Economics: CUET Mock Test - 8 - CUET MCQ

The correct answer is Defence.

Key Points

• Among the options, defence expenditure is not included in the developmental expenditure.
• The money spent by the government on developmental and welfare programmes is known as development expenditure.
• Developmental expenditures include expenditures on economic services, Social and community services, and grants to states.
• It helps in economic development by increasing the production and real income of the country.
• Developmental expenditure on revenue can be divided into two, developmental expenditure on revenue account and developmental expenditure on capital account.
• Social and community services, economic services and developmental assistance to states are included in it.
• Developmental expenditure has a definite objective to achieve during the plan period.
• The share of developmental expenditure is gradually decreasing.
• Expenditure on Railways, power, health, education, and Science and Technology are examples of Development expenditure.
• Non-Developmental Expenditure refers to expenditure of the government which does not directly help in the economic development of the country.

The correct option is (A) - (I), (B) - (IV), (C) - (II), (D) - (III)

Key Points

• Flexible Exchange Rate:
  • Definition: An exchange rate that is determined by the free market through supply and demand for the currency.
  • Key feature: It fluctuates based on market conditions.
  • Match: Market forces.
• Devaluation:
  • Definition: A deliberate downward adjustment to the value of a country’s currency relative to another currency, group of currencies, or standard.
  • Key feature: Typically done by the government or monetary authority.
  • Match: Government.
• Fixed Exchange Rate:
  • Definition: An exchange rate that is pegged or fixed by the government or central bank at a certain level.
  • Key feature: It does not fluctuate with market conditions; instead, it remains fixed.
  • Match: Pegged exchange rate.
• Depreciation:
  • Definition: A decrease in the value of a currency in the context of a floating exchange rate system.
  • Key feature: It occurs due to market forces and reflects changes in supply and demand.
  • Match: Floating exchange rate.

The price system in a market economy helps allocate resources by indicating where they are most needed based on demand and supply changes.

As demand rises, the price increases, which motivates producers to supply more of the good to meet the demand.

Price fluctuations are influenced by demand, supply, and external factors like government policies, international trade, and technological advancements.

When prices fall, producing the good becomes less profitable, leading producers to reduce the supply.

External factors like government regulations, international trade, and technological changes can impact the pricing and supply-demand balance.

While money functions as a medium of exchange, unit of account, and store of value, it does not inherently redistribute wealth equally.

Money simplifies trade by serving as a universally accepted medium of exchange, which eliminates the inefficiencies of bartering.

As a unit of account, money provides a standard measure for valuing and comparing goods and services.

Money as a store of value ensures that wealth can be saved and utilized in the future, as long as inflation does not erode its value.

Stability in money's value ensures that individuals and businesses can make informed decisions about savings and investments without fear of drastic changes in value.

Following are some factors which affect the price of a commodity in different countries.
One of the major factors that affects the prices of goods is the difference in taxes and import duties across countries. When dealing in commodities, or any physical good, the cost to transport them must be included, resulting in different prices when commodities from two different locations are examined. Because transaction costs exist and can vary across different markets and geographic regions, prices for the same good can also vary between markets. Legal barriers such as capital controls, or in the case of wages, immigration restrictions, can lead to persistent price differentials rather than one price. 

Tax on imports is an example of a trade barrier. Trade barriers are the boundaries set by countries while trading with other countries. With globalisation, most countries had to open their markets, and it was challenging to put physical barriers on imports. But to keep the imports low, many governments imposed taxes on them. This was done to protect the domestic industry from low-cost foreign goods and decrease the flow of foreign exchange due to imports. Thus, taxes on imports created a barrier to the import of goods and services.

The import of Chinese toys into India typically results in a greater variety of toys being available in the Indian market at relatively lower prices compared to domestically manufactured toys. This broadens the choices available to Indian consumers, often at more competitive rates. The availability of inexpensive imports from China can influence consumer behavior by providing more options across different price points, which can appeal to a wider demographic. This situation highlights the impact of global trade dynamics on local markets, where imports can either complement or compete with domestic products.

