Nature and Scope of Economics – CS Foundation Economics Notes

Economics is the social science studying the production, distribution, and consumption of goods and services. Economics is derived from the Greek word ‘oikonomikos’ which can be divided into two parts

Oikos – which means house
Nomos – which means management

At its most basic, however, economics considers how a society provides for its needs. Its most basic need is survival; which requires food, clothing, and shelter. For every society, it is required that its affairs are managed efficiently and for this, a person is required who can deal with these affairs. Here comes the requirement of an economist. Economists are the people who try to find out the way in which the wants of the people can be satisfied. The job of the economist is very difficult as he has to find out a way to satisfy the wants of people from the limited resources available to mankind.

Economics may appear to be the study of complicated tables and charts, statistics and numbers, but, more specifically, it is the study of what constitutes rational human behavior in the endeavor to fulfill needs and wants. Economics can also be defined as house management. The role of economists revolves around wants scarcity of resources and satisfaction of wants with the help of limited resources. Challenges for economists are

  • Study the ways to tackle unlimited wants of society
  • Resources in a society are always limited
  • Wants are always increasing and are more than resources
  • Alternate systems are required to allocate these resources between all the wants

As an individual, for example, you face the problem of having only limited resources with which to fulfill your wants and needs, as a result; you must make certain choices with your money. You’ll probably spend part of your money on rent, electricity, and food. Then you might use the rest to go to the movies and/or buy a new pair of jeans.

Economists are interested in the choices you make, and inquire into why, for instance, you might choose to spend your money on a new DVD player instead of replacing your old TV. They would want to know whether you would still buy a carton of cigarettes if prices increased by Rs. 2 per pack. The underlying essence of economics is trying to understand how both individuals and nations behave in response to certain material constraints.

Economics is pervasive in nature. It is used both for academics as well as for the formulation of policies by all sections of society. The reasons for use of economics for a business entity are multiple, some of them are

  • To earn profit
  • To grow in adverse conditions
  • Maximize control over the market
  • To increase their wealth
  • To survive when the market is not good
  • To become economically strong

Economics is scientific as it seeks to explain events that take place in the real world by way of observation, hypothesis, prediction, experimentation, and conclusion. The focus of economics is on human behavior makes it a social science

1. Study of Economics
Economics is a driving force of human interaction, thus studying economics helps us to understand why people and government are behaving in a particular way. People who study economics are called economists. These are the people who help in the rational use of resources. As we know wants are ever-changing and ever-increasing but resources but the resources to satisfy the wants of people, industry, and country are limited. Thus economists have to come out with plans ‘ so that these resources can be used in a way to get maximum benefit.

Economics is concerned with the production & consumption of resources in the most beneficial way In way economics can be said as a study of making choices. To understand it better we have to understand what are our resources. Resources can be anything raw material, any goods, and services, etc. Economics for an individual needs to decide between his needs like owning a car is more beneficial or owning a house out of his limited cash resources. Similarly, the company has to decide whether the production of product ‘A’ is more beneficial or product ‘B’. Similarly country has to decide whether giving tax benefits is more beneficial or giving infrastructure. A priority of the satisfaction of want is the most important work of economists.

Thus the economic system is made of two parts

Economic wants – Economic wants are ever-increasing wants. They include the consumption of goods and services.
Noneconomic wants – these are wants that are not related to the consumption of goods and services
eg. Economic want would be a home to live in while a non-economic want will be a happy living (peace of mind).

2. Definitions of Economics
Several definitions of Economics have been given. For the sake of convenience let us classify the various definitions into four groups:

  1. Science of wealth
  2. Science of material well-being
  3. Science of choice making
  4. Science of dynamic growth and development We shall examine each one of these briefly

3. Science of wealth (Adam Smith)
Adam Smith, considered to be the founding father of modem Economics, defined Economics as the study of the nature and causes of nations’ wealth or simply as the study of wealth. Features of his definition of economics are:

  • His definition considered economics as the science of wealth creation.
  • His view for the economy was to look for the ways in which the maximum wealth an individual or a country can get.
  • As per him a good economy needs to be production-based and has no place for non-tangible services like health, teaching, etc.
  • The economic policy of a country is to look out for ways in which wealth can be created
  • It highlighted an important problem faced by each and every nation of the world, namely the creation of wealth
  • The book in which his concepts of definition were given is ‘An inquiry into the nature & causes of the wealth of Nations’

Merits of Adam Smith definition

  • Since the problems of poverty, unemployment, etc. can be solved to a greater extent when wealth is produced and is distributed equitably which justifies the definition addresses the problems of economic growth and increase in the production of wealth.
  • can be considered as the first step towards the healthy economics

Demerits of Adam Smith’s definition

  • no emphasis on distribution of income amongst masses
  • ignoring the things which are incidental to the productive definition of economics such as health, education, etc.
  • Ricardo was another economist which did agree with the wealth definition but he emphasized the distribution of wealth

4. Science of material well-being (A. Marshall)
A. Marshall was the person who gave the theory emphasizing the material welfare of man. Characteristic features of his theory are

  • Economics is a study of mankind in the ordinary business of life
  • Basic principle was the creation of wealth and use of wealth
  • It examines that part of individual and social action which is most closely connected with the attainment and with the use of the material requisites of well-being
  • it is on one side a study of wealth and on the other and more important side a part of the study of the man
  • man gets precedence over wealth
  • He wrote the book “ Principles of Economy” which tells about his way of defining economics.

Merits of A. Marshall theory

  • His definition is better as compared to Adam Smith
  • In his definition importance is given to human life and society
  • He stresses individual and social welfare
  • Also discusses the unequal distribution of wealth

Demerits

  • It is not possible to define welfare
  • Nonmaterial services were ignored
  • Restricted the scope and subject matter of economics
  • There is no unanimity about the concept of welfare
  • Human welfare talked was related to material goods and services and not the political and social aspects of life.

“The range of our inquiry becomes restricted to that part of social welfare that can be brought directly or indirectly
into relation with the measuring rod of money” by A.C. Pigou. His definition involved only welfare in contrast to A. Marshall which involved welfare as well as wealth creation. The book written by A.C. Pigou is “ The economics of welfare” which tells about his way of defining economics.

5. Science of choice-making – L. Robbins
Economics is the definition of scarcity as per L. Robbins. According to Robbins, “Economics is a science which studies human behavior as a relationship between ends and scarce means which have alternative uses”.
He wrote a book “ An essay on the nature and significance of economic science” which tells about his way of defining economics.

6. Characteristics of his definition

  • Emphasized points like scarcity of resources
  • Human wants are unlimited
  • Limited means to satisfy human wants
  • Alternative uses of scarce resources
  • Need for choice and optimization
  • Efficient use of scarce resources.
  • As per him, the role of economists is to investigate how the economy is trying to solve the problem of scarcity and report it.
  • Economist job is to study economics to see what is and not what it should be

Merits

  • Stressed on points like scarcity of resources, unlimited wants and different alternatives to be chosen for a resource
  • His theory gave away that for the satisfaction of wants there are various alternative ways to choose.
  • It is more realistic and practical.
  • the definition clearly identifies the existence of the economic problem in a most comprehensive manner.
  • Robbins brings into focus not only goods but also services required to satisfy human wants.

