OAS Prelims-2020 Daily Practice Set-05/01/2021: Indian Economy

1. Which of the following most closely approximates our definition of oligopoly ?
a) The cigarette industry.
b) The barber shops
c) The gasoline stations
d) Wheat farmers

2. One of the essential conditions of perfect competition is :
a) product differentiation
b) multiplicity of prices for identical products at any one time.
c) many sellers and a few buyers.
d) Only one price for identical goods at any one time.

3. The theory of distribution relates to which of the following?
a) The distribution of assets
b) The distribution of income
c) The distribution of factor payments
d) Equality in the distribution of the income and wealth

4. If an industry is characterised by economies of scale then:
a) barriers to entry are not very large
b) long run unit costs of pro duction decreases as the quantity the firm produces increases
c) capital requirement are small due to the efficiency of the large scale operation
d) the costs of entry into the market are likely to be substantial

5. Movement along the same demand curve is know as:
a) Extension and Contraction of Demand
b) Increase and Decrease of Demand
c) Contraction of supply
d) Increase of supply

6. When there is a change in demand leading to a shift of the Demand Curve to the right, at the same price as before, the quantity demanded will:
a) decrease
b) increase
c) remain the same
d) contract

7. The income elasticity of demand being greater than one, the commodity must be:
a) a necessity
b) a luxury
c) an inferior good
d) None of these

8. When there is one buyer and many sellers then that situation is called:
a) Monopoly
b) Single buyer right
c) Down right
d) Double buyers right

9. The measure of a worker’s real wage is
a) The change in his productivity over a given time
b) His earnings after deduction at source
c) His daily earnings
d) The purchasing power of his earnings

10. Average Revenue means
a) the revenue per unit of commodity sold
b) the revenue from all commodities sold
c) the profit realised from the marginal unit sold
d) the profit realised by sale of all commodities


Answers and Explanations

1. (a) An oligopoly is a market form in which a market or industry is dominated by a small number of sellers (oligopolists). Because there are few sellers, each oligopolist is likely to be aware of the actions of the others. The decisions of one firm influence, and are influenced by, the decisions of other firms. Businesses that are part of an oligopoly share some common characteristics: they are less concentrated than in a monopoly, but more concentrated than in a competitive system. This creates a high amount of interdependence which encourages competition in non price related areas, like advertising and packaging. The tobacco companies, soft drink companies, and airlines are examples of an imperfect oligopoly.

2. (d) The fundamental condition of perfect competition is that there must be a large number of sellers or firms. Homogeneous Commodity is the second fundamental condition of a perfect market. The products of all firms in the industry are homogeneous and identical. In other words, they are perfect substitutes for one another. There are no trademarks, patents etc. to distinguish the product of one seller from that of another. Under perfect competition, the control over price is completely eliminated because all firms produce homogeneous commodities. This condition ensures that the same price prevails in the market for the same commodity.

3. (d) In economics, distribution theory is the systematic attempt to account for the sharing of the national income among the owners of the factors of production—land, labour, and capital. Traditionally, economists have studied how the costs of these factors and the size of their return—rent, wages, and profits—are fixed. The theory of distribution involves three distinguishable sets of questions. First, how is the national income distributed among persons? Second, what determines the prices of the factors of production? Third, how is the national income distributed proportionally among the factors of production?

4. (b) In microeconomics, economies of scale are the cost advantages that an enterprise obtains due to expansion. There are factors that cause a producer’s average cost per unit to fall as the scale of output is increased. “Economies of scale” is a long run concept and refers to reductions in unit cost as the size of a facility and the usage levels of other inputs increase.

5. (b) A shift in the demand curve is caused by a factor affecting demand other than a change in price. If any of these factors change then the amount consumers wish to purchase changes whatever the price. The shift in the demand curve is referred to as an increase or decrease in demand. A movement along the demand curve occurs when there is a change in price. This may occur because of a change in supply conditions. The factors affecting demand are assumed to be held constant. A change in price leads to a move ment along the demand curve and is referred to as a change in quantity demanded.

6. (b) In economics, the demand curve is the graph depicting the relationship between the price of a certain commodity and the amount of it that consumers are willing and able to purchase at that given price. The shift of a demand curve takes place when there is a change in any non-price determinant of demand, resulting in a new demand curve. There is movement along a demand curve when a change in price causes the quantity demanded to change. When there is a change in an influencing factor other than price, there may be a shift in the demand curve to the left or to the right, as the quantity demanded increases or decreases at a given price. For example, if there is a positive news report about the product, the quantity demanded at each price may increase, as demonstrated by the demand curve shifting to the right.

7. (b) In economics, income elasticity of demand measures the responsiveness of the demand for a good to a change in the income of the people demanding the good, ceteris paribus. It is calculated as the ratio of the percentage change in demand to the percentage change in income. For example, if, in response to a 10% increase in income, the demand for a good increased by 20%, the income elasticity of demand would be 20%/10% = 2. A positive income elasticity of demand is associated with normal goods; an increase in income will lead to a rise in demand. If income elasticity of demand of a commodity is less than 1, it is a necessity good. If the elasticity of demand is greater than 1, it is a luxury good or a superior good.

8. (b) In economics, a monopsony (mono: single) is a market form in which only one buyer faces many sellers. It is an example of imperfect competition, similar to a monopoly, in which only one seller faces many buyers. As the only purchaser of a good or service, the monopsonist may dictate terms to its suppliers in the same manner that a monopolist controls the market for its buyers. It is also known as Single buyer Right. A single-payer universal health care system, in which the government is the only “buyer” of health care services, is an example of a monopsony. Another possible monopsony could develop in the exchange between the food industry and farmers.

9. (d) A real wage rate is a nominal wage rate divided by the price of a good and is a transparent measure of how much of the good an hour of work buys. It provides an important indicator of the living standards of workers, and also of the productivity of workers. While differences in earnings or incomes may be misleading indicators of worker welfare, real wage rates are comparable across time and location. Nominal wages are not sufficient to tell us if workers gain since, even if wages rise, the price of one of the goods also rises when moving to free trade. The real wage represents the purchasing power of wages— that is, the quantity of goods the wages will purchase.

10. (a) Average revenue is the revenue per unit of the commodity sold. It can be obtained by dividing the TR by the number of units sold. Then, AR = TR/Q AR. In other words, it means price. Since the demand curve shows the relationship between price and the quantity demanded, it also represents the average revenue or price at which the various amounts of a commodity are sold, because the price offered by the buyer is the revenue from seller’s point of view. Therefore, average revenue curve of the firm is the same as demand curve of the consumer.

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