The concept of 'Deadweight Loss' arises due to: MCQ with Answer and Explanation

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The concept of 'Deadweight Loss' arises due to:

A. Efficient resource allocation

B. Free trade

C. Market distortions such as taxes, subsidies or monopolies

D. Perfect competition

Answer: Option C

Solution (By JKSSB Mock Tests)

Deadweight loss is the loss of economic efficiency that occurs when the equilibrium quantity is not achieved due to market imperfections or government interventions.

This question belongs to: Economy GK Economy Set 1

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Question #1

The 'withdrawal' from the circular flow in a three-sector economy includes:

A. government expenditure

B. investment

C. exports

D. taxes and saving

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Correct Answer: Option D

Explanation:
In a three-sector economy, withdrawals include saving and taxes.

This question belongs to: Economy GK Economy Set 1

Question #2

The term 'Capital Formation' is essential for economic growth because it:

A. Only increases consumption

B. Increases the stock of productive assets

C. Has no relation to productivity

D. Reduces the productive capacity of the economy

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Correct Answer: Option B

Explanation:
Capital formation involves net addition to the stock of capital goods, which enhances the productive capacity of the economy and supports long-term growth.

This question belongs to: Economy GK Economy Set 1

Question #3

The concept of 'Feldstein-Horioka Puzzle' refers to:

A. The observation that domestic saving and domestic investment are highly correlated despite capital mobility

B. The puzzle of purchasing power parity deviations only

C. The observation that saving and investment are completely uncorrelated

D. The puzzle of why interest rates are equalised

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Correct Answer: Option A

Explanation:
The Feldstein-Horioka puzzle is the empirical finding of a high correlation between domestic saving and domestic investment rates, which appears inconsistent with perfect international capital mobility.

This question belongs to: Economy GK Economy Set 1

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