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

Which of the statements is correct?

  1. Land is a highly mobile factor of production.

  2. Man cannot create matter.

  3. The services of housewife are termed as production in economics.

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

Land is geographically immobile - it cannot be moved, so A is incorrect. Housewife services are not counted as production in national income accounting, so C is incorrect. The law of conservation of matter states matter cannot be created or destroyed, only transformed - making B correct.

Multiple choice

Directions: Fill the gap with the most appropriate word from the options given below.

Industrial leaders are worried lest new inventions make their plants unprofitable to operate; they therefore wish to protect themselves against possible _________.

  1. depreciation

  2. despoliation

  3. obsolescence

  4. casualties

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

Obsolescence refers to the state, process, or condition of being or becoming obsolete. It fits here in the context of "new inventions".

Multiple choice

Mode of production refers to:

  1. Forces of production

  2. Methods of production

  3. Relations of production

  4. The duality of Forces of Production and Relations of Production
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

In Marxian economics, mode of production encompasses both productive forces (technology, labor, tools) and production relations (social relationships, ownership patterns). It represents the dialectical unity of forces and relations of production, making option D the correct answer.

Multiple choice

C E S Production function is associated with the name of one of the fallowing:

  1. Joan Robinson

  2. B. S. Minhas

  3. Manmohan Singh

  4. A. K. Sen
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The CES (Constant Elasticity of Substitution) production function was developed by Arrow, Chenery, Minhas, and Solow in their seminal 1961 paper. It's often called the ACMS function. B.S. Minhas was the 'M' in this pioneering work, making him directly associated with the CES production function. Joan Robinson worked on imperfect competition, Manmohan Singh is a policy economist, and A.K. Sen is known for welfare economics.

Multiple choice

Match the following;

 
1. Romer, Paul M.
(i) Learning by doing
2. Lucas. Robert E. Jr
(ii) Research and Development
3. Arrow, Kenneth J,
(iii) Human Capital
4. Solow, Robert M
(iv) Innovations
(v) Exogenous technical progress

  1. 1 - (ii), 2 - (iii), 3 - (i), 4 - (v)

  2. 1 - (iii), 2 - (iv), 3 - (ii), 4 - (i)

  3. 1 - (iv), 2 - (ii), 3 - (iii), 4 - (v)

  4. 1 - (i), 2 - (v), 3 - (iv), 4 - (ii)
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Paul Romer is associated with endogenous growth through R&D (ii). Robert Lucas Jr. developed human capital theory (iii). Kenneth Arrow introduced 'learning by doing' (i). Robert Solow's model features exogenous technical progress (v). The correct matching is 1-(ii), 2-(iii), 3-(i), 4-(v), which is Option B.

Multiple choice

Match the following

 
List - I
List - Il
1. Learning by doing
(i) R. R. Nelson
2. Division of Labour
(ii) John Stuart Mill
3. Stationary State as bliss
(iii) Adam Smith
4. Low level equilibrium
(iv) K. J Arrow trap

  1. 1-(iv), 2-(ii), 3-(iii), 4-(i)

  2. 1-(i), 2-(ii), 3-(iii), 4-(iv)

  3. 1-(iv), 2-(iii), 3-(ii), 4-(i)

  4. 1-(ii), 2-(iv), 3-(iii), 4-(i)
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The correct matching pairs economists with their core contributions: Learning by doing is Kenneth Arrow's concept (productivity gains from experience), Division of Labour is Adam Smith's foundational idea (specialization increases efficiency), Stationary State as bliss is John Stuart Mill's vision (economic growth reaching steady-state), and Low-level equilibrium trap is R.R. Nelson's theory (development trap requiring critical minimum effort). These matching questions test knowledge of economic thought history and theorists' signature concepts.

Multiple choice

Match the following

 
List-I
List-Il
1. PhysicaL Quality of Life Index
(i) W.W. Rostow
2. Organic Composition of Capital
(ii) RF. Harrod
3. Warranted rate of growth
(iii) Morris D. Morris
4. Stages of growth theory
(iv) Karl Marx

  1. 1-(iv), 2-(iii), 3-(i), 4-(ii)

  2. 1-(iii), 2-(i), 3-(ii), 4-(iii)

  3. 1-(ii), 2-(iii), 3-(ii), 4-(i)

  4. 1-(ii), 2-(iii), 3-(i), 4-(iv)
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Physical Quality of Life Index (PQLI) was developed by Morris D. Morris as a composite measure of development using infant mortality, life expectancy, and literacy. Organic composition of capital (constant capital / variable capital) is Marx's concept showing the ratio of machinery to labor power. Warranted rate of growth is Harrod's concept of full-capacity growth. Stages of growth theory is Rostow's five-stage model of economic development.

