CUET PG Economics Mock Test - 2 - CUET PG MCQ

The correct answer is - (B), (C) and (D) only

Key Points

• Purchasing Power Parity (PPP)
  • The concept of purchasing power parity is essential in understanding exchange rates and price levels in different countries.
  • PPP states that in the absence of transportation costs and other barriers, identical goods should have the same price when expressed in a common currency.
• Explanation of Correct Options
  • (B): The exchange rate between two countries' currency is equal to the ratio of their price levels. This is the fundamental idea of PPP, where the exchange rate adjusts to reflect changes in price levels between two countries.
  • (C): Law of one price holds. This law asserts that in the absence of transportation costs and other barriers, identical goods should sell for the same price in different markets when prices are expressed in a common currency.
  • (D): The price levels of all countries are equal when measured in terms of the same currency. This implies that after accounting for the exchange rate, the price levels should equalize, which is a direct consequence of PPP.

Additional Information

• Inflation and Purchasing Power
  • (A): The purchasing power of individuals depends on the inflation rate. While inflation does affect purchasing power, this statement alone does not encapsulate the idea of PPP in an open economy. PPP primarily deals with price levels and exchange rates rather than directly addressing individual purchasing power.
• Purchasing Power Parity Applications
  • PPP is used to compare economic productivity and standards of living between countries.
  • It is also a useful tool for economists to determine whether a currency is undervalued or overvalued.

Key Points

Average Cost: Average cost refers to the cost per unit of output. It is the ratio of the total cost to the total output.

• Average Cost (AC) = Total Cost / Output = TC / Q

Marginal cost: Marginal cost refers to the addition made to the total cost on account of the production of one more unit of output.

• Marginal Cost (MC) = Change in total cost / Change in output = δ C / δ Q

Important Points

• The zero slope of the average cost curve implies that the cost has reached its minimum level.
• At the minimum level, the average cost becomes equal to the marginal cost.

Relationship between Average Cost and Marginal Cost

• If the slope of AC is less than zero or negative, then MC < AC.
• If the slope of AC is equal to zero or constant, then MC = AC
• If the slope of AC is greater than zero or positive, then, MC > AC

Diagrammatic presentation of the relationship between AC and MC

• At point M in the figure, MC = AC, and the MC curve is intersecting the AC curve at the minimum level of the average cost curve.
• At this point, the slope of the AC curve becomes zero, implying constancy of average cost.

Hence, on the basis of the above relationship, it is clear that when marginal cost is equal to average cost, the slope of average cost is zero.

The correct answer is: Existence of non-monetised sector.

One of the major challenges in accurately measuring national income in India is the existence of a large non-monetised sector. This sector consists of economic activities that are not directly measured in monetary terms, such as subsistence farming, barter exchanges, and informal work, which complicates the process of calculating the national income.

Key Points

• Non-Monetised Sector:
  • The non-monetised sector refers to parts of the economy where transactions do not involve money, but rather goods and services are exchanged through barter or informal arrangements.
  • In India, a significant portion of rural activities, particularly in agriculture, remains non-monetised, making it difficult to assess their contribution to the national income.
• Challenges in Measuring National Income:
  • Since economic activities in the non-monetised sector are not recorded in formal transactions, it becomes challenging to incorporate them into national income statistics.
  • This leads to an underestimation of the true size of the economy, as many productive activities go unreported.
• Other Factors:
  • While factors like low savings rate, underemployment, and inflation impact the economy, they do not directly complicate the measurement of national income in the way that the non-monetised sector does.

Additional Information

• Role of Informal Economy:
  • India's informal economy plays a large role, where many workers are engaged in unrecorded or under-recorded activities, adding to the complexity of measuring the overall income of the country.
• Improving National Income Measurement:
  • Efforts to formalize the informal sector and improve data collection methods are crucial for more accurate national income measurement.

The correct answer is - (B), (C), (D), (A).

Key Points

• Weighted Arithmetic Mean
  • The weighted arithmetic mean is calculated by multiplying each number by its corresponding weight, summing up these products, and then dividing by the sum of the weights.

Additional Information

• Calculation for (A)
  • Numbers: 10, 20, 30
  • Weights: 3, 2, 1
  • Weighted Mean: 
    
• Calculation for (B)
  • Numbers: 10, 20, 30
  • Weights: 1, 1, 3
  • Weighted Mean: 
    
• Calculation for (C)
  • Numbers: 10, 20, 30
  • Weights: 1, 2, 3
  • Weighted Mean: 
    
• Calculation for (D)
  • Numbers: 10, 20, 30
  • Weights: 2, 1, 2
  • Weighted Mean: 
    

The correct answer is - (A), (B), (C), (D)

Key Points

• Probabilty of a head when one coin is tossed
  • The probability of getting a head when one coin is tossed is 0.5 (or 50%).
• Probabiltiy of 5 heads when 10 coins are tossed independently
  • The probability of getting exactly 5 heads when 10 coins are tossed is calculated using the binomial distribution formula: P(X=k) = C(n, k) * (p^k) * ((1-p)^(n-k)). For this case, n=10, k=5, and p=0.5.
  • Using the formula: P(X=5) = C(10, 5) * (0.5⁵) * (0.5^(10-5)) = 0.246 or 24.6%
• Probability of 10 heads when 20 coins are tossed independently
  • Similarly, the probability of getting exactly 10 heads when 20 coins are tossed is calculated using the binomial distribution formula. For this case, n=20, k=10, and p=0.5.
  • Using the formula: P(X=10) = C(20, 10) * (0.5¹⁰) * (0.5^(20-10)) ≈ 0.176 or 17.6%
• Probability of 50 heads when 100 coins are tossed independently
  • The probability of getting exactly 50 heads when 100 coins are tossed is calculated using the binomial distribution formula. For this case, n=100, k=50, and p=0.5.
  • Using the formula: P(X=50) = C(100, 50) * (0.5⁵⁰) * (0.5^(100-50)) ≈ 0.0796 or 7.96%

Additional Information

• Binomial Distribution
  • The binomial distribution is used to model the number of successes in a fixed number of independent Bernoulli trials with the same probability of success.
  • The formula is given by P(X=k) = C(n, k) * (p^k) * ((1-p)^(n-k)), where C(n, k) is the binomial coefficient.
• Binomial Coefficient
  • The binomial coefficient C(n, k) is calculated as n! / (k! * (n-k)!), where n! is the factorial of n.
  • It represents the number of ways to choose k successes out of n trials.
• Probability
  • Probability is a measure of the likelihood that an event will occur. It ranges from 0 (impossible) to 1 (certain).
  • The probability of a single event occurring is calculated as the number of favorable outcomes divided by the total number of possible outcomes.

The correct answer is - Normal Distribution

Key Points

• Normal Distribution
  • A binomial distribution can be approximated to a normal distribution when the number of trials (N) is very large.
  • This approximation is known as the De Moivre-Laplace theorem.
  • The normal distribution is a continuous probability distribution characterized by its bell-shaped curve.
  • For a binomial distribution with parameters N and p, the mean (μ) is given by Np and the variance (σ²) is given by Np(1-p).

Additional Information

• Bernoulli Distribution
  • The Bernoulli distribution is a discrete distribution with only two possible outcomes, 0 and 1.
  • It is a special case of the binomial distribution with N = 1.
  • It is not suitable for approximating a binomial distribution with a large N.
• Poisson Distribution
  • The Poisson distribution is used as an approximation of the binomial distribution when N is large and the probability of success (p) is small.
  • It is characterized by the parameter λ, which represents the average number of successes in a given interval.
  • It is more suitable for rare events rather than a large N scenario.
• Hypergeometric Distribution
  • The hypergeometric distribution describes the probability of k successes in n draws without replacement from a finite population of size N.
  • It is not used to approximate a binomial distribution; instead, it is used in scenarios where the sampling is done without replacement.

The correct answer is 'Resources provided by nature that cannot be allocated unit by unit.'

Key Points

• Environmental Resources:
  • Environmental resources are natural assets provided by the environment that support life and economic activities. These include air, water, soil, minerals, forests, biodiversity, and ecosystems.
  • They cannot be easily allocated unit by unit because they often function in complex systems and their value may be difficult to measure in simple economic terms.
  • For example, air and water are resources essential to life but are not traded or allocated like goods and services. Similarly, biodiversity and ecosystems provide numerous benefits, but they are not divisible into discrete units for allocation.

Additional Information

• Option 1: The gross production value of worlds goods and services.
  • This is incorrect. This refers to economic output, not specifically to environmental resources.
• Option 3: The total amount of solar energy converted to biochemical energy.
  • This is incorrect. This refers to a specific process (photosynthesis) but not the broader concept of environmental resources.
• Option 4: The maintenance and productivity of natural and human assets.
  • This is incorrect. While maintenance and productivity are related to the sustainable use of resources, it does not define what environmental resources are.

Important Points

• Environmental resources play a critical role in sustaining ecosystems and human life. Proper management of these resources is essential for maintaining biodiversity, ecosystem services, and overall environmental health.
• These resources are often subject to collective management due to their public good nature, meaning they benefit everyone and cannot be owned or divided easily.

Step 1: Select Economists for Triple Rooms
Choose 6 economists out of 10 for the triple rooms. This can be done in (10 choose 6) = 10! / (6!4!) = 210 ways.

Step 2: Assign Economists to Triple Rooms
Arrange the 6 selected economists into 2 triple rooms. This can be done in (6 choose 3) / 2 = 20 / 2 = 10 ways. (We divide by 2 because the two triple rooms are indistinguishable).

Step 3: Assign Economists to Double Rooms
Arrange the remaining 4 economists into 2 double rooms. This can be done in (4 choose 2) / 2 = 6 / 2 = 3 ways. (We divide by 2 because the two double rooms are indistinguishable).

Step 4: Calculate Total Arrangements
Multiply the number of ways from each step: 210 × 10 × 3 = 6300

Final Answer
6300

The correct answer is - 325

Key Points

Expectation (E) and Variance Calculation

• Given that X can take values -10 and 20 with probabilities 1/4 and 3/4 respectively.
• We need to calculate E(X²), which is the expected value of X squared.
• The formula for E(X²) is given by:
  • E(X²) = Σ [P(X = x) * x²]
• For the given data:
  • E(X²) = (1/4 * (-10)²) + (3/4 * 20²)
  • E(X²) = (1/4 * 100) + (3/4 * 400)
  • E(X²) = 25 + 300
  • E(X²) = 325
• Thus, the correct answer is 325.

Additional Information

• Understanding Expectation and Variance
  • Expectation (E): It is the mean of all possible values of a random variable, weighted by their probabilities.
  • Variance (Var): It measures how much the values of a random variable differ from the mean value.
  • The formula for variance is Var(X) = E(X²) - [E(X)]².
• Other Options:
  • Option 1 (225): This could be a result of incorrect calculation or misinterpretation of the probabilities or values.
  • Option 2 (275): This might be derived from an incorrect intermediate step in the computation.
  • Option 4 (375): This is likely an overestimation due to an error in the squaring of the values or incorrect probability weighting.

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

Key Points

• High Birth Rate and High Death Rate (A) - Stage I (I)
  • Stage I of the Malthusian Model is characterized by high birth rates and high death rates.
  • During this stage, the population growth is slow and fluctuating.
  • This stage represents pre-industrial societies where both birth and death rates are high due to limited access to medical care and other factors.
• Low Birth Rate and High Death Rate (B) - Not a part of this model (IV)
  • This combination is not typically found in the stages of the Malthusian Model.
  • In the Malthusian Model, high death rates are usually associated with high birth rates, not low birth rates.
• High Birth Rate and Low Death Rate (C) - Stage II (II)
  • Stage II is characterized by high birth rates and declining death rates.
  • This stage sees a significant increase in population due to improvements in healthcare, sanitation, and food supply, leading to a decline in mortality rates.
• Low Birth Rate and Low Death Rate (D) - Stage III (III)
  • Stage III is characterized by both low birth rates and low death rates.
  • This stage reflects more developed societies where families choose to have fewer children, and healthcare advancements continue to keep death rates low.

Additional Information

• Malthusian Model
  • The Malthusian Model, proposed by Thomas Malthus, describes how populations grow in response to available resources.
  • It suggests that population growth is exponential while food supply growth is linear, leading to potential overpopulation and resource scarcity.
  • This model is divided into stages that reflect different levels of population growth and resource availability.
• Stages of Population Growth
  • Stage I: High birth and death rates, slow population growth.
  • Stage II: High birth rates, declining death rates, rapid population growth.
  • Stage III: Low birth and death rates, stable or slow population growth.

The correct answer is - It would remain constant.

Key Points

• Flexible Exchange Rate and Free Capital Mobility
  • In the Mundell-Fleming model under a flexible exchange rate regime, the exchange rate is determined by market forces without direct government intervention.
  • Free capital mobility means that capital can move freely across borders without any restrictions, aligning domestic interest rates with international rates.
• Effect of Money Supply Increase
  • An increase in the money supply leads to lower domestic interest rates initially.
  • This causes capital outflow as investors seek higher returns abroad.
  • Capital outflow depreciates the domestic currency, making exports cheaper and imports more expensive.
  • The increase in net exports raises the aggregate demand and offsets the initial reduction in interest rates.
• New Equilibrium
  • In the new equilibrium, the increase in net exports due to currency depreciation balances out the initial impact of the increased money supply.
  • Thus, the domestic interest rate returns to the international interest rate level.
  • Therefore, the interest rate remains constant in the new equilibrium.

Additional Information

• Understanding Other Options
  • An increase in the money supply typically lowers interest rates, but under flexible exchange rates and free capital mobility, this effect is neutralized by currency adjustments.
  • The interest rate will not rise because the increased money supply initially lowers rates, leading to currency depreciation and increased exports, which stabilizes the rate.
  • The interest rate will not fall because the currency depreciation resulting from capital outflow offsets the initial drop in rates.
  • The interest rate would not rise or fall unpredictably because the model predicts a specific adjustment mechanism that stabilizes the rate.

The correct answer is - Finance Commission of India

Key Points

• Finance Commission of India
  • The Finance Commission of India is a constitutional body established under Article 280 of the Indian Constitution.
  • Its primary role is to define the financial relations between the central government and the individual state governments.
  • It determines the distribution of the net proceeds of taxes between the Centre and the States, which is referred to as tax devolution.
  • The recommendations made by the Finance Commission are of significant importance in ensuring a fair and equitable distribution of financial resources.
  • The Commission is appointed every five years and is responsible for making recommendations on various financial matters, including the principles that should govern grants-in-aid to states by the Centre.

Additional Information

• Reserve Bank of India (RBI)
  • The Reserve Bank of India is the central banking institution of India, responsible for regulating the issuance and supply of the Indian rupee.
  • It plays a crucial role in the development strategy of the government but does not determine tax devolution.
• Niti Aayog
  • Niti Aayog (National Institution for Transforming India) is a policy think tank of the Government of India, established to foster cooperative federalism.
  • It replaced the Planning Commission in 2015 but does not have the mandate to determine tax devolution.
• Ministry of Commerce
  • The Ministry of Commerce and Industry is responsible for formulating and implementing the foreign trade policy of the country.
  • It deals with issues related to trade and commerce but not with the distribution of tax revenues.

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

Key Points

• Gini Coefficient (A) - Measures inequality (IV)
  • The Gini Coefficient is a statistical measure used to gauge the distribution of income or wealth within a nation. It ranges from 0 to 1, where 0 indicates perfect equality and 1 indicates maximum inequality.
• GDP Deflator (B) - Measures changes in price level (III)
  • The GDP Deflator reflects the overall price level of all new, domestically produced, final goods and services in an economy. It is a measure of inflation.
• Head Count Ratio (C) - Measures poverty (II)
  • The Head Count Ratio is the proportion of a population that lives below the poverty line, thus indicating the prevalence of poverty.
• Depreciation (D) - Measures the wearing out of capital (I)
  • Depreciation is the accounting process of allocating the cost of a tangible asset over its useful life. It represents how much of an asset's value has been used up over time.

Additional Information

• Gini Coefficient
  • Developed by the Italian statistician Corrado Gini, this measure is widely used in economic studies to assess income or wealth inequality.
  • It is particularly useful in comparing the inequality of different countries or regions.
• GDP Deflator
  • The GDP Deflator is calculated by dividing nominal GDP by real GDP and then multiplying by 100.
  • It provides an alternative to the Consumer Price Index (CPI) as a measure of inflation.
• Head Count Ratio
  • This ratio is often used in conjunction with other poverty measures like the Poverty Gap Index to give a more comprehensive view of poverty levels.
  • It is a simple and intuitive measure, making it easy to communicate poverty statistics.
• Depreciation
  • Methods of calculating depreciation include straight-line depreciation, declining balance depreciation, and units of production depreciation.
  • Depreciation is important for businesses as it affects both the balance sheet and the income statement.

The correct answer is - Horizontal

Key Points

• Horizontal Labour Supply Curve
  • In the presence of large scale involuntary unemployment, the labour supply curve becomes horizontal.
  • This indicates that there is a surplus of labour available at the current wage rate.
  • Firms can hire more workers without needing to increase wages.
  • Thus, the wage rate remains constant regardless of the quantity of labour supplied.

Additional Information

• Vertical Labour Supply Curve
  • This would imply that the quantity of labour supplied is fixed, regardless of the wage rate.
  • It's not applicable in the case of large scale involuntary unemployment as workers are willing to work at the prevailing wage rate.
• Positively Sloped Labour Supply Curve
  • This implies that as wages increase, more workers are willing to work.
  • This is not the case in a situation with large scale involuntary unemployment.
• Negatively Sloped Labour Supply Curve
  • This would imply that as wages increase, fewer workers are willing to work.
  • This is contrary to typical economic theory and does not apply to involuntary unemployment scenarios.

The correct answer is 'Leontief isoquant.'

Key Points

• Leontief Isoquant:
  • A Leontief isoquant is the result when there is zero substitution between factors of production, meaning that inputs like labor and capital are used in fixed proportions and cannot be substituted for one another.
  • In this case, the isoquant takes the shape of an L-shaped curve, where each combination of inputs produces the same level of output, and no substitution between inputs is possible.
  • The Leontief isoquant is used in production functions with fixed input-output ratios, reflecting perfect complementarity between inputs.

