Economics Class Questions and Answers: Key Concepts, Formulas and Solved Problems

Posted on Oct 15, 2026 in Economy

GROUP A

Very Short Questions – 1 Mark

1. What is the effect on real wages when the price level increases?
When the price level increases, real wages decrease if money wages remain unchanged.

2. Write any two difficulties of the barter system.

1. Double coincidence of wants.
2. Lack of a common measure of value.

3. Mention two methods of collecting data.

1. Primary method.
2. Secondary method.

4. What is the addition of expenditure incurred on fixed factors used in the short-run production process?
It is called Total Fixed Cost (TFC).

5. What is average fixed cost?
Average fixed cost is the fixed cost per unit of output.

6. Write the formula to find the average fixed cost.
AFC = TFC ÷ Q

7. What is average variable cost?
Average variable cost is the variable cost per unit of output.

8. Write the formula to find the average variable cost.
AVC = TVC ÷ Q

9. What is the market where goods and services are exchanged or consumed within a certain limited area?
It is called a local market.

10. What is the market called where there is a large number of sellers and buyers of a homogeneous product?
It is called a perfectly competitive market.

11. What is a set of firms producing homogeneous products under perfect competition called?
It is called an industry.

12. What type of bank is the Agricultural Development Bank?
The Agricultural Development Bank is a development bank.

13. What type of bank is called a commercial bank?
A commercial bank is a profit-oriented financial institution that accepts deposits and provides loans.

5-Mark Questions

14. List and explain any five indicators of economic development.

1. Per capita income: It shows the average income of people and indicates their economic well-being.
2. National income: It measures the total income generated by an economy during a particular period.
3. Literacy rate: A higher literacy rate indicates better education and human development.
4. Life expectancy: Higher life expectancy reflects improved health facilities and living standards.
5. Employment level: Higher employment indicates greater productive participation and better economic opportunities.

15. Define statistics in the singular and plural sense.

In the singular sense, statistics refers to the science of collecting, classifying, presenting, analyzing and interpreting numerical data.

In the plural sense, statistics refers to numerical facts or figures collected systematically for a particular purpose, such as population, income, production and prices.

16. What is statistics?

Statistics is the science of collecting, classifying, presenting, analyzing and interpreting numerical data for drawing meaningful conclusions.

GROUP B

5-Mark Questions

1. List and explain any five characteristics of Nepal’s economy.

1. Agricultural economy: A large portion of the population depends on agriculture for employment and income.
2. Low per capita income: Nepal has relatively low average income compared with developed economies.
3. Dependence on remittance: Remittance from Nepalese workers abroad is an important source of foreign exchange.
4. Unemployment and underemployment: Many people face limited employment opportunities, especially in rural areas.
5. Low level of industrialization: Nepal has a relatively small industrial sector and depends considerably on imported goods.

2. Clarify how the WTO can be beneficial for the economic development of Nepal.

1. Expansion of foreign trade: WTO membership provides Nepal with opportunities to access international markets.
2. Export promotion: Nepal can increase exports of products such as carpets, handicrafts, tea and agricultural goods.
3. Foreign investment: A stable international trade framework can encourage foreign investors to invest in Nepal.
4. Technology transfer: Increased international trade and investment can help Nepal obtain modern technology and skills.
5. Economic growth: Greater trade, investment and production can increase employment, income and economic growth.

3. Mention the importance of the WTO with reference to Nepal.

1. Market access: The WTO provides Nepal opportunities to enter international markets.
2. Export promotion: It helps Nepal promote goods and services in foreign markets.
3. Trade protection: WTO rules provide a framework for reducing unfair trade restrictions.
4. Foreign investment: International trade rules can improve confidence among foreign investors.
5. Economic integration: The WTO helps Nepal become more integrