Economics MCQ with answers: UPSC/ HCS/ UPPSC/ RAS
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Economics MCQ with answers: UPSC/ HCS/ UPPSC/ RAS

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Economics MCQ with answers: UPSC/ HCS/ UPPSC/ RAS

Economics requires in-depth knowledge. So to make your preparation more strong, we have compiled a few really important MCQs on economics important for exams like UPSC, HCS, RAS, UPPSC. 

We have already covered 350+ MCQs so far, practice them in between. 

100 Most important multiple choice questions on economics asked in various competitive exams.

Let's begin.

Q401. Transfer payments include : 

(a) Gifts received from a friend

(b) rent-free accommodation by the employer

(c) net factor income from abroad

(d) Employee's contribution to social security

Answer (D )


A transfer payment is a one-way payment to a person or organization which has given or exchanged no goods or services for it. This contrasts with a simple "payment," which in economics refers to a transfer of money in exchange for a product or service. Generally, the phrase "transfer payment" is used to describe government payments to individuals through social programs such as welfare, student grants, and even Social Security. 

Q402. The marginal revenue of a monopolist is: 

(a) more than price    

(b) equal to price        

(c) less than price 

(d) less than marginal cost 

Answer (D )


A monopoly cannot sell to all consumers at the same price. If they are selling q units right now, and want to sell more, they have to cut the price for all consumers, both the new ones and the old ones.

For each new unit, they earn p extra revenue if p is the price. But they also lose revenue from the price cut they had to give the old consumers.

Since each new unit they sell brings in less money than the price they receive, their marginal revenue is less than the price.

Q403. A horizontal demand curve is 

(a) relatively elastic 

(b) perfectly inelastic

(c) perfectly elastic     

(d) of unitary elasticity

Answer (C )


A horizontal demand curve is a flat curve with a slope of infinity at all points of the curve. It is because a slight price rise brings a drastic change and reduces the demand to zero.

Economics MCQ with answers, UPSC, HCS, UPPSC, RAS,

Most relevant MCQ for Economics asked in UPSC, HCS exam. 

Q404 The theory of monopolistic competition has been formulated in the United States of America by

(a) Joan Robinson                      

(b) Edward Chamberlin            

(c) John Bates Clark                    

(d) Joseph Schumpeter

Answer (B )


The theory was developed almost simultaneously by the American economist Edward Hastings Chamberlin in his Theory of Monopolistic Competition (1933) and by the British economist Joan Robinson in her Economics of Imperfect Competition (1933). 

Q405. Production Function relates to: 

(a) costs to outputs                      

(b) costs to inputs

(c) inputs to outputs                 

(d) wage level to profits

Answer (C )


In economics, a production function gives the technological relation between quantities of physical inputs and quantities of the output of goods.

Q406. What type of products does CACP recommend the minimum support price for? 

(a) Industrial products              

(b) Agricultural products

(c) Pharmaceutical products 

(d) None of the above 

Answer (B )


Commission for Agricultural Costs and Prices (CACP) is a decentralized agency of the Government of India. It was established in 1965 as the Agricultural Prices Commission and was given its present name in 1985. It is an attached office of the Ministry of Agriculture & Farmers Welfare, Government of India.

The commission was established to recommend Minimum Support Prices (MSPs), to motivate cultivators and farmers to adopt the latest technology to optimize the use of resources and increase productivity.

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Q407. Under increasing returns the supply curve is

(a) positively sloped from left to right                                              

(b) negatively sloped from left to right 

(c) parallel to the quantity-axis                                                         

(d) parallel to the price-axis 

Answer (A )


Economics MCQ with answers, UPSC, HCS, UPPSC, RAS,

Q408. The degree of monopoly power is to be measured in terms of The firm’s 

(a) normal profit     

(b) supernormal profit        

(c) both normal and supernormal profit  

(d) selling price 

Answer (B )


Supernormal profit is all the excess profit a firm makes above the minimum return necessary to keep a firm in business. Supernormal profit is defined as extra profit above that level of normal profit.

