ASRB NET and ARS / SMS / STO recruitment · India · Agricultural Scientists Recruitment Board (ICAR)
Original practice questions written to the published syllabus · not past papersConsumer, producer and market theory at master's depth, with agricultural applications such as price floors and support prices. The core of the economic-theory unit in agricultural economics PhD entrance papers.
In the exams: agricultural master's entrance examinations, agricultural economics (heavy); agricultural economics PhD entrance and fellowship examinations, economic theory (heavy); agricultural scientist eligibility tests, economic theory (heavy)
How our questions for ASRB NET and ARS / SMS / STO recruitment spread across the units of Microeconomic Theory & Applications. Difficulty: 6 easy, 48 medium, 20 hard.
| General equilibrium, market failure and welfare (PhD level) | 9 | |
| Perfect competition, taxes and subsidies | 7 | |
| Oligopoly: Cournot, Stackelberg and Bertrand | 7 | |
| Production: stages, isoquants, elasticity of substitution, expansion path | 6 | |
| Monopoly and deadweight loss | 6 | |
| Hicks and Slutsky income and substitution effects | 5 | |
| Short- and long-run costs and the envelope curve | 5 | |
| Factor markets, economic rent and quasi-rent | 5 | |
| Demand and supply shifts | 4 | |
| Price floors and price ceilings in agriculture | 4 | |
| Cardinal and ordinal utility | 3 | |
| Revealed preference | 3 | |
| Consumer surplus | 3 | |
| Monopolistic competition | 3 | |
| Scarcity and the production possibility frontier | 2 | |
| Positive and normative economics | 2 |
Choose an answer, then open the working. Each explanation says why the right answer is right and why the others are not.
An economist says: 'A fertiliser subsidy raises fertiliser use and yields, but whether it is justified depends on how society weighs farm income against the fiscal cost.' This statement
C. combines a positive claim with a recognition that the policy choice is normative
The first half (effect on use and yields) is testable and positive; the second half says the decision requires value judgements, which is normative. Policy advice usually mixes the two, and good practice keeps them separate.
Further reading: Koutsoyiannis, Modern Microeconomics
A good has an own-price elasticity of -0.7 and a cross-price elasticity of +0.2 with respect to the only other good. If demand is homogeneous of degree zero in prices and income, its income elasticity is
B. 0.5
Homogeneity of degree zero implies own-price + cross-price + income elasticity = 0. So -0.7 + 0.2 + E = 0 and E = 0.5. 0.9 adds the absolute values; -0.5 gets the sign wrong.
Further reading: Varian, Intermediate Microeconomics
A government imposes a binding ceiling on the retail price of a pulse during a shortage but does nothing else. The most likely consequences include
B. queues or rationing, black-market sales above the ceiling and lower future supply
A binding ceiling creates excess demand, which is rationed by waiting, favouritism or illegal sales; lower returns discourage production. There is a deadweight loss on units no longer traded. This is why food programmes usually pair low issue prices with procurement and rationing.
Further reading: Koutsoyiannis, Modern Microeconomics
Euler's theorem applied to a production function homogeneous of degree one implies that
B. paying each input its marginal product exactly exhausts total output
For linear homogeneous f, L x MPL + K x MPK = Q, so marginal-productivity payments use up the whole product (the 'adding-up' problem is solved). This holds for any constant-returns function, not only Cobb-Douglas, so sigma need not be one.
Further reading: Koutsoyiannis, Modern Microeconomics
On the falling part of the long-run average cost curve, the LAC is tangent to each short-run average cost curve
A. to the left of that SAC's minimum point
The envelope touches SACs at their minima only at the minimum of LAC. Where LAC is falling, tangency must be on the falling part of each SAC, so the optimal plant for that output is run below its own minimum-cost output. Where LAC is rising, tangency is on the rising part.
Further reading: Koutsoyiannis, Modern Microeconomics
A competitive industry has identical firms with LAC = Q^2 - 10Q + 40 and market demand Q = 1000 - 20P. In long-run equilibrium, the number of firms is
B. 140
Minimum LAC: dLAC/dQ = 2Q - 10 = 0, Q = 5, LAC = 25 - 50 + 40 = 15. Long-run price = 15, market quantity = 1000 - 300 = 700; firms = 700/5 = 140. 700 is market output; 46.7 divides market output by the price (700/15) instead of by firm output; 35 divides by the demand slope.
Further reading: Koutsoyiannis, Modern Microeconomics
With P = 120 - Q and MC = 30 for both firms, in the Stackelberg model the leader and follower produce
B. 45 and 22.5
The follower's reaction is q2 = (90 - q1)/2. The leader maximises (120 - q1 - q2 - 30)q1 with q2 substituted, giving q1 = 45 and q2 = 22.5; total 67.5, P = 52.5. 30 and 30 is Cournot; reversing the outputs ignores first-mover advantage. 45 and 45 forgets to halve the follower's reaction (90 - 45).
Further reading: Koutsoyiannis, Modern Microeconomics
With demand P = 120 - Q and marginal cost 30, four identical Cournot firms produce a total output and price of
D. 72 and 48
Total output = n/(n + 1) x (a - c) = 4/5 x 90 = 72; P = 120 - 72 = 48. 90 and 30 is perfect competition; 60 and 60 is the duopoly. 45 and 75 is the monopoly outcome.
Further reading: Koutsoyiannis, Modern Microeconomics
Economic rent earned by a factor of production is
B. the payment above its transfer earnings
Transfer earnings are the minimum needed to keep the factor in its present use; anything above is economic rent. The whole payment is rent only if supply is perfectly inelastic. The short-run return to fixed factors is quasi-rent.
Further reading: Koutsoyiannis, Modern Microeconomics
The Coase theorem states that, when property rights are well defined and transaction costs are low,
B. private bargaining leads to the efficient outcome regardless of which party holds the right
Coase showed that bargaining reaches efficiency whoever holds the right; the allocation of rights affects distribution (who pays whom), not efficiency. High transaction costs, common when many farmers are involved, limit the result.
Further reading: Koutsoyiannis, Modern Microeconomics
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