Demerits

  • Lacked the utilization of knowledge that an economist has. As per critics economists, knowledge is to be used for the betterment of the nation and not to sit and act just like an investigator
  • No importance has been given to services like education, law, etc. Which can not be provided by the market instead it is to be provided by authorities.
  • Made economics a pure science
  • Described economics only as a valuation theory
  • It ignores the macro aspect of economics

7. Science of dynamic growth and development (Paul Samuelson)
Economics is concerned with determining the pattern of employment of scarce resources to produce commodities over time. Thus, the dynamic problems of production have been brought within the purview of Economics. His definition was more inclusive definition.
Characteristic features

  • A large number of modem economists subscribe to this broad definition of Economics.
  • the modern definition of Economics is the most comprehensive of all the definitions
  • All the issues that were highlighted in the earlier definitions are included here
  • In addition, the issues of development of a backward economy, as well as those of growth in a mature capitalist economy, form part of this definition
  • Economics, as it stands today, is built on the basis of this comprehensive definition.

Merits

  • As per his definition economics is the study of the scarcity of resources and giving an efficient use to those resources.
  • This definition is practical in nature.
  • His definition is complete and advance.
  • Distribution of resources is to be done for economic development
  • Economics is a systematic use of resources
  • It recognizes the dynamic changes taking place, both in the means (resources) and ends (wants) with the passage of time.
  • His definition is growth-oriented
  • Economics analyses the costs and benefits of improving the pattern of resource allocation.

Economics -As science and as an art:
Often a question arises – whether Economics is a science or an art or both. Economics can be treated as science as it can be measured in monetary terms and has a separate way of studying it, it can forecast but still, it can not be truly considered as science because the results vary upon the economist who is analyzing it. Thus the study of economics is dependent on the thoughts of an economist who is studying it. For one subject of economics, the results vary as per each economist thus it can not be science because science gives the same result irrespective of the person who is studying it.

8. Economics is a science
Science is the systematized body of knowledge that creates a relationship between causes and their effects. In other words, every discipline has got certain theories, concepts,s, and laws showing the relationship between causes and their effects in science. Economics has got its own theories, concepts, and laws, so it is definitely a science though not an exact science, like Physics and Chemistry.
If we analyze Economics, we find that it has all the features of science.

  • studies the relationship between cause and effect.
  • It is capable of measurement.
  • It has its own methodological apparatus.
  • It should have the ability to forecast

9. Classification of science
A.Positive Science
B.Normative science
A.Positive science – It presents the real picture of facts without any comments and suggestions. Economics also deals with positive issues, so it is a positive science. By positive science, we mean that economics is concerned with the satisfaction of unlimited wants from limited resources. A community may use its limited resources for making guns rather than butter, but it is no concern of the economists to condemn or appreciate this policy. Professor Robbins emphasized the positive aspects of science but Marshall and Pigou have considered the ethical aspects of science which obviously are normative.

B.Normative Science – Normative science is concerned with human values. It is prescriptive in nature and described ‘what should be the things’. It promotes social and economic values. Economics is also normative science because it suggests ways and measures to be adopted for the economic betterment of the people. For example, the questions like what should be the level of national income, what should be the wage rate, – all fall within the scope of normative science.

10. Economics as an Art
Art is nothing but the practice of knowledge, economics is very complex, there are no easy overarching explanations like E=MC2. Science gives theories but linking theory to the real world is always going to be a very subjective experience. It depends on which sets of data you use, it depends on which assumptions to make, it depends on who makes the assumption. Unlike science which is theoretical, art is practical.

11. Major branches of economics
Economic analysis is concerned with how an economy works, the formulation of economic laws, the methods of economic inquiry, and the different approaches to economics. Economic theory, as it stands today, has several branches.

1. Microeconomics
“Micro” is derived from the Greek word “Mikros” meaning small. It is also described as price and value theory. This part of economics is concerned with individuals like one individual, one firm, etc. Micro-Economics is concerned with

  1. Product pricing;
  2. Consumer behavior
  3. Factor pricing;
  4. Economic conditions of a section of the people;
  5. Study of firms; and
  6. Location of an industry.

2. Macroeconomics
“Macro is derived from the Greek word “Makros” meaning large. Macroeconomics is that branch of economics that is concerned with the economic magnitudes relating to the economic system as a whole, rather than to the microeconomic units like individuals or firms. It is also called aggregate economics as it is the study of all the units together. It is more realistic.
Macroeconomics is concerned with

  1. National income and output;
  2. price level;
  3. Balance of trade and payments;
  4. The external value of money;
  5. Saving and investment;
  6. Government policy
  7. Employment and economic growth

3. International economics – International trade between countries has introduced one more branch of economics which deals with the trades between countries. International economics is the field of study that deals with trade between countries. Some of the topics considered in the field of international economics are differences in taxes, exchange rates, the role of regulations in different countries, etc.

4. Public Finance – It is also known as fiscal economics as it deals with the role of government in economics. It has ruled out the concept of laissez-faire (no role of Government in economy). It outcasts the earlier theories which overruled the role of government in economics.

5. Health economics- for human development it has been realized that health also plays an important role. Moreover, education economics is also emerging up.

6. Development economics – After Second World War many countries got freedom from colonial rule and a new field of economics emerged known as development economics.

7. Environmental Economics – Awareness regarding nature and its effect on mankind has emerged one major branch of economics called environmental economics. It is been found that environmental economics is required for sustainable development.

8. Urban and Rural economics – The role of location is very much important for economics. Urban economics is broadly the economic study of urban areas; as such, it involves using the tools of economics to analyze urban issues such as crime, education, etc. Rural economies is the study of rural economies such as farm and nonfarm industry, etc.

9. Managerial economics – It answers the five fundamental problems of decision-making. These problems are:

  • what should be the product mix
  • which is the least cost production technique and input mix
  • what should be the level of output and price of the product
  • how to take investment decisions.
  • how much should be the selling cost

12. Economic Problem
The main economic problems faced by every society are:

  1. Unlimited human wants,
  2. Limited availability of resources to satisfy those wants, and
  3. Fulfillment of unlimited wants with limited resources.

The first thing to be thought about is what to produce which means limited resources are to be given a route. It is to be decided out of these limited resources which unlimited want can be satisfied. The second thing is how to produce? Thus the product produced from this limited resource has to be cost-effective which means the cost of production is to be minimum but production has to be maximum. Now for this, we have to decide about the procedure which is most cost-effective.
The third thing is for whom we want to produce?
To answer these three things Samuelson used the production possibility curve. A production possibility curve tells what to produce in the most beneficial way.

13. Production Possibility Curve Features of PPC are

  • The production possibility curve is a hypothetical representation of the amount of two different goods that can be obtained by shifting resources from the production of one to the production of the other.
  • The curve is used to describe a society’s choice between two different goods.
  • A production possibilities curve (PPC) represents the boundary or frontier of the economy’s production capabilities, hence it is also frequently termed a production possibilities frontier (PPF).
  • Asa frontier, it is the maximum production possible given existing (fixed) resources and technology.
  • Producing on the curve means resources are fully employed while producing inside the curve means resources are unemployed.
  • The law of increasing opportunity cost is what gives the curve its distinctive convex shape.
    Important things to notice about the definition of the production possibility curve are:
  • It indicates all possible combinations of the production of two goods or services.
  • It is assumed that all the resources of a society are used fully and efficiently.

