Economy MCQs for UPSC Prelims

Q1. Consider the following assertion: Modified UDAN marks a shift in emphasis from demand-side to supply-side intervention in regional aviation. Which of the statements given above support/supports the assertion?

  1. It earmarks capital expenditure to develop airports from unserved airstrips.
  2. It funds the construction of modern helipads for areas with difficult terrain.
  3. It funds the procurement of Indian-built aircraft for public-sector regional operators.
  4. It caps airfares on supported routes to keep air travel affordable for passengers.
  • A. 1, 2 and 3 only
  • B. 3 and 4 only
  • C. 1, 2, 3 and 4
  • D. 1 and 2 only

Q2. UDAN's viability gap funding is backed by a Regional Connectivity Fund, which is financed by a levy charged per flight on certain domestic flights. In this context, consider the following statements: Which of the statements given above is/are correct?

  1. Because the fund is financed by an earmarked levy, its collections do not depend on the volume of air traffic.
  2. Shortfalls in the fund's collections can delay VGF disbursements to airlines operating supported routes.
  3. Because the levy is charged per flight, it tends to raise the operating cost of the levied flights and can be passed on to their passengers as higher fares.
  • A. 2 and 3 only
  • B. 1 only
  • C. 1 and 2 only
  • D. 1, 2 and 3

Q3. Under the Regional Connectivity Scheme, an airline selected for a route is given exclusivity on it for a limited period. What is the main economic rationale for this?

  • A. To exempt the selected airline from safety oversight by the aviation regulator for that period
  • B. To let the selected airline raise fares on the route to market levels whenever it chooses
  • C. To keep thin early traffic from being split among rival operators before the route matures
  • D. To let the government recover the subsidy from the airline once the exclusivity period ends

Q4. With reference to the design of the Regional Connectivity Scheme (UDAN), consider the following statements: Which of the statements given above are correct?

  1. Support under the scheme is tied to specific routes that connect unserved or underserved airports.
  2. Airlines that receive support accept caps on airfares on the supported routes.
  3. Concessions under the scheme come only from the Union Government, and State Governments have no financial role in it.
  4. The scheme expects airlines to run supported routes at a loss as a public-service obligation.
  • A. 2 and 4 only
  • B. 1 and 2 only
  • C. 1, 2 and 3 only
  • D. 1, 3 and 4 only

Q5. With reference to Viability Gap Funding (VGF) under the Regional Connectivity Scheme (UDAN), consider the following statements: Which of the statements given above is/are correct?

  1. It bridges the gap between the cost of operating a route and the revenue that route can earn at affordable fares.
  2. It is paid to airport operators to finance construction works on unserved airstrips.
  3. It is a one-time capital grant released before the first flight, after which the route receives no further support.
  • A. 2 and 3 only
  • B. 1 and 2 only
  • C. 1, 2 and 3
  • D. 1 only

Q6. India's 2023 guidelines exempt pumped storage projects from the obligations to supply free power to the host State and to contribute to a Local Area Development Fund. Consider the following as possible consequences of this exemption: Which of the statements given above is/are correct?

  1. The power to allot pumped storage sites shifts from the States to the Union, since the States no longer receive free power from such projects.
  2. The developer's cost of providing storage falls, improving the project's financial viability.
  3. The host State's direct fiscal incentive to offer its land and water for such projects weakens.
  • A. 1 only
  • B. 1, 2 and 3
  • C. 2 and 3 only
  • D. 1 and 2 only

Q7. Consider the following assertion: 'A storage technology being viable on a levelised-cost basis does not by itself ensure that its capacity gets built quickly.' Which of the following statements support/supports the above assertion?

  1. India's operational pumped storage capacity rose only from about 4.7 GW in March 2023 to about 7.4 GW in August 2026, though the government held that PSP storage costs were viable without VGF.
  2. Pumped storage projects have long gestation periods and depend on the availability of suitable sites and on environmental clearance.
  3. The CEA projects that pumped storage will meet over a third of India's total storage requirement in 2031–32.
  • A. 1, 2 and 3
  • B. 1 only
  • C. 2 and 3 only
  • D. 1 and 2 only

Q8. With reference to Viability Gap Funding (VGF) and the levelised cost of storage, consider the following statements: Which of the statements given above is/are correct?

  1. VGF is a government grant towards part of a project's cost that makes an economically justified but financially unviable project bankable.
  2. The levelised cost of storage is obtained by dividing a plant's capital cost by its installed capacity in megawatts.
  3. Other things being equal, a longer operating life lowers a storage plant's levelised cost of storage.
  • A. 1 only
  • B. 1 and 3 only
  • C. 2 and 3 only
  • D. 1, 2 and 3

Q9. India's 2023 guidelines exempt pumped storage projects from the obligations to supply free power to the host State and to contribute to a Local Area Development Fund. Consider the following as possible consequences of this exemption: Which of the statements given above is/are correct?

