundamental economic problem of choice.

Normative economics is a branch of economics that focuses on what ought to be rather than what is. It involves making value judgments about economic fairness and the goals of public policy.

• Value Judgments: Normative economics expresses opinions on how economic outcomes should be.
• Policy Goals: It evaluates what the objectives of public policy should aim to achieve.
• Comparison with Positive Economics: Unlike positive economics, which describes how the economy functions, normative economics is concerned with how it should function.

Understanding normative economics helps in assessing the desirability of various economic policies and outcomes.

Production function is an expression of the technological relation between physical inputs and output of a good.
Symbolically: Ox = f i1, i2, i3…. in)
{Where: Ox = Output of commodity x; f = Functional relationship; i1, i2, …. in = Inputs needed for Ox}
Example of Production function:
Suppose a firm is manufacturing chairs with the help of two inputs, say labour (L) and capital (K). Then, production function can be written as: OChairs = f (L, K)
Production function defines the maximum chairs (OChairs ), which can be produced with the given capital and labour inputs. If production functions is expressed as: 250 = (7L, 2K). It means, 7 units of labour and 2 units of capital can produce maximum of 250 chairs.

When we employee more units of variable factor(labour) on fixed factor(land) then at the end of the point total production (tp) decrease because of more labour.

Factors that can shift the demand curve for goods and services, causing a different quantity to be demanded at any given price, include changes in tastes, population, income, prices of substitute or complement goods, and expectations about future conditions and prices.

Macroeconomics differs from microeconomics in several key ways:

• Focus: Macroeconomics looks at the economy as a whole, while microeconomics examines individual markets and agents.
• Scope: It addresses broad economic issues that impact entire nations or sectors, such as inflation and unemployment.
• Decision Makers: Macroeconomic policies are typically set by government bodies and institutions, unlike microeconomic decisions made by individual consumers and firms.
• Interconnections: Macroeconomics considers the relationships between different sectors of the economy, while microeconomics often assumes other sectors remain unchanged.

Overall, macroeconomics emerged as a distinct field in the 1930s, largely influenced by the economic challenges of the Great Depression.

Macroeconomics focuses on large-scale economic factors that impact the entire economy. Here are some key questions it addresses:

• What will happen to overall prices? Are they likely to rise or fall?
• What is the state of employment? Is it improving or worsening?
• What indicators can show whether the economy is doing better or worse?
• What actions can the government or society take to enhance the economy?

These questions help us understand the overall health of the economy and are fundamental to macroeconomic analysis.

GNP Deflator: It is clear that nominal GNP usually exceeds real GNP because of inflation. Greater the difference between nominal and real GNP, greater is the inflation. It may happen that GNP data at constant prices may not be available in the economy.

Apex is the top or highest part of something, especially one forming a point.  An apex institution is a second-tier or wholesale organization that channels funding (grants, loans, guarantees) to multiple microfinance institutions (MFIs) in a single country or region. Funding may be provided with or without supporting technical services.

The Central Bank is the Apex Bank in India because of the following functions:

• Monetary authority, issue of currency. Banker and debt manager to government, banker to banks, regulation of banking system, manager of foreign exchange, regulator and supervisor of the payment and the settlement systems and maintaining financial stability

Money is often defined in terms of the three functions or services that it provides. Money serves as a medium of exchange, as a store of value, and as a unit of account.

Aggregate Demand:
- Aggregate Demand (AD) represents the total amount of goods and services that households, businesses, and the government are willing to purchase at a given price level and within a specific time period.
- AD is composed of four main components: Consumption (C), Investment (I), Government Expenditure (G), and Net Exports (NX).
In a two sector economy:
- A two-sector economy consists of households and businesses, where there is no government involvement.
- In this case, the components of Aggregate Demand are Consumption (C) and Investment (I).
Answer:
- In a two-sector economy, Aggregate Demand equals Consumption (C) plus Investment (I).
- Therefore, the correct option is B: Consumption + Investment.
Explanation:
- Consumption (C) represents the total spending by households on goods and services.
- Investment (I) represents the total spending by businesses on capital goods, such as machinery and equipment, to increase future production capacity.
- In a two-sector economy, there is no government involvement, so Government Expenditure (G) is not included in the Aggregate Demand.
- Similarly, since there are no exports and imports in a closed two-sector economy, Net Exports (NX) is also not included in the Aggregate Demand.
- Hence, the correct option is B: Consumption + Investment.

A Reuters report citing sources suggested the government was looking to sell 10-15 percent of the country's largest insurer to improve public finances.

Finance Minister Nirmala Sitharaman on Monday announced that her government will privatise two public sector banks (PSBs) and one general insurance company as well.

Answer: D
Explanation: The passage mentions BPCL, CONCOR, and Air India as part of the divestment or privatization plans for F/Y 22. NTPC is only mentioned in the context of share buybacks, not divestment.

Answer: B
Explanation: The passage states, "To facilitate the sale of the LIC stake, the government will need Parliament approval to amend the LIC Act."

Answer: B
Explanation: The passage quotes LIC Chairman M R Kumar stating, “We have floated an RFP for the actuarial firm that will undertake the exercise. This calculation will take some time,” in the context of determining the right valuation, which involves calculating the embedded value of the business.

Exchange rates are defined as the price of one country's currency in relation to another country's currency.

• In a centrally planned economy, the government or central authority plays a direct role in ensuring that essential goods and services are available, either by encouraging individuals to produce them or by producing them themselves.
• This intervention is aimed at achieving the desired allocation of resources and ensuring fair distribution for the benefit of society as a whole.

A decision-making unit (DMU) refers to an individual or a group involved in making choices to achieve common goals. This unit can include:

• A single person
• A household
• A firm
• Any other organisation

Each DMU shares the risks associated with their decisions and aims to optimise their resources. Resources include:

• Goods - tangible items that satisfy needs, such as food and clothing.
• Services - intangible actions that fulfil needs, like education and healthcare.

Due to limited resources, DMUs must make choices, often sacrificing one good or service for another. For example:

• A family may choose a larger home over more farmland.
• A student might forgo leisure activities to invest in education.

Ultimately, every DMU uses its available resources to meet its needs, understanding that no one has unlimited resources compared to their desires.

In the long run TPP changes with the change in all the factors  is the right option because total product can be change in long run production function. After change every situation because in long run production more time should be taken by performer.

The correct answer is 'Marginal propensity to consume'.

Key Points

• Marginal propensity to consume is the rate of increase in ex ante consumption due to a unit increment in income.
• The term and its formula are based on observations made by famed British economist John Maynard Keynes in the 1930s during the Great Depression.
• He noted that individuals have the propensity to consume more when their income increases. MPC is useful because it relates to how a government stimulus might affect the economy.
• The formula used to calculate marginal propensity to consume is the change in consumption divided by the change in income.
• MPC = ∆C / ∆Y.

Thus, the correct answer is Marginal propensity to consume

Additional InformationLet's have a look at other options:

• Consumption Function
  • The consumption function, or Keynesian consumption function, is an economic formula that represents the functional relationship between total consumption and gross national income.
• Aggregate income
  • Aggregate income is the total of all incomes in an economy without adjustments for inflation, taxation, or types of double counting.
• Average propensity to consume
  • ​Average propensity to consume (APC) measures the percentage of income that is spent rather than saved.