Economy MCQs for Prelims – 17th June 2025

Welcome to today’s curated set of MCQs from the Economy segments, specially aligned with the evolving trend of the UPSC Civil Services Preliminary Examination. These questions are not just a quiz, but a resource designed to familiarize you with the exact nature of questions asked in Prelims — where static concepts are tested through a current affairs lens.

Each question below is framed using recent developments in the news and backed by clear, concise explanations to help you link dynamic events with foundational knowledge. Topics covered today include: bypolls, removal of a judge, and more...

Use this as a daily revision tool to refine your understanding, build context, and learn how UPSC frames conceptual questions from contemporary issues.

 Click Here to read the Current Affairs Total (CAT) Magazine for January 2025- April 2025.

 

Question 1: Consider the following statements:

Statement-I: Giffen goods violate the law of demand.

Statement-II: The demand for giffen goods increases with a rise in price.

Which one of the following is correct in respect of the above statements?

1. Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I
2. Both Statement-I and Statement-II are correct and Statement-II is not the correct explanation for Statement-I
3. Statement-I is correct but Statement-II is incorrect
4. Statement-I is incorrect but Statement-II is correct

Answer: a

Explanation:

1. The law of demand generally states that as the price of a good rises, the quantity demanded decreases, and vice versa.
2. Giffen goods, however, are exceptional cases where the demand for a good increases as its price rises.
3.  In the case of Giffen goods, as the price rises, the real income of consumers decreases.
4. For inferior goods that are Giffen goods, this decrease in real income may lead to an increase in the quantity demanded, despite the usual inverse relationship between price and quantity demanded.

 

Question 2: What does the Law of Supply state?

1. An increase in price leads to an increase in quantity supplied
2. An increase in price leads to a decrease in quantity supplied
3. A decrease in price leads to an increase in quantity supplied
4. Quantity supplied remains constant regardless of price changes

Answer: a

Explanation:

1. The Law of Supply states that, all else equal, an increase in the price of a good or service will lead to an increase in the quantity supplied.
2. This relationship is often represented graphically by an upward-sloping supply curve.

 

Question 3: Consider the following statements related to the concept of elasticity in microeconomics:

1. Price elasticity of demand measures how much the quantity demanded of a good responds to a change in the price of that good.
2. Income elasticity of demand measures how much the quantity demanded of a good responds to a change in consumers' income.
3. Cross-price elasticity of demand measures how much the quantity demanded of one good responds to a change in the price of another good.
4. Elasticity of supply measures how much the quantity supplied of a good changes in response to a change in the price of that good.

How many of the statements given above are correct?

1. Only one
2. Only two
3. Only three
4. All four

Answer: d

Explanation:

1. Price elasticity of demand quantifies consumers’ sensitivity to price changes, determining if demand is elastic (responsive) or inelastic (less responsive).
2. Income elasticity of demand measures how demand shifts with income changes, distinguishing between normal goods (positive elasticity) and inferior goods (negative elasticity).
3. Cross-price elasticity of demand evaluates the relationship between two goods, identifying substitutes (positive elasticity) and complements (negative elasticity) based on price fluctuations.
4. Elasticity of supply assesses producers’ responsiveness to price changes, indicating whether supply can adjust flexibly (elastic) or remains rigid (inelastic).

 

Question 4: Consider the following statements about Producer Surplus:

1. Producer Surplus is the difference between what producers are willing to accept for a good versus what they actually receive.
2. It is measured as the area above the supply curve and below the equilibrium price.
3. Producer Surplus decreases when the supply curve shifts to the right.
4. It is a measure of producer welfare.

How many of the statements given above are correct?

1. Only one
2. Only two
3. Only three
4. All four

Answer: c

Explanation:

Statement 1 is correct: Producer Surplus is the difference between the price producers are willing to accept and the price they actually receive.

Statement 2 is correct:  It is graphically represented as the area above the supply curve and below the equilibrium price in a supply-demand model.

Statement 3 is incorrect: Producer Surplus increases when the supply curve shifts right, as more goods are produced and sold at market prices.

Statement 4 is correct: It reflects producer welfare, indicating the benefit sellers receive from participating in the market.

 

Question 5: Which of the following factors would most likely increase the demand for a product?

1. A decrease in the price of a substitute product
2. An increase in the income of consumers
3. An expectation of lower prices in the future
4. An increase in the price of complementary goods

Answer: b

Explanation:

1. An increase in consumers’ income would most likely lead to higher demand for a product. When people have more money to spend, they generally buy more goods and services, especially normal goods.
2. On the other hand, a decrease in the price of a substitute product could reduce demand for the given product, as consumers may opt for the cheaper alternative instead.
3. Similarly, if buyers expect prices to fall in the future, they may delay purchases, leading to a decline in current demand.
4. Additionally, an increase in the price of complementary goods can also lower demand, since consumers may buy less of the main product if its complement becomes more expensive.