Test: Introduction To Economics - 1 - UPSC MCQ

Statement i is correct as the economic problem stems from the conflict between limited resources and unlimited wants. Statement ii is incorrect because the decision of what to produce must consider the limitations of resources. Statement iii is incorrect because the distribution of goods does address income inequality. Statement iv is correct as alternative uses of resources necessitate choices in production. Therefore, the correct statements are i and iv.

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 itself. This intervention is aimed at achieving a desired allocation of resources and ensuring fair distribution for the benefit of society as a whole.

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.

• The assertion is correct because, in a market economy, prices do indeed act as signals that inform both producers and consumers about the availability and demand for goods and services.
• The reason is also correct, but it describes a characteristic of a centrally planned economy, not a market economy.
• Since the reason explains a different economic system, it does not serve as a correct explanation for the assertion.

Statement i is incorrect as capital-intensive methods prioritize machinery over labor. Statement ii is correct because the choice of production techniques directly influences efficiency. Statement iii is incorrect since the distribution problem encompasses more than just personal income levels; it includes wealth distribution among different economic units. Statement iv is correct as it reflects the comprehensive nature of economic decision-making. Thus, the correct statements are ii and iv.

• Assertion (A) is true. Macroeconomics indeed studies aggregate economic measures such as total output and price levels.
• Reason (R) is also true, as it correctly describes the focus of microeconomics, which deals with individual markets.
• However, Reason (R) does not explain Assertion (A). Macroeconomics and microeconomics are distinct branches, and the focus of one does not serve as an explanation for the focus of the other.
• Therefore, the correct answer is Option B, as both statements are true but the Reason is not the correct explanation for the Assertion.

The central economic problem, as discussed in the text, arises due to the scarcity of resources in relation to unlimited wants. This necessitates making choices about what goods and services to produce, how to produce them, and for whom they should be produced. This problem of choice is fundamental to all economies and is driven by the limited nature of resources.

Statement i is correct as scarcity necessitates making choices regarding resource allocation. Statement ii is incorrect because the guiding principle focuses on maximizing satisfaction for individuals, not solely profit. Statement iii is correct, as the choice between civil and war goods must consider societal needs along with resource availability. Statement iv is incorrect because economic decision-making is crucial for addressing consumer wants. Therefore, the correct statements are i and iii.

Answer: Option B

Solution:
Opportunity Cost refers to the value of the next best alternative forgone (A-1). Scarcity indicates limited resources compared to unlimited wants (B-2). A Centrally Planned Economy is one where the government makes all decisions (C-3), while in a Market Economy, prices coordinate economic activities (D-4).

Statement I is true because the rise in joint families post-independence in India is attributed to increased life expectancy, leading to a larger elderly population and more joint households. Statement II is false because the Production Possibility Frontier (PPF) represents the different combinations of goods that an economy can produce with limited resources, not unlimited resources.