Supernormal profit is also known as abnormal profit. Abnormal profit means there is an incentive for other firms to enter the industry.

Q409. Who propounded the Innovation theory of profits? 

(a) J.A. Schumpeter   

(b) PA. Samuelson

(c) Alfred Marshall     

(d) David Ricardo 

Answer (A )


The Innovation Theory of Profit was proposed by Joseph. A. Schumpeter, who believed that an entrepreneur can earn economic profits by introducing successful innovations.

In other words, the innovation theory of profit posits that the main function of an entrepreneur is to introduce innovations, and the profit in the form of reward is given for his performance.

Q410. Under perfect competition, the industry does not have any excess capacity because each firm produces at the minimum point on its 

(a) long-run marginal cost, curve                            

(b) the long-run average cost curve 

(c) the long-run average variable cost curve 

(d) the long-run average revenue curve

Answer (B )


Under perfect competition, the industry does not have any excess capacity because each firm produces at the minimum point on its long-run average cost curve.

Under perfect competition, however, the demand curve (AR) is tangential to the long-run average cost curve (LAC) at its minimum point and conditions of full equilibrium are fulfilled: LMC = MR, and AR (price) = Minimum LAC. This means that in the long run, the entry of new firms forces the existing firms to make the best use of their resources to produce at the point of lowest average total costs.

Q411. Which one of the following is not a ‘canon of taxation according to Adam Smith? 

(a) Canon of certainty                

(b) Canon of simplicity         

(c) Canon of convenience   

(d) Canon of economy

Answer (B )


According to Adam Smith, there are broadly four types of the canon of taxation:

(i) Canon of equality or equity

(ii) Canon of certainty

(iii) Canon of economy

(iv) Canon of convenience.

Q412. Effective demand depends on

(a) capital-output ratio              

(b) output-capital ratio            

(c) total expenditure                  

(d) supply price 

Answer (D )


Effective demand refers to the willingness and ability of consumers to purchase goods at different prices. It shows the number of goods that consumers are actually buying – supported by their ability to pay.

Frequently asked questions on Economics asked in UPPSC, HCS, UPSC

Q413. Exploitation of labour is said to exist when 

(a) Wage = Marginal Revenue Product              

(b) Wage < Marginal Revenue Product 

(c) Wage > Marginal Revenue Product            

(d) Marginal Revenue Product = 0

Answer (B )


Marginal revenue helps a company identify the revenue generated from one additional unit of production.

A company that is looking to maximize its profits will produce up to the point where marginal cost equals marginal revenue.

When marginal revenue falls below marginal cost, firms typically do a cost-benefit analysis and halt production

Q414. A rising Per Capita Income will indicate better welfare if it is accompanied by 

(a) unchanged Income distribution overall. 

(b) changed Income distribution in favor of the rich. 

(c) changed Income distribution in favor of the poor. 

(d) changed Income distribution in favor of Industrial Labour.

Answer (C )


A rising Per Capita Income will indicate better welfare if it is accompanied by changed income distribution in favor of the poor.

Q415. Indirect taxes by nature are

(a) degressive      

(b) regressive        

(c) progressive           

(d) proportional

Answer (B )


Regressive tax:

  • It is a tax imposed in such a manner that the tax rate decreases as the number of taxable income increases.
  • The higher-income group pays less in taxes than the lower-income group.
  • Regressive taxes impose a greater tax burden on the poor relative to the rich.
  • In the case of regressive taxes, there is an inverse relationship between the tax rate and the taxpayer's ability to pay.
  • People with low income and low ability to pay will pay higher taxes.
  • This means that it hits lower-income individuals harder.

Q416. Which one of the following is an example of optional money?