Additional Information

• Option 1: Rectangular hyperbola.
  • This is incorrect. A rectangular hyperbola is associated with constant returns to scale, not with zero substitution between inputs.
• Option 2: Downward sloping straight line.
  • This is incorrect. A downward sloping straight line isoquant occurs when there is perfect substitution between inputs, which is the opposite of zero substitution.
• Option 4: Infinite slope curve.
  • This is incorrect. There is no standard economic interpretation of an infinite slope curve in the context of isoquants and factor substitution.

Important Points

• In a Leontief production function, the isoquants are L-shaped, indicating that inputs must be used in fixed proportions and cannot substitute for one another. For example, a car cannot be built with only labor or only capital; both must be combined in a fixed ratio.

The correct answer is A, B, and C.

Demand-pull inflation occurs when aggregate demand for goods and services in an economy increases more rapidly than its production capacity.

• It occurs when there is a money flow in the market.

Factors responsible for the demand-pull inflation in an economy are:

• A growing economy, when the consumers spend more and take on more debt. This leads to a steady increase in demand, which leads to an increase in prices.
• Growth in unaccounted money i.e Black money leads to more demand for goods. An expansion of the money supply with too few goods to buy makes prices increase. Hence statement B is correct.
• The high rate of population growth i.e Increase in population raises the number of consumers in the market which leads to raising in the demand for goods. Hence statement C is correct.
• Deficit financing is a situation where expenditure is higher than the revenue.
  • When the Government is spending more freely, prices shoot up.
  • Deficit financing will increase the money supply in the market. Hence statement A is correct.

The correct answer is: Life Expectancy, Educational attainment and Per Capita GDP.

The Human Development Index (HDI) is a composite measure used to assess the social and economic development of a country. It combines three main dimensions: life expectancy, educational attainment, and per capita income, reflecting both the standard of living and overall well-being of the population.

Key Points

• Life Expectancy:
  • This dimension reflects the average number of years a person is expected to live. It indicates the overall health and healthcare standards in a country.
• Educational Attainment:
  • This dimension measures the average years of schooling received by people aged 25 and older, and expected years of schooling for children of school-entry age. It reflects the access to education and the quality of educational infrastructure.
• Per Capita GDP (GNI per Capita):
  • This reflects the income level or standard of living, measured by the gross national income (GNI) per capita adjusted for purchasing power parity (PPP). It gives an idea of the economic prosperity of a country.

Additional Information

• Significance of HDI:
  • HDI provides a more comprehensive measure of development compared to just economic indicators like GDP, as it includes aspects of health and education, crucial for overall human well-being.
• Global Comparison:
  • HDI allows for international comparisons of development levels, helping to identify which countries are leading or lagging in terms of overall human development.

The correct answer is 'It occurs when increased government spending leads to higher interest rates, which reduce private investment.'

Key Points

• Crowding-out Effect Explained:
  • The crowding-out effect occurs when the government implements expansionary fiscal policy, typically by increasing spending or cutting taxes, which leads to higher demand for loanable funds.
  • To finance increased government spending, the government often borrows money, which leads to a rise in interest rates in the financial market.
  • As interest rates increase, it becomes more expensive for businesses and individuals to borrow, resulting in a reduction in private investment.
  • This crowding-out effect can diminish the positive impact of government spending on economic growth, as the reduction in private investment offsets the benefits of increased public spending.

Additional Information

• Option 2: It refers to a situation where government borrowing leads to increased private investment by providing more funds in the financial market.
  • This is incorrect. Government borrowing typically increases interest rates, making it more costly for the private sector to borrow, thus reducing private investment, not increasing it.
• Option 3: It describes the process where government spending directly replaces private consumption in the economy.
  • This is incorrect. The crowding-out effect focuses on the impact of higher interest rates on private investment, not the direct replacement of private consumption by government spending.
• Option 4: It refers to a scenario where expansionary fiscal policy leads to lower unemployment without affecting private investment.
  • This is incorrect. The crowding-out effect specifically refers to the negative impact of higher interest rates on private investment, not on unemployment.

Important Points

• The crowding-out effect is a key concern when using expansionary fiscal policy because the reduction in private sector activity can limit the overall effectiveness of the policy in boosting economic growth.
• This effect is more likely to occur when the economy is near full employment, where government borrowing directly competes with private sector borrowing.

