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UPSC Exam  >  UPSC Test  >  Indian Economy CSE  >  Previous Year Questions: Economics- 2 - UPSC MCQ

Previous Year Questions: Economics- 2 with solutions - Free MCQ Test Attempt


MCQ Practice Test & Solutions: Previous Year Questions: Economics- 2 (30 Questions)

You can prepare effectively for UPSC Indian Economy for UPSC CSE with this dedicated MCQ Practice Test (available with solutions) on the important topic of "Previous Year Questions: Economics- 2". These 30 questions have been designed by the experts with the latest curriculum of UPSC 2026, to help you master the concept.

Test Highlights:

  • - Format: Multiple Choice Questions (MCQ)
  • - Duration: 35 minutes
  • - Number of Questions: 30

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Previous Year Questions: Economics- 2 - Question 1
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If the price of tea falls, demand for coffee will        

Detailed Solution: Question 1

If the price of tea falls, demand for coffee will decrease as tea and coffee are substitute goods. Hence, when the price of tea falls, consumers will spend more on tea and thus the demand for coffee will fall.

Previous Year Questions: Economics- 2 - Question 2
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Capital formation in an economy depends on                    

Detailed Solution: Question 2

Capital formation depends on savings. Saving is that part of national income which is not spent on consumption goods. Thus, if national income remains unchanged more saving implies less consumption. In other words, in order to save more and more people have to curtail their consumption voluntarily.

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Previous Year Questions: Economics- 2 - Question 3
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The practice of selling goods in a foreign country at a price below their domestic selling price is called                    

Detailed Solution: Question 3

C is the correct option.Dumping is a term used in the context of international trade. It's when a country or company exports a product at a price that is lower in the foreign importing market than the price in the exporter's domestic market.

Previous Year Questions: Economics- 2 - Question 4
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In the law of demand, the statement “Other things remain constant” means        

Detailed Solution: Question 4

In economics, the law of demand is an economic law, which states that consumers buy more of a good when its price is lower and less when its price is higher (ceteris paribus). The Law of demand states that the quantity demanded and the price of a commodity are inversely related, other things remaining constant. That is, if the income of the consumer, prices of the related goods, and preferences of the consumer remain unchanged, then the change in quantity of good demanded by the consumer will be negatively correlated to the change in the price of the good.

Previous Year Questions: Economics- 2 - Question 5
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Which of the following does not determine supply of labour?             

Detailed Solution: Question 5

C is the correct option.Size and age-structure of population, Nature of work and Work-leisure ratio are the determinants of supply of labour. 
However, the marginal product of labor (MPL) is the change in output that results from employing an added unit of labor. It is a feature of the production function, and depends on the amounts of physical capital and labor already in use.
 

Previous Year Questions: Economics- 2 - Question 6
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The concept that under a system of free enterprise, it is consumers who decide what goods and services shall be produced and in what quantities is known as                    

Previous Year Questions: Economics- 2 - Question 7
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The fixed cost on such factors of production which are neither hired nor brought by the firm is called    

Detailed Solution: Question 7

The correct option is A.
Social cost is defined as a sum of the private cost and external costs. The social cost is generally not borne by an individual. It may be borne by the entire society, city or even country. This is not a one-time cost like private cost. This cost is recurrent and it is very difficult to calculate due to the inclusion of external costs. The cost may result from an event, action, or policy changes. Social costs are not calculated whenever a seller sells any product or item to the buyer. This cost is added up from the use of that product.

Previous Year Questions: Economics- 2 - Question 8
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While determining income the expenditure on which of the following items is not considered as investment?                    

Previous Year Questions: Economics- 2 - Question 9
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Equilibrium price means        

Previous Year Questions: Economics- 2 - Question 10
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When aggregated supply exceeds aggregate demand                    

Detailed Solution: Question 10

When aggregate supply is more than aggregate demand or when investment is less than savings, then the planned inventory rises above the desired level. To clear the unwanted increase in inventory, firms plan to reduce the production output till Aggregate demand becomes equal to Aggregate supply.

Previous Year Questions: Economics- 2 - Question 11
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When marginal utility is zero, the total utility is                        

Detailed Solution: Question 11

  • Total Utility (TU) is the total satisfaction from consuming a good.
  • Marginal Utility (MU) is the extra satisfaction from one additional unit.
  • When MU is positive, TU keeps increasing.
  • When MU becomes zero, TU stops increasing.
  • Therefore, when MU = 0, Total Utility is maximum.

Therefore ,Correct answer: (c) maximum

Previous Year Questions: Economics- 2 - Question 12
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According to Keynesian theory of income determination, at full employment a fall in aggregate demand causes            

Detailed Solution: Question 12

The correct option is A.
According to Keynesian theory of income determination, at full employment a fall in aggregate demand causes a fall in prices of output and resources.
 

Previous Year Questions: Economics- 2 - Question 13
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State which of the following is correct? The consumer price index reflects            

Detailed Solution: Question 13

The CPI measures the average change in prices over time that consumers pay for a basket of goods and services, commonly known as inflation. Essentially it attempts to quantify the aggregate price level in an economy and thus measure the purchasing power of a country's unit of currency.

