GA 4.0

Front

Question:

Cross elasticity of demand measures the responsiveness of the demand for a good to a change in the price of: (SSC CHSL 2016)

A) The same good
B) A complementary or substitute good
C) A luxury good
D) An inferior good

Back

✅ B) A complementary or substitute good

---

Explanation:

• Cross elasticity of demand (XED) measures how the quantity demanded of one good changes when the price of another related good changes.

• It applies to substitute goods (e.g., tea and coffee) and complementary goods (e.g., cars and petrol).

Types of Cross Elasticity of Demand:

1. Substitutes (Positive XED) → If the price of tea increases, the demand for coffee increases.

2. Complements (Negative XED) → If the price of cars increases, the demand for petrol decrease

Front

Question:

The supply of a good is said to be elastic when: (SSC MTS 2017)

A) A small change in price leads to a large change in quantity supplied
B) Quantity supplied remains constant irrespective of price changes
C) Price changes do not affect supply at all
D) Supply curve becomes vertical

Back

✅ A) A small change in price leads to a large change in quantity supplied

---

Explanation:

• Supply elasticity measures how much the quantity supplied of a good responds to a change in price.

• When supply is elastic, even a small price change leads to a significant change in the quantity supplied.

• This typically occurs when producers can quickly adjust production, such as in the case of manufactured goods.

Key Concept:

• Elastic Supply (Es > 1) → Large change in supply for a small price change.

• Inelastic Supply (Es < 1) → Small change in supply even for a large price change.

• Perfectly Inelastic Supply (Es = 0) → Supply remains constant (vertical supply curve).

---

Explanation of All Options:

🔹 (A) A small change in price leads to a large change in quantity supplied → ✅ Correct, this is the definition of elastic supply.
🔹 (B) Quantity supplied remains constant irrespective of price changes → Incorrect, this describes perfectly inelastic supply.
🔹 (C) Price changes do not affect supply at all → Incorrect, because price always affects supply except in perfectly inelastic supply.
🔹 (D) Supply curve becomes vertical → Incorrect, a vertical supply curve represents perfect inelasticity, not elasticity.

---

4o

Front

Question:

If the government offers subsidies to producers, the supply curve will: (SSC CGL 2018)

A) Shift to the right
B) Shift to the left
C) Become vertical
D) Remain unchanged

Back

✅ A) Shift to the right

---

Explanation:

• A subsidy is a financial incentive provided by the government to producers, reducing their cost of production.

• This allows producers to supply more at the same price, causing a rightward shift in the supply curve.

• A rightward shift means increase in supply, leading to lower prices and higher quantity in the market.

Example:

If the government provides subsidies for electric vehicles (EVs), the production cost decreases, encouraging more manufacturers to increase supply, shifting the supply curve to the right.

---

Explanation of All Options:

🔹 (A) Shift to the right → ✅ Correct, because subsidies make production cheaper, increasing supply.
🔹 (B) Shift to the left → ❌ Incorrect, this would happen if taxes increased or costs rose.
🔹 (C) Become vertical → ❌ Incorrect, a vertical supply curve represents perfect inelasticity, which is not related to subsidies.
🔹 (D) Remain unchanged → ❌ Incorrect, because subsidies directly affect supply by making production more affordable.

Front

Question:

What happens if both demand and supply increase simultaneously? (SSC CHSL 2016)

A) Price will always increase
B) Price will always decrease
C) Price change is uncertain
D) Price will remain constant

Back

✅ C) Price change is uncertain

---

Explanation:

When both demand and supply increase simultaneously, the effect on price depends on the magnitude of change in each.

Front

Question:

Which of the following is an exception to the Law of Demand? (SSC CGL 2015)

A) Normal goods
B) Giffen goods
C) Luxury goods
D) Complementary goods

Back

✅ B) Giffen goods

---

Explanation:

• The Law of Demand states that when the price of a good increases, its demand decreases, and vice versa.

• However, Giffen goods are an exception to this law.

• Giffen goods are inferior goods (low-quality staple foods like rice, bread, or potatoes) that people consume more of when their prices rise, because they cannot afford better alternatives.

Example:

• If the price of wheat flour (atta) increases, poor households might buy more wheat and reduce their consumption of costlier food items like vegetables or meat.