Nature and Scope of Economics – CS Foundation Economics Notes Chapter 1 img 1

In the above picture, there is a PPC of two products butter and gun. Anything inside the curve that points to A indicates inefficient production while C which lies outside the graph shows that reaching this point is impossible.

Line on which point B lies in the production possibility curve so various combinations of production between butter and guns lie on this line.

Thus if we move little up from point B than more of guns will be produced and less butter from the available resources and if we move below point B than more butter and less guns will be produced Thus it is to be decided that which item is needed more because resources are limited. This is being described as opportunity cost. Opportunity cost is the value of what is foregone in order to have something else. This value is unique for each individual. You may, for instance, forgo guns in order to have extra butter. A higher production curve can be achieved with the improvement of technology from the same resources.

14. Different types of Economic System
The type of economic system present in the system is

  1. Capitalist Economy
  2. Socialist Economy
  3. Mixed Economy

1.Capitalist Economy – This economic system emphasizes the freedom of individuals as consumers and suppliers of resources, and allows market forces to determine the allocation of scarce resources through the mechanism called price. Features of such economy are

  • It is Based on market demand and supply, consumers are free to buy goods and services of their choice and
  • producers allocate their resources based on the demand.
  • Price plays an important role
  • Whole of the economy is in the hands of private enterprises
  • Role of Government is negligible
  • It is theoretical type of economic system cause there are certain fields where involvement of Government is must like defence, health etc.
  • Consumers choose the products they want and producers allocate their available resources to that product based on the demand for different products.
  • Even if the economy is capitalist some part of it is still in the hands of the Government
  • Unequal distribution of money
  • Monopolistic competitive
  • Policy of Laissez faire
  • More rewarding for right decisions and hard work
  • No place for human values
  • Because of competition, national resources are wasted as only profitable products are produced
  • Faster growth because of competitiveness
  • 2.Socialist Economy – In such kind of economy whole market is in the hands of Government and co-operatives. Socialism emphasizes equality rather than achievement, and values workers by the amount of time they put in rather than by the amount of value they produce. It also makes individuals dependent on the state for everything from food to health care. Characteristic features are
  • Removes the inequalities
  • socialism is based on bureaucratic central planning and collective ownership.
  • Socialism believes that it provides economic security
  • No competition as consumers have to choose from what has been produced
  • Not a consumer-driven economy.
  • Thus, all decisions, from the allocation of resources to the distribution of end products are taken care of by the government.
  • There is no place for private ownership
  • It is a classless society as no property is owned by private individuals
  • It eliminates the fluctuations of the economy
  • Slow growth as no competition
  • In this type of systems, efficient can be achieved only when demand are accurately estimated and resources allocated accordingly.
  • No incentives for hard work

3.Mixed economy – Mixed economy has features of both socialism as well as capitalism but there is no fixed proportion of capitalism and socialism. Mixed economies as an economic ideal are supported by people of various political persuasions. Characteristic features are

  • A mixed economy uses cost-benefit analysis to answer the fundamental questions discussed earlier – what, how, and for whom to produce.
  • The economic freedom side includes privately-owned industry for reasons including individual freedom, economic efficiency and the incentive to innovate provided by competition. The government regulation side addresses concerns that the private sector cannot be (or at least has never yet been) well equipped to address, such as environmental protection, maintenance of employment standards, etc.
  • here, government controls the price fluctuations to achieve certain objectives such as a high level of Employment and Low level of Inflation.
  • India practices mixed economy system.
  • In this system market mechanism is not totally abolished.
  • the success of the system depends on the knowledge, expectation, and application of government authorities.
  • A mixed economy is a mixture of freedom and control with no principle rules or theories to define it
  • In some areas of a mixed economy, the government may even have a monopoly.
  • Most of the developed countries of the world have a mixed economy.
  • The mixture of two different economic philosophies can imply a variety of consequences for a country, some of which are seen as beneficial, while others are neutral or detrimental.
  • Mixed economies are also known as dual economies.

15. Economic cycles
The natural fluctuation of the economy between periods of expansion (growth) and contraction (recession) is economic cycle Features of economic cycles are

  • Factors such as gross domestic product (GDP), interest rates, levels of employment and consumer spending can help to determine the current stage of the economic cycle.

16. Economic boom
In this demand for goods and services, both are increasing. Features of the Economic boom are

  • The period is marked by productivity increases, sales increases, wage increases and rising demand.
  • An economic boom may be accompanied by a period of inflation.
  • In the stock market, booms are associated with bull markets, Booms are generally followed by bust. The reason being the growth that takes place in a boom is rarely maintained and backed up by actual company profits

17. Economic slowdown
A situation in which GDP growth slows but does not decline. Features of an economic slowdown are

  • Output is still rising while demand has declined For example, if GDP goes from 5% growth to 3% growth, an economy is experiencing a slowdown. Most analysts do not consider a slowdown to be a recession, but unemployment may rise and productivity may. decline.

18. Economic recession
In economics, a recession is a business cycle contraction, a general slowdown in economic activity.
Feature is

  • There is a fall in output as well as demand
  • GDP, employment, investment spending, capacity utilization, household income, business profits, and inflation fall, while bankruptcies and the unemployment rate rise.

Nature and Scope of Economics MCQ Questions

Question 1.
a.To understand society economic description
b.To understand global affairs
c.To be an informed voter
d.All of the above
Answer:
d.All of the above

Question 2.
The word “oikes” means
a.Management
b.House
c.Economics
d.Demand
Answer:
b.House

Question 3.
The need for economics arises as
a.We all comprise a society
b.The resources are limited
c.It is the management of the house
d.None of the above
Answer:
b.The resources are limited

Question 4.
Capitalism, socialism is
a. Study of economics
b.Economic decisions
c.Alternate forms of an economy
d.Economic decisions
Answer:
a. Study of economics

Question 5.
A sharp fall in business profits is
a.Economic inflation
b.Economic slowdown
c.Economic recession
d.All of the above
Answer:
c.Economic recession

Question 6.
Study of economics does not include
a.Interrelationshipbetweendifferent economics
b.Alternate form of economy
c. Study of mixed economy
d.None of the above
Answer:
d.None of the above

Question 7.
It is not Uncommon in a socialist economy that
a.Private property is abolished
b.Economic activities are guided by market forces
c.There is the absence of state intervention
d.People acquire a motive for earning
Answer:
c.There is the absence of state intervention

Question 8.
A politician proposes reducing business taxes, a move she says will encourage risk-taking entrepreneurship. This proposed out in business taxes is intended to dilute the economy mainly through
a.an increase in aggregate supply
b.a decrease in aggregate supply.
c.a decrease in aggregate demand.
d.an increase in aggregate demand.
Answer:
a.an increase in aggregate supply

Question 9.
When you judge economic decisions as per your own values, which category of economics would you be applying?
a.Political economics
b.Normative economics
c.Economics theory
d.Positive economics
Answer:
b.Normative economics

Question 10.
This is not the benefit of Robbins style of economic description
a.Problem can be found at any place
b.It is the study of human behavior
c.More logical explanation of the economic problem
d.Concentrates more on the ordinary life of man
Answer:
d.Concentrates more on the ordinary life of man

Question 11.
If an the economy is operating at a point inside the production possibilities curve,
a.its resources are being wasted
b.the curve will begin to shift inward
c.the curve will begin to shift outward
d.this is a trick question because an economy cannot produce at a point inside the curve.
Answer:
a.its resources are being wasted

Question 12.
If a new motorway is built near to a company, thus reducing its costs, this is an example of:
a.financial economies of scale
b.managerial economies of scale
c.technical economies of scale
d.external economies of scale
Answer:
d.external economies of scale

Question 13.
It can be called technical economies of scale. Select out
a. Financial economies of scale.
b.Engineers rule.
c.Administrative economies of scale
d.External economies of scale
Answer:
b.Engineers rule.