(a) Currency note                         

(b) Coins                          

(c) Cheque                

(d) None of the above

Answer (C )


Optional money is the nonlegal tender money, but it is generally accepted by the people in its final payments. Optional money consists of credit instruments like bills of exchange, cheques, promissory notes, etc., which do not enjoy any statutory backing. The acceptance of optional money depends upon the choice of a person. However, they are generally accepted because people have confidence in the credit of the paper.

Q417. Those payments which the firms make to outsiders for their goods and services are called

(a) Real costs                 

(b) Economic costs  

(c) Explicit costs

(d) Implicit costs

Answer (C )


Explicit costs refer to all those expenses made by a firm to buy goods directly. They include payments for raw material, taxes and depreciation charges, transportation, power, high fuel, advertising, and so on.

According to Leftwich, “Explicit costs are those cash payments which firms make to outsiders for their services and goods.” 

Q418. Special Economic Zone (SEZ) concept was first introduced in

(a) China                       

(b) Japan                    

(c) India           

(d) Pakistan 

Answer (A )


A special economic zone is an area in a country that is subject to unique economic regulations that differ from other regions of the same country. The SEZ regulations tend to be conducive to foreign direct investment (FDI). Conducting business in an SEZ typically implies that the company will receive tax incentives and the opportunity to pay lower tariffs.

Q419. Economic development depends on : 

(a) Natural resources               

(b) Capital formation

(c) Size of the market

(d) All of the above 

Answer (D )


Economic development is a policy intervention aiming to improve the well-being of people, economic growth is a phenomenon of market productivity and increases in GDP.

Q420. National Income is generated from:

(a) any money-making activity

(b) any laborious activity

(c) any profit-making activity       

(d) any productive activity 

(e) all of the above

Answer (E )


Gross National Income ( GNI ) is defined as GDP ( Gross Domestic Product; income generated by production activities on the economic territory of that particular country) plus the net receipts from wages, salaries, property income taxes, and subsidies of the country's citizens abroad minus the income earned in the domestic economy by nonresidents.

Q421. The money supply is governed by the 

(a) Planning Commission          

(b) Finance Commission           

(c) Reserve Bank of India    

(d) Commercial Banks 

Answer (C )


The money supply is governed by the apex bank of India i.e., the Reserve Bank of India (RBI).

Q422. The food stocks that are built up during the years of bumper harvest are called.:

(a) Capital stock 

(b) Buffer stock  

(c) Production stock 

(d) Grain stock 

Answer (B )


A buffer stock is a system or scheme which buys and stores stocks at times of good harvests to prevent prices falling below a target range (or price level) and releases stocks during bad harvests to prevent prices from rising above a target range (or price level).

Q423. The Minimum Wages Act was first passed in India in the year: 

(a) 1947                                           

(b) 1948                           

(c) 1950                           

(d) 1951

Answer (B )


The Minimum Wages Act 1948 is an Act of Parliament concerning Indian labor law that sets the minimum wages that must be paid to skilled and unskilled laborers.

Q424. Human Development Index was developed by : 

(a) Amartya Sen                                       

(b) Friedman              

(c) Mahbub-ul-Haq   

(d) Both Amartya Sen and Mahbub-ul-Haq

Answer (D)


The Human Development Index (HDI) is a composite index of life expectancy, education, and per capita income indicators, which are used to rank countries into four tiers of human development. A country scores a higher HDI when the lifespan is higher, the education level is higher, and the gross national income GNI (PPP) per capita is higher. It was developed by Pakistani economist Mahbub ul Haq and Indian economist Amartya Sen and was further used to measure a country's development by the United Nations Development Programme (UNDP)'s Human Development Report Office.

FAQ on Economics- UPSC/ HCS/ RAS

Q425. 'Hire and Fire’ is the policy of

(a) Capitalism                                

(b) Socialism                  

(c) Mixed Economy    

(d) Traditional Economy 

Answer (A )


Hire and Fire is a policy of a capitalist economy. Generally in a mixed economic system, the government intervenes for the job security of workers and hence, lessens the employee turnover. But, it should be noted that Hire and Fire are inevitable in any economic system, however, it's more prominent in Capitalism than the Mixed Economic System.