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

Key Points

• Fiscal Deficit (A) - Capital expenditure plus revenue deficit (IV)
  • Fiscal deficit represents the total amount by which a government's expenditures exceed its income, excluding borrowing.
  • It is calculated as the sum of capital expenditure and revenue deficit.
• Primary Deficit (B) - Fiscal deficit minus interest payment (III)
  • Primary deficit is the fiscal deficit of a country excluding interest payments on previous borrowings.
  • It gives a clearer picture of the current fiscal policy stance by eliminating the effect of interest payments.
• Revenue Deficit (C) - Revenue expenditure minus revenue receipt (II)
  • Revenue deficit indicates that the government's revenue receipts are insufficient to meet the normal functioning expenses.
  • It is calculated by subtracting total revenue receipts from total revenue expenditure.
• Current Account Deficit (D) - Import minus export of goods and services (I)
  • Current account deficit occurs when a country's total imports of goods, services, and transfers exceed its total exports.
  • It reflects the country's borrowing needs from the rest of the world.

Additional Information

• Fiscal Deficit
  • It is a measure of the financial health of a government.
  • A high fiscal deficit relative to GDP may indicate a need for structural reforms or fiscal consolidation.
• Primary Deficit
  • It helps in understanding the sustainability of the fiscal deficit by focusing on the government's current fiscal policies without the burden of past interest payments.
• Revenue Deficit
  • It shows the shortfall in a government's current income over its current expenses.
  • A persistent revenue deficit is a sign of fiscal imbalance and may lead to reduced capital expenditure.
• Current Account Deficit
  • It is an important indicator of an economy's health in the global context.
  • A high current account deficit can lead to depreciation of the currency and may require foreign exchange intervention.

The correct answer is: Y = a.X.

In a geometrical series, each term is obtained by multiplying the previous term by a constant factor. This constant is known as the common ratio (denoted as ‘a’). The relationship between any two consecutive terms, X and Y, in a geometric sequence is given by the formula Y = a.X.

Key Points

• Geometrical Series:
  • A geometric series is a sequence where each term after the first is found by multiplying the previous term by a fixed, non-zero number called the common ratio.
• Common Ratio (a):
  • The common ratio 'a' is the factor by which one term is multiplied to get the next term. For example, if X is the current term and Y is the next term, then Y = a.X.
• Formula Representation:
  • The relation between consecutive terms in a geometric sequence can be expressed as: Y = a.X, where 'X' is the current term, 'Y' is the next term, and 'a' is the common ratio.

Additional Information

• Examples:
  • For example, in the series 2, 6, 18, 54, the common ratio is 3, as each term is obtained by multiplying the previous term by 3.
• Application:
  • Geometrical series are commonly used in finance, physics, and other fields where exponential growth or decay is involved.

The correct answer is Monopolistic competition.

Key Points

• Monopolistic competition:
  • Monopolistic competition is a form of market in which there are large numbers of sellers of a particular product but each seller sells somewhat differentiated but close products. Hence, Option 3 is correct.
  • Many buyers and sellers but each selling its differentiated version of good.
  • Marketing selling cost is high.
  • Goods are of different brands where brand loyalty is seen to a limit but many substitutes are available.
  • Unrestricted entry.
  • Seller is Price maker to a level.
  • Price increases by x% but demand decreases by less than x% - relatively inelastic. But more elastic than monopoly.

Additional Information

• Monopoly:
  • Buyers are many but the seller is one.
  • Product has no substitute or no close substitute
  • Other competitors can't enter the market due to laws or patents.
  • Price discrimination is seen between the poor and rich. The seller is a Price maker.
  • Relative Price inelastic increase means demand decreases by less than X% for an X% increase in price.
  • A natural monopoly is when there is an extremely high fixed cost of distribution e.g. gas, water, electricity.
• Perfect Competition:
  • In a perfect competition market structure, there are a large number of buyers and sellers. All the sellers of the market are small sellers in competition with each other.
  • There is no one big seller with any significant influence on the market. So all the firms in such a market are price takers.
  • Participants are high both buyers and sellers.
  • Products have many substitutes and no marketing or selling cost is incurred.
  • Knowledge of participants for entering into the market is perfect.
  • The seller is a Price taker, not a price maker.
  • The buyer is willing to buy all at a certain price but none at price higher. So he is a price maker.

Oligopoly:

• Buyers many but sellers few with intense competition.
• Product has close substitutes and intense competition amongst sellers. If one seller introduces change others have to follow. High cost of marketing and selling.
• Entry of new sellers is tough due to economies of scale.
• The seller is a price maker.
• Monopsony:
  • The monopoly of the buyer but multiple sellers present.
  • Entry closed for other buyers
  • Seen where the government wants to make a defense-related purchase and multiple sellers are bidding for it.
  • The buyer is a price maker.

The correct answer is: Total utility maximum.