Question 14.
Samuelson’s definition of economics takes care of _________
a.Scarcity
b.Efficiency
c.Economic science
d.Both a & b
Answer:
d.Both a & b

Question 15.
The principle that has to do with the growth of the firm is known as:
a.Returns of scale
b.internal economies and diseconomies of scale
c.external economies and diseconomies of scale
d Both A and B are correct
Answer:
b.internal economies and diseconomies of scale

Question 16.
The size of firms may be measured by:
a.The number of employees
b.the value of the capital owned by the firm
c.The value of the output of the firm
d.A, B, and C are all correct.
Answer:
c.The value of the output of the firm

Question 17.
It is Not Uncommon in a socialist economy
a.Private property is abolished
b.Economic activities are guided by market forces
c.No existence of classes
d.Both a & c
Answer:
d.Both a & c

Question 18.
The main sources of internal economies of scale are:
a.plant economies and industry economies
b.firm economies and industry economies
c.plant economies and firm economies
d.plant economies, firm economies, and industry economies
Answer:
b.firm economies and industry economies

Question 19.
Demerits in wealth definition of economics are
a.Wealth was taken as an end to human activities
b.Problem of income inequality was not the main concern when this theory was made
c.Economy at that time needed more production
d.None of the above
Answer:
a.Wealth was taken as an end to human activities

Question 20.
Production possibility curve is used for
a.Determining the production of the products in accordance with its resources
b.Determining the production, if technology is improved
c.Both a & b
d.None of the above
Answer:
c.Both a & b

Question 21.
A large firm is able to buy its material requirements in large quantities (bulk buying) and this enables it to obtain preferential terms in the form of bulk discounts. It is
a.marketing economies
b.financial economies
c.research and development economies
d.managerial economies
Answer:
a.marketing economies

Question 22.
It is common in a mixed economy
a.It fails to adjust itself with the changing circumstances
b.Its success depends on the experience of government
c.Market mechanism is not totally abolished
d.All of the above
Answer:
d.All of the above

Question 23.
The term Laissez – faire means
a.People acquire a motive for earning
b.Absence of state intervention
c.Economic activities are guided by market forces
d.People acquire a motive for earning
Answer:
b.Absence of state intervention

Question 24.
A firm has creditworthiness, which helps him to have funds at lower interest. This statement refers to
a.marketing economies
b.financial economies
c.research and development economies
d.managerial economies
Answer:
b.financial economies

Question 25.
What is true for economics?
a.Economics is based on noneconomic wants
b.Economic is based on human wants
c.Economics is the use of scarce resources
d.All of the above
Answer:
d.All of the above

Question 26.
a firm’s long-run average cost of production increases by 15 percent as a result of an 8 percent increase in production the firm is most likely experiencing
a.economies of scale
b.diseconomies of scale
c.constant returns to scale
d.none of the above
Answer:
b.diseconomies of scale

Question 27.
The major cause of internal diseconomies of scale is:
a.management problems
b.Diversification
c.specialization
d.any one of the above
Answer:
a.management problems

Question 28.
One country enjoys a comparative advantage over another in producing oil when
a.it has more oil than the other country
b.it can produce oil at a lower opportunity cost than the other country
c.it does not need to import oil
d.it wants to export as much oil as possible.
Answer:
b.it can produce oil at a lower opportunity cost than the other country

Question 29.
The types of economic systems are based upon
a.Per capita income
b.Scarcity of resources
c.Both a & b
d.None of the above
Answer:
c.Both a & b

Question 30.
It is Uncommon to find in a capitalist economy
a.Partial control of government
b.Economic decisions being government taken by the government
c.Inequality of wealth
d.All of the above
Answer:
b.Economic decisions being government taken by the government

Question 31.
Drought conditions create water shortages. Assuming that water consumption can be measured for each household, select the water policy below that is most likely to cause the greatest reduction in water use by urban households.
a.Give water to users with instructions to use it wisely
b.charge a flat constant fee of Rs. 50 per liter per household, irrespective of the amount of water used.
c.Raise the price of water from Rs. 2 to Rs. 50 per liter with the biggest water users (per capita) paying the highest price per liter
d.Charge Rs„ 20 per month and limit household consumption.
Answer:
c.Raise the price of water from Rs. 2 to Rs. 50 per litre with the biggest water users (per capita) paying the highest price per litre

Question 32.
The central problem for every economy is
a.Market
b.What to produce
c.Competition
d.None of the above
Answer:
b.What to produce

Question 33.
A system where private businesses make economic decisions regarding investment decisions, production decisions and distribution of output is
a.Socialistic Economy
b.Communism
c.Both a & b
d.Capitalistic economy
Answer:
b.Communism

Question 34.
Internal economies of scale occur when
a.the output increases for the industry
b.the output increase for the firm
c.the output decreases for the industry
d.none of the above
Answer:
b.the output increase for the firm

Question 35.
Diseconomies of scale are a sign that
a.the company is running at peak efficiency
b.the company can increase the level of production
c.the company should consider a reduction in production
d.the company should consider hiring more people
Answer:
c.the company should consider a reduction in production

Question 36.
A cooperative buying group is an example of
a.A factor leading to internal economies of scale
b.A factor leading to external economies of scale
c.both A and B
d.None of the above
Answer:
b.A factor leading to external economies of scale

Question 37.
Originally economics was originated as
a.Science
b.Arts
c.Political science
d.All of the above
Answer:
a.Science

Question 38.
_______ is considered as the father of modern economics
a.Bernard Shaw
b.Adam Smith
c.Marshall
d.None of the above
Answer:
b.Adam Smith

Question 39.
Adam Smith’s definition revolved around
a.Scarcity
b.Distribution of resources
c.Wealth creation
d.Both a & b
Answer:
c.Wealth creation

Question 40.
Characteristic features of a wealth-based economics definition given by Smith are
a.To look for the causes that can help in the creation of wealth
b.Accumulation of wealth is the economic development
c.Economic development should include the development of nontangible service
d.Both a & b
Answer:
d.Both a & b

Question 41.
Which of the following is an example of an external economy of scale?
a.bulk – buying;
b.administrative savings made by having only one office
c.courses relevant to your business at local colleges
d.costs fall for technical reasons as production rises
Answer:
c.courses relevant to your business at local colleges

Question 42.
If administration or communication becomes more difficult and costly in a large company, this is an example of:
a.internal economies of scale;
b.diseconomies of scale;
c.diseconomies of scale
d.increasing returns
Answer:
c.diseconomies of scale

Question 43.
If an industry is characterized by very large firms then it is likely to have
a.economies of scale and decreasing costs
b.diseconomies of scale and increasing costs
c.constant costs;
d.perfect competition;
Answer:
a.economies of scale and decreasing costs

