ICAR AIEEA-PG (Master's admission and PG scholarship) · 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 AIEEA-PG Group 06 (Agricultural Economics), Unit II
Elasticities and their interpretation, indifference curve properties, consumer equilibrium, law of variable proportions and stages of production, cost curve relationships, market structures and their equilibrium conditions, price floors and ceilings. Mostly definitions and one-step numericals.
How our questions for ICAR AIEEA-PG spread across the units of Microeconomic Theory & Applications. Difficulty: 39 easy, 34 medium, 0 hard.
| Demand and supply shifts | 8 | |
| Cardinal and ordinal utility | 7 | |
| Production: stages, isoquants, elasticity of substitution, expansion path | 7 | |
| Short- and long-run costs and the envelope curve | 6 | |
| Perfect competition, taxes and subsidies | 6 | |
| Scarcity and the production possibility frontier | 5 | |
| Factor markets, economic rent and quasi-rent | 5 | |
| Consumer surplus | 4 | |
| Price floors and price ceilings in agriculture | 4 | |
| Monopoly and deadweight loss | 4 | |
| Oligopoly: Cournot, Stackelberg and Bertrand | 4 | |
| Positive and normative economics | 3 | |
| Hicks and Slutsky income and substitution effects | 3 | |
| Monopolistic competition | 3 | |
| Revealed preference | 2 | |
| General equilibrium, market failure and welfare (PhD level) | 2 |
Choose an answer, then open the working. Each explanation says why the right answer is right and why the others are not.
A farm with a fixed area can produce either 100 t of wheat or 60 t of pulses, with a straight-line trade-off between them. What is the opportunity cost of 1 t of pulses?
C. 1.67 t of wheat
Opportunity cost of pulses = wheat forgone / pulses gained = 100/60 = 1.67 t of wheat per t of pulses. The tempting 0.6 inverts the ratio (that is the cost of 1 t of wheat in pulses); 40 is the difference, not a ratio.
Further reading: Koutsoyiannis, Modern Microeconomics
The definition of economics as 'the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses' is due to
C. Lionel Robbins
Robbins gave the scarcity-and-choice definition. Marshall defined economics in terms of material welfare and Adam Smith in terms of wealth; Samuelson's textbook definition came later and builds on Robbins.
Further reading: Koutsoyiannis, Modern Microeconomics
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
Demand for a vegetable is Qd = 200 - 4P and supply is Qs = -40 + 2P. The equilibrium price and quantity are
C. P = 40, Q = 40
Set 200 - 4P = -40 + 2P, so 240 = 6P and P = 40. Then Q = 200 - 160 = 40 (check: -40 + 80 = 40). P = 20 comes from dividing 240 by 12 (adding coefficients wrongly), giving Q = 120 on demand; P = 60 drops the 2P term (240 = 4P), giving a negative Q of -40; Q = 80 plugs P into supply without the -40.
Further reading: Koutsoyiannis, Modern Microeconomics
The Slutsky substitution effect of a price change is, compared with the Hicksian substitution effect,
A. at least as large, because Slutsky compensation lets the consumer reach a slightly higher indifference curve
Slutsky compensation keeps the old bundle affordable, which (with smooth convex preferences) allows a slightly better bundle than the old utility level, so the Slutsky substitution effect is at least as large as the Hicks one. For small price changes the two converge.
Further reading: Koutsoyiannis, Modern Microeconomics
If a consumer buys bundle A when bundle B was also affordable, then according to revealed preference theory
C. A is directly revealed preferred to B
Choosing A when B could have been bought reveals that A is (weakly) preferred to B. The point of the theory is that this inference needs no utility function.
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
For the monopolist with P = 100 - 2Q and MC = 20, the deadweight loss compared with competition is
D. 400
Monopoly: Q = 20, P = 60. Competition: Q = 40, P = 20. DWL = 0.5 x (60 - 20) x (40 - 20) = 400. 800 is monopoly profit (or forgets the half); 1600 is 40 x 40. 1200 is the whole fall in consumer surplus (1600 - 400), which includes the 800 transferred to the monopolist.
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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