---

Explanation of All Options:

🔹 (A) Normal goods → Follow the Law of Demand, meaning demand decreases when price rises (wrong).
🔹 (B) Giffen goods → ✅ Correct, because demand increases even when price rises, making them an exception.
🔹 (C) Luxury goods → May follow the Veblen effect, where demand rises with price, but they are not Giffen goods (wrong).
🔹 (D) Complementary goods → Follow the Law of Demand, but are affected by the price of a related good (wrong).

Front

Inflation (Asked in SSC CGL 2022, SSC CHSL 2019)

Back

• Definition: A general increase in the prices of goods and services over time.

• Types of Inflation:

  • Demand-Pull Inflation – Caused by excessive demand.

  • Cost-Push Inflation – Caused by rising production costs.

  • Hyperinflation – Extremely high and out-of-control inflation

Front

Question: Which type of unemployment arises when workers are temporarily between jobs?

Options:

• (a) Structural unemployment

• (b) Cyclical unemployment

• (c) Frictional unemployment

• (d) Seasonal unemployment

Back

(c) Frictional unemployment

Explanation:

Frictional unemployment occurs when individuals are temporarily unemployed while transitioning between jobs. This can happen when people voluntarily leave a job to find a better one or when fresh graduates enter the job market. It is considered a natural form of unemployment and is usually short-term.

Explanation of Other Options:

• (a) Structural unemployment: Occurs when workers’ skills do not match the jobs available in the economy. It is often caused by technological advancements or changes in industry demands.

• (b) Cyclical unemployment: Occurs due to economic downturns or recessions, where demand for goods and services falls, leading to job losses.

• (d) Seasonal unemployment: Occurs in industries with seasonal demand, such as agriculture, tourism, or construction, where jobs are only available during certain seasons.

Front

Question: Which of the following is NOT a cause of cost-push inflation?

Options:

• (a) Increase in wages

• (b) Increase in raw material prices

• (c) Increase in consumer demand

• (d) Increase in indirect taxes

Back

(c) Increase in consumer demand

Explanation:

Cost-push inflation occurs when the overall price level rises due to an increase in the cost of production. This can happen due to higher wages, rising raw material costs, increased taxation, or supply chain disruptions.

• (a) Increase in wages → Higher labor costs increase production costs, leading to inflation. ✅

• (b) Increase in raw material prices → If essential materials become expensive, production costs rise, pushing prices up. ✅

• (d) Increase in indirect taxes → Higher taxes (e.g., GST, excise duty) increase the cost of goods, leading to inflation. ✅

However, (c) Increase in consumer demand is a cause of demand-pull inflation, not cost-push inflation. Demand-pull inflation occurs when the demand for goods and services exceeds supply, driving prices higher. ❌

Front

Question: Which of the following statements about inflation is incorrect?

Options:
(a) Inflation reduces the purchasing power of money.
(b) Inflation is always harmful to the economy.
(c) Moderate inflation is sometimes considered beneficial.
(d) Inflation is measured using the Consumer Price Index (CPI).

Back

(b) Inflation is always harmful to the economy.

Explanation:

Inflation is the general rise in the price levels of goods and services over time. While high or uncontrolled inflation is harmful, moderate inflation can be beneficial as it encourages spending and investment, which helps in economic growth.

• (a) Inflation reduces the purchasing power of money → ✅ Correct. As prices rise, the same amount of money buys fewer goods and services.

• (b) Inflation is always harmful to the economy → ❌ Incorrect. Moderate inflation (2-3%) is often considered necessary for economic growth. Only high or hyperinflation is harmful.

• (c) Moderate inflation is sometimes considered beneficial → ✅ Correct. It encourages spending rather than hoarding money, stimulating economic activity.

• (d) Inflation is measured using the Consumer Price Index (CPI) → ✅ Correct. CPI is one of the key indicators used to measure inflation by tracking the price changes of a basket of consumer goods and services.

Front

Question: Which index is used to measure inflation in India?

Options:
(a) Wholesale Price Index (WPI)
(b) Consumer Price Index (CPI)
(c) GDP Deflator
(d) Both (a) and (b)

Back

(b) Consumer Price Index (CPI)

Explanation:

In India, Consumer Price Index (CPI) is the official measure of inflation, used by the Reserve Bank of India (RBI) for its monetary policy decisions. CPI measures changes in the price level of a basket of consumer goods and services purchased by households.

Although Wholesale Price Index (WPI) is also calculated, it is primarily used for tracking wholesale market trends and not for official inflation targeting. Since 2014, RBI has adopted CPI as the key inflation measure for policy formulation.