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Indian EconomyHardAsked in: CDS · CDS-II 2024, GK

Suppose there are only two normal goods in the economy, X and Y. If price of good X increases, which would be the correct statement from below ?

  1. A.Demand for good X decreases and demand for Y is indeterminate.
  2. B.Demand for good X decreases and demand for Y decreases.
  3. C.Demand for good X increases and demand for Y is indeterminate.
  4. D.Demand for good X increases and demand for Y decreases.

Correct answer

A. Demand for good X decreases and demand for Y is indeterminate.

Explanation

The correct answer is A, Demand for good X decreases and demand for Y is indeterminate. By the law of demand, a normal good is bought less when its own price rises, while the effect on the other good depends on two forces pulling in opposite directions.

When X becomes dearer, the consumer substitutes towards Y, which is now relatively cheaper; this substitution effect raises the demand for Y. At the same time the rise in the price of X lowers the consumer's real income, and since Y is a normal good this income effect reduces the demand for Y. Which effect is stronger cannot be known without more information, so the change in the demand for Y is indeterminate.

B wrongly fixes the demand for Y as falling. C and D both say the demand for X rises, which happens only for a Giffen good, and a normal good cannot be a Giffen good.

Exam tip: own price up means quantity down for a normal good; the other good feels substitution and income effects, so the result is uncertain.

Practice Questions

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Q1.Indian EconomyAsked in: NDA · NDA-I 2022, GATEasy

Who among the following is the Chairperson of the Goods and Services Tax Council?

  1. A.The Prime Minister of India
  2. B.The Union Finance Minister
  3. C.The Speaker of the Lok Sabha
  4. D.The President of India
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Correct answer: B. The Union Finance Minister

Under Article 279A of the Constitution, the Union Finance Minister is the Chairperson of the GST Council. Article 279A was added by the Constitution (One Hundred and First Amendment) Act, 2016, which brought in the Goods and Services Tax.

Q2.Indian EconomyAsked in: NDA · NDA-I 2017, GATMedium

Which one among the following countries is the largest trading partner of India in external trade for the year 2015-2016 ?

  1. A.United States of America
  2. B.United Kingdom
  3. C.United Arab Emirates
  4. D.China
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Correct answer: D. China

In 2015-16 China was India's largest trading partner by total trade, that is exports plus imports. India's trade with China that year was about US$ 70 billion, but most of it was imports of electronics, machinery and chemicals, so India ran its largest bilateral trade deficit with China.

Q3.Indian EconomyAsked in: CDS · CDS-II 2024, GKHard

The Rangarajan Committee methodology for determining the poverty line incorporated which of the following ? 1. A food component 2. A normative level of expenditure for essential non-food items 3. A behaviourally determined expenditure for other non-food items Select the answer using the code given below :

  1. A.1 and 2 only
  2. B.2 and 3 only
  3. C.1, 2 and 3
  4. D.1 and 3 only
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Correct answer: C. 1, 2 and 3

The Rangarajan Committee built its poverty line basket from all three parts named in the question. The expert group headed by C. Rangarajan was set up in 2012 and reported in 2014, to review the Tendulkar method.

Q5.Indian EconomyAsked in: NDA · NDA-I 2026, GATEasy

The Atal Innovation Mission (AIM) is set up by the

  1. A.Department of Science and Technology, Government of India
  2. B.NITI Aayog
  3. C.Ministry of Statistics and Programme Implementation, Government of India
  4. D.Ministry of Corporate Affairs, Government of India
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Correct answer: B. NITI Aayog

The Atal Innovation Mission (AIM) was set up by NITI Aayog in 2016 as the Government of India's flagship programme to promote innovation and entrepreneurship.