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Q426. A tree-like structure of records in a database in — 

(a) Network model  

(b) Hierarchical model         

(c) Relational model  

(d)Multi-dimensional model 

Answer (B )


A hierarchical database model is a data model in which the data are organized into a tree-like structure. The data are stored as records that are connected through links. A record is a collection of fields, with each field containing only one value. The type of record defines which fields the record contains. The hierarchical database model mandates that each child record has only one parent, whereas each parent record can have one or more child records. To retrieve data from a hierarchical database, the whole tree needs to be traversed starting from the root node. This model is recognized as the first database model created by IBM in the 1960s.

Economics MCQ with answers, UPSC, HCS, UPPSC, RAS,

Q427. The cost of production of the producer is given by: 

(a) the sum of wages paid to laborers 

(b) the sum of wages and interest paid on capital. 

(c) the sum of wages, interest, rent, and supernormal profit.

(d) the sum of wages, interest, rent, and normal profit. 

Answer (D )

Q428. AGMARK is a guarantee of the standard : 

(a) quality                  

(b) quantity                

(c) weight                       

(d) size 

Answer (A )


AGMARK is a certification mark employed on agricultural products in India, assuring that they conform to a set of standards approved by the Directorate of Marketing and Inspection an attached Office of the Department of Agriculture, Cooperation and Farmers Welfare under Ministry of Agricultural & Farmers Welfare an agency of the Government of India. The AGMARK Head Office at Faridabad (Haryana) is legally enforced in India by the Agricultural Produce (Grading and Marking) Act of 1937 (and amended in 1986). The present AGMARK standards cover quality guidelines for 222 different commodities spanning a variety of pulses, cereals, essential oils, vegetable oils, fruits and vegetables, and semi-processed products like vermicelli.

Q429. The market price is related to: 

(a) very short period

(b) short period 

(c) long period               

(d) very long period

Answer (A )


The market period is a very short period in which the supply of a commodity is fixed. It is the variations in demand that determine the price in such a market period. The time period is so short that supply is not responsive to demand. This market period may be an hour, a day or a few days, or even a few weeks depending upon the type of the commodity under consideration as to whether it is a perishable or semi-durable one.

Q430. The equilibrium price is the price when : 

(a) supply is greater than demand                                                       

(b) supply is less than demand 

(c) demand is very high                                                                 

(d) supply is equal to demand 

Answer (D )


The equilibrium price is the price where the demand for a product or a service is equal to the product or service supply. At equilibrium, both consumers and producers are satisfied, thereby keeping the price of the product or the service stable.

Q431. In a perfectly competitive market, a firm’s 

(a) Average Revenue is always equal to Marginal Revenue  

(b) Marginal Revenue is more than Average Revenue

(c) Average Revenue is more than Marginal Revenue

(d) Marginal Revenue and Average Revenue are never equal

Answer (A )


Economics MCQ with answers, UPSC, HCS, UPPSC, RAS,

Q432. The addition to total cost by producing an additional unit of output by a firm is called 

(a) Variable cost  

(b) Average cost

(c) Marginal cost         

(d) Opportunity cost

Answer (C )


In economics, the marginal cost of production is the change in total production cost that comes from making or producing one additional unit. To calculate marginal cost, divide the change in production costs by the change in quantity. The purpose of analyzing marginal cost is to determine at what point an organization can achieve economies of scale to optimize production and overall operations. If the marginal cost of producing one additional unit is lower than the per-unit price, the producer has the potential to gain a profit.

Q433. Which activity is not included in production? 

(a) Production of wheat by a farmer

(b) Production of medicines by a company

(c) Services given by a nurse in the hospital

(d) Services done by a house-wife in her own house 

Answer (D )


Production is the method of turning raw materials or inputs into finished goods or products in a manufacturing process. In other words, it means the creation of something from basic inputs.

