Microeconomics MCQ Quiz - Objective Question with Answer for Microeconomics - Download Free PDF

The correct answer is Inequality of Income.

Key Points

• Lorenz curve represents the distribution of income in an economy.
• It is represented by a straight line that depicts the perfect distribution of income. 
• Lorenz curve is beneath that line which shows the estimated distribution of income.
• The area between that straight line and the Lorenz curve is called the Gini coefficient, which represents the degree of income inequality.
• The farther the curve, the higher the inequality.

Additional Information

• The relation between Income and unemployment is given by the Phillips curve. 
  • ​It was developed by AW Phillips.
  • It says that income and unemployment have an inverse relationship.
  • Higher the income, lesser the unemployment.
  • However, it has been disproven because of Stagflation in the 1970s.
• Stagflation - It occurs when an economy is experiencing a high inflation rate but no rise in employment. It leads to the development of the Misery Index. 

The correct answer is West Bengal.

Key Points

• West Bengal is the largest rice-producing state in India, contributing to approximately 13-15% of the total rice production in the country (as per the latest agricultural statistics).
• The state has a favorable climate with abundant rainfall and fertile soil, making it ideal for rice cultivation.
• The primary rice-growing regions in West Bengal include the districts of Burdwan, Hooghly, Nadia, and Murshidabad.
• Rice is a staple food in West Bengal, and the state produces a variety of rice types, including aromatic ones like Gobindobhog and Tulaipanji.
• West Bengal is also known for adopting advanced agricultural techniques and practices to increase rice yield.

Additional Information

• Rice Cultivation in India:
  • India is the second-largest producer of rice globally, after China.
  • The major rice-producing states in India include West Bengal, Uttar Pradesh, Andhra Pradesh, Punjab, and Tamil Nadu.
  • Rice is primarily cultivated in the kharif season, as it requires high water availability and warm temperatures.
• Importance of Rice:
  • Rice is the staple food for more than 65% of the Indian population and a major source of calories.
  • It is a key crop in ensuring food security in India.
• Varieties of Rice:
  • India is known for its diverse rice varieties, including basmati rice, which has a high export demand.
  • Other notable varieties include Sona Masuri, Ponni, Gobindobhog, and Tulaipanji.
• Challenges in Rice Production:
  • Key challenges include water scarcity, pest attacks, and soil degradation.
  • Climate change and irregular rainfall also pose significant risks to rice cultivation.

The correct answer is It is the want of satisfying the capacity of a commodity. Key Points

• The utility of a commodity is the want-satisfying power of a commodity.
• It is the satisfaction a consumer receives from using a commodity or service. 
• Utility is the ability of a commodity to satisfy a human want. 
• It is the satisfaction that a consumer experiences from using a commodity. 
• Utility can be actual or expected. 
• Utility can vary from person to person, place to place, and time to time. 
• Utility is dependent on the features and usefulness of the commodity. 

Additional Information

• Types of Utility
  • Marginal utility: The additional utility gained from consuming one more unit of a commodity. 
  • Total utility: The sum of all the marginal utilities, or the total satisfaction from consuming a certain quantity of a commodity. 
  • Ordinal utility: The concept that one good is more useful or desirable than another. 
  • Cardinal utility: The idea that economic value can be measured using imaginary units called "utils

The correct answer is monopolistic competition.

Key Points

• Monopolistic Competition is a market structure in which there is a large number of sellers in the market of a commodity, but the product of each seller differs in some respect from the product of the other sellers.
• Thus, product differentiation is the cornerstone of Monopolistic Competition.
• Monopolistic competition is like an amalgam of monopoly and perfect competition, and hence the name Monopolistic Competition.
• According to J.S. Bains, “Monopolistic Competition is a market structure where there is a large number of sellers, selling differentiated but close substitute products.”
• In a monopolistically competitive market, there are many firms that sell slightly differentiated products.
• The free entry and exit of firms suggests a competitive market, but the non-homogeneity (or differentiation) of goods introduces a degree of monopoly power for each firm.

Key Points

• The Securities and Exchange Board of India (SEBI) is considering changes to short-selling norms, including:
  • Allowing short selling for all stocks except those in the trade-to-trade (T2T) segment.
  • Removing mandatory short-sale disclosures for institutional investors.
  • Abolishing penalties on exchanges for short-selling settlement failures.

• Short selling is a strategy where an investor sells borrowed shares, hoping to buy them back at a lower price for a profit.
  • Hence, option 4 is correct.
• Types:
  • Covered Short Selling – The seller borrows shares before selling them.
  • Naked Short Selling – Selling without borrowing (banned in India).
• Regulations in India:
  • SEBI bans naked short selling to prevent market manipulation.
  • Institutional investors must disclose upfront if a transaction is a short sale.
  • Retail investors report short sales by the end of the trading day.
• Risk: If the stock price rises instead of falling, investors face unlimited losses as they must buy back at a higher price.

