ECN01 — Basic Economic Concepts

Question 1 of 20

The reward for labour as a factor of production is: (NDA PYQ)

ARent paid to land owners BProfit earned by entrepreneurs CInterest paid on capital DWages paid to workers

The four factors of production and their rewards: Land → Rent; Labour → Wages; Capital → Interest; Enterprise → Profit. This classical pairing is directly tested in NDA economics every year.

Question 2 of 20

India has which type of economy? (NDA PYQ)

APure market economy BSocialist command economy CMixed economy DSubsistence economy

India has a Mixed Economy — combining elements of market economy (private enterprise, price mechanism) and planned economy (public sector, government regulation). Post-1991 reforms shifted India further toward markets, but the mixed character remains.

Question 3 of 20

Which of the following is NOT a factor of production? (NDA PYQ)

ALand and natural resources BLabour and human effort CMoney and currency DCapital and machinery

The four factors of production are Land, Labour, Capital, and Enterprise. Money is NOT a factor — it is a medium of exchange that facilitates production but does not directly produce goods or services.

Question 4 of 20

Opportunity cost is best described as: (NDA PYQ)

AThe total monetary cost of production BThe value of the next best alternative forgone CThe market price of a commodity DThe sum of all production expenses

Opportunity Cost = value of the next best alternative sacrificed when a choice is made. It underpins all economic decision-making. Example: studying for NDA means giving up a job — the job's value is the opportunity cost.

Question 5 of 20

Microeconomics studies: (NDA PYQ)

ANational income and aggregate demand BIndividual consumers, firms, and market prices CInflation and unemployment at the national level DGovernment budget and fiscal policy

Microeconomics = study of individual economic units — consumers, firms, industries, and markets. It examines how prices are determined and how resources are allocated at the individual level. Macroeconomics studies the economy as a whole.

Question 6 of 20

The law of diminishing marginal utility states that: (NDA PYQ)

ATotal utility rises indefinitely as consumption increases BMarginal utility rises as more units are consumed CMarginal utility falls as additional units of a good are consumed DPrice always equals marginal utility at equilibrium

Law of Diminishing Marginal Utility: as a person consumes more and more units of a good, the additional satisfaction (marginal utility) from each extra unit decreases. Example: first glass of water is very satisfying; the tenth glass much less so.

Question 7 of 20

A public good is characterised by being: (NDA PYQ)

ARival and excludable in consumption BNon-rival and non-excludable in consumption CRival but non-excludable in consumption DNon-rival but excludable in consumption

Pure public good = Non-rival (one person's use doesn't reduce availability for others) + Non-excludable (can't prevent anyone from consuming it). Examples: national defence, street lighting. This leads to the free-rider problem and requires government provision.

Question 8 of 20

Ceteris paribus is a Latin phrase meaning: (NDA PYQ)

AEverything changes simultaneously BAll other things remaining constant CThe most important variable in analysis DThe equilibrium point of the market

Ceteris Paribus = 'all other things being equal/constant.' Used in economic analysis to isolate the relationship between two variables while holding all others fixed. Example: the law of demand holds ceteris paribus — only price changes.

Question 9 of 20

The reward for entrepreneurship as a factor of production is: (NDA PYQ)

AWages paid for managerial services BRent paid for using business premises CInterest on borrowed capital funds DProfit earned from the business venture

Enterprise (Entrepreneurship) earns Profit — the residual income after paying all other factors. The entrepreneur bears risk and organises production. If profit is negative, the entrepreneur bears the loss. The four factor rewards: Land=Rent, Labour=Wages, Capital=Interest, Enterprise=Profit.

Question 10 of 20

Which of the following best defines scarcity in economics? (NDA PYQ)

AGoods available only in remote areas BLimited resources relative to unlimited human wants CGoods that are very expensive to produce DResources available only to wealthy nations

Scarcity = the fundamental economic problem — human wants are unlimited but resources (land, labour, capital) are limited. Scarcity forces individuals, firms, and governments to make choices. It is the foundational concept of economics and applies to all societies regardless of wealth.

Question 11 of 20

Consumer surplus is the difference between: (NDA PYQ)

AProducer's cost and the market price BWillingness to pay and the actual price paid CTotal demand and total supply at equilibrium DMarket price and government minimum price

Consumer Surplus = Maximum Willingness to Pay − Actual Market Price Paid. It represents the extra benefit a consumer gains. Example: willing to pay ₹100 for a book but it costs ₹70 → consumer surplus = ₹30. Total CS = area above price and below demand curve.