When a consumer attains marginal utility equal to zero, it indicates that the consumer has maximized their total utility from consuming a good or service. Marginal utility refers to the additional satisfaction or utility that a consumer derives from consuming one more unit of a good. As more units are consumed, the marginal utility typically decreases until it eventually reaches zero, signaling that the total utility has reached its maximum point.

Key Points

• Marginal Utility:
  • The additional utility or satisfaction that a consumer gets from consuming an additional unit of a good or service.
• Law of Diminishing Marginal Utility:
  • According to this law, as a consumer consumes more units of a good, the marginal utility derived from each additional unit decreases.
• Maximum Total Utility:
  • When marginal utility reaches zero, it indicates that total utility is at its maximum. Beyond this point, consuming more units will not increase total satisfaction.
• Optimal Consumption:
  • A rational consumer will stop consuming additional units of a good when marginal utility is zero, as this is the point where total utility is maximized.

Additional Information

• Marginal Utility and Demand:
  • As marginal utility decreases with each additional unit consumed, consumers are willing to pay less for subsequent units, which is why the demand curve typically slopes downward.
• Total Utility After Maximum:
  • If consumption continues beyond the point where marginal utility is zero, total utility may start to decline, leading to negative marginal utility.

The correct answer is - (A), (B) and (D) only

Key Points

• Tariffs
  • A tariff is a tax imposed on imported goods and services. It makes imported goods more expensive to protect domestic industries from foreign competition.
  • Tariffs can be specific (fixed fee per unit) or ad valorem (percentage of the price).
• Quotas
  • Quotas are limits set on the quantity of a specific product that can be imported or exported during a given time frame.
  • Quotas help in controlling the volume of trade to protect domestic industries and manage trade balance.
• Anti-dumping duties
  • Anti-dumping duties are tariffs imposed on foreign imports believed to be priced below fair market value.
  • These duties are used to protect domestic industries from unfair competition and to level the playing field.

Additional Information

• Sales taxes
  • Sales taxes are taxes imposed on the sale of goods and services within a country.
  • They are not directly related to trade policies but are more concerned with internal revenue generation.

The correct answer is - The probability that the other side of this coin is tail is 1/3

Key Points

• Probability Analysis
  • We have three coins:
    • Coin A: Heads on both sides (H-H)
    • Coin B: Tails on both sides (T-T)
    • Coin C: One head and one tail (H-T)
  • One coin is randomly selected and shows a head when tossed. We need to find the probability that the other side is a tail.
• Calculation Steps
  • The possible outcomes that show a head:
    • Coin A: 2 heads (H-H), both sides show head.
    • Coin C: 1 head (H-T), one side shows head.
  • There is no possibility for Coin B as it has tails on both sides.
  • The probabilities:
    • Probability of selecting Coin A = 1/3 (since 3 coins are equally likely)
    • Probability of selecting Coin C = 1/3
    • Out of these heads, the outcomes that favor the head:
      • Coin A: 2 heads (both heads show), hence, the probability of head = 1
      • Coin C: 1 head (one head shows), hence, the probability of head = 1/2
    • Using Bayes' theorem:
      • P(Coin C | Head) = (P(Head | Coin C) * P(Coin C)) / P(Head)
      • P(Head) = P(Head | Coin A) * P(Coin A) + P(Head | Coin C) * P(Coin C)
      • P(Head) = 1 * 1/3 + 1/2 * 1/3 = 1/3 + 1/6 = 1/2
      • P(Coin C | Head) = (1/2 * 1/3) / (1/2) = 1/3
    • Thus, the probability that the other side is tail given that the head was shown is 1/3.

Additional Information

• Bayesian Probability
  • Bayesian probability is an interpretation of the concept of probability in which, instead of frequency or propensity of some phenomenon, probability is interpreted as reasonable expectation representing a state of knowledge or as quantification of a personal belief.
  • Bayes' theorem describes the probability of an event, based on prior knowledge of conditions that might be related to the event.

The correct answer is - (D), (B), (A), (C).

Key Points

• Minimum Support Prices (MSP) for foodgrains are decided (D).
  • MSP is a government policy to ensure farmers are protected from price fluctuations in the market. It is the first step to ensure fair earnings for farmers.
• Production of foodgrains in the agricultural sector (B).
  • Once the MSP is set, farmers are incentivized to produce foodgrains knowing they have a guaranteed price.
• Procurement of foodgrains by the Food Corporation of India (FCI) (A).
  • After production, the FCI procures foodgrains from farmers at the MSP to maintain a buffer stock and ensure food security.
• Distribution of foodgrains through fair price shops (C).
  • The procured foodgrains are then distributed through the Public Distribution System (PDS) to provide food at subsidized rates to the economically weaker sections of society.