Q434. A holding which will yield the farmers at least a subsistence is known as 

(a) Optimum holding                  

(b) Marginal holding             

(c) Economic holding 

(d) Subsistence holding

Answer (D )


Subsistence agriculture occurs when farmers grow food crops to meet the needs of themselves and their families. In subsistence agriculture, farm output is targeted to survival and is mostly for local requirements with little or no surplus. Planting decisions are made principally with an eye toward what the family will need during the coming year, and secondarily toward market prices.

Q435. Transfer payments mean 

(a) Old age pensions  

(b) Unemployment compensations   

(c) Social security payments 

(d) All the above 

Answer (D )


A transfer payment is a one-way payment to a person or organization which has given or exchanged no goods or services for it. This contrasts with a simple "payment," which in economics refers to a transfer of money in exchange for a product or service.

The phrase "transfer payment" is used to describe government payments to individuals through social programs such as welfare, student grants, and even Social Security. 

Q436. Which one of the following is not included in the current revenue of the Union Government?

(a) Tax revenue  

(b) Non-tax revenue        

(c) Loans      

(d) Interest payments

Answer (C )


Revenue is money brought into a company by its business activities. Revenue is also known as sales, as in the price-to-sales ratio - an alternative to the price-to-earnings ratio that uses revenue in the denominator.

Revenue is known as the top line because it appears first on a company's income statement. Net income, also known as the bottom line, is revenues minus expenses. 

Q437. Which one of the following is not a dimension of the human development index? 

(a) Life expectancy   

(b) Knowledge             

(c) Social status

(d) Standard of living 

Answer (C )


The Human Development Index (HDI) is a statistical measure (composite index) developed by the United Nations to assess the social and economic development of countries around the world. The HDI considers three indicators of human development, namely, life expectancy, education, and per capita income.

Q438. Plant and machinery are 

(a) Producers' goods 

(b) Consumers’ goods             

(c) Distributors' goods              

(d) Free goods

Answer (A )


Intermediate goods or producer goods or semi-finished products are goods used as inputs in the production of other goods, such as partly finished goods. Also, they are goods used in the production of final goods. A firm may make and then use intermediate goods, or make and then sell, or buy then use them.

Important MCQs on Economics- HCS/ UPSC

Q439. Demand for complementary goods is known as 

(a)Joint demand    

(b) Derived demand 

(c) Direct demand   

(d) none

Answer (A )


Joint demand occurs when demand for two goods is interdependent. For example, it is no good having a printer without the ink to go with it. Similarly, ink cartridges are of no use without a printer. Another example could be razor and razor blades. Basically, the definition of joint demand is when you need two goods to go together. If two goods are in joint demand they will have a high and negative cross elasticity of demand. – A fall in the price of ink will lead to an increase in demand for printers.

Q440. Which one of the following is the most appropriate reason for Inequalities in Income? 

(a)Racial factors                                                           

(b) Lack of opportunities

(c) Inheritance from family Environment 

(d) Differences in Ability

Answer (B )


Income inequality is an extreme disparity of income distributions with a high concentration of income usually in the hands of a small percentage of a population. When income inequality occurs there is a large gap between the wealth of one population segment compared to another. 

Lack of opportunities in the most appropriate reason for inequalities in income.

Q441. The kinked demand curve is a feature of 

(a) Monopoly            

(b) Oligopoly             

(c)   Monopsony             

(d) Duopoly

Answer (B )


In an oligopolistic market, firms cannot have a fixed demand curve since it keeps changing as competitors change the prices/quantity of output. Since an oligopolist is not aware of the demand curve, economists have designed various price-output models based on the behavior pattern of other firms in the industry. According to the kinked demand curve hypothesis, the demand curve facing an oligopolist has a kink at the level of the prevailing price. This kink exists because of two reasons:

1) The segment above the prevailing price level is highly elastic.

2) The segment below the prevailing price level is inelastic.

