16. In which of the following commodities, when a consumer spends so much that negative income effect overwhelms the positive substitution effect so as the underlying demand curve is positively sloped?

  • Option : C
  • Explanation : Giffen Paradox: The Positively Slopped Demand Curve: If the commodity in question is an inferior good, the increase in real income resulting from the reduction in its price will lead the consumer to purchase less, not more, of the commodity.
    Thus, the income effect will be negative while the substitution effect continues to be positive to lead the consumer to purchase more of the commodity when its price falls. For most of the inferior goods, the positive substitution effect will be more than offset the negative income effect so that the demand curve is negatively sloped.
    However, in the very rare case when the consumer spends so much on the inferior commodity that the strong negative income effect overwhelms the positive substitution effect the quantity demanded of the commodity will fall when its price falls and rise when its price rises.
    In other words, the demand curve in this case will be positively sloped. The commodity in question is then called a Giffen goods, after the 19th century English economist Robert Giffen, who first discussed it. This is what is called Giffen Paradox that makes the demand curve to have a positive slope.
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17. Match List-I with List-II:

(a)   (i) Kelly’s coefficient of skewness
(b)   (ii) Bowley’s measure of skewness
(c)  (iii) Karl Pearson’s coefficient of skewness

Choose the correct code from those given below:


1(iii)(ii) (i)

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18. Excess capacity is NOT noticed in which of the following market conditions?

  • Option : D
  • Explanation : Excess capacity is a long-run concept. Excess capacity, broadly speaking, measures the difference between least cost output and the profit-maximizing output; least cost output corresponds to the minimum point on the LAC curve and the profit maximising output corresponds to that point where MR = MC.
    Excess Capacity in Perfect Competition: In perfect competition, due to free entry and exit of firms, normal profit are earned in the long-run. There is no excess capacity as the firm earns normal profit and stays at the minimum point of LAC curve (Fig.) That is, the least cost output coincides with the profit maximising output i.e., Xc = Xe. It is shown in fig.
    Perfect competition
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20. Amount unutilised in capital gain account scheme for which exemption claimed u/s 54 shall be treated as long-term capital gain, if:

  • Option : C
  • Explanation : Exemption under Section 54: When an individual sells a residential property and buys another residential property, he will be eligible for exemption under Section 54. Conditions to avail the benefit of exemption under Section 54 includes:
    ∎ The tax payer (i.e., seller) needs to be an individual or HUF. Thus, firms, LLP’s and companies cannot utilize the benefits of this section.
    ∎ Asset needs to be classified as a long-term capital asset.
    ∎ The asset sold is a Residential House. Income from such a house should be chargeable as Income from House Property.
    ∎ The seller should purchase a residential house either 1 year before the date of sale/ transfer or 2 years after the date of sale/ transfer. In case the seller is constructing a house, the seller has an extended time, i.e., the seller will have to construct the residential house within 3 years from the date of sale/transfer. In case of compulsory acquisition, the period of acquisition or construction will be determined from the date of receipt of compensation (whether original or additional compensation).
    ∎ The new residential house should be in India. The seller cannot buy or purchase a residential house abroad and claim the exemption.
    The above conditions are cumulative. Hence, even if one condition is not fulfilled, then the seller cannot avail the benefit of the exemption under Section 54.
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