Additional Information

• Securities Lending and Borrowing (SLB) Mechanism: Allows investors to borrow shares for short selling.
• Global Practices: Short selling is regulated in the U.S. (SEC), UK (FCA), and other major markets to prevent excessive volatility.
• Market Impact: Excessive short selling can lead to short squeezes, where prices rise sharply as short sellers rush to buy back shares.

The correct answer is depreciation.Key Points

• Depreciation:-
  • The consumption of fixed capital is also known as "depreciation":
  • Consumption of fixed capital refers to the reduction in the value of a fixed asset due to wear and tear, obsolescence, or other factors.
  • Depreciation is the accounting method used to allocate the cost of a fixed asset over its useful life, reflecting the consumption of fixed capital over time.
  • Depreciation can be calculated using different methods, such as straight-line depreciation, declining balance depreciation, or sum-of-the-years' digits depreciation.

Additional Information

• Net investment:-
  • It​ refers to the difference between gross investment and depreciation, representing the actual increase in the stock of fixed assets.
• Appreciation:-
  • It​ refers to the increase in the value of an asset over time, which is the opposite of depreciation.
• Gross investment:-
  • It​ refers to the total amount of investment in fixed assets, including both the increase in the stock of assets and the replacement of existing assets.

The correct answer is 1/1-c.

Key Points

• The magnitude of the multiplier is directly related to the marginal propensity to consume (MPC), which is defined as the proportion of an increase in income that gets spent on consumption.
• MPC stands for Marginal Propensity to Consume.
• It is defined as the proportion of an aggregate raise in income that is spent by a consumer on goods and services instead of saving it. 
• Expenditure multiplier= \(1\over Marginal\: propensity\: to\: save\)
• We also know Marginal Propensity to save =1- Marginal propensity to consume = 1 - c
  • i.e. Saving = Income - consume.
  • here Income taken as 1 to ease the understand.
• Therefore if we can express the expenditure multiplier = \(1\over 1-c\)

The correct answer is option 4, i.e. Same price for same things at one time.

Key Points

• Perfect competition is the situation in the market where all the elements of monopoly are absent.
• In this type of market price of a commodity is beyond the control of individual buyers and seller.
• There are many features of perfect competitions - 
  • Numbers of buyers and sellers are very large and they compete with each other. 
  • Buyers and sellers do not control the price of the commodity due to a large number of influences.
  • The commodity sold or brought is homogenous in nature which means goods produced by different firms are identical in nature and a perfect substitute for one another.
  • Firms and industry can enter and exit freely.
• In the condition of perfect competition buyers and sellers have perfect knowledge, so if a seller tries to raise the price, he loses customers.

The correct answer is Macro Economics.

Key Points

• Macroeconomics is a branch of economics that examines the behavior, performance, and structure of an economy as a whole.
• It focuses on aggregate variables such as gross domestic product (GDP), inflation, unemployment, and economic growth. Unemployment, being a macroeconomic phenomenon, is a key area of study in macroeconomics.
• Macroeconomists analyze the causes, consequences, and policies related to unemployment to understand its impact on the overall functioning of an economy. 

Additional Information Microeconomics: Microeconomics focuses on the behavior of individual economic agents, such as households, firms, and markets. Within microeconomics, the study of unemployment focuses on the individual decision-making processes related to labor supply and demand. Microeconomists analyze factors such as wage determination, labor market conditions, job search behavior, and the impact of unemployment on individual households and firms.

Descriptive Economics: Descriptive economics refers to the objective description and analysis of economic phenomena without making value judgments or policy recommendations. It involves observing and explaining economic facts, trends, and relationships using data and statistical analysis. Descriptive economics can be used in both macroeconomic and microeconomic studies of unemployment to present the current state of unemployment, its trends, and its distribution across various groups.

Normative Economics: Normative economics involves making value judgments and policy recommendations based on subjective opinions and ethical considerations. It focuses on what ought to be rather than what is. In the context of unemployment, normative economics would analyze different policy options and their potential impact on reducing unemployment, promoting job creation, or improving the overall welfare of individuals affected by unemployment.

The correct answer is ₹1.25 lakh.

Key Points

• The Reserve Bank of India has made the upper limit of annual household income for microfinance borrowers in rural areas Rs 1.25 lakh to improve credit availability in rural and semi-urban areas.
• It has also been taken into consideration to increase the household income limit for borrowers of non-banking financial companies-micro finance institutions.
• The important role played by a Microfinance institution in delivering credit to those at the bottom of the economic pyramid and enabling them to play their assigned role, the Reserve Bank of India (RBI) observed in its Policies.
• The RBI has also revised the definition of microfinance loans by increasing the loan cap.