Multiple choice

The firms in the modern world, use reserve capacity to:

  1. ensure greater flexibility in operations

  2. reduce costs

  3. reduce wages

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

Modern firms maintain reserve capacity primarily to ensure operational flexibility - the ability to respond to demand fluctuations, equipment breakdowns, or sudden orders without disrupting production. While idle capacity does increase costs, the strategic value of flexibility typically outweighs these costs. Reserve capacity is NOT used to reduce wages or taxes, which are unrelated to capacity decisions.

Multiple choice

Which of the following statements is correct concerning the relationship among the firm's functions?

  1. TC = TFC - TVC

  2. TVC = TFC - TC

  3. TFC = TC - TVC

  4. TC = TVC - TFC
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Total Cost (TC) = Total Fixed Cost (TFC) + Total Variable Cost (TVC). Therefore, TFC = TC - TVC. Option C is mathematically correct. Option A incorrectly subtracts, Option B is the wrong rearrangement, and Option D has the subtraction reversed. This is basic cost accounting.

Multiple choice
Directions: Read the passage and answer the question that follows.
Many of you have long experienced in your manufacturing operations the advantages of substantial, well-contrived, and well-executed machinery.
Experience has also shown you the difference of the results between mechanism which is neat, clean, well arranged, and always in a high state of repair; and that which is allowed to be dirty, in disorder, and without the means of preventing unnecessary friction, and which therefore becomes, and works, much out of repair.
In the first case the whole economy and management are good, every operation proceeds with ease, order, and success.
In the last, the reverse must follow, and dissatisfaction among all the agents and instrument interested or occupied in the general process, which cannot fail to create great loss.
If, then, due care as to the state of your inanimate machines can produce such beneficial results, what may not be expected if you devote equal attention to your vital machines, which are far more wonderfully constructed?
When you shall acquire a right knowledge of these, of their curious mechanism, of their self-adjusting powers; when the proper main spring shall be applied to their various movements — you will become conscious of their real value, and you will readily be induced to turn your thoughts more frequently from your inanimate to your living machines; and you will discover that the latter may be easily trained and directed to procure a large increase of pecuniary gain, while you may also derive from them a high and substantial satisfaction. What, according to you, would be the appropriate title of the passage?

  1. A new view of organization.

  2. New trends to be healthy.

  3. An insight into effective mechanisms.

  4. A new view of society.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

In light of above explanation, (4) would be the appropriate title and hence the answer.

Multiple choice
Directions: Read the passage and answer the question that follows.
Many of you have long experienced in your manufacturing operations the advantages of substantial, well-contrived, and well-executed machinery.
Experience has also shown you the difference of the results between mechanism which is neat, clean, well arranged, and always in a high state of repair; and that which is allowed to be dirty, in disorder, and without the means of preventing unnecessary friction, and which therefore becomes, and works, much out of repair.
In the first case the whole economy and management are good, every operation proceeds with ease, order, and success.
In the last, the reverse must follow, and dissatisfaction among all the agents and instrument interested or occupied in the general process, which cannot fail to create great loss.
If, then, due care as to the state of your inanimate machines can produce such beneficial results, what may not be expected if you devote equal attention to your vital machines, which are far more wonderfully constructed?
When you shall acquire a right knowledge of these, of their curious mechanism, of their self-adjusting powers; when the proper main spring shall be applied to their various movements — you will become conscious of their real value, and you will readily be induced to turn your thoughts more frequently from your inanimate to your living machines; and you will discover that the latter may be easily trained and directed to procure a large increase of pecuniary gain, while you may also derive from them a high and substantial satisfaction.
What is the theme of the passage?

  1. Co-ordination among different organs in our body and hygienic diet is the secret of a healthy being.

  2. Good and effective management is substantial for successful operating mechanisms within an organisation.

  3. Harmonization and order among individuals of the society would create a better society.

  4. Well - contrived and well excepted machinery results in ordered and satisfied mechanism whereas unnecessary friction in machinery causes disorder among all the agents in the mechanism.

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

The concept of machinery and manufacturing operations in first four paragraphs are cited as an example to explain the main idea of the passage. In this passage, the author draws a similarity between inanimate machines and living machines (clue is provided by fifth paragraph). In this light, options (2) and (4) are ruled out.
By living machines, the author means individuals or human beings that are a past of the society (fifth paragraph). 'The latter may be easily trained' in fifth paragraph provides the clue that the author emphasizes on the individuals as they can be trained but different organs in our body cannot be easily trained. Hence, (3) is the answer.

Multiple choice

In which of the following cases is the piece-rate system not suitable?

  1. When quality of product does not matter.

  2. Where the job is of repetitive nature.

  3. When specialised artistic skill is required.

  4. When output is the direct result of the quantum of effort.

  5. None of these
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

 Piece-rate system is not suitable when specialised artistic skill is required. For instance, special artistic skill is required for glass painting and it takes time to complete it as there must be concentration on every miunte details. Thus, piece-rate system is not suitable for specialised artistic skill that there should be maximum production.