NTA UGC NET/JRF Exam, June 2020 Economics

Total Questions: 100

1. Given below are two statements:

Statement I: Learning curve effect is related to a firm's long-run average cost curve. Statement II: A swapped allocation is one that is Pareto efficient as well as an equitable allocation
In light of the above statments, choose the correct answer from the options given below:

Correct Answer: (a) Both Statement I and Statement II are true.
Solution:

AC₁ represents the long run average cost of production of a firm that enjoys increasing returns to scale in production. If there is a learning curve, the process of learning shifts the average cost curve downward, from AC₁ to AC₂, that is, a move from A to C in figure 2.

Swapped allocation is the contract between two parties such that they can both exchange or trade with each other. It is related to the allocation of resources. In welfare economics, the exchange can be Pareto efficient as well as an equitable allocation.

2. For the given Income Consumption curve in the diagram, which one of the following is correct,

Correct Answer: (b) Good y is inferior and Good x is normal
Solution:

Normal goods have positive relation with income.
And inferior goods have negative relation with income. So, good Y is inferior and good X is normal.

3. Match List-I with List-II

List-I (Concept/Description)List-II (Term/Theorem)
A. Effectiveness of private market in dealing with externalitiesI. Laffer curve
B. Relationship between increase in tax rate and tax revenueII. Deadweight Los
C. Dominant strategyIII. Coase Theorem
D. Controlling prices through effective price ceiling and a price floorIV. Game Theory

Choose the correct answer from the options given below:

Correct Answer: (a) A-III, B-I, C-IV, D-II
Solution:

The correct match is:-

List-I (Concept/Description)List-II (Term/Theorem)
Effectiveness of private market in dealing with externalitiesCoase Theorem
Relationship between increase in tax rate and tax revenueLaffer curve
Dominant strategyGame Theory
Controlling prices through effective price ceiling and a price floorDeadweight Los

4. For the production function, Q = AL α Kβ

A. The Coefficient A shows managerial efficiency.
B. If α + ẞ > 1 then the production function exhibits increasing returns to scale
C. Marginal Rate of Technical Substitution of L for K is given by ẞK/αL
D. The Marginal Product of Capital is given by
Choose the correct answer from the options given below:

Correct Answer: (b) A, B and D only
Solution:

α + ẞ = 1; constant returns to scale
α + ẞ > 1; increasing returns to scale.
α + B < 1; decreasing returns to scale Marginal rate of technical substitution of L for K is
given by ẞK/αL is wrong statement.
The marginal product of capital is given byẞ (Q/K )

5. Presence of asymmetric information in the market causes which of the following?

A. Adverse selection
B. Marginal benefits of an additional unit of resources diminsh with an increasing number of unit of resources
C. Efficiency wages
D. Principal-Agent problem
Choose the correct answer from the options given below:

Correct Answer: (c) A and D only
Solution:

Presence of asymmetric information in the market is the case of market failure. Asymmetric information can lead to adverse selection. incomplete markets and is a type of market failure.

6. The solution of the following game

Correct Answer: (b) Value of game = 2, Best strategy for Players A and B are (A₁. B₁) or (A₃, B₁) or (A₁, B₃) respectively
Solution:

Value of game = 2, best stategy for player A and B are (A₁. B₁) or (A₃, B₁) or (A₁, B₃).

7. Market failure is caused due to the presence of:

A. Poverty
B. Externalities
C. Market power
D. Private goods
Choose the correct answer from the options given below:

Correct Answer: (b) B and C only
Solution:

Monopoly's abuse of power; it can lead to under-production and higher prices than would exist under conditions of competition, causing consumer welfare to be damaged, therefore, market failure is caused to the presence of externalities and market power.

8. Match List-I with List-II

List-I (Economist)List-II (Model/Concept)
A. ChamberlinI. Small group model
B. SweezyII. Kinked demand curve
C. StackelbergIII. Price leadership model
D. FellnerIV. Reaction curves

Choose the correct answer from the options given below:

Correct Answer: (d) A-I, B-II, C-IV, D-III
Solution:

The correct match is:-

List-I (Economist)List-II (Model/Concept)
ChamberlinSmall group model
SweezyKinked demand curve
StackelbergReaction curves
FellnerPrice leadership model

9. Maximum Social Welfare is guaranteed where a competitive firm exhibits the following condition [were MRTPxy is Marginal Rate of Product Transformation of x for y

Correct Answer: (a)
Solution:

Maximum social welfare : Maximum social welfare is a condition of Pareto efficiency, which states that resources can be allocated in such a manner that to make one individual better off, we have to make at least one individual worse off.

This is a condition of Pareto optimality marginal rate of product transformation. The marginal rate of product transformation or MRPT, is also known as the slope of transformation curves or opportunity cost.

It is defined as the rate at which in order to put one additional unit of good X how many units of Y have to be sacrificed. It is calculated as:

10. Given below are two statements, one is labelled as Assertion A and the other is labelled as Reason A

Assertion A: Compared to a certain point on the Contract curve, a point above the Contract curve is more efficient
Reason R: The Contract curve represents the locus of points where the marginal rate of substitution between two goods is the same for both individuals
In light of the above statements, choose the most appropriate answer from the options given below

Correct Answer: (d) A is not correct but R is correct
Solution:

All the combination lying on the contract curve are efficient as these combination offer maximum satisfacation to both the consumers simuntaneously. The contract curve represents the locus of points where the marginal rate of substitution between two goods is the same for both the individuals.