Additional Information

• The Reserve Bank of India (RBI) recently released its final guidelines for microfinance institutions that will be applicable to all entities engaged in this sector.
• RBI has now set a common household limit of Rs 300,000 for loans to qualify as microfinance. 
• For entities to qualify for an NBFC-MFI license, they should have at least 75% of assets in microfinance and the, and the cap on NBFCs was increased to 25% of assets as against 10% earlier.
• Besides, the maximum possible indebtedness per borrower was increased to Rs 240,000 (from half of that earlier) and, most importantly, the 10% spread cap that was applicable to NFBC-MFIs has also been done away with.

 The correct answer is Equilibrium.​​

Key Points

• In equilibrium, the aggregate quantity that all firms wish to sell equals the quantity that all the consumers in the market wish to buy.
• Both the consumers' and firms' objectives are compatible in the market equilibrium.
• The price at which equilibrium is reached is called the equilibrium price and the quantity bought and sold at this price is called equilibrium quantity.
• When the market supply is greater than market demand, we say that there is an excess supply in the market at that price.
• When market demand exceeds market supply at a price, it is said that excess demand exists in the market at that price.
• Equilibrium in a perfectly competitive market can be defined alternatively as zero excess demand-zero excess supply situation
• Whenever market supply is not equal to market demand, and hence the market is not in equilibrium, there will be a tendency for the price to change. 

The correct answer is Integration.

Key Points 

• Globalization is the process by which ideas, goods, and services spread throughout the world.
• Globalization is often used in an economic context to describe an integrated economy marked by free trade, the free flow of capital, and corporate use of foreign labor markets to maximize returns and benefit the common good.
• The three types of globalization
  • Economic globalization
  • Political globalization
  • Cultural globalization

Additional Information

• Advantages of Globalization
  • Greater access to global markets
  • Advanced technology
• India’s share in global trade (merchandise and services) was 2.1% (481.74 USD billion out of a total 23,044 USD billion) for exports and 2.6% (600.62 USD billion out of total 23,112 USD billion) for imports in 2017.

The correct answer is demand for a commodity and its price.

Key Points 

• According to the law of demand
  • ​​​​when the price of a commodity increase, the quantity demanded decreases
  • when the price of a commodity decreases, it’s the quantity demanded increases
  • keeping other factors remains the same.
• The consumer’s demand for good must be inversely related to the price of the good.
• There is an inverse relationship between price and demand and due to this the demand curve always has a downward slope.
• The demand Curve is the relation between the quantity of the good chosen by a consumer and the price of the good.​

Additional Information

• ​Assumptions for the Law of Demand
  • ​​No change in the income of consumers 
  • No change is the taste and preference of the consumers 
  • No change in price related to other goods.

The correct answer is Commission for Agricultural Costs and Prices.

Key Points

• The government announces Minimum Support Prices (MSP) for agricultural commodities each year in both Crop seasons after taking into account the recommendations of the Commission for Agricultural Costs and Prices (CACP). 
• As of now, CACP recommends MSPs of 23 commodities, which comprise: 
  • 7 kinds of cereal (paddy, wheat, maize, sorghum, pearl millet, barley, and ragi),
  • 5 kinds of pulses (gram, tur, moong, urad, lentil),
  • 7 kinds of oilseed (groundnut, rapeseed-mustard, soybean, sesamum, sunflower, safflower, nigerseed),
  • 4 commercial crops (copra, sugarcane, cotton, and raw jute).
• Though the MSP is decided by the Commission for Agricultural Costs and Prices the final announcement of the MSP is made by the cabinet committee on economic affairs of the finance ministry.
• The Food and Agriculture Organization (FAO) is a specialized agency of the United Nations that leads international efforts to defeat hunger. 
  • Qu Dongyu of China is the Director-General of FAO.
• The Food Corporation of India was set up under the Food Corporation Act of 1964 as the main objective of the distribution of food grains throughout the country for the public distribution system.
• Arjun Munda  is the current Minister of Agriculture & Farmers Welfare. 

The Correct Answer is Oligopoly.

Key Points

• In the ordinary sense, the term market refers to a place where buyers and sellers meet for exchange. However, the Market need not be the place of exchange.
• Types of Market Structure
  • Perfect Competition:
    • 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.
    • A buyer willing to buy all at a certain price but none at price higher. So he is a price maker.
  • Monopoly:
    • Buyers are many but the seller is one.
    • Product has no substitute or no close substitute
    • Other competitors cant enter the market due to laws or patents.
    • Price discrimination is seen between poor and rich. 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.

Additional Information

• Monopolistic competition:
  • 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 and free 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.
• 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 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.