  1. The power to allot pumped storage sites shifts from the States to the Union, since the States no longer receive free power from such projects.
  2. The developer's cost of providing storage falls, improving the project's financial viability.
  3. The host State's direct fiscal incentive to offer its land and water for such projects weakens.
  • A. 1 only
  • B. 1, 2 and 3
  • C. 2 and 3 only
  • D. 1 and 2 only

Q10. Consider the following assertion: 'A storage technology being viable on a levelised-cost basis does not by itself ensure that its capacity gets built quickly.' Which of the following statements support/supports the above assertion?

  1. India's operational pumped storage capacity rose only from about 4.7 GW in March 2023 to about 7.4 GW in August 2026, though the government held that PSP storage costs were viable without VGF.
  2. Pumped storage projects have long gestation periods and depend on the availability of suitable sites and on environmental clearance.
  3. The CEA projects that pumped storage will meet over a third of India's total storage requirement in 2031–32.
  • A. 1, 2 and 3
  • B. 1 only
  • C. 2 and 3 only
  • D. 1 and 2 only

Q11. With reference to Viability Gap Funding (VGF) and the levelised cost of storage, consider the following statements: Which of the statements given above is/are correct?

  1. VGF is a government grant towards part of a project's cost that makes an economically justified but financially unviable project bankable.
  2. The levelised cost of storage is obtained by dividing a plant's capital cost by its installed capacity in megawatts.
  3. Other things being equal, a longer operating life lowers a storage plant's levelised cost of storage.
  • A. 1 only
  • B. 1 and 3 only
  • C. 2 and 3 only
  • D. 1, 2 and 3

Q12. The India–New Zealand Free Trade Agreement contains most-favoured-nation (MFN) commitments by New Zealand in about 139 services sub-sectors. Suppose that after the agreement enters into force, New Zealand gives a third country more favourable access in one of these sub-sectors through a later trade agreement. Consider the following consequences: Which of the consequences given above would follow?

  1. New Zealand would have to extend the same more favourable treatment to Indian service suppliers in that sub-sector.
  2. India would have to extend to that third country the same treatment it gives New Zealand in that sub-sector.
  3. Indian suppliers would also become entitled to that third country's treatment in sub-sectors where New Zealand made no MFN commitment to India.
  • A. 1 and 3 only
  • B. 2 only
  • C. 2 and 3 only
  • D. 1 only

Q13. Consider the following pairs of activity and the mode of supply under the WTO's General Agreement on Trade in Services (GATS): Which of the pairs given above are correctly matched?

  1. An Indian Ayurveda practitioner goes to New Zealand on a temporary work visa to treat patients there — Presence of natural persons
  2. An Indian student enrols in a two-year course at a university in New Zealand — Consumption abroad
  3. An Indian IT company sets up a subsidiary in Auckland to serve local clients — Cross-border supply
  4. A New Zealand firm in Wellington delivers software services online to clients in India — Cross-border supply
  • A. 1 and 2 only
  • B. 1, 2 and 4 only
  • C. 1, 3 and 4 only
  • D. 2 and 3 only

Q14. Consider the following statements: Which of the following is correct in respect of the above statements?

  1. Rules of origin remain an essential part of the India–New Zealand Free Trade Agreement even though New Zealand eliminates duties on all its tariff lines for goods from India.
  2. Without origin criteria, goods made in a third country could pass through India and enter New Zealand at zero duty while that third country pays New Zealand's normal tariffs on direct shipments.
  • A. Both Statement-I and Statement-II are correct and Statement-II explains Statement-I
  • B. Both Statement-I and Statement-II are correct, but Statement-II does not explain Statement-I
  • C. Statement-I is correct, but Statement-II is incorrect
  • D. Statement-I is incorrect, but Statement-II is correct

Q15. With reference to preferential rules of origin in free trade agreements, consider the following statements: Which of the statements given above is/are correct?

  1. They decide whether a good qualifies as originating in a partner country, using criteria such as a minimum share of value added or a change in tariff classification.
  2. They are meant to stop goods from a non-member country being routed through the partner with lower external tariffs to claim preferential duty in the other partner.
  3. Complex origin criteria and certification requirements can reduce the share of eligible exports that actually claim the preferences offered by an agreement.
  • A. 1 and 3 only
  • B. 1 and 2 only
  • C. 1, 2 and 3
  • D. 2 and 3 only

Q16. Under the GATT framework, which one of the following features distinguishes a customs union from a free trade area?

