Economics · General Awareness

Economic Principles

1,087 Questions

Economic principles form the foundation of how societies allocate resources and produce goods. This topic covers factors of production, types of capital, and demand classifications. It is a vital component of the economics syllabus in many civil services and banking exams.

Factors of productionCapital typesDemand classificationsEconomic activities

Economic Principles Questions

Multiple choice economics production and costs return to scale and cobb douglas function total product, average product and marginal product laws of returns - returns to a factor and returns to scale

Law of increasing returns states that _______.

  1. proportionate increase in production is more than the proportionate increase in inputs

  2. additional unit of variable input causes increase in total production

  3. additional unit of fixed input causes increase in production at increased rate

  4. additional unit of total input cause increases in total output at increased rate
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation
Increasing returns to scale: If increase in output is more than proportionate to an increase in quantity of all inputs, returns to scale are said to be increasing. The terms in the standard Cobb-Douglas function are raised to coefficients greater than 1.

Multiple choice economics production and costs return to scale and cobb douglas function total product, average product and marginal product laws of returns - returns to a factor and returns to scale

In case of Cobb -Douglas Production function the IQ curve is generally_____________.

  1. Convex

  2. Concave

  3. Parallel to x axis

  4. Parallel to y axis
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The Cobb-Douglas production function exhibits diminishing marginal rates of technical substitution, which results in isoquants (IQ curves) that are convex to the origin. This shape reflects the principle that as more of one input is used, it becomes progressively less effective at substituting for the other input.

Multiple choice economics production and costs return to scale and cobb douglas function total product, average product and marginal product laws of returns - returns to a factor and returns to scale

In the production equation Qx = f(L,K,T...n), L is _______________.

  1. Labour

  2. Level of technology

  3. Loyalty

  4. None of the above
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

In standard production function notation, Q represents output, f represents the functional relationship, and the variables inside the parentheses represent inputs. L is the standard abbreviation for Labor, while K typically denotes Capital.

Multiple choice economics production and costs return to scale and cobb douglas function total product, average product and marginal product laws of returns - returns to a factor and returns to scale

Returns to scale have been classified as constant, increasing and decreasing depending upon the __________________.

  1. inputs required to produce a given level of output

  2. amount of output produced out of a given amount of inputs

  3. response of output to a change in scale

  4. all of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Returns to scale describe how output changes when all inputs are increased by the same proportion. This encompasses the relationship between input scaling and output response, making all the listed factors relevant to the classification.

Multiple choice economics production and costs return to scale and cobb douglas function total product, average product and marginal product laws of returns - returns to a factor and returns to scale

In electricity generation plants, when the plant grows too large risks of plant failure with regard to output increase disproportionately. Hence we are talking about which concept of returns to scale?

  1. Constant Returns to Scale

  2. Increasing Returns to Scale

  3. Decreasing Returns to Scale

  4. Balanced Returns to Scale
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Decreasing returns to scale occur when a proportional increase in all inputs leads to a less than proportional increase in output. In large-scale operations like power plants, inefficiencies or management difficulties can lead to this outcome.

Multiple choice economics basic concepts of national income macroeconomic theories some basic concepts of macroeconomics introduction to macroeconomics

Foreign embassies in India are a part of India's _______________.

  1. Economic territory

  2. Geographical territory

  3. Both (a) and (b)

  4. None of the above
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Foreign embassies in India are a part of India's geographical territory and not economic territory. For example: Embassy of USA in India is a  part of domestic territory of USA and a part of geographical territory of India.

Multiple choice economics basic concepts of national income macroeconomic theories some basic concepts of macroeconomics introduction to macroeconomics

Which of the following is not an example of flow variable?

  1. Number of births during a year

  2. National wealth

  3. National income

  4. Wheat produced during a year
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

National wealth is not an example of flow variable. It is a stock since it is measured at a point of time. National wealth is not time dimensional. It is not measured over a specified period of time like flow. Therefore, national wealth is a stock concept.

Multiple choice economics basic concepts of national income macroeconomic theories some basic concepts of macroeconomics introduction to macroeconomics

Final goods refer to those goods which are used either for ______ or for ________.

