Nd, Supply and Elasticity If the price elasticity of demand for a commodity is unity, a fall in price will: A. Increase total revenue B. Decrease total revenue C. Leave total revenue unchanged D. Increase profits only Which of the following would cause demand for butter to increase? A. Fall in income where butter is a normal good B. Increase in the price of margarine C. Decrease in population D. Fall in the price of butter A perfectly inelastic demand curve is: A. Horizontal B. Vertical C. Upward sloping D. Rectangular hyperbola Supply of manufactured goods is generally more elastic than supply of agricultural products because: A. Production can be adjusted more easily B. Demand is higher C. Prices are lower D. Labour is cheaper Which elasticity concept measures responsiveness of demand to income changes? A. Price elasticity B. Cross elasticity C. Income elasticity D. Supply elasticity A good whose income elasticity is negative is: A. Luxury B. Complementary C. Inferior D. Normal If PED = –2 and price rises by 10%, quantity demanded will: A. Rise by 20% B. Fall by 5% C. Fall by 20% D. Rise by 5% Which of the following causes a leftward shift of the supply curve? A. Subsidy B. Technological improvement C. Increase in production costs D. Increase in number of firms The law of demand assumes: A. Ceteris paribus B. Government intervention C. Monopoly D. Full employment Demand is likely to be most elastic for: A. Salt B. Water C. Luxury cars D. Insulin Theory of the Firm and Market Structures Marginal cost is at its minimum when: A. MC = AVC B. MC = AC C. MC cuts AVC from below D. MC = MR A firm maximizes profit when: A. MC = MR B. AC = AR C. TR = AR D. TC = MC In perfect competition, firms are: A. Price makers B. Price discriminators C. Price takers D. Cost setters The demand curve facing a monopolist is: A. Perfectly elastic B. Upward sloping C. Horizontal D. Downward sloping Which market structure has the highest barriers to entry? A. Perfect competition B. Monopoly C. Monopolistic competition D. Pure competition The kinked demand curve is associated with: A. Monopoly B. Oligopoly C. Duopoly D. Monopsony Excess capacity is commonly associated with: A. Perfect competition B. Monopoly C. Monopolistic competition D. Bilateral monopoly In the long run under perfect competition: A. Firms earn supernormal profits B. Firms earn losses C. Firms earn normal profits D. Firms stop producing Price discrimination requires: A. Free entry B. Product homogeneity C. Market separation D. Perfect information Which market structure is most likely to engage in collusion? A. Monopoly B. Oligopoly C. Perfect competition D. Monopolistic competition National Income National income at factor cost equals: A. GDP + depreciation B. NNP at factor cost C. GNP at market price D. GDP – imports Which is excluded from national income calculations? A. Doctors' services B. Teachers' salaries C. Transfer payments D. Factory output Double counting can be avoided through: A. Expenditure method B. Income method C. Value-added method D. Product method If MPC = 0.8, the multiplier is: A. 2 B. 3 C. 4 D. 5 GDP differs from GNP because GDP excludes: A. Depreciation B. Net factor income from abroad C. Taxes D. Exports Which of the following is an injection into the circular flow? A. Saving B. Imports C. Taxation D. Investment Per capita income is calculated by: A. GDP × Population B. National income ÷ Population C. GDP + Population D. National income – Population Economic welfare may not increase even if GDP rises because: A. Population may increase faster B. Exports increase C. Inflation falls D. Savings increase Money and Banking The legal tender issued by a country's monetary authority is: A. Cheque B. Demand deposit C. Currency notes and coins D. Treasury bills The principal objective of monetary policy is: A. Increase imports B. Control money supply C. Increase taxation D. Increase exports Open market operations involve: A. Buying and selling securities B. Collecting taxes C. Fixing wages D. Licensing banks Commercial banks create credit mainly through: A. Printing money B. Accepting deposits and lending C. Collecting taxes D. Selling bonds Inflation resulting from rising production costs is: A. Demand-pull inflation B. Hyperinflation C. Cost-push inflation D. Structural unemployment The liquidity preference theory was developed by: A. Adam Smith B. Ricardo C. Keynes D. Marshall Near money includes: A. Coins B. Banknotes C. Treasury bills D. Currency Public Finance A tax whose rate rises with income is: A. Regressive B. Proportional C. Progressive D. Indirect Government expenditure on defence is: A. Transfer expenditure B. Current expenditure C. Capital expenditure D. Development expenditure Public debt incurred within the country is: A. External debt B. Foreign debt C. Internal debt D. Bilateral debt Budget surplus occurs when: A. Revenue exceeds expenditure B. Expenditure exceeds revenue C. Imports exceed exports D. Savings exceed investment VAT is an example of: A. Direct tax B. Wealth tax C. Indirect tax D. Progressive tax International Trade and Development Comparative advantage theory was propounded by: A. Adam Smith B. David Ricardo C. Keynes D. Ohlin A quota is: A. Tax on imports B. Restriction on quantity imported C. Subsidy D. Export tax Devaluation aims at: A. Reducing exports B. Encouraging imports C. Encouraging exports D. Reducing investment Balance of payments records: A. Government expenditure B. All international transactions C. National income D. Inflation Terms of trade improve when: A. Import prices rise faster than export prices B. Export prices rise faster than import prices C. Imports exceed exports D. Exports fall The Human Development Index includes: A. Income only B. Education only C. Health, education and income D. Inflation and unemployment Economic growth refers to: A. Increase in real output B. Increase in welfare only C. Reduction in poverty only D. Equal income distribution The Harrod-Domar model emphasizes: A. Savings and investment B. Population growth C. Trade barriers D. Taxation Sustainable development means: A. Rapid industrialization B. Growth without regard to environment C. Development meeting present needs without compromising future generations D. Reduction in population Which of the following is the best indicator of economic development? A. GDP B. Per capita income C. HDI D. Inflation rate