  • A. Members apply substantially the same duties to imports coming from non-member countries
  • B. Members must notify the arrangement to the multilateral trading body for its review
  • C. Members may keep lists of sensitive products that are excluded from liberalisation
  • D. Members eliminate duties on substantially all trade in goods originating within the group

Q17. Consider the following assertion: Replacing criminal consequences with civil and graded consequences for minor lapses under the Legal Metrology Act can ease business without abandoning consumer protection. Which of the statements given above support/supports the assertion?

  1. Decriminalisation reduces the number of weighing and measuring instruments that must be verified before they are used in trade.
  2. Penalties for non-conforming pre-packaged commodities rise for second and subsequent violations, so deterrence against repeat offenders is retained.
  3. The prospect of criminal prosecution for technical lapses raises compliance costs disproportionately for micro and small enterprises.
  • A. 1 only
  • B. 1, 2 and 3
  • C. 2 and 3 only
  • D. 1 and 2 only

Q18. In a drought year, Telangana wants jowar growers to be able to sell their crop at the Minimum Support Price. Under the existing procurement framework, which one of the following is the appropriate route for this crop?

  • A. Payment of the MSP–modal price gap under the deficiency payment scheme, within a ceiling linked to MSP
  • B. Physical procurement by central nodal agencies under the Price Support Scheme, within a ceiling on production
  • C. Purchase by private stockists under the pilot scheme run in selected districts or APMCs of the State
  • D. Procurement at MSP by State agencies, with the Central Government reimbursing the costs incurred

Q19. Which one of the following correctly describes how Minimum Support Prices are determined for the mandated agricultural crops in India?

  • A. The Union Government fixes them on the basis of CACP recommendations, after considering views of States and Central Ministries.
  • B. Each State Government fixes them on the basis of CACP cost estimates, subject to approval of the Union Cabinet.
  • C. The CACP fixes them on its own authority, and its notified prices bind both the Union Government and the States.
  • D. The Union Government fixes them on the basis of FCI recommendations, after considering procurement capacity in each State.

Q20. Consider the following statements: Which of the following is correct in respect of the above statements?

  1. Under the Price Support Scheme, a substantial part of a season's output of a notified pulse or oilseed can remain outside procurement at MSP.
  2. Under the Price Support Scheme, physical procurement is carried out by Central Nodal Agencies, with a proactive role for State governments.
  • A. Both Statement-I and Statement-II are correct and Statement-II explains Statement-I
  • B. Both Statement-I and Statement-II are correct, but Statement-II does not explain Statement-I
  • C. Statement-I is correct, but Statement-II is incorrect
  • D. Statement-I is incorrect, but Statement-II is correct

Q21. Consider the following facts: Telangana has sought 100% procurement of maize and jowar at MSP by lifting the 25% cap under MSP-PSS operations. Under PM-AASHA, the Price Support Scheme covers physical procurement of pulses, oilseeds and copra. For 2024-25, the Centre decided to procure tur, urad and masur up to 100% of production. Which of the following inferences can be drawn from the above?

  1. Because tur, urad and masur were procured up to 100% of production, MSP for these pulses became a legally enforceable entitlement of every grower.
  2. Removing the PSS ceiling would not by itself bring maize and jowar growers within MSP procurement under PSS.
  3. The Centre has previously relaxed the PSS ceiling for particular crops.
  • A. 1, 2 and 3
  • B. 3 only
  • C. 1 and 2 only
  • D. 2 and 3 only

Q22. With reference to the regulation and structure of natural gas pipelines in India, consider the following statements: Which of the statements given above is/are correct?

  1. The Petroleum and Natural Gas Regulatory Board grants authorisation to entities to lay, build, operate and expand natural gas pipelines.
  2. The National Gas Grid is made up of interconnected pipeline networks owned and operated by several different companies.
  3. Only central public sector enterprises can be authorised to build and operate natural gas pipelines in India.
  • A. 1 only
  • B. 2 and 3 only
  • C. 1, 2 and 3
  • D. 1 and 2 only

Q23. Consider the following statements: Which of the following is correct in respect of the above statements?

