(Papers) ACET Paper May 2010 "CT7 – Business Economics"

Q. 1) In a perfectly competitive industry where there are no external benefits from consumption and marginal social cost (MSC) is greater than marginal cost (MC), provision of subsidies will

A. Control overproduction
B. Enhance overproduction
C. Control underproduction
D. Enhance underproduction

Q. 2) Collusive tendering for a public road project may result in:

A. Higher government expenditure on road
B. Lower government expenditure on road
C. Competitive tendering process
D. Better utilization of government funds

Q. 3) Tie-in-sales

A. Reduce consumer choices
B. Increases consumer choices
C. Increase consumer surplus
D. Best represent distribution strategy of companies

Q. 4) Country A, as compared to Country B, has a lower opportunity cost of producing commodity X and Country B, as compared to Country A, has a lower opportunity cost of producing commodity Y. Thus,

I. It will always be beneficial for country A to export commodity X to country B and import commodity Y from country B
II. It will always be beneficial for country B to export commodity Y to country A and import commodity X from country A

A. Only (I) is untrue
B. Only (II) is untrue
C. Both (I) and (II) are necessarily untrue
D. Both may be true depending on exchange ratio between commodity X and Y

Q. 5) In a free market, social efficiency may not be achieved because:

A. Social cost is greater than social benefit
B. Private benefit is greater than private cost
C. Private benefit is equal to private cost
D. Both social and private benefits and costs are not considered

Q. 6) If there is balance on capital account and deficit on current account,

A. Balance on capital account will always compensate for deficit on current account and hence ensure overall balance of payments
B. There is no connection between current and capital account in the overall balance of payments
C. There will always be surplus on overall balance of payments
D. Overall balance of payments will always be zero

Q. 7) Balance on trade in goods and services (which have price elastic demand)between India and Japan, assumed to be the key trade partners, is likely to increase for India if

A. Inflation rate in India is higher than that in Japan
B. Indian economy grows faster than the Japanese economy
C. Indian Rupee depreciates against Japanese Yen
D. Indian Rupee appreciates against Japanese Yen

Q. 8) If GNP at Market Price is greater than GDP at Market Price for India,

A. Value of exports of goods from India is larger than the value of imports of goods into India
B. Net capital flows into India is positive
C. Net capital flows into India is negative
D. Net factor income from abroad for India is positive

Q. 9) Suppose an economy is currently in equilibrium and marginal propensity to consume domestically produced goods is 0.80. Decrease in government expenditure by 20 million will lead to:

A. Decrease in equilibrium national income by 20 million
B. Decrease in equilibrium national income by 100 million
C. Increase in equilibrium national income by 20 million
D. Increase in equilibrium national income by 80 million

Q. 10) Gambling is demerit goods because:

A. Private costs are undervalued
B. External costs are overvalued
C. Private cost is overvalued
D. Both private and external costs are overvalued