Question 12 of 20

Which of the following is a positive externality? (NDA PYQ)

AA factory polluting a nearby river BNoise from a construction site CEducation benefits to society beyond the individual DA firm dumping waste on public land

Positive Externality = benefit to third parties not involved in the transaction. Education is the classic example — an educated person benefits themselves and also contributes to a more productive, informed society (herd immunity is another example). Negative externalities = third-party costs (pollution).

Question 13 of 20

Price elasticity of demand measures: (NDA PYQ)

AThe maximum price consumers are willing to pay BHow sensitive quantity demanded is to price changes CThe total revenue earned by producers DThe shift of the demand curve due to income

Price Elasticity of Demand (PED) = % change in quantity demanded ÷ % change in price. PED > 1 = elastic (luxury goods); PED < 1 = inelastic (necessities); PED = 1 = unit elastic. Used to determine pricing strategy and tax policy.

Question 14 of 20

Macroeconomics is concerned with: (NDA PYQ)

APricing decisions of individual firms BConsumer behaviour and utility maximisation CAggregate output, employment, and price levels DMarket structure and firm competition

Macroeconomics studies the economy as a whole: GDP, inflation, unemployment, monetary policy, fiscal policy, balance of payments, and economic growth. Coined by Ragnar Frisch (1933). Keynes is considered the father of modern macroeconomics.

Question 15 of 20

Which of the following is an example of capital as a factor of production? (NDA PYQ)

AA piece of agricultural land BThe effort of a factory worker CMachinery used in manufacturing DThe risk taken by a businessman

Capital = man-made productive assets used in production: machinery, tools, equipment, buildings, and infrastructure. It is distinct from financial capital (money). Land = natural resources; Labour = human effort; Enterprise = risk-taking. Machinery is a classic example of physical capital.

Question 16 of 20

Gresham's Law in monetary economics states: (NDA PYQ)

AGood money drives bad money out of circulation BBad money drives good money out of circulation CInflation always reduces real wages DMoney supply determines price levels

Gresham's Law: 'Bad money drives out good money.' When two forms of currency circulate simultaneously, people hoard the more valuable (good) money and spend the less valuable (bad) money. Named after Sir Thomas Gresham (16th century). Example: debased coins (bad) → pure silver coins (good) disappear from circulation.

Question 17 of 20

The concept of the 'invisible hand' was introduced by: (NDA PYQ)

AKarl Marx in Das Kapital BJohn Maynard Keynes in General Theory CAdam Smith in The Wealth of Nations DAlfred Marshall in Principles of Economics

The 'invisible hand' was introduced by Adam Smith in The Wealth of Nations (1776). It describes how individuals pursuing self-interest in free markets inadvertently promote the public good through price signals and competition. Smith is called the 'Father of Economics.'

Question 18 of 20

Demand for a factor of production is called 'derived demand' because: (NDA PYQ)

AIt derives from government employment policy BIt is derived from demand for final goods and services produced CIts value comes from the quality of raw materials DIt derives from changes in the exchange rate

Derived Demand = demand for a factor (labour, capital, land) arises from demand for the final good/service it helps produce. Example: demand for steel workers is derived from demand for steel products. If car demand rises → steel demand rises → demand for steel workers rises.

Question 19 of 20

Which of the following correctly describes a 'mixed economy'? (NDA PYQ)

AOnly public sector enterprises exist and operate BThe private sector controls all production and pricing decisions CBoth public and private sectors coexist under government regulation DForeign firms own and control most of the national economy

Mixed Economy = coexistence of public sector (government-owned enterprises, planning) and private sector (free enterprise, market pricing). India's constitution directs a socialist pattern — with strong public sector but private enterprise allowed. Most modern economies are mixed economies.

Question 20 of 20

Market failure occurs when: (NDA PYQ)

AMarkets achieve perfect allocative efficiency BPrice mechanism ensures optimal resource allocation CFree markets fail to allocate resources efficiently DGovernment intervention removes all market distortions

Market Failure = when the free market mechanism fails to allocate resources efficiently. Causes: public goods (free-rider problem), externalities, information asymmetry, monopoly power. Market failure justifies government intervention through taxes, subsidies, regulations, and public provision.