  1. Under the unified tariff regime for the National Gas Grid, every consumer pays the same transportation charge regardless of distance from the gas source.
  2. Under an additive tariff system, consumers far from the gas source pay more for transport because the tariffs of each pipeline the gas passes through are added together.
  • A. Both Statement-I and Statement-II are correct and Statement-II explains Statement-I
  • B. Both Statement-I and Statement-II are correct, but Statement-II does not explain Statement-I
  • C. Statement-I is correct, but Statement-II is incorrect
  • D. Statement-I is incorrect, but Statement-II is correct

Q24. Consider the following facts. In 2019, the trade margin on 42 non-scheduled anti-cancer medicines was capped at 30% of MRP. Shortly afterwards, 390 of the 426 brands reported by manufacturers showed a reduction in MRP, with the largest reduction being 87%. Which of the following inferences can be drawn from the above facts?

  1. Before the cap, the trade margins on some of these brands were far above 30% of MRP.
  2. The size of the price reduction differed from brand to brand rather than being uniform.
  3. The manufacturers' own selling prices to stockists for these brands fell by up to 87%.
  4. The price reduction led to market shortages of these medicines.
  • A. 1 and 3 only
  • B. 1 and 2 only
  • C. 2 and 4 only
  • D. 1, 2, 3 and 4

Q25. Suppose an anti-cancer medicine that is currently non-scheduled is added to the National List of Essential Medicines and so to Schedule-I of the Drugs (Prices Control) Order, 2013. Consider the following statements about the consequences: Which of the statements given above is/are correct?

  1. The medicine would become subject to a ceiling price fixed by the National Pharmaceutical Pricing Authority.
  2. Its manufacturers could still raise its MRP each year by the percentage permitted for non-scheduled formulations, whatever the ceiling price.
  • A. 1 only
  • B. 2 only
  • C. Both 1 and 2
  • D. Neither 1 nor 2

Q26. With reference to the extraordinary powers available to the National Pharmaceutical Pricing Authority under Paragraph 19 of the Drugs (Prices Control) Order, 2013, consider the following statements: Which of the statements given above is/are correct?

  1. These powers can be exercised in respect of a drug whether or not it is listed in Schedule-I of the Order.
  2. A drug must first be added to the National List of Essential Medicines before these powers can be used to regulate its price.
  3. These powers have been used to regulate trade margins on certain medical devices as well.
  • A. 1 and 3 only
  • B. 2 and 3 only
  • C. 1 only
  • D. 1, 2 and 3

Q27. Suppose the pricing authority caps the trade margin on a non-scheduled drug at 30% of its MRP. With reference to the likely effects of this cap, consider the following statements: Which of the statements given above is/are correct?

  1. After the cap, all brands of the drug will carry the same MRP.
  2. A brand whose distribution and retail margin was well above 30% of MRP will have to cut its MRP even if the manufacturer's price to the stockist does not change.
  3. The cap allows a percentage mark-up over the price at which the stockist buys the drug that is higher than 30%.
  • A. 3 only
  • B. 2 and 3 only
  • C. 1, 2 and 3
  • D. 1 and 2 only

Q28. Which one of the following best brings out the difference between Trade Margin Rationalisation and ceiling-price fixation as tools of drug price regulation in India?

  • A. The former applies only to medicines on the essential medicines list, while the latter applies to medicines outside that list.
  • B. The former sets one uniform retail price for all brands of a molecule, while the latter leaves each brand free to choose its own price.
  • C. The former limits the manufacturer's ex-factory price as a share of its cost, while the latter limits only the margins of stockists and retailers.
  • D. The former limits the share of the final retail price that the supply chain can keep, while the latter limits the final retail price itself.

Q29. With reference to the regulation of drug prices under the Drugs (Prices Control) Order, 2013, consider the following statements: Which of the statements given above is/are correct?

  1. For a scheduled formulation, every manufacturer, whether it sells a branded or a generic version, must sell within the ceiling price notified by the National Pharmaceutical Pricing Authority (plus applicable GST).
  2. For a non-scheduled formulation, the manufacturer fixes the launch MRP itself but cannot raise it beyond a prescribed percentage over the MRP prevailing in the preceding twelve months.
  3. The ceiling prices of scheduled formulations can be revised every year in line with the Wholesale Price Index, without waiting for the National List of Essential Medicines to be revised.
  • A. 1 and 3 only
  • B. 2 and 3 only
  • C. 1, 2 and 3
  • D. 1 and 2 only

Q30. With reference to blending ethanol into petrol in India, consider the following statements: Which of the statements given above is/are correct?

  1. Domestically produced ethanol blended into petrol displaces part of the crude oil that would otherwise be imported, saving foreign exchange.
  2. Higher blending ratios reduce how strongly the oil import bill responds to a given rise in global crude prices.
  3. For a given volume of ethanol blended, the foreign exchange saved is larger when global crude prices are higher.
  • A. 2 and 3 only
  • B. 1, 2 and 3
  • C. 1 only
  • D. 1 and 2 only