ICAR AICE-JRF/SRF (PhD admission and fellowship) · India · National Testing Agency for 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)
ICAR AICE-JRF/SRF Agricultural Economics, Unit 1 (Economic Theory)
Hicks and Slutsky decompositions, Giffen goods, revealed preference axioms, duality (Shephard, Roy), elasticity of substitution and CES, envelope theorem and LAC, tax incidence and deadweight loss, Lerner index and price discrimination, Cournot/Stackelberg/Bertrand solutions, factor pricing and rent, welfare theorems, compensation criteria, externalities and public goods.
How our questions for ICAR AICE-JRF/SRF spread across the units of Microeconomic Theory & Applications. Difficulty: 1 easy, 26 medium, 34 hard.
| General equilibrium, market failure and welfare (PhD level) | 11 | |
| Hicks and Slutsky income and substitution effects | 6 | |
| Oligopoly: Cournot, Stackelberg and Bertrand | 5 | |
| Revealed preference | 4 | |
| Price floors and price ceilings in agriculture | 4 | |
| Production: stages, isoquants, elasticity of substitution, expansion path | 4 | |
| Perfect competition, taxes and subsidies | 4 | |
| Monopoly and deadweight loss | 4 | |
| Factor markets, economic rent and quasi-rent | 4 | |
| Demand and supply shifts | 3 | |
| Short- and long-run costs and the envelope curve | 3 | |
| Monopolistic competition | 3 | |
| Positive and normative economics | 2 | |
| Consumer surplus | 2 | |
| Scarcity and the production possibility frontier | 1 | |
| Cardinal and ordinal utility | 1 |
Choose an answer, then open the working. Each explanation says why the right answer is right and why the others are not.
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 good has a compensated own-price elasticity of -0.3, a budget share of 0.4 and an income elasticity of 0.5. By the Slutsky equation, its uncompensated own-price elasticity is
B. -0.5
In elasticity form: e = e(compensated) - share x income elasticity = -0.3 - 0.4 x 0.5 = -0.5. -0.1 adds the income term instead of subtracting it; -0.8 subtracts the full income elasticity without weighting by the budget share.
Further reading: Deaton and Muellbauer, Economics and Consumer Behavior
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
A CES production function has substitution parameter rho = 0.25. Its elasticity of substitution is
C. 0.8
For CES, sigma = 1/(1 + rho) = 1/1.25 = 0.8. 1.25 is 1 + rho; 4.0 is 1/rho. The Cobb-Douglas case (sigma = 1) corresponds to rho = 0. 0.25 is rho itself.
Further reading: Henderson and Quandt, Microeconomic Theory
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
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
A natural monopoly supplying irrigation water has falling average cost over the whole market. If a regulator forces marginal-cost pricing,
A. the firm makes a loss, because marginal cost lies below average cost
With falling AC, MC < AC, so P = MC leaves price below average cost and the firm cannot cover its costs without a subsidy. Regulators therefore use average-cost pricing or two-part tariffs, trading some efficiency for financial viability.
Further reading: Koutsoyiannis, Modern Microeconomics
A group of packaged ghee and butter brands competes with many sellers, free entry and brand differences. A new brand's short-run profits are likely to
A. attract entry until profits fall to normal
With free entry, short-run profits attract close substitutes that take demand away from each firm until price equals average cost. Differentiation keeps price above marginal cost but does not protect profit in the long run.
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
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