Economics · General Awareness

Economic Principles

1,097 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 organisation of commerce and management economics of development and planning fundamental of economic development economics of development economic mechanism

In which of the following situations, the Law of Variable Proportions will not apply?

  1. Improvement in technology

  2. When all factors are proportionately varied

  3. Where the factors must be used in fixed proportions to yield the product

  4. All of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation
In the following situations, the Law of Variable Proportions will not apply:
a) Improvement in technology
b) When all factors are proportionately varied c) Where the factors must be used in fixed proportions to yield the product
Law of variable proportions is also known as the law of law of diminishing returns. This law shows the production function with one input factor variable while keeping the other input factors constant.
Multiple choice organisation of commerce and management economics of development and planning fundamental of economic development economics of development economic mechanism

After the initial stages of increasing returns to scale, the Firm will experience ________________________.

  1. Still Increasing Returns to Scale

  2. Constant Returns to Scale

  3. Diminishing Returns to Scale

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

In economic terms, constant returns to scale is when a firm changes its inputs with the results being exactly the same change in outputs (production). In other words, if a firm increases its inputs they will see a proportional increase in production (or outputs). 

The similar can be true if a firm decreases its inputs and that results in a proportional decrease in outputs. Constant returns to scale take place when increasing the number of inputs leads to an equivalent increase in the output.

 Thus, the correct option is B.

Multiple choice organisation of commerce and management economics of development and planning fundamental of economic development economics of development economic mechanism

Internal Economies and Diseconomies arise due to ________________.

  1. Overall industry-level changes

  2. Changes at the Firm level

  3. Both (a) and (b)

  4. Neither (a) nor (b)
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Internal Economies and Diseconomies arise due to changes at the Firm level.Internal Economies and Diseconomies in operations depend on the internal factors within the firm.
Internal Economies or diseconomies can be defined as a situatiion when the production of the firm gets affected because of the internal factors of the firm only.

Multiple choice organisation of commerce and management economics of development and planning fundamental of economic development economics of development economic mechanism

If one unit of labour and one unit of capital give 200 units of output, two units of labour and two units of capital give 400 units of output and 5 units of labour and five units of capital give 1000 units of output then this is a case of _____________________.

  1. Constant Returns to Scale.

  2. Increasing Returns to Scale.

  3. Decreasing Returns to Scale.

  4. All of these.
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

If one unit of labour and one unit of capital give 200 units of output, two units of labour and two units of capital give 400 units of output and 5 units of labour and five units of capital give 1000 units of output then this is a case of Constant Returns to Scale.Constant Returns to Scale can be defined as a situation when an increase in inputs cause proportional increase in output.

Multiple choice organisation of commerce and management economics of development and planning fundamental of economic development economics of development economic mechanism

You are given the following data:

Factor  Output
0 0
1 15
2 30
3 45
4 60
5 75

The above data is an example of:

  1. Constant Returns to Scale.

  2. Decreasing Returns to Scale.

  3. Increasing Returns to Scale.

  4. Globalization.
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

In the data, as the factor increases by 1, the output increases by 15 consistently. This constant ratio of output to factor (15/1 = 30/2 = 45/3 = 60/4 = 75/5 = 15) indicates constant returns to scale.

Multiple choice organisation of commerce and management economics of development and planning fundamental of economic development economics of development economic mechanism

After a certain period of time, the demand of the people for agricultural output _________ and for industrial output __________.

  1. falls, rises

  2. rises, falls

  3. falls, constant

  4. constant, rises
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

After a certain period of time, the demand of the people for agricultural output falls and for industrial output rises. Since the coming of industrialization, the demand for industrial products are risings which is a result of modern standard of living from the traditional one so people prefer industrial product over agricultural product. 

Multiple choice social studies importance of transport system importance of transportation system introduction to transport and communication transportation services language, writing and great books

World has become a global village due to _______.

  1. International trade

  2. Transport and communication

  3. Engineering Industry

  4. Electronic industry
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The ability for (relatively) anyone to travel anywhere in the world, the ability to communicate with nearly anyone (especially via social media), and greater access to the Internet and technology in general all contribute to the global village.

Multiple choice book keeping and accountancy accounting equation meaning, objectives and need of adjustments need for adjustments accounting equations and transactions

Which of the following is not a part of inventory?

  1. Finished goods

  2. Raw material,components,consumables and supplies

  3. Spare parts of plants and machinery

  4. Work-in-progress
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Inventory typically includes assets held for sale (finished goods), in the process of production (WIP), or in the form of materials to be consumed (raw materials). Spare parts for machinery are generally classified as Property, Plant, and Equipment (PPE) or supplies, not as inventory for sale.

Multiple choice economics economic reconstruction economics of planning objectives of economic planning in india major economic problems

Scarcity of resources effects ________________.

  1. Households

  2. Business firms

  3. Governments

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

Scarcity of resources effects households, business firms, governments and even individuals. The main problem of economics is the scarcity of resources which affects everyone. The needs and wants of households remain unsatisfied. The businesses and governments don’t have enough resources for their operations. Due to this problem, it is necessary that we use these resources efficiently. 

Multiple choice economics economic reconstruction economics of planning objectives of economic planning in india major economic problems

When we say scarcity we refer to ________.

  1. scarcity of productive resources

  2. scarcity of consumable goods

  3. scarcity of human capital

  4. scarcity of funds
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

When we say scarcity, we refer to the scarcity of productive resources. It is the limited supply of productive resources that constitutes the central problem. The wants of people are unlimited and thus these scarce resources are unable to fulfill all the demands of the economy. 

Multiple choice economics economic reconstruction economics of planning objectives of economic planning in india major economic problems

The central problem of how to produce is resolved by _________.

  1. demand and supply of factor inputs

  2. demand and supply of goods

  3. relative prices and availability of factors of production

  4. government intervention
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The central problem of how to produce is resolved by the relative prices and availability of factors of production. This problem refers to the selection of technique to be used for production of goods and services. Thus when we know the prices and availability of factors of production, we can identify the techniques that should be used to produce a particular combination of goods and services. 

Multiple choice economics economic reconstruction economics of planning objectives of economic planning in india major economic problems

______ is not a central problem of a society.

  1. What to produce

  2. How to produce

  3. For whom to produce

  4. When to produce
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The three fundamental questions of economics are:

1.      How to produce: it talks about the techniques that should be used to produce goods and services that are required by the people.

2.      What to produce: it talks about the things that should be produced with the limited resources that are available in the economy.

3.      For whom to produce: it talks about the selection of the category of people for whom the goods are to be produced. More for the rich, less for the poor or less for the rich and more for the poor. 

Hence, we see that when to produce is not a central problem.

Multiple choice economics economic reconstruction economics of planning objectives of economic planning in india major economic problems

Which of the following is not considered production in Economics?

  1. Tilling of soil by farmers

  2. Singing a song before friends

  3. Construction of Canal by laborers

  4. Painting a picture for sale
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Production is a process of merging various material inputs and irrelevant inputs in order to make something for consumption. It is the action of creating output, a good or service which has the value and contribution to the beneficial of the individuals. Tiling of soil by friends, construction of canal by laborers, Painting a picture for sale are considered in the production of economics. 

Multiple choice economics economic reconstruction economics of planning objectives of economic planning in india major economic problems

Economic resources are ____________.

  1. Unlimited

  2. Limited in supply and use

  3. Limited in supply but have alternative uses

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

Resources which are used for economic activities are called as economic resources. Human life depends on the consumption of various materials which are made up of the resources available on earth. examples : soils, minerals, water ,etc.  These resources are finite in number.