Test: Nature And Scope Of Business- 1

20 Questions MCQ Test Business Economics for CA Foundation | Test: Nature And Scope Of Business- 1

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Economics is a science because


Economics as a science: Like science, economics is also based on the systematic knowledge which is based on facts and data.

Like any other science, it has its own scientific laws and theories which can be measured and verified and proved. Also, it has its own methodology


Positive statements concern what is, normative statements concern -


Normative economics deals with what ought to be or how the economic problems should be solved.
It discusses what the desirable things are and how they should be realized. Thus it is suggestive in nature. 


Which of the following statements are positive statements?
(i) India is overpopulated.
(ii) Agricultural income should be taxed.
(iii) Service-class people should be exempted from income tax
(iv) There is tremendous tax evasion in India.


Positive statements study the facts of life i.e. it deals with 'things as they are'. It deals with what are the economic problems and how are they actually solved. It explains the cause and effect relationship and avoids giving suggestions.

Both the statements (ii) and (iii) are giving suggestions but (i) and (iv) are stating a fact and it not suggesting anything.

Thus option (i) and (iv) are positive statements. 


The central problems of an economy arises because of—


All economic problems arises due to unlimited human wants and limited resources. Moreover, these resources have alternative uses and wants keep on increasing each day. This economic problem is also known as problem of choice or the problem of allocating resources to alternative uses.


The central problems relating to allocation of resources -


The problem of choice or the problem relating to allocation of resources deals with 3 aspects:

1) What to produce -  Resources are to be used for producing what goods and services.

2) How to produce - What methods are to be used for the production.

3) For whom to produce - Who will utilize the goods and services.


The problem of ‘What to produce’ relates to—


The problem of 'what to produce' deals with the production of necessary goods that have demand in the economy which can be evenly distributed so that social as well as economic stability is maintained in the economy


Micro economics deals with—


Microeconomics deals with prices and production in single markets. The economic behaviour of an individual unit and the interaction between different markets, but leaves the study of economy-wide aggregates to macroeconomics.


The objective of macro-economics is to study about—


Macro economics is a field of economics which deals with the economy as a whole. The objective of the macro economics is to maximize the welfare of an economy. It includes principles and policies relating to full employment of available resources as well as the growth of resources.


Micro economics covers the study of—
(i) Consumer’s behaviour
(ii) Producer’s equilibrium
(iii) Fiscal system of an economy
(iv) Factor pricing


Micro economics deals with the individual approach of various parties involved in an economy, i.e, consumer, producer, price, and cost. Therefore, it studies consumer's behaviour, producer's equilibrium, and factor pricing.


Macro-economics is also known as—
(i) Method of Lumping
(ii) Price Theory
(iii) General equilibrium analysis
(iv) Aggregative Economics


Macro economics relates to the study of economics as a whole in an economy. It reflects general equilibrium analysis of a set of people involved in the exchange mechanism i.e, as a market. Therefore, it measures the aggregates of all the micro units in the economy.


 Which of the following is not correct?

  • Microeconomic behaviour cannot be added-up to drive macroeconomic behaviour.
  • The phenomenon in Microeconomics cannot be generalized for all the units in the economy on an aggregate level.
  • For example the theory of an individual firm cannot be universally applied to the whole industrial sector in an economy. The theory of individual consumer behaviour is different from the behaviour of the whole economy’s behaviour at the aggregate level. The demand of a single person may not always match with the economy’s aggregate demand. 

A theory may contain all but not one of the following -


When a written piece is termed as a theory it should have many specifications like facts, assumptions, definitions etc. but the foremost important as well as necessary input is of fact based on real world because theories cannot be developed on fantasies but it should be backed by some legitimate facts.


Positive economics deals with -

  • Positive economics is a stream of economics that focuses on the description, quantification, and explanation of economic developments, expectations, and associated phenomena.
  • It relies on objective data analysis, relevant facts, and associated figures.

Micro economics does not cover—


Micro economics deals the study of economics from an individual point of view. General price level is a subject matter of macro economics.


Find the odd -


Correct Answer :- d

Explanation : Economic laws are not hypothetical in nature, while many microeconomic models may involve many assumptions and tend to over simplify situations, the broad theories are still valid in the real world, it has been proven time and again with empirical data. 

Normative economics deals with subjective economics, and are grounded in personal opinions rather than empirical facts. They tend to be prescriptive and regulatory in nature (ie, they contain advice on what should be done to solve a particular problem).


A mixed economy to solve its central problems relies on—


In mixed type economy (like India),in order to determine the equilibrium price and quantity in the market, free play of demand and supply forces takes place ,together with this government also intervenes in order to keep a check on inflationary and deflationary gap in an economy through certain fiscal and monetary policies.


In a socialist economy, the basic force of economic activity is profit. This statement is -


In socialist economy, the basic force of economic activity is profit.

► This statement is incorrect.

The motive is the welfare of the people. In this system, the means of production and distribution is controlled by the government. The economy is centrally planned by the government so that the useful goods are produced with the objective to look after the needs of the poor section of the society as well.


The interference of the government is very limited in—

  • The interference of the government is very limited in capitalist economy. There is no central planning authority. In fact, there is little or no government or central authority that takes market decisions.
  • The prices are determined by the free interaction of the forces of demand and supply. It is an automatic self-regulating mechanism which runs with the motive of profit.

Both private and public sectors exist side by side in—


India is a mixed economy. Means of production are owned by both private and public sector. Thus, both private and public sectors exist side by side.


In a competitive economy, the uncrowned king is—


The uncrowned king in the competitive economy is consumer. Because everything happens according to the consumer's wish in the economy