The 'Giffen paradox' occurs when: MCQ with Answer and Explanation

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The 'Giffen paradox' occurs when:

A. the good has many substitutes

B. the substitution effect dominates the income effect

C. the good is a luxury

D. the income effect of a price rise dominates the substitution effect for an inferior good

Answer: Option D

Solution (By JKSSB Mock Tests)

Giffen goods have a strong negative income effect that outweighs the substitution effect, causing demand to rise with price.

This question belongs to: Economy GK Economy Set 1

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Question #1

Which of the following is a feature of the 'Paris Agreement' on climate change?

A. A treaty limited to developed countries only

B. Only a voluntary declaration without any reporting requirements

C. A global framework under which countries submit nationally determined contributions to limit global warming

D. A legally binding set of identical emission targets for all countries

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Correct Answer: Option C

Explanation:
The Paris Agreement establishes a framework in which each party submits successive nationally determined contributions (NDCs) outlining its climate actions, with the collective aim of limiting global temperature rise.

This question belongs to: Economy GK Economy Set 1

Question #2

The value of the investment multiplier is equal to:

A. MPC divided by MPS

B. 1 divided by MPS

C. MPS divided by MPC

D. 1 divided by MPC

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Correct Answer: Option B

Explanation:
The investment multiplier is 1/MPS, or 1/(1 - MPC).

This question belongs to: Economy GK Economy Set 1

Question #3

Which of the following is a characteristic of 'Reference-Dependent Preferences'?

A. Only absolute levels of wealth matter

B. Reference points are irrelevant

C. Outcomes are evaluated relative to a reference point, generating gains and losses

D. Only final wealth enters utility

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Correct Answer: Option C

Explanation:
Reference-dependent preferences, central to prospect theory, evaluate outcomes as gains or losses relative to a reference point rather than in terms of final absolute wealth levels.

This question belongs to: Economy GK Economy Set 1

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