Imposing a tax on Chinese toys can make them more expensive for Indian consumers, thereby reducing their competitive pricing edge. This potentially leads to a decrease in demand for Chinese toys as they become less affordable compared to their previous market position. Consequently, Indian toy-makers may benefit from this shift, as consumers could turn to locally made toys, which might remain more affordable in comparison. This situation can foster growth and prosperity for the Indian toy industry by leveling the playing field against cheaper imported goods.

• 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.
• Therefore, Option C is the correct answer.

The market price of a commodity is determined where the demand curve intersects the supply curve. This point represents the balance between the forces of demand and supply.

Microeconomics is the branch of economics that examines the behaviour of individuals and firms in making decisions about the allocation of scarce resources. It focuses on:

• The interactions between individuals and firms.
• The decisions made regarding resource allocation.
• How prices are determined based on these interactions.

Since price determination involves individual choices and market interactions, it is a key topic in microeconomics.

Utility can be measured cardinally according to Marshall, but according to Hicks (ordinal approach) we can rank our preferences so utility is not always measurable cardinally.

The Cardinal Utility approach is propounded by neo-classical economists, who believe that utility is measurable, and the customer can express his satisfaction in cardinal or quantitative numbers, such as 1,2,3, and so on.  Here, one Util is equivalent to one rupee and the utility of money remains constant.

Marginal Utility or Marginal Satiety – is the additional utility derived from the consumption of an additional unit of a commodity. Therefore, Marginal Utility = the addition made to the Total Utility by consuming one more unit of a commodity.

The Cardinal Utility approach is propounded by neo-classical economists, who believe that utility is measurable, and the customer can express his satisfaction in cardinal or quantitative numbers, such as 1,2,3, and so on.The neo-classical economist developed the theory of consumption based on the assumption that utility is measurable and can be expressed cardinally. And to do so, they have introduced a hypothetical unit called as “Utils” meaning the units of utility. Here, one Util is equivalent to one rupee and the utility of money remains constant.

Some factors of production remain fixed, leading to diminishing marginal product.

Explanation: In the short run, at least one input is fixed, leading to the law of diminishing marginal returns.

In the context of isoquants, a negative slope indicates:

• An increase in one input allows for a reduction in the other input while maintaining the same output.
• This reflects the principle of substitutability between inputs.
• As one input increases, the other can decrease, keeping the output constant.
• This relationship is crucial for understanding how to optimise resource allocation in production.

The Marginal Product (MP) curve intersects the Average Product (AP) curve at a specific point that is crucial for understanding production efficiency.

Here are the key points regarding this intersection:

• The intersection occurs when AP is at its maximum.
• At this point, the MP is equal to the AP.
• Before this intersection, the MP is greater than the AP, causing the AP to rise.
• After the intersection, the MP becomes less than the AP, leading to a decline in the AP.

Thus, the relationship between MP and AP is essential for analysing production levels and efficiency.

A. Production Function: Production function, in economics, equation that expresses the relationship between the quantities of productive factors (such as labour and capital) used and the amount of product obtained.

B. Short Run Production Function: The short-run production function defines the relationship between one variable factor (keeping all other factors fixed) and the output.

C. Long Run Production Function: Long run production function refers to that time period in which all the inputs of the firm are variable. It can operate at various activity levels because the firm can change and adjust all the factors of production and level of output produced according to the business environment.

D. Long Run Production Function: Long run production function refers to that time period in which all the inputs of the firm are variable. It can operate at various activity levels because the firm can change and adjust all the factors of production and level of output produced according to the business environment.

Producer's equilibrium refers to a situation where profits are maximised, i.e., the difference between total revenue and total cost is maximised, or in cases of losses, the difference is minimised, so as to minimise losses.

Deficient demand refers to the situation when aggregate demand (AD) is less than the aggregate supply (AS) corresponding to full employment level of output in the economy.