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 economics concept of consumption function, saving function and investment function capital economy of a village wealth, capital and money

If current consumption is reduced for the purpose of Capital Formation, that represents a _________________.

  1. Uneconomic activity

  2. Current sacrifice for future growth

  3. Decrease in demand

  4. Decrease in resources
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Capital formation requires saving, which means reducing current consumption to invest in future productive capacity. This is a trade-off between present and future.

Multiple choice economics concept of consumption function, saving function and investment function capital economy of a village wealth, capital and money

Larger production of ____________ goods would lead to higher production in future.

  1. consumer

  2. capital

  3. agricultural

  4. public

Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

An increase in the stock of capital goods, which are used for the production of consumer goods, will lead to increased production of consumer goods and enhance the future production output.

Multiple choice economics concept of consumption function, saving function and investment function capital economy of a village wealth, capital and money

A 100% Consumption Economy ______________________.

  1. Cannot have any Capital Formation

  2. Will become static and cannot grow

  3. Both (a) and (b)

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

If an economy consumes everything it produces, there is no surplus left for investment. Without investment, there is no capital formation, and the economy cannot grow.

Multiple choice economics concept of consumption function, saving function and investment function capital economy of a village wealth, capital and money

Capital Formation is possible by _______________________.

  1. Using whole of the current capacity to produce only Consumer Goods

  2. Reducing present consumption to a certain extent

  3. Both (a) and (b)

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

Capital formation is only possible if resources are diverted from producing consumer goods to producing capital goods, which requires a reduction in present consumption.

Multiple choice economics concept of consumption function, saving function and investment function capital economy of a village wealth, capital and money

Capital Formation is required for _________________.

  1. Increasing the efficiency of production efforts

  2. Expansion of output of consumer goods in the future.

  3. Ensuring growth of the economy

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

Capital formation involves the accumulation of assets that increase an economy's productive capacity. This process facilitates higher production efficiency, future output growth, and overall economic development.

Multiple choice economics concept of consumption function, saving function and investment function capital economy of a village wealth, capital and money

Under Cobb- Douglas production function contribution of capital and labour respectively _________________.

  1. $3/4^{th} , 1/4^{th}$
  2. $1/4^{th} , 3/4^{th}$

  3. 1/2, 1/2

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

The standard Cobb-Douglas production function is often written as Y = A * K^alpha * L^(1-alpha). In many empirical applications, the output elasticity of capital (alpha) is estimated to be around 1/4 (0.25) and labor (1-alpha) around 3/4 (0.75).

Multiple choice economics concept of consumption function, saving function and investment function capital economy of a village wealth, capital and money

Which capital includes durable consumer goods, inventories and intermediate goods?

  1. Human capital.

  2. Physical capital.

  3. External capital.

  4. Floating capital.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Floating capital (also known as circulating capital) refers to assets that are consumed or transformed during the production process, such as raw materials, inventories, and intermediate goods, as opposed to fixed capital.

Multiple choice economics concept of consumption function, saving function and investment function capital economy of a village wealth, capital and money

"Capital is the produced means of production". Who gave this definition?

  1. Bohm Bawerk

  2. J.K. Hicks

  3. Von Sickle and Roger

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

Bohm Bawerk proclaimed that "Capital is the produced means of production". Capital is already a produced means as other factors of production are used to produce capital in an economy.

Multiple choice economics concept of consumption function, saving function and investment function capital economy of a village wealth, capital and money

Why is capital a passive factor of production?

  1. Because it becomes ineffective without cooperation of labour

  2. Because it becomes ineffective without land

  3. Because it becomes ineffective without entrepreneurs

  4. Because it becomes ineffective without natural resources
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Without the presence of labour factor of production ,capital is of no use,hence capital is a passive factor of production. Without labour , capital will not get utilized in the production mechanism. Capital without the accompany of the labour cannot produce any goods and services in an economy.

Multiple choice economics concept of consumption function, saving function and investment function capital economy of a village wealth, capital and money

Capital Formation means ___________________.

  1. A sustained increase in the stock of real capital in a country.

  2. Production of more capital goods, which are used for further production of goods.

  3. Investment

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

Capital formation encompasses the entire process of increasing the stock of real capital, which includes the production of capital goods and the act of investment that adds to the productive capacity of the economy.

Multiple choice commercial studies concept of market and marketer meaning and importance of marketing meaning and definition of market introduction to marketing marketing environment meaning and definition of marketer role of marketing

A complete and detailed picture of distribution process is given by.

  1. J. F. Pyle

  2. F.W. Ryan

  3. R.F. Breyer

  4. Clark and clark
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

F.W. Ryan is credited with providing a detailed classification and analysis of the distribution process in marketing literature.

Multiple choice commercial studies concept of market and marketer meaning and importance of marketing meaning and definition of market introduction to marketing marketing environment meaning and definition of marketer role of marketing

Profitability index is also known as__________.

  1. Yield on investment

  2. Marginal efficiency of capital

  3. Marginal productivity of capital

  4. Benefit-cost Ratio
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The Profitability Index (PI) is calculated as the ratio of the present value of future cash flows to the initial investment, which is why it is also known as the benefit-cost ratio.

Multiple choice commercial studies concept of market and marketer meaning and importance of marketing meaning and definition of market introduction to marketing marketing environment meaning and definition of marketer role of marketing

When a firm is producing its own inputs or owns its own sources of distribution of outputs, it undergoes _____________.

  1. forward integration

  2. backward integration

  3. vertical integration

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

Vertical integration occurs when a company controls multiple stages of its supply chain, either by producing its own inputs (backward) or owning its distribution channels (forward).

Multiple choice

Sparta's economy was based on

  1. agriculture and farming.

  2. ongoing warfare.

  3. trade.

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

While Sparta is famous for its military, its economy was fundamentally supported by agriculture and farming, which was largely performed by the helots (enslaved population).