Question 44.
Both households and societies face problems because
a.resources are scarce
b.populations may increase or decrease over time
c.wages for households and therefore society fluctuate with business cycles.
d.people by nature, tend to disagree
Answer:
a.resources are scarce

Question 45.
The branch of economics that deals with the sum total of economic activities dealing with the issues of growth, unemployment and inflation is
a.Microeconomics
b.Microeconomics study of aggregate economic behavior
c.Both a & b
d.Macroeconomics.
Answer:
c.Both a & b

Question 46.
Economics deals primarily with the concept of
a.scarcity
b.poverty
c.change
d.power
Answer:
a.scarcity

Question 47.
Households and economies have each of the following in common except both.
a.must allocate scarce resources.
b.face many decisions.
c.must allocate the goods and services they produce
d.must have a central decision-maker
Answer:
d.must have a central decision-maker

Question 48.
What do economists mean when they state that goods are scarce?
a.there is a shortage or insufficient supply of the good at the existing price.
b.it is impossible to expand the availability of the good.
c.people will want to buy more of the good regardless of price
d. the amount the good the people would like to have exceeds the supply that is freely available from nature
Answer:
d.the amount the good the people would like to have exceeds the supply that is freely available from nature

Question 49.
The basic difference between macroeconomics and microeconomics is that
a.macroeconomics looks at the aggregate markets, while microeconomics is concerned with the subcomponents.
b.macroeconomics is a concern with policy decisions, while microeconomics applies only to theory.
c.microeconomics is concerned with the aggregate markets, while macroeconomics is concerned with the components.
d.opportunity cost is applicable to macroeconomics, and the fallacy of composition relates to microeconomics.
Answer:
a.macroeconomics looks at the aggregate markets, while microeconomics is concerned with the subcomponents.

Question 50.
The economic analysis assumes that
a.for the most part, individuals act out of selfish motives, and it is realistic to assume this is always true.
b.although individuals are at times selfish and at times altruistic, only their selfish actions may be predicted.
c.people are basically humanitarian and their actions are therefore difficult to predict.
d.changes in the personal benefits and costs associated with an activity will exert a predictable influence on human behavior
Answer:
d.changes in the personal benefits and costs associated with an activity will exert a predictable influence on human behavior

Question 51.
The study of entire systems of economics is.
a.macroeconomics
b.microeconomics
c.Finance
d.All of the above
Answer:
a.macroeconomics

Question 52.
Economic theories:
a.are useless because they are not based upon laboratory experimentation.
b.that are true for individual economic units are never true for the economy as a whole
c.are generalizations based upon careful observation of facts.
d.are abstractions and therefore of no application to real situations.
Answer:
c.are generalizations based upon careful observation of facts.

Question 53.
The main field of social science of economics is
a.Microeconomics.
b.Macroeconomics.
c.Inflation.
d.None of the above.
Answer:
a.Microeconomics.

Question 54.
The production possibility frontier shows the _________ of production that can be obtained by an economy, given _________
a.minimum amounts; efficiency.
b.minimum amounts; technology and inputs to production.
c.maximum amounts; technology and inputs to production.
d.maximum amounts; efficiency
Answer:
c.maximum amounts; technology and inputs to production.

Question 55.
which of the following is most likely to benefit a debtor?
a.unanticipated deflation
b.anticipated deflation
c.unanticipated inflation
d.anticipated inflations
Answer:
b.anticipated deflation

Question 56.
which of the following is NOT included in the decisions that every society must make?
a.what goods will be produced
b.who will produce goods
c.what determines consumer preferences
d.who will consume the goods
Answer:
c.what determines consumer preferences

Question 57.
Only one statement is impeccable. Select
a.Theories involve models, and models involve variables.
b.models involve theories, and theories involve variables.
c.a theory is a model
d.none of the above
Answer:
a.Theories involve models, and models involve variables.

Question 58.
What will happen when the Reserve bank lowers the reserve requirement?
a.investors will purchase “ open market” bonds.
b.banks must hold fewer money
c.people will deposit more money
d.banks will create more money
Answer:
d.banks will create more money

Question 59.
With existing resources, the economy can be achieved to the fullest by
a.Productive efficiency
b.Allocative efficiency
c.Full employment
d.All of the above
Answer:
b.Allocative efficiency

Question 60.
GDP measures
a.expenditure on all final goods and services
b. total income of everyone in the economy
c.total value-added by all firms in the economy
d.all of the above
Answer:
d.all of the above

Question 61.
Economic choice and competitive behavior are the results of
a.basic human need.
b.poverty
c.private ownership of resources
d.scarcity
Answer:
d.scarcity

Question 62.
which one of the following states is a central element of the economic way of thinking?
a.scarce goods are priceless
b.Incentives matter if the personal cost of a choice increases, individuals will be less likely to choose it
c.the realism of the assumptions is the best test of an economic theory
d.when deciding how to allocate time, the concept of opportunity cost is meaningless.
Answer:
b.Incentives matter if the personal cost of a choice increases, individuals will be less likely to choose it

Question 63.
Adam Smith believed that if people were free to pursue their own interests, then
a. Greed and cheating would prevail in the market,
b.less would be produced than if altruism were our guiding principle.
c.they would generally be encouraged to produce goods and services that others valued highly (relative to their costs).
d.the public interest would best serve, but the interests of employers would be hurt.
Answer:
c.they would generally be encouraged to produce goods and services that others valued highly (relative to their costs).

Question 64.
“If economics was laid end to end, they would not reach a conclusion” This definition was given by
a.Adam smith
b.George Bernard Shaw
c.Marshall
d.None of the above
Answer:
b.George Bernard Shaw

Question 65.
Wants that are related to the consumption of goods and services is
a.Economic wants
b. Noneconomic wants
c.Economics
d.All of the above
Answer:
a.Economic wants

Question 66.
Economics is dynamic in nature so is its description because
a.Of the ever development of economics
b.Field of experience of the economist
c.The particular subject of economics that is being studied
d.All of the above
Answer:
d.All of the above

Question 67.
Three basic decisions must be made by all economies. What are they?
a.how much will be produced; when it will be produced; how much it will cost.
b.what the price of each goodwill be; who will produce each good; who will consume each good
c.what will be produced; who goods will be produced; for whom goods will be produced
d.how the opportunity cost principle will be applied; if and how the law of comparative advantage will be utilized; whether the production possibilities constraint will apply
Answer:
c.what will be produced; who goods will be produced; for whom goods will be produced

Question 68.
Economic profit is best defined as
a.a company’s net income as indicated by its accounting statement.
b.the difference between the price of a product and the monetary cost of the raw materials use to produce it.
c.the difference between the resources used to produce it.
d.income paid by a business to its owners.
Answer:
c.the difference between the resources used to produce it.

Question 69.
When a price floor is above the equilibrium price
a.quantity demanded will exceed quantity supplied.
b.quantity supplied will exceed quantity demanded
c.the market will be in equilibrium
d.this is a trick question because price floors generally exist below the equilibrium price.
Answer:
b.quantity supplied will exceed quantity demanded

Question 70.
A percent increase in the price of sugar reduces sugar consumption by about 5 percent. The increase causes households to
a.spend more on sugar.
b.spend less on sugar
c.spend the same amount on sugar
d.consume more goods like coffee and tea that are complements of sugar
Answer:
a.spend more on sugar.

