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Microeconomics Questions and Answers

201.

Match the items in List - I with items in List - II :

List - IList - II
(a) Technical Monopoly(1) Gold and Silver
(b) Global Market(2) Cartel
(c) Legal Monopoly(3) Coca Cola
(d) Oligopoly(4) Patent Rights

Codes :
(a) (b) (c) (d)

Exam Year(s)

UGC NET - 2013,

Answer: A

The matching is Technical Monopoly with Coca Cola (3), Global Market with Gold and Silver (1), Legal Monopoly with Patent Rights (4) and Oligopoly with Cartel (2).

Coca Cola holds a monopoly through a secret technical formula. Gold and silver are traded in a world-wide market. A patent gives a legal monopoly by law, and a cartel is the formal agreement among a few firms in an oligopoly. Codes that give Patent Rights to a technical monopoly or put Coca Cola with the global market do not agree with these definitions.

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202.

Assertion (A) : Consumer Surplus is the difference between the potential price and actual price.

Reason (R) : There exists an inverse relationship between the price and consumer surplus.
Codes :

Exam Year(s)

UGC NET - 2013,

Answer: B

Both statements are true, but the reason does not explain the assertion. Consumer surplus is indeed the gap between the price a consumer is willing to pay (the potential price) and the price actually paid, which is the assertion.

The reason, that price and consumer surplus move in opposite directions, is also true, but it states a consequence and not the meaning of the surplus. So the second code is right. The first fails because R is not the definition, and the other two wrongly call one statement false.

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203.

Assertion (A) : The long run cost curve is L shaped rather than U shaped.

Reason (R) : The new technique of production of large plants reduce the total cost per unit of output in the long run.
Codes :

Exam Year(s)

UGC NET - 2013,

Answer: A

Both statements are true and the reason correctly explains the assertion. The long run average cost curve is described as L shaped, not U shaped, because as new techniques of production in large plants lower the unit cost, the cost falls and does not rise again at large outputs.

The reason supplies exactly this mechanism, so the first code is correct. The codes that treat A or R as false contradict the standard view that modern technology gives economies without a clear rising stage.

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204.

Which of the following is true ?

a. Indifference curves slope downward from left to right.
b. Indifference curves slope downward from right to left.
c. Indifference curves are convex to the point of origin of the two axes.
d. Indifference curves never intersect each other.

Exam Year(s)

UGC NET - 2013,

Answer: C

Statements a, c and d are true. Indifference curves slope downward from left to right, are convex to the origin because of a diminishing marginal rate of substitution, and two of them never intersect, since that would break the ordering of preferences.

Statement b, that they slope downward from right to left, is wrong, as that describes the same line read backwards and is not the usual description. The codes that include b are therefore wrong, and the one with only a and d leaves out the convexity property.

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205.

Income elasticity of demand for food in developed countries is less than

Exam Year(s)

UGC NET - 2013,

Answer: B

The income elasticity of demand for food in developed countries is less than 1. Food is a necessity, so as incomes rise the spending on food increases by a smaller proportion, as Engel's law states.

The elasticity is positive but low, so 'less than zero' would mean food is an inferior good, which is not true. Values of 2 and 3 would make food a luxury, which is the opposite of the case in rich countries.

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206.

Which of the following does not hold correct about the Demsetz view of concentration and monopoly power ?

Exam Year(s)

UGC NET - 2013,

Answer: B

The statement that the causal link runs from concentration to profitability does not hold for the Demsetz view. Demsetz argued that superior efficiency leads to both higher concentration and higher profits, so the causation goes from efficiency to concentration and to profit.

The causal link from concentration to profitability is the traditional structure-conduct-performance view that Demsetz challenged. The other three options are consistent with his argument.

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207.

Find out the value of Gini coefficient for estimating the industrial concentration for the following industry using the formula \(G = \frac{1}{N} \sum_{i=1}^{N} (N - 2i + 1) S_{i}\) (Where N is the number of firms and \(S_{i}\) is the share of \(i^{th}\) firm in terms of sales of the industry.)

Firm 1Firm 2Firm 3Firm 4Industry
70101010100

Exam Year(s)

UGC NET - 2013,

Answer: C

The Gini coefficient is 45. With N = 4 firms, the weights (N - 2i + 1) for firms 1 to 4 are 3, 1, -1 and -3, and the shares are 70, 10, 10 and 10.

\[ \sum (N-2i+1) S_i = 210 + 10 - 10 - 30 = 180 \]\[ G = \frac{1}{4} \times 180 = 45 \]

The values 25, 35 and 65 come from using wrong weights or dropping a term, and they do not follow from the formula. Because the weights fall from 3 to -3, a dominant first firm pushes the index up, and with 70 per cent of sales in one firm the high value of 45 is what one would expect.

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208.

Relate the items given in List-I with the List-II with regard to Wage Theory :

List - IList - II
a. Iron law of wages1. J.S. Mill
b. Wage-funds theory2. John R. Hicks
c. Surplus-value theory3. David Ricardo
d. Marginal productivity theory4. Karl Marx

Codes : a b c d

Exam Year(s)

UGC NET - 2013,

Answer: D

The pairs are the iron law of wages with David Ricardo, the wage-funds theory with J.S. Mill, the surplus-value theory with Karl Marx, and the marginal productivity theory with John R. Hicks. This is a-3, b-1, c-4 and d-2.

The wage-fund idea is most closely linked to Mill, though Ricardo and others contributed to it, and Hicks gave a statement of marginal productivity wage theory in The Theory of Wages. The codes that give the surplus value theory to Hicks or Ricardo are wrong.

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209.

Given a production function \(Q = AL^{\alpha} K^{\beta}\); \(\alpha, \beta \gt 0\), increasing returns to scale requires that

Exam Year(s)

UGC NET - 2013,

Answer: D

For the production function Q = A L^alpha K^beta, multiplying both inputs by a factor t multiplies output by t^(alpha + beta).

\[ Q(tL, tK) = t^{\alpha + \beta} Q(L, K) \]

Returns to scale are increasing when output rises more than in proportion, that is when alpha + beta exceeds 1. A sum of 1 means constant returns, and a sum above 0 is too weak, since a sum of 0.5 would give decreasing returns.

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210.

Under Cournot Model of Duopoly, each duopolist will produce

Exam Year(s)

UGC NET - 2013,

Answer: D

Under the Cournot model of duopoly each duopolist produces one-third of the total output. Each firm takes the other's output as given and maximises profit, and with linear demand and zero cost the reaction curves intersect where each supplies one-third of the competitive output, so together they supply two-thirds of it. Half of the output would be the monopoly total divided between two, one-fourth or one-sixth have no basis in the model. Hence (D) is correct, and (A), (B) and (C) misstate the equilibrium shares.

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