When price elasticity of demand is unity ($PED = 1$), the percentage change in quantity demanded is equal to the percentage change in price. This means that a fall in price will lead to a proportionate increase in quantity demanded, leaving total revenue unchanged.
The correct option is C. Leave total revenue unchanged.

An increase in the price of a substitute good (like margarine) would make butter relatively cheaper and more attractive, leading to an increase in demand for butter.
The correct option is B. Increase in the price of margarine.

A perfectly inelastic demand curve means that quantity demanded does not change at all, regardless of price changes. This is represented by a vertical line.
The correct option is B. Vertical.

Manufactured goods often have more flexible production processes, allowing producers to adjust output levels more easily and quickly in response to price changes compared to agricultural products, which are subject to growing seasons and biological lags.
The correct option is A. Production can be adjusted more easily.

Income elasticity of demand measures how the quantity demanded of a good responds to a change in consumers' income.
The correct option is C. Income elasticity.

An inferior good is one for which demand decreases as consumer income increases, resulting in a negative income elasticity of demand.
The correct option is C. Inferior.

Price Elasticity of Demand ($PED$) is calculated as the percentage change in quantity demanded divided by the percentage change in price.

Given $PED = -2$ and $\% \Delta P = +10\%$:

A negative sign indicates a fall in quantity demanded.
The correct option is C. Fall by 20%.

A leftward shift of the supply curve indicates a decrease in supply. An increase in production costs makes it more expensive to produce goods, leading firms to supply less at any given price.
The correct option is C. Increase in production costs.

The law of demand states that, ceteris paribus (all other things being equal), as the price of a good or service increases, the quantity demanded decreases, and vice versa.
The correct option is A. Ceteris paribus.

Demand is generally more elastic for luxury goods because they are not necessities and consumers can easily postpone their purchase or choose alternatives if prices rise. Salt, water, and insulin are necessities with inelastic demand.
The correct option is C. Luxury cars.