Question 71.
When economists say the demand for a product has increased, they mean that the
a.demand curve for the product has shifted to the left.
b. price of the product has fallen, and consequently, consumers are buying more of the product.
c.cost of producing the product has increased
d.amount of the product that consumers are willing to purchase at various prices has increased.
Answer:
d.amount of the product that consumers are willing to purchase at various prices has increased.

Question 72.
There is no precise agreement regarding the set of rules for achieving goals. This was the concept given by
a.A. Marshall
b.Robbins
c.Ricardo
d.Smith
Answer:
b.Robbins

Question 73.
Which of the following are assumptions underlying the PPC?
a.Only two goods are produced
b. Technology, population, and capital are variable.
c.Prices determine the position on the PPC.
d.All the above.
Answer:
a.Only two goods are produced

Question 74.
Economics was originally developed as a science of ……………….
a.statecraft
b.business management
c.wealth management
d.resource management
Answer:
c.wealth management

Question 75.
An economy has a constant cost PPC. What do you know about the slope?
a.A straight line
b.Bowed in
c.Bowed out
d.Convex to the origin
Answer:
a.A straight line

Question 76.
The basic types of economics systems are
a.1
b.2
c.3
d.4
Answer:
c.3

Question 77.
The definition of Economics as a Science of development & growth with the twin objectives of scarcity and efficiency was given by:
a.Paul A Samuelson
b.AKSen
c.Lionel R. Robbins
d.Adam Smith
Answer:
a.Paul A Samuelson
Hint
The definition of Economics as a science of development and growth with the twin objective of scarcity and efficiency was given by Paul A Samuelson. Economics is concerned with determining the pattern of employment of scarce resources to produce commodities over time. Thus, the dynamic problems of production have been brought within the purview of Economics. His definition was more inclusive definition.

Question 78.
One of the following statements is not a positive statement
a. To check inflation, the RBI should raise the bank rate
b. Inflation has an impact on consumer price index
c. Unemployment is the major cause of widespread poverty
d. An increase in the income of the households results in a rightward shift in the demand curve.
Answer:
a.To check inflation, the RBI should raise the bank rate
Hint
To check inflation, the RBI should raise the bank rate” is not a positive science. The question is asking for a normative statement. Normative science is concerned with human values. It is prescriptive in nature and described ‘what should be the things’. It promotes social and economic values. Economics is also normative science because it suggests ways and measures to be adopted for the economic betterment of the people. For example, the questions like what should be the level of national income, what should be the wage rate, – all fair within the scope of normative science

Question 79.
Microeconomics does not study:-
a.The level of output that an individual firm produces during a period of time
b.The determination of wage rate by the automobile industry during a given period
c.The determination of causes that result in hyperinflation in an economy.
d.The determination of equilibrium output of an individual firm in a perfectly competitive market.
Answer:
c.The determination of causes that result in hyperinflation in an economy.
Hint
“Micro” is derived from the Greek word “Mikros” meaning small. lt is also described as price and value theory. This part of economics is concerned with individuals like one individual, one firm, etc. Micro-Economics is concerned with

  1. Product pricing;
  2. Consumer behavior
  3. Factor pricing
  4. Economic conditions of a section of the people;
  5. Study of firms; and
  6. Location of an industry

Thus microeconomics is not concerned with the economy in general. It is concerned only with the individual units.

Question 80.

Nature and Scope of Economics – CS Foundation Economics Notes Chapter 1 img 2

In the above figure, the point R represents-
a.The best level of output in the given situation
b. The equilibrium level of output in the given economy
c. The full utilization of resources in the economy
d. The under-utilization of resources in the economy.
Answer:
d. The under-utilization of resources in the economy.
Hint
A production possibility curve tells what to produce in the most beneficial way.
Important things to notice about the definition of the production possibility curve are:

  • It indicates all possible combinations of the production of two goods or services.
  • It is assumed that all the resources of a society are used fully and efficiently.
  • Anything inside the curve that is point R indicates inefficient production while anything which lies outside the graph shows that reaching this point is impossible.

Question 81.
Given the number of available resources in the economy as demonstrated in the figure above, if the technology to produce computer monitor improves, so that with the help of given resources more monitors can be produced, the production possibility curve ……………………
a.Will remain’ unchanged
b.Will shift to the left
c.Will shift to the right
d.Will form the intercept at point A, but the intercept at point B will shift to the right.
Answer:
d. Will form the intercept at point A, but the intercept at point B will shift to the right.
Hint
In the given picture there is a PPC of two products computer monitor and an LED.
The production possibility curve shows the various combinations of production between the computer monitor and LED lie on this line.
A higher production curve can be achieved with the improvement of technology from the same resources. Thus if the technology to produce computer monitor improves so that from the same given resources more monitors can be produced, the production possibility curve will form the intercept at point A, but the intercept at point B will shift to the right because more computers are being produced.

Question 82.
A capitalist economy is by and large
a.A closed economy
b.A free market economy
c.A centrally controlled economy
d.An economy in which a government neither collects any taxes nor incurs’ any expenditure.
Answer:
b.A free market economy
Hint
A capitalist economy is by and large a free market economy. This economic system emphasizes the freedom of individuals as consumers and suppliers of resources and allows market forces to determine the allocation of scarce resources through the mechanism called price.

Question 83.
Match the following:

Features Stage of Business Cycle
(i) Rising employment and real wages (A) Recession
(ii) Fall in the rate of growth (B) Boom
(iii) Fall in the level of real national output (C) Slowdown
(iv) Setting in of the rising trend of national outputs (D) Recovery

a.(i) (B), (ii) (C), (iii) (A), (iv) (0)
b.(i) (A), (ii) (B). (iii) (B), (iv) (0)
c.(i) (0), (ii) (C), (iii) (C). (iv) (A)
d.None of the above.
Answer:
a.(i) (B), (ii) (C), (iii) (A), (iv) (0)
Hint
Economic boom – In this demand for goods and services both are increasing.
Economic slowdown – A situation in which GDP growth slows but does not decline
Economic recession -In economics, a recession is a business cycle contraction, a general slowdown in
economic activity.
Economic recovery – It is the phase of the business cycle following a recession, during which an economy regains and exceeds peak employment and output levels achieved prior to the downturn.

Question 84.
After your Board Examination, you could have got a job that would pay you Rs. 10,000 per month. Instead, you go in for further studies spending Rs/8,000 per month on books, fees, etc. The opportunity cost of higher studies for you is
a.Rs. 8,000
b.Rs. 10,000
c.Rs. 2,000
d.Rs. 18,000
Answer:
d.Rs. 18,000
Hint
Opportunity cost is the value of what is foregone in order to have something else. The opportunity cost of higher studies for you is Rs 18,000.

Question 85.
A country discovered a huge stock of gold lying buried in the deep earth. It begins to mine out the gold and also finds a foreign buyer. Graphically, this position would be shown as
a.Downward shift of production possibility curve
b.Upward shift of production possibility curve
c.Downward movement on a given production possibility curve
d.Upward movement on a given production possibility curve.
Answer:
c.Downward movement on a given production possibility curve
Hint
A production possibility curve (PPC) shows the maximum possible output combinations of two goods or services an economy can achieve when all resources are fully and efficiently employed. A country discovered a huge stock of gold lying buried in the deep earth. It begins to mine out the gold and also finds a foreign buyer. Graphically this position would be shown as downward movement on a given possibility curve.