  1. Consumption, investment

  2. Consumption, resale

  3. Resale, investment

  4. Resale, further production
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Final goods refer to those goods which are used either for consumption or for investment. Final goods have crossed the boundary of production and are ready for use by their final users. These goods are included in the estimation of national product or national income. Example: Bread and butter used by the consumers.

Multiple choice economics basic concepts of national income macroeconomic theories some basic concepts of macroeconomics introduction to macroeconomics

Which of the following is an example of an intermediate goods? 

  1. Car sold by a dealer of second hand cars

  2. Steel and cement used to construct a flyover

  3. Fertilizers purchased by a farmer

  4. All the these
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation
All of the following are examples of an intermediate good:
a) Car sold by a dealer of second hand cars: It is an intermediate good since cars are purchased by a dealer as goods for resale.
b) Steel and cement used to construct a flyover: It is an intermediate good since steel and cement are used as a raw material.
c) Fertilizers purchased by a farmer: It is an intermediate good since fertilizers is used as a raw material in agriculture.
Multiple choice economics basic concepts of national income macroeconomic theories some basic concepts of macroeconomics introduction to macroeconomics

Sugar purchased by a Sweet shop is an ______ good, while it is a _______ good when it is purchased by a consumer. 

  1. capital, final

  2. final, intermediate

  3. intermediate, final

  4. final, producer
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Sugar purchased by a Sweet shop is an intermediate good, while it is a final good when it is purchased by a consumer as sugar purchased by a sweet shop is used as a raw material and goods used for raw material are classified as intermediate goods as value is yet to be added, while, sugar purchased by a consumer is a final good as it is directly consumed and no value is yet to be added.

Multiple choice economics basic concepts of national income macroeconomic theories some basic concepts of macroeconomics introduction to macroeconomics

Are the following statements true or false? Give reasons.
Increase in stock of goods held by a consumer will contribute to capital formation. 

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Capital formation refers to the net addition to the stock of capital goods (like machinery, factories, or infrastructure). Goods held by a consumer for personal use are consumption goods, not capital goods, so they do not contribute to capital formation.

Multiple choice economics basic concepts of national income macroeconomic theories some basic concepts of macroeconomics introduction to macroeconomics

Capital output ratio refers to __________________.

  1. units of capital required to produce consumer goods

  2. units of capital required to produce output

  3. amount of capital required to instal a capital asset

  4. All the above
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

A frequently used tool that explains the relationship between the level of investment made in the economy and the consequent increase in GDP is the capital-output ratio. The concept of the capital-output ratio expresses the relationship between the value of capital invested and the value of output.

Capital output ratio is the amount of capital needed to produce one unit of output. For example, suppose that investment in an economy, investment is 32% (of GDP), and the economic growth corresponding to this level of investment is 8%.

Here, a Rs 32 investment produces an output of Rs 8. Capital output ratio is 32/8 or 4. In other words, to produce one unit of output, 4 unit of capital is needed. But don’t forget that the Rs 32 invested in the form of machinery will remain there for around ten or twelve years. Such machinery will be giving Rs 1 output in every year.

Hence, B is the correct option.

Multiple choice economics basic concepts of national income macroeconomic theories some basic concepts of macroeconomics introduction to macroeconomics

Which of the following is an example of an intermediate goods?

  1. A Tata Indica sold by a dealer of second hand cars

  2. Steel and cement used to construct a flyover

  3. Farming crop purchased by FCI

  4. All of the above
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Intermediate goods are used as inputs in the production of other goods. Steel and cement used in construction are inputs for the final structure (the flyover).

Multiple choice economics basic concepts of national income macroeconomic theories some basic concepts of macroeconomics introduction to macroeconomics

The value of plant and machinery used and worn out in the manufacturing of goods and services is known as _______.

  1. transfer payment

  2. intermediate goods

  3. depreciation

  4. gross block
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Depreciation refers to the loss in value of fixed capital assets due to wear and tear, obsolescence, or passage of time during the production process.