Theory of the Firm and Market Structures

The marginal cost (MC) curve typically falls and then rises. It intersects the average variable cost (AVC) and average total cost (AC) curves at their minimum points, cutting them from below. However, the question asks when MC itself is at its minimum, which is a point before it intersects AVC or AC. None of the options directly state "when MC curve reaches its lowest point". Among the given options, the most common association with MC's behavior is its relationship with AVC and AC. The MC curve cuts the AVC curve from below at the AVC's minimum point. This option describes a relationship, not the minimum of MC itself. However, if we interpret the question as asking about a significant point in the MC curve's behavior, its intersection with AVC and AC is key. Let's re-evaluate. MC is at its minimum before it intersects AVC or AC. The options provided are about the relationship between MC and other cost curves. The question is slightly ambiguous. If it's asking for a point where MC is related to other curves at their minimum, then C is about the AVC minimum. Let's assume it's asking for a general characteristic of the MC curve's behavior. The MC curve cuts the AVC and AC curves from below at their respective minimums. This is a key characteristic. However, the question asks when MC is at its minimum. This is a specific point on the MC curve. None of the options directly state this. Let's consider the typical shape: MC falls, reaches a minimum, then rises. It then intersects AVC and AC at their minimums. So, MC's minimum occurs before it intersects AVC or AC. Given the options, there might be a misunderstanding of the question or the options are not perfectly aligned. Let's re-read carefully. "Marginal cost is at its minimum when:". This is a specific point. The options describe relationships. This is tricky. Let's consider the standard textbook representation. The MC curve is U-shaped. It reaches its minimum, then rises. It intersects AVC and AC at their minimums. So, the minimum of MC occurs before it intersects AVC or AC. If the question implies a relationship, then C is a correct statement about the intersection, but not about MC's own minimum. Let's assume there's a slight imprecision in the question and it's looking for a key point in the cost curves' relationship. The most common point of reference for MC's behavior relative to other curves is its intersection with AVC and AC. The statement "MC cuts AVC from below" describes the point where AVC is at its minimum. This is a common point of analysis. Let's stick to the most direct interpretation of the options.
The correct option is C. MC cuts AVC from below. (This describes the point where AVC is at its minimum, which is a significant point in the cost structure, though not the minimum of MC itself).

A firm maximizes profit by producing the quantity of output where marginal cost (MC) equals marginal revenue (MR).
The correct option is A. MC = MR.

Step 1 3: In perfect competition, firms are:
In a perfectly competitive market, individual firms are so small relative to the market that they have no power to influence the market price and must accept the prevailing market price.
The correct option is C. Price takers.

A monopolist is the sole producer in the market, so the demand curve it faces is the market demand curve, which is typically downward sloping.
The correct option is D. Downward sloping.

Monopoly is characterized by extremely high barriers to entry, which prevent other firms from entering the market and competing with the monopolist.
The correct option is B. Monopoly.

The kinked demand curve model is used to explain price rigidity in oligopoly, where firms are interdependent and consider the reactions of rivals to their pricing decisions.
The correct option is B. Oligopoly.

Monopolistic competition is characterized by firms producing at an output level less than the efficient scale (the minimum of average total cost), leading to excess capacity in the long run.
The correct option is C. Monopolistic competition.

In the long run, under perfect competition, firms earn only normal profits because free entry and exit ensure that any supernormal profits or losses are eliminated.
The correct option is C. Firms earn normal profits.

Price discrimination occurs when a firm sells the same product at different prices to different groups of consumers. This requires the ability to separate markets to prevent resale and different price elasticities of demand in those markets.
The correct option is C. Market separation.

Oligopoly, with a small number of interdependent firms, has the highest incentive and ability to engage in collusion (secret agreements to fix prices or output) to maximize joint profits.
The correct option is B. Oligopoly.

National Income

National Income at factor cost is equivalent to Net National Product (NNP) at factor cost, which represents the total income earned by factors of production.
The correct option is B. NNP at factor cost.