Question 86.
Macroeconomics came into the picture after the publication of the book The General Theory of Employment, Interest, and money’ which was written by
a.Alfred Marshall
b.Manmohan Singh
c.J.M. Keynes
d.Kaushik Basu
Answer:
c.J.M. Keynes
Hint
The General Theory of Employment, Interest, and Money was written by JM Keynes.

Question 87.
Match the following:

X. Growth oriented definition of Economics (i) Normative statement
Y. Government should reduce taxes to promote growth (ii) India
Z. Supply of a commodity is less than the quantity demanded at a zero price (iii) Paul Samuelson
W. Second largest populated country (iv) Scarcity

The correct option is:
a.X(iii);,Y(i); Z(iv); W(ii)
b.X(iv); Y(iii); Z(ii); W(i)
c.X(i); Y(ii); Z(iii); W(iv)
d.X(ii); Y(iii); Z(iv); W(i).
Answer:
a.X(iii);,Y(i); Z(iv); W(ii)
Hint
Normative science- It is concerned with human values. It is prescriptive in nature and described ‘what should be the things’. It promotes social and economic values. Economics is also normative science because it suggests ways and measures to be adopted for the economic betterment of the people.
India – India is a country with the second largest population in the world. China has the largest population.
Paul A Samuelson-The definition of Economics as a science of development and growth with the twin objective of scarcity and efficiency was given by Paul A Samuelson
Scarcity- Scarcity means that the supply of a commodity is less than the quantity demanded at zero price.

Question 88.
Laissez-faire refers to …………………… with no or little intervention by the government in economic activities. Which one of the following is the correct option to fill in the blank space?
a.Centrally planned economies
b.Controlled socialist economies
c.Free market economies
d.Mixed socialist economies.
Answer:
c.Free market economies
Hint
Features of the capitalist economy are

  • It is based on market demand and supply, consumers are free to buy goods and services of their choice and producers allocate their resources based on the demand.
  • Price plays an important role
  • The whole of the economy is in the hands of private enterprises
  • The role of Government is negligible
  • It is a theoretical type of economic system cause there are certain fields where the involvement of the Government is a must like defense, health, etc.
  • Consumers choose the products they want and producers allocate their available resources to that product based on the demand for different products.
  • Even if the economy is capitalist some part of it is still in the hands of the Government
  • Unequal distribution of money
  • Monopolistic competitive
  • Policy of Laissez faire
  • More rewarding for right decisions and hard work
  • No place for human values
  • Because of competition, national resources are wasted as only profitable products are produced
  • Faster growth because of competitiveness

Question 89.
Marshall’s views on the nature of economics were supported by:
a.Lionel Robbins
b.Adam Smith
c.A.C. Pigou
d.Paul Samuelson.
Answer:
c.A.C. Pigou
Hint
“The range of our inquiry becomes restricted to that part of social welfare that can be brought directly or indirectly into relation with the measuring rod of money” by A.C. Pigou. His definition involved only welfare in contrast to A. Marshall which involved welfare as well as wealth creation.
Thus, both Marshall’s and Pigou’s definitions of economics take into account the aspect of social welfare.

Question 90.
A mobile manufacturing company’s output increases due to improvements in technology. The PPC curve will
a.move inward
b.remains unchanged
c.move outward
d.none of the above
Answer:
c.move outward
Hint
A production possibility curve (PPC) shows the maximum possible output combinations of two goods or services an economy can achieve when all resources are fully and efficiently employed. If there was a change in technology while the other resources are the same, Output would increase, and the PPC would be pushed outwards.

Question 91.
Among the following, which of the statement is reflecting both positive and normative economics
a.If the general price level goes up, borrowers gain but lenders gain more.
b.Inflation hurts the poor more but they can find employment opportunities.
c.Inflation hurts the poor class more; therefore, the government should arrange to supply commodities at subsidized rates to this section of the society
d.If the government supplies luxurious, goods at cheaper rates, demand for such goods may fall.
Answer:
c.Inflation hurts the poor class more; therefore, the government should arrange to supply commodities at subsidized rates to this section of the society
Hint
Option a, b, d show positive economics – It presents the real picture of facts without any comments and suggestions. Economics also deals with positive issues, so it is a positive science. By positive science, we mean that economics is concerned with the satisfaction of unlimited wants from limited resources. A community may use its limited resources for making guns rather than butter, but it is no concern of the economists to condemn or appreciate this policy. Normative economics – Normative science is concerned with human values. It is prescriptive in nature and described ‘what should be the things’. It promotes social and economic values. Economics is also normative science because it suggests ways and measures to be adopted for the economic betterment of the people. Thus option c is both positive economics as well as normative economics as it tells both “what is?” Showing the real picture and “what should be?” showing the human values.

Question 92.
An economic problem arises primarily due to the scarcity of resources. Scarcity of resources is best reflected in the market supply of –
W. Wheat and rice
X. Sand at the seashore
Y.High-brand jewelry
Z.Free air.
Correct option is
a.WX
b.XZ
c.WY
d.YZ.
Answer:
c.WY
Hint
The problem of scarcity of resources arises when the resources are limited and the wants are unlimited.

Question 93.
Indian economy, at the present juncture, can be best represented as a
a.Mixed socialist economy
b.Mixed capitalist economy
c.Purely capitalist economy
d.Perfectly competitive market economy.
Answer:
a.Mixed socialist economy
Hint
A mixed economy has features of both socialism as well as capitalism but there is no fixed proportion of capitalism and socialism. India has a mixed socialist economy.

Question 94.
What is the effect of economic slowdown on the employment level?
a.Level of unemployment increases
b.Level of unemployment decreases
c.Employment opportunity is unaffected
d.None of the above
Answer:
c.Employment opportunity is unaffected
Hint
Economic slowdown A situation in which GDP growth slows but does not decline. Features of an economic slowdown are Output is still rising while demand has declined For example, if GDP goes from 5% growth to 3% growth, an economy is experiencing a slowdown. Most analysts do not consider a slowdown to be a recession, but unemployment may rise and productivity may decline.

Question 95.
Who is the writer of the book “The Economics of Welfare”?
a.Alfred Marshall
b.Lionell Robins
c.Paul A. Samuelson
d.Pigou
Answer:
d.Pigou
Hint
The book written by A.C. Pigou is “The economics of welfare” which tells about his way of defining economics.

Question 96.
In which direction PPC moves when technology improves:
a.Shift towards the right
b.Shift towards left
c.No movement
d.Shift upwards
Answer:
a.Shift towards the right
Hint
The most common reason a PPF would shift is because of a change in technology, or because of economic growth. With the change in technology, the graph will shift outwards towards the right. A higher production curve can be achieved with the improvement of technology from the same resources.

Question 97.
Consumer sovereignty is found in which type of economy?
a.Sociolistic Economy
b.Mixed Economy
c.Capitalistic Economy
d.None of these
Answer:
c.Capitalistic Economy
Hint
Capitalist Economy – This economic system emphasizes the freedom of individuals as consumers and suppliers of resources, and allows market forces to determine the allocation of scarce resources through the mechanism called price.

