Nature of Indian Economy Archives

91. Consider the following statements about a joint-stock company : 1. I

Consider the following statements about a joint-stock company :

1. It has a legal existence.
2. There is limited liability of shareholders.
3. It has a democratic management.
4. It has a collective ownership.

Which of the statements given above are correct?

[amp_mcq option1=”1 and 2 only” option2=”1, 2 and 3 only” option3=”3 and 4 only” option4=”1, 2, 3 and 4″ correct=”option4″]

This question was previously asked in

UPSC CDS-1 – 2019

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Statements 1, 2, 3 and 4 are all considered correct characteristics of a joint-stock company in a broad sense relevant to this type of question. Therefore, option D is the correct answer.

A joint-stock company is a form of business organization where the ownership is divided into shares, and it has several distinct features: it is a separate legal entity, shareholders have limited liability, ownership is collective through shares, and its management structure, while often involving professional managers, derives authority from the shareholders (who vote for directors).

Statement 1: A joint-stock company is incorporated under law and has an existence independent of its members. Statement 2: The liability of each shareholder is limited to the unpaid amount of the shares held by them. Statement 4: Ownership is distributed among many shareholders who collectively own the company’s capital. Statement 3, “democratic management”, is perhaps the least precise term. Management is typically professional and appointed by the board of directors, who are elected by the shareholders. While not a direct democracy, the ultimate control rests with the shareholders through their voting rights, which can be considered a form of democratic governance within the company structure compared to other business forms. Given the options, all four statements are likely intended to be considered correct features.

92. Which one of the following statements is not correct?

Which one of the following statements is not correct?

[amp_mcq option1=”When total utility is maximum, marginal utility is zero.” option2=”When total utility is decreasing, marginal utility is negative.” option3=”When total utility is increasing, marginal utility is positive.” option4=”When total utility is maximum, marginal and average utility are equal to each other.” correct=”option4″]

This question was previously asked in

UPSC CDS-1 – 2019

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The relationship between Total Utility (TU) and Marginal Utility (MU) is as follows:
– When TU is increasing, MU is positive.
– When TU reaches its maximum point, MU is zero (the consumer gets no additional satisfaction from the last unit consumed).
– When TU starts decreasing, MU becomes negative (the consumer experiences dissatisfaction from the last unit).
Average Utility (AU) is calculated as Total Utility divided by the number of units consumed (TU/Q). While MU is zero when TU is maximum, AU is generally positive at that point unless TU itself is zero (which is not the case when it’s at its maximum positive value). There is no principle in utility theory stating that marginal and average utility are equal when total utility is maximum.

Understanding the relationship between Total Utility, Marginal Utility, and Average Utility is fundamental in consumer behaviour theory in economics.

The point where MU = 0 is the point of ‘satiety’. Beyond this point, consuming more units reduces total utility. AU is maximized when MU equals AU, but this point typically occurs *before* TU is maximized.

93. Which one of the following is not an assumption in the law of demand?

Which one of the following is not an assumption in the law of demand?

[amp_mcq option1=”There are no changes in the taste and preferences of consumers.” option2=”Income of consumers remains constant.” option3=”Consumers are affected by demonstration effect.” option4=”There are no changes in the price of substitute goods.” correct=”option3″]

This question was previously asked in

UPSC CDS-1 – 2019

Download PDF Attempt Online

The Law of Demand is based on the assumption of *ceteris paribus*, meaning ‘all other things being equal’. This includes assumptions like: consumers’ tastes and preferences remain unchanged, income of consumers remains constant, prices of substitute and complementary goods do not change, and consumers’ expectations about future prices do not change. The ‘demonstration effect’ (or bandwagon effect, snob effect, Veblen effect) are phenomena where consumer demand is influenced by the consumption of others, which is generally considered a deviation from or exception to the standard law of demand, not an underlying assumption. In the basic formulation of the law of demand, consumer choices are independent and based on utility maximization given price and income.

The law of demand relies on several simplifying assumptions to establish the inverse relationship between price and quantity demanded. Factors that cause demand to deviate from this relationship are typically not included in the core assumptions.

Assumptions of the law of demand include: no change in income, no change in tastes/preferences, prices of related goods are constant, no expectation of future price changes, no change in the size of the population, and no change in the distribution of income.

94. According to the law of diminishing marginal utility, as the amount of

According to the law of diminishing marginal utility, as the amount of a good consumed increases, the marginal utility of that good tends to

[amp_mcq option1=”improve” option2=”diminish” option3=”remain constant” option4=”first diminish and then improve” correct=”option2″]

This question was previously asked in

UPSC CDS-1 – 2018

Download PDF Attempt Online

The law of diminishing marginal utility states that as a consumer consumes more and more units of a specific good, the additional satisfaction (utility) derived from consuming each successive unit tends to decrease. While the total utility might increase initially, the rate at which it increases slows down.

Marginal utility diminishes as consumption of a good increases.

This is a fundamental concept in microeconomics and consumer theory. It explains why demand curves are typically downward-sloping – as the price of a good falls, a consumer is willing to buy more units because the marginal utility of additional units is decreasing, and the lower price compensates for this reduced marginal satisfaction. Eventually, marginal utility can become zero or even negative if consumption continues beyond a certain point.