Previous Year Questions: Economics- 2 - Question 14
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Transfer earning or alternative cost is otherwise known as                 

Previous Year Questions: Economics- 2 - Question 15
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Equilibrium is a condition that can        

Detailed Solution: Question 15

The correct option is C.
In economics, economic equilibrium is a state of the world where economic forces are balanced and in the absence of external influences the (equilibrium) values of economic variables will not change. For example, in the standard text-book model of perfect competition, equilibrium occurs at the point at which quantity demanded and quantity supplied is equal. Equilibrium can change if there is a change in demand or supply conditions which are internal factor changes. In equilibrium, the price is endogenous because producers change their price
 

Previous Year Questions: Economics- 2 - Question 16
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Which of the following concepts are most closely associated with Keynes?         

Previous Year Questions: Economics- 2 - Question 17
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Average revenue means        

Previous Year Questions: Economics- 2 - Question 18
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If the price of an inferior good falls the quantity demanded for them 

Detailed Solution: Question 18

Inferior goods are the goods whose demand falls when consumer's real income rises and whose demand rises when consumer's real income falls. Hence, when the price of the inferior goods falls, the quantity demanded for them decreases.

Previous Year Questions: Economics- 2 - Question 19
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Economic rent refers to         

Detailed Solution: Question 19

Payment made for the use of land: Economic rent traditionally refers to the payment made for the use of land, which is the surplus payment to the landowner over and above what is required to keep the land in its current use. This concept originates from the work of classical economists like David Ricardo, who analyzed how landowners receive rent due to the inherent productivity of the land and its location, which does not change regardless of the landowner's efforts.

Previous Year Questions: Economics- 2 - Question 20
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Demand of commodity mainly depends upon                    

Previous Year Questions: Economics- 2 - Question 21
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In equilibrium, a perfectly competitive firm will equate                    

Detailed Solution: Question 21

D is the correct option. Equilibrium in perfect competition is the point where market demands will be equal to market supply. A firm's price will be determined at this point. In the short run, equilibrium will be affected by demand. ... A firm will receive only normal profit in the long run at the equilibrium point.
Hence, marginal revenue with marginal cost is equated.

Previous Year Questions: Economics- 2 - Question 22
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The marginal utility curve slopes downward from left to right indicating            

Previous Year Questions: Economics- 2 - Question 23
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When there is a change in demand leading to a shift of the demand curve to the right at the same price as before, the quantity demanded will         

Detailed Solution: Question 23

In economics, the demand curve is the graph depicting the relationship between the price of a certain commodity and the amount of it that consumers are willing and able to purchase at that given price. The shift of a demand curve takes place when there is a change in any non-price determinant of demand, resulting in a new demand curve. There is movement along a demand curve when a change in price causes the quantity demanded to change. When there is a change in an influencing factor other than price, there may be a shift in demand curve to the left or to the right, as the quantity demanded increases or decreases at a given price. For example if there is a positive news report about the product quantity demanded at each price may increase as demonstrated by the demand curve shifting to the right.

Previous Year Questions: Economics- 2 - Question 24
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Movement along the same demand curve is know as                    

Detailed Solution: Question 24

A is the correct option.Expansion in demand refers to a rise in the quantity demanded due to a fall in the price of commodity, other factors remaining constant. i. It leads to a downward movement along the same demand curve. ... It is also known as 'Extension in Demand' or 'Increase in Quantity Demanded'.

Previous Year Questions: Economics- 2 - Question 25
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Say’s law of market holds that        

Detailed Solution: Question 25

B is the correct option.Say’s law of market holds that supply creates its own demand.
Say's Law of Markets is theory from classical economics arguing that the ability to purchase something depends on the ability to produce and thereby generate income. Say reasoned that to have the means to buy, a buyer must first have produced something to sell.
 

Previous Year Questions: Economics- 2 - Question 26
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The income elasticity of demand being greater than one, the commodity must be         

Detailed Solution: Question 26

According to the income elasticity of demand if the percentage change is quantity demanded is more than proportionate to the percentage change in income then the good is classified as a luxury good.

Previous Year Questions: Economics- 2 - Question 27
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‘Marginal efficient of capital’ is         

Detailed Solution: Question 27

A is the correct option.The marginal efficiency of capital displays the expected rate of return on investment, at a particular given time. The marginal efficiency of capital is compared to the rate of interest.

Previous Year Questions: Economics- 2 - Question 28
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Quasi rent is a ......... phenomenon.                    

Detailed Solution: Question 28

The correct option is C.

Quasi-rent or Marshallian rent is a temporary economic rent like returns to a supplier/owner. Alfred Marshall was the first to observe quasi-rents. Quasi-rent differs from pure economic rent in that it is a temporary phenomenon. ... The additional income earned by these factors in the short-period is similar to rent.

Previous Year Questions: Economics- 2 - Question 29
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Liquidity preference means        

Previous Year Questions: Economics- 2 - Question 30
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The labour which creates value and gets rewarded for its services is called            

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This test contains 30 MCQs on Previous Year Questions: Economics- 2 with detailed solutions for each question. It is part of the Indian Economy for UPSC CSE course on EduRev, designed to align with the current UPSC syllabus. Each solution explains not just the correct answer but also gives you an understanding of the topic — not just to attempt the question but also help you prepare for the exam with practice.

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