Additional Information

• Procurement of Foodgrains
  • The Food Corporation of India (FCI) is the main agency responsible for the procurement and distribution of foodgrains in India.
  • FCI ensures that foodgrains are available throughout the country and maintains a buffer stock for emergencies.
• Public Distribution System (PDS)
  • The PDS is a national food security system that distributes subsidized food to India's poor.
  • It was established to manage food scarcity and distribute foodgrains at affordable prices to the most vulnerable sections of society.

The correct answer is 'marginal social benefit is greater than marginal private benefit.'

Key Points

• Positive Externality:
  • A positive externality occurs when the marginal social benefit (MSB) of an activity or good is greater than the marginal private benefit (MPB), meaning the activity generates additional benefits for society beyond those enjoyed by the individual or firm responsible for the activity.
  • This discrepancy often leads to underproduction of the good or service from society's perspective, as individuals do not account for the full societal benefits when making decisions based solely on private benefits.
  • Examples of positive externalities include education, vaccination, and public parks, where the benefits extend beyond the individual and positively impact society as a whole.

Additional Information

• Option 1: Marginal social benefit is equal to marginal private benefit.
  • This is incorrect. When MSB equals MPB, there is no externality, as all the benefits are captured privately.
• Option 2: Marginal social benefit is less than average social benefit.
  • This is incorrect. This does not reflect the concept of externalities, where the focus is on the relationship between marginal social benefit and marginal private benefit.
• Option 4: Marginal social benefit is nil.
  • This is incorrect. A nil marginal social benefit would imply no externality, which contradicts the concept of a positive externality, where MSB exceeds MPB.

Important Points

• Positive externalities create benefits that are enjoyed by third parties or society as a whole, beyond those involved in the transaction, and often require government intervention to ensure optimal production levels.
• Understanding the difference between marginal social benefit and marginal private benefit is key to addressing market failures caused by externalities.

The correct answer is - 100*Var(X)

Key Points

• Explanation for the correct answer:
  • Given the equation Y = 20 + 10X, we need to find Var(Y).
  • Variance of a constant 'a' added to a random variable 'X' does not affect the variance, so we can disregard the constant 20 in the equation.
  • Variance of a constant multiplied by a random variable 'X' is given by Var(aX) = a²Var(X).
  • In this case, the constant 'a' is 10. Thus, Var(10X) = 10²Var(X) = 100Var(X).
  • Therefore, Var(Y) = 100Var(X).

Additional Information

• Brief overview of other options:
  • 10*Var(X)
    • This option is incorrect because it does not account for the square of the constant multiplier 10.
  • 400 + 100Var(X)
    • This option is incorrect because the addition of 400 is not relevant in the context of variance, which is affected only by scaling, not by addition of constants.
  • 20 + 10*Var(X)
    • This option is incorrect because it adds the constant 20 directly to the variance, which is not mathematically accurate.

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

Key Points

• Kuznets Curve
  • Describes the relationship between income and inequality.
  • It suggests that as an economy develops, market forces first increase and then decrease economic inequality.
• Fisher Effect
  • Describes the relationship between expected inflation rate and interest rate.
  • It states that the real interest rate is equal to the nominal interest rate minus the expected inflation rate.
• J Curve Effect
  • Describes the relationship between currency depreciation and current account balance.
  • Initially, a country's trade deficit worsens following a devaluation of its currency, but eventually, the trade balance improves.
• Multiplier Effect
  • Describes the relationship between autonomous investment and output.
  • It refers to the proportional amount of increase in final income that results from an injection of spending.

Additional Information

• Other Options
  • Incorrect options do not match the correct relationships between the concepts and their descriptions.
  • Understanding these economic concepts is crucial for comprehending their implications on economic policies and outcomes.

The correct answer is - (C), (A), (B), (D)

Key Points

To determine the correct order of countries based on nominal per capita income in 2022, the estimated figures (in USD) are as follows:

• Russia (C): $15,345
• China (A): $12,720
• Brazil (B): $8,570
• India (D): $2,388

Order (highest to lowest):
Russia (C) > China (A) > Brazil (B) > India (D)

Additional Information

Country-Specific Details

• Russia: Russia's economy relies heavily on natural resources, particularly oil and gas, contributing to its higher per capita income.
• China: China's rapid industrialization and economic reforms have significantly boosted its GDP and per capita income over the past decades.
• Brazil: Brazil has a mixed economy with agriculture, mining, manufacturing, and the service sector contributing to its GDP, but economic challenges have limited its per capita income growth.
• India: Despite being one of the fastest-growing major economies, India’s large population results in a lower per capita income compared to the other listed countries.