FCI AG III
ECONOMY
Basics of Economy - 2
FCI AG III – Free YouTube Series Schedule
Day Subject Faculty
Monday @ 2.00PM General Studies Deepak Thakur Sir
Tuesday @ 2.00PM General Studies Deepak Thakur Sir
Wednesday @ 2.00PM General Studies Mona mam
Thursday @ 2.00PM Technical (ARD, Botany, Shamli mam
Zoology)
Friday @ 2.00PM Accounts Santosh sir
Q1. The Human Development Index (HDI) measures:
A. Only economic growth.
B. Income, education, and life expectancy.
C. Population growth rates.
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D. Environmental sustainability.
E. Employment levels in a country.
Answer: B
Explanation:
HDI is a composite index that evaluates overall human development by considering
economic and social factors.
Q2. If the price elasticity of demand for a product is greater than 1, which of the
following is true?
A. The good is a necessity.
B. The good has inelastic demand.
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C. A price increase will reduce total revenue.
D. A price decrease will reduce total revenue.
E. The demand for the good is perfectly elastic.
Answer: C
Explanation:
When the price elasticity of demand is greater than 1 (elastic), consumers are highly
responsive to price changes. This means that a price increase will lead to a proportionally
larger decrease in quantity demanded, reducing total revenue.
Q3. A monopoly is characterized by:
A. Many sellers competing for market share.
B. A single seller controlling the entire market.
C. A homogeneous product.
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D. Easy entry and exit from the market.
E. Price competition among firms.
Answer: B
Explanation:
In a monopoly, one firm dominates the market, reducing competition and often leading to
higher prices.
Q4. Economic efficiency is achieved when:
A. The marginal benefit of a good equals the marginal cost of producing it.
B. Total revenue equals total cost.
C. All resources are distributed equally among consumers.
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D. Firms earn maximum profits.
E. There is no unemployment in the economy.
Answer: A
Explanation:
Economic efficiency is achieved when resources are allocated in a way that
maximizes total surplus, which occurs when the marginal benefit to consumers
equals the marginal cost of production. This ensures that the right amount of goods
and services is produced.
Q5. Which of the following statements is an example of normative economics?
A. The unemployment rate is 6%.
B. Inflation increases when the money supply grows rapidly.
C. The government should reduce taxes to stimulate economic growth.
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D. Increasing the minimum wage leads to higher prices.
E. GDP grew by 3% last year.
Answer: C
Explanation:
Normative economics involves value judgments and opinions on what ought to be,
while positive economics is based on factual statements. Saying the government
"should" reduce taxes reflects a normative, prescriptive viewpoint.
Q6. Market equilibrium occurs when:
A. Supply equals demand.
B. Quantity supplied equals quantity demanded.
C. Producers and consumers agree on the price of goods.
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D. Total revenue equals total cost.
E. Supply exceeds demand.
Answer: B
Explanation:
Market equilibrium is the point where the quantity of goods supplied by producers
matches the quantity demanded by consumers, leading to no surplus or shortage in
the market. This is also where the supply and demand curves intersect.
Q7. In a mixed economy, which of the following statements is true?
A. The government has no role in economic activities.
B. Only private enterprises are responsible for economic decisions.
C. Both the private sector and the government play significant roles in the economy.
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D. Resources are owned collectively, and the government controls all production.
E. Market forces solely determine the prices of goods and services.
Answer: C
Explanation:
A mixed economy incorporates elements of both capitalism and socialism, where both
the government and private sector contribute to economic decision-making. The
government intervenes to regulate or provide services, while market forces still play a
key role in determining prices and production.
Q8. Which of the following is not a characteristic of capitalism?
A. Private ownership of resources.
B. Profit motive as a driving force.
C. Freedom of choice for consumers.
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D. Centralized decision-making by the government.
E. Competition among businesses.
Answer: D
Explanation:
Capitalism is characterized by private ownership of resources, the pursuit of profit,
competition, and consumer sovereignty. Centralized decision-making is a feature of a
command economy, not capitalism, where market forces primarily guide economic
decisions.
Q9. Which of the following is a primary characteristic of a socialist economy?
A. Most resources are privately owned and managed.
B. Prices are determined entirely by market forces.
C. The government controls major industries and redistributes wealth.
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D. Innovation and competition are key drivers of economic growth.
E. Individuals are free to accumulate unlimited wealth.
Answer: C
Explanation:
In a socialist economy, the government typically owns and controls major industries,
and wealth is redistributed to reduce inequality. The goal is to achieve economic
equality and provide for the welfare of all citizens, unlike in capitalist systems where
private ownership dominates.
Q10. Which of the following is an example of market failure?
A. A firm sets a price that is higher than its competitors.
B. Consumers prefer one brand over another.
C. A factory pollutes a river without facing any costs for the pollution.
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D. The government imposes taxes on luxury goods.
E. A new product fails to attract enough buyers.
Answer: C
Explanation:
Absolute poverty indicates a severe lack of resources to fulfill essential living
requirements such as food and shelter.