Transfer payments (like unemployment benefits or pensions) are excluded from national income calculations because they are payments for which no goods or services are currently produced in return; they are simply transfers of existing income.
The correct option is C. Transfer payments.

The value-added method avoids double counting by summing only the value added at each stage of production, rather than the total value of sales at each stage.
The correct option is C. Value-added method.

The multiplier ($k$) is calculated as $k = \frac{1}{1 - MPC}$, where $MPC$ is the marginal propensity to consume.

The correct option is D. 5.

Gross Domestic Product (GDP) measures the value of goods and services produced within a country's borders, while Gross National Product (GNP) includes net factor income from abroad (income earned by domestic residents from abroad minus income earned by foreign residents domestically).
The correct option is B. Net factor income from abroad.

Injections into the circular flow of income are additions to the flow, such as investment, government spending, and exports. Saving, imports, and taxation are leakages.
The correct option is D. Investment.

Per capita income is a measure of the average income per person in a country, calculated by dividing the national income by the total population.
The correct option is B. National income $\div$ Population.

If the population increases faster than GDP, then per capita income may fall or remain stagnant, meaning the average individual's economic welfare may not improve despite an increase in total GDP.
The correct option is A. Population may increase faster.

Money and Banking

Currency notes and coins are legal tender, meaning they are officially recognized as a means of payment by law and must be accepted for all debts. They are issued by the central bank (monetary authority).
The correct option is C. Currency notes and coins.

The principal objective of monetary policy, conducted by the central bank, is to control the money supply and credit conditions to achieve macroeconomic goals like price stability, full employment, and economic growth.
The correct option is B. Control money supply.

Open market operations are a tool of monetary policy where the central bank buys or sells government securities (bonds) in the open market to influence the money supply and interest rates.
The correct option is A. Buying and selling securities.

Commercial banks create credit by accepting deposits and then lending out a portion of these deposits, which are then redeposited, leading to a multiple expansion of credit.
The correct option is B. Accepting deposits and lending.

Cost-push inflation occurs when the overall price level increases due to increases in the cost of production, such as wages or raw materials.
The correct option is C. Cost-push inflation.

The liquidity preference theory, which explains the demand for money based on transaction, precautionary, and speculative motives, was developed by John Maynard Keynes.
The correct option is C. Keynes.

Near money refers to assets that are highly liquid and can be easily converted into cash but are not themselves legal tender. Treasury bills are an example of near money.
The correct option is C. Treasury bills.

Public Finance

A progressive tax is one where the tax rate increases as the taxable amount or income increases.
The correct option is C. Progressive.

Government expenditure on defence is considered current expenditure because it is a recurring expense for the day-to-day operations and maintenance of the armed forces, rather than an investment in long-term assets.
The correct option is B. Current expenditure.

Public debt incurred within the country, owed to domestic residents or institutions, is known as internal debt.
The correct option is C. Internal debt.

A budget surplus occurs when government revenue (e.g., from taxes) exceeds government expenditure in a given period.
The correct option is A. Revenue exceeds expenditure.

Value Added Tax (VAT) is an indirect tax levied on the value added at each stage of production and distribution, ultimately borne by the final consumer.
The correct option is C. Indirect tax.

International Trade and Development

The theory of comparative advantage, which explains why countries benefit from specializing in and trading goods they can produce at a lower opportunity cost, was developed by David Ricardo.
The correct option is B. David Ricardo.

A quota is a quantitative restriction or limit on the amount of a good that can be imported into a country.
The correct option is B. Restriction on quantity imported.

Devaluation makes a country's exports cheaper to foreign buyers and imports more expensive to domestic buyers, thereby encouraging exports and discouraging imports to improve the balance of trade.
The correct option is C. Encouraging exports.

The balance of payments is a systematic record of all economic transactions between residents of a country and the rest of the world over a specific period.
The correct option is B. All international transactions.

Terms of trade improve when a country's export prices rise faster than its import prices, meaning it can obtain more imports