Economic Curves — Set 5
Economics · आर्थिक वक्र · Questions 41–50 of 50
The 'Laffer Curve' peak represents the point of?
Correct Answer: A. Maximum Tax Revenue
The peak of the Laffer Curve is the point where the tax rate is considered 'optimal' for maximizing government income. Beyond this point, higher tax rates lead to lower total revenue. This happens because people find ways to avoid taxes or stop working.
Which of the following describes the shape of an 'Engel Curve' for a luxury good?
Correct Answer: A. Upward sloping and convex
For luxury goods, the quantity demanded increases more than proportionately as income rises. This results in an Engel curve that bends upwards or is convex towards the income axis. It shows that the share of income spent on luxuries grows with wealth.
In the long run, the Phillips Curve is theorized to be?
Correct Answer: A. Vertical
Economists like Milton Friedman argued that the trade-off between inflation and unemployment exists only in the short run. In the long run, the economy returns to the 'natural rate of unemployment' regardless of the inflation rate. This makes the long-run Phillips curve a vertical line.
Which curve can be used to derive the law of demand graphically?
Correct Answer: B. Price Consumption Curve
The Price Consumption Curve (PCC) traces the consumer's optimal bundles as the price of one good changes. By mapping the price and quantity demanded from the PCC, we get the standard downward-sloping demand curve. It integrates the substitution and income effects.
The 'Lorenz Curve' is always located below which line?
Correct Answer: A. Line of Perfect Equality
The Line of Perfect Equality is a 45-degree diagonal where everyone has an equal share. The Lorenz curve lies below this line because in reality, income is never perfectly distributed. The further it sags from this line, the greater the inequality.
In an environment of 'Stagflation', the Phillips Curve shift is usually?
Correct Answer: B. Upwards/Outwards
The correct answer is 'Upwards/Outwards'. Stagflation involves both high inflation and high unemployment, causing the entire Phillips curve to shift to the right. This shift implies a worse trade-off for the economy. It usually happens due to supply-side shocks, like rising oil prices.
The slope of the Indifference Curve is called the?
Correct Answer: C. Marginal Rate of Substitution
The Marginal Rate of Substitution (MRS) is the rate at which a consumer is willing to give up one good for another while staying on the same indifference curve. It typically diminishes as one has more of a good. This gives the curve its convex shape.
Which curve depicts that as income rises, the proportion of income spent on food decreases?
Correct Answer: C. Engel Curve
Engel's Law states that the income elasticity of demand for food is less than one. This means as people get richer, they spend a smaller percentage of their total budget on basic nutrition. This is a key indicator used to measure the standard of living.
When the Marginal Cost is rising and above the Average Cost, the Average Cost curve must be?
Correct Answer: C. Rising
The correct answer is 'Rising'. Since the marginal value is higher than the average, it pulls the average value upwards. This is a simple mathematical relationship between any marginal and average series. It follows that the average cost only rises after the marginal cost exceeds it.
The 'Kuznets Curve' was originally formulated based on the economic history of which group of countries?
Correct Answer: A. Developed countries
Simon Kuznets developed his hypothesis based on the historical data of advanced economies like the UK and USA. He suggested that inequality is a transitional phase in the process of industrialization. Subsequent studies have debated whether this applies universally to all nations.