100+ Free IBBI Securities & Financial Assets Practice Questions

Explanation: Price elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price. Here, elasticity = 10% / 5% = 2, which is greater than 1. When the absolute value of elasticity exceeds 1, demand is elastic, meaning consumers are highly responsive to price changes.

Explanation: The law of demand states that, ceteris paribus, there is an inverse relationship between price and quantity demanded: as price falls, quantity demanded rises, and vice versa. This relationship is represented by a downward-sloping demand curve. The rationale is the income effect (lower prices increase real purchasing power) and substitution effect (cheaper goods become more attractive relative to alternatives).

Explanation: GDP at market prices measures the total market value of all final goods and services produced within a country's geographical boundaries in a given period. Intermediate goods are excluded to avoid double counting, and the valuation uses market prices including indirect taxes net of subsidies. The key word is 'final' — only end-use goods and services count.

Explanation: The repo rate is the rate at which the RBI lends short-term funds to commercial banks. When the RBI reduces the repo rate, banks' cost of borrowing falls, which typically transmits to lower lending rates for businesses and consumers. Lower borrowing costs stimulate investment and consumption, boosting economic activity. The RBI uses repo rate changes as its primary monetary policy tool to manage inflation and growth.

Explanation: Inflation is a sustained rise in the general price level of goods and services over time, eroding purchasing power. It is typically measured by indices such as the Consumer Price Index (CPI) or Wholesale Price Index (WPI). A moderate inflation rate is generally considered normal in a growing economy, while hyperinflation or deflation can be destabilising.

Explanation: A monopoly is a market structure with a single seller and no close substitutes for the product. Entry barriers — such as patents, government licences, control of essential resources, or economies of scale — prevent competitors from entering. The monopolist has significant price-setting power, though it is still constrained by the demand curve. In contrast, monopolistic competition has many sellers with differentiated products, oligopoly has a few dominant sellers, and perfect competition has many sellers of identical products.

Explanation: A weaker rupee means US buyers pay fewer dollars for Indian goods, boosting export competitiveness.

Explanation: Price elasticity of supply measures the percentage change in quantity supplied in response to a percentage change in price. The formula is Es = (% change in quantity supplied) / (% change in price). A higher elasticity means producers can quickly adjust output when prices change, which depends on factors like spare capacity, inventory levels, and the time horizon considered. Supply is generally more elastic in the long run when producers can adjust all inputs.

Explanation: Fiscal policy involves government spending, taxation and borrowing, implemented through the budget.

Explanation: Opportunity cost is the value of the next best alternative forgone when a choice is made. Because resources (labour, capital, materials) are scarce, producing more capital goods (machinery, infrastructure) requires diverting resources away from consumer goods. The opportunity cost of additional capital goods today is therefore the consumer goods that could have been produced with those same resources. This trade-off is illustrated by the production possibility frontier.