Q442. National Income is also called as : 

(a) GNP at Factor Cost                

(b) GNP at Market Price                         

(c) NNP at Factor Cost              

(d) NNP at Market Price 

Answer (C )


NNP at Factor Cost( Net National Product at Factor Cost) is the net money value of all the goods and services produced by normal residents of a country. It includes the income of Indian citizens whether living in or outside India. It is net of the national income which means it does not include depreciation. Moreover, it is at factor cost, so it also doesn't include NIT(net indirect taxes). It is the country's national income.

Q443. Which of the following cost curves is never ‘U’ shaped? 

(a) Marginal cost curve    

(b) Average variable cost curve    

(c) Average fixed cost curve  

(d) Average cost curve

Answer (C )


Economics MCQ with answers, UPSC, HCS, UPPSC, RAS,

Q444. The real wage is :

(a) income including inflation effects

(b) income excluding  inflation effects 

(c) market price   

(d) per capita income 

Answer (B )


Real income is how much money an individual or entity makes after accounting for inflation. It is sometimes called real wage when referring to an individual's income. Individuals often closely track their nominal vs. real income to have the best understanding of their purchasing power.

Q445. Consumer’s surplus is the highest in the case of:

(a) durable goods                       

(b) luxuries                   

(c) comforts                   

(d) necessities

Answer (D )


Consumer surplus is an economic measurement of consumer benefits. Consumer surplus happens when the price that consumers pay for a product or service is less than the price they're willing to pay. It's a measure of the additional benefit that consumers receive because they're paying less for something than what they were willing to pay. A consumer surplus occurs when the consumer is willing to pay more for a given product than the current market price.

Q446. Which one of the following pairs of goods is an example for Joint Supply?

(a) Coffee and Tea  

(b) Ink and Pen                            

(c) Toothbrush and Paste        

(d) Wool and Mutton

Answer (D )


Joint supply exists when two or more products originate from the same source. For example, a farmer who raises sheep can use the sheep for wool, meat, and sheepskin. Each of these products has distinct markets but comes from one animal. These products can only be in joint supply if they can be produced simultaneously. If one product can only be produced instead of the other, there is no simultaneous supply relationship.

Q447. Capital Market Regulator is: 

(a) NSE                             

(b) RBI                             

(c) SEBI                        

(d) IRDA

Answer (C )


The Securities and Exchange Board of India (SEBI) is the regulator of India's securities and commodity market in India.

It was established in 1988 and given Statutory Powers on 30 January 1992 through the SEBI Act, 1992.

The Preamble of the Securities and Exchange Board of India describes the basic functions of the Securities and Exchange Board of India as " protect the interests of investors in securities and to promote the development of, and to regulate the securities market and for matters connected therewith or incidental thereto".

SEBI has to be responsive to the needs of three groups, which constitute the market:

  • issuers of securities
  • Investors
  • market intermediaries

Q448. A Transfer Income’ is an 

(a) Income which is not produced by any production process

(b) Income taken away from one person and given over to another

(c) Unearned Income                             

(d) Earned income

Answer (A )


A transfer payment is a one-way payment to a person or organization which has given or exchanged no goods or services for it. This contrasts with a simple "payment," which in economics refers to a transfer of money in exchange for a product or service. Generally, the phrase "transfer payment" is used to describe government payments to individuals through social programs such as welfare, student grants, and even Social Security. 

Q449. The main feature of a capitalist economy is 

(a) Administered prices              

(b) Public ownership

(c) Economic planning              

(d) Private ownership 

Answer (D )


Capitalism is an economic system in which private individuals or businesses own capital goods. The production of goods and services is based on supply and demand in the general market—known as a market economy—rather than through central planning—known as a planned economy or command economy. The purest form of capitalism is free market or laissez-faire capitalism

Q450. The supply of labor in the economy depends on 

(a) Population               

(b) National income                    

(c) Per capita income  

(d) Natural resources 

Answer (A )


The supply of labor in the economy depends on the population.

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