Question 98.
AC Pigou is related to the material welfare definition.
a.True
b.False
c.Partly True
d.Partly False
Answer:
a.True
Hint
A.C. Pigou definition involved only welfare.

Question 99.
Word ‘Oikonomikos’ is originated from which language?
a.Greek
b.Latin
c.German
d.French
Answer:
a.Greek
Hint
Economics is the social science studying the production, distribution, and consumption of goods and services. Economics is derived from the Greek word ‘oikonomikos’ which can be divided into two parts Oikos – which means house Nomos – which means management

Question 100.
“Principles of Economics” was given in which year?
a.1776
b.1890
c.1932
d.1948.
Answer:
b.1890
Hint
A.Marshall wrote the book “ Principles of Economy” which tells about his way of defining economics.

Question 101.
When national output falls down, what does it mean?
a.Economic Boom
b.Economic Slowdown
c.Economic Recession
d.Economic Recovery
Answer:
c.Economic Recession
Hint
Economic recession -In economics, a recession is a business cycle contraction, a general slowdown in economic activity.

Question 102.
Wealth definition is given by
a.Alfred Marshall
b.Paul Samuelson
c.Lionnel Robbinson
d.Adam Smith
Answer:
d.Adam Smith
Hint
Adam Smith identified wealth as welfare. Adam Smith, considered to be the founding father of modern Economics, defined Economics as the study of the nature and causes of nations’ wealth or simply as the study of wealth.

Question 103.
When any point lies outside the PPC curve it means a situation of
a.Overutilization
b.Underutilization
c.Both (a) & (b)
d.None of the above
Answer:
d.None of the above
Hint
A production possibility curve tells what to produce in the most beneficial way.
Important things to notice about the definition of the production possibility curve are:

  • It indicates all possible combinations of the production of two goods or services.
  • It is assumed that all the resources of a society are used fully and efficiently.
  • Anything inside the curve indicates inefficient production while anything which lies outside the graph shows that reaching this point is impossible.

Question 104.
If income and demand both has increased then it is an
a.Economic boom
b.Economic slowdown
c.Economic recovery
d.Economic recession
Answer:
a.Economic boom
Hint
Economic boom – In this demand for goods and services both are increasing.

Question 105.
Inequalities and income & wealth is in which type of economy?
a.Capitalist
b.Socialist
c.Mixed
d.None
Answer:
a.Capitalist
Hint
Capitalist Economy – This economic system emphasizes the freedom of individuals as consumers and suppliers of resources, and allows market forces to determine the allocation of scarce resources through the mechanism called price. Unequal distribution of money is one of the features of this economy.

Question 106.
……………………………… is the value of alternative forgone in order to have something else.
a.Opportunity Cost
b.Incremental Cost
c.Indifference Curve
d.None of these
Answer:
a.Opportunity Cost
Hint
Opportunity cost is the value of what is foregone in order to have something else.

Question 107.
According to Marshall, “wealth acted as only means to attain ends & the wealth should not be treated as an end in itself,
Here Marshall used the word end for:
a.Economic welfare concept
b.Welfare concept
c.Human welfare concept
d.Material welfare concept
Answer:
c.Human welfare concept
Hint
A.Marshall was the person who gave the theory emphasizing on the material welfare of man.

Question 108.
What is the nature of the concept of opportunity cost?
a.Subjective
b.Objective
c.Both a & b
d.Can’t say
Answer:
a.Subjective
Hint
Opportunity cost is the value of what is foregone in order to have something else. The evaluation of choices and opportunity costs is subjective.

Question 109.
Economics is considered a science because it studies the relationship between …………………………….. of
economic phenomena.
a.Price and Value
b.Cause and Effect
c.Profit and Loss
d.Export and Import
Answer:
b.Cause and Effect
Hint
If we analyze Economics, we find that it has all the features of science.

  • studies the relationship between cause and effect.
  • It is capable of measurement.
  • It has its own methodological apparatus
  • It should have the ability to forecast

Question 110.
Which of the following graph shows all the combinations of goods and services that can be produced if all of society’s resources are used efficiently?
a.Demand Supply curve
b.Production Possibility curve
c.Lorenz Curve
d.None of the above
Answer:
b.Production Possibility curve
Hint
A production possibility curve tells what to produce in the most beneficial way. The production possibility curve is a hypothetical representation of the amount of two different goods that can be obtained by shifting resources from the production of one to the production of the other.

Question 111.
Which of the following is a characteristic of a capitalist economy?
a.Equality of wealth and income
b.Inequality of wealth and income
c.Equal opportunity of earning wealth & income
d.Can’t say
Answer:
b.Inequality of wealth and income
Hint
Features of the capitalist economy are

  • It is based on market demand and supply, consumers are free to buy goods and services of their choice and producers allocate their resources based on the demand.
  • Price plays an important role
  • The whole of the economy is in the hands of private enterprises
  • The role of the Government is negligible
  • It is a theoretical type of economic system cause there are certain fields where the involvement of the Government is a must like defense, health, etc.
  • Consumers choose the products they want and producers allocate their available resources to that product based on the demand for different products.
  • Even if the economy is capitalist some part of it is still in the hands of the Government
  • Unequal distribution of money
  • Monopolistic competitive
  • Policy of Laissez faire
  • More rewarding for right decisions and hard work
  • No place for human values
  • Because of competition, national resources are wasted as only profitable products are produced
  • Faster growth because of competitiveness

Question 112.
Who authored the famous book titled “The Economics of welfare” which was published in 1920?
a.David Ricardo
b.Alfred Marshall
c.J: B. Say
d.A.C. Pigou.
Answer:
d.A.C. Pigou.
Hint
The book written by A.C. Pigou is “ The economics of welfare” which tells about his way of defining economics.

Question 113.
In a Capitalist economy, who decides what to produce and for whom?
a.Government
b.Freely decided by Industry
c.Society
d.Can’t say
Answer:
b. Freely decided by Industry
Hint
Capitalist Economy – This economic system emphasizes the freedom of individuals as consumers and suppliers of resources, and allows market forces to determine the allocation of scarce resources through the mechanism called price.

Question 114.
Economics is considered a science because it studies the relationships between economic phenomena.
a.Cause and effect
b.Price and value
c.Profit and loss
d.Export and import
Answer:
a.Cause and effect
Hint
Economics has got its own theories, concepts, and laws, so it is definitely a science though not an exact science, like Physics and Chemistry. Economics is considered a science because it studies the relationship between cause and effect.

Question 115.
Which of the following graph shows all the combinations of goods and services that can be produced it all of the society’s resources are used efficiently:
a.Demand Supply Curve
b.Production Possibility Curve
c.Lorenz Curve
d.None of the above.
Answer:
b. Production Possibility Curve
Hint
A production possibility curve tells what to produce in the most beneficial way._The production possibility curve is a hypothetical representation of the amount of two different goods that can be obtained by shifting resources from the production of one to the production of the other.

Question 116.
In which of the following stage of the economic cycle both employment and output expand and the level of aggregate demand for goods and services is high?
a.Economic Recession
b.Economic Boom
c.Economic Recovery
d.Economic Slowdown.
Answer:
b.Economic Boom
Hint
Economic boom – In this demand for goods and services both are increasing.

CS Foundation Business Economics Notes