UGC NTA NET/JRF Exam, June-2025 Economics (Shift-II)

Total Questions: 100

1. Which of the followings are true pertaining to the problems of asymmetric information?

A. Sellers can deal with the problem of asymmetric information by sending buyers signals about the quality of product.

B. If a seller of a product has better information about its quality than buyer, then bad products tend to drive good products out of the market.

C. According to the efficiency wage theory, a wage lower than the competitive wage increases worker productivity by discouraging workers from shirking on the job.

D. Adverse selection arises because of asymmetric information in insurance market.

E. Owners can avoid principal agent problem by designing contracts that give their agents incentive to perform better.

Choose the correct answer from the options given below:

Correct Answer: (d) A, B, D & E Only
Solution:

Asymmetric information, in economics, refers to a situation where one party in transaction possesses more or better information than the other party.

This imbalance of of information can lead to market inefficiencies & unfair outwear, for instance in the used car market the seller often knows more about the car's true condition (whether it's a "lemon") than the buyer. Key aspects of asymmetric information:

1. Imperfect information:- Asymmetric information is a type of imperfect information where the knowledge gap exists between the parties involved.

2. Market failure:- This information imbalance can lead to market failure, where resources are not allocated efficiently due to lack of transparency and trust.

3. Adverse selection:- In situations of adverse selection, the less informed party is more likely to enter into unfavorable transitions due to the information asymmetry.

4. Moral Hazard:- Moral hazard arises after a transition occurs, when one party changes their behavior because they don't bear the full lost or risk of their actions.

2. Arrange the following countries based on the market capitalization to nominal GDP ratio at the end of December 2024 in ascending order (as per the Economic Survey 2024-25).

A. U.K.
B. India
C. China
D. Brazil
E. Japan
Choose the correct answer from the options given below:

Correct Answer: (a) B, A, C, E, D
Solution:

Based on the Economic Survey 2024-25, the market capitalization to nominal GDP ratios at the end of December 2024 are as follows.

1. UK→ 100% 2. India 136% 3. China → 65% 4. Brazil →37% 5. Japan → 156%

3. According to Coase theorem, which of the following are possible outcomes of assigning property rights?

A. The polluter pays the victim to continue polluting.
B. The victim pays the polluter to reduce pollution.
C. The government must set pollution taxes to ensure efficiency.
D. Market outcomes can achieve efficiency even if externalities exist.
E. The polluter and victim always have equal bargaining power.
Choose the most appropriate answer from the options given below:

Correct Answer: (b) A, B & D Only
Solution:

The Coase theorem suggest that if property rights are well-defined and transaction costs are low, private parties can negotiate to reach an efficient outcome regarding externalities, regardless of who initially holds the property rights.

4. Which of the following statements correctly describe the concept of efficiency in environmental economics?

A. All allocation is pareto efficient if no one can be made better off without making someone else worse off.

B. Market allocations are efficient only in the absence of market failures such as externalities.

C. Market allocations are efficient only in the absence of market failures such as externalities.

D. Efficiency is a normative concept concerned with should be done based on societal value.

E. Environmental policies that internalize externalities can imrove efficiency. Choose the most appropriate answer from the options given below:

Correct Answer: (c) A, C & E Only
Solution:

Statement A. C & E are correct.
Important Points:-
(1) Efficiency Environmental Policy.
In environmental economics, efficiency is a Central concept. particularly Pareto efficiency. A situation is Pareto efficient when it is impossible to make one person better off without making someone else worse off.

(2) Market failure: Markets can fail to achieve a Pareto efficient outcome due to externalities.

(3) Environmental Policy: Environmental Policy, such as taxes on pollution, subsidies for clean energy or regulations, is designed to "correct" these market failures.

5. Arrange the following environmental conventions/summits in sequence starting from the oldest.

A. Kyoto Protocol
B. Minamata Convention
C. Stockholm Convention
D. UN-REDD E. Rio Summit
Choose the correct answer from the options given below:

Correct Answer: (a) E, A, C, D, B
Solution:
IDEnvironmental conventions/summitsYear
E.Rio Summit1992
A.Kyoto Protocol1997
C.Stockholm Convention2001
D.UN-REDD2008
B.Minamata Convention2013

6. According to Rostow, any industry can play the role of leading sector in the take-off stage provided following conditions are met.

A. The market for the product is expanding rapidly.
B. The leading sector generates secondary expansion.
C. The sector has an adequate and continual supply of capital from ploughed-back profits.
D. Introduction of new techniques into the sector to increase productivity.
E. Changes in industrial structure should be structural ones.
Choose the correct answer from the options given below :

Correct Answer: (d) A, B, C & D Only
Solution:

Rostow's five model of economic development.

7. According to Granger and Newbold, a good rule of thumb to suspect that the estimated regression is spurious is given by:

Correct Answer: (c) High R² and low Durbin-Watson d value (R² > d)
Solution:

According to Granger & Newbold, a rule of thumb to suspect a spurious regression is if the R² value is greater than the Durbin-Watson statistic.

This indicates a potentially spurious relationship b/w nonstationary time series variables, which can lead to statistically significant but meaningless results.

8. Which of the following statements are true about the above payoff matrix?

Player 1Player 2 (L)Player 2 (R)
T1, 50, 3
M2, 61, 4
B3, 72, 2

A. Player-1 has two strictly dominated strategies.
B. None of the strategies of player-2 are weakly dominated.
C. Strategy T weakly dominates strategy B.
D. Strategy M of Player-1 will never be used in Nash-equilibrium.
E. Strategy M strictly dominates strategy T.
Choose the correct answer from the option given below:

Correct Answer: (b) A, D & E Only
Solution:
TypeDefinition
1. Strictly dominatedOther strategy gives strictly higher payoff in all cases.
2. Weakly dominatedOther strategy given equal or better in all, and strictly better in at least one.

Player 1.
M strictly dominates T
B Strictly dominates M
⇒ Statement A is true.
Player 2.
L strictly dominates R So statement B is incorrect.
Statement C is wrong:
→ Strategy B dominates strategy T.
Notes:
A Nash equilibrium occurs when:- Each player choose a strategy that is a best response to the other player's strategy No player has anything to gain by unilaterally deviating. The only Nash equilibrium (Pure strategy) is: (B, L) with payoffs (3,7).

9. In the context of classical economics, an increase in money supply causes.

Correct Answer: (b) A shift in aggregate demand curve to the right
Solution:

In the context of classical economics, an increase in money supply causes. A shift in aggregate demand curve to the right.

10. Which of the followings are not true pertaining to Wagner's Law of increasing state activities?

A. Wagner's Law is classified as positive theory of public expenditure.
B. Public sector in industrializing nations grow as a proportion of total economic activity with the increase in per capita income and output.
C. Proportionate increase in public sector is not constant but increasing with the increase in total economic activity.
D. The law accounts for the effect of war on public expenditure.
E. Public expenditure tends to grow in a stepwise manner.
Choose the correct answer from the option given below:

Correct Answer: (d) D & E Only
Solution:

D & E are wrong statement.
(1) The law accounts for the effect or war on Public Expenditure - False.
Wagner's Law does not explicitly account for temporary factors like wars; it focuses on long-term economic growth trends.

(2) Public expenditure tends to grow in a stepwise manner-false.

Wagner's Law suggests a continuous long-term upward trend, not a stepwise pattern (which is more associated with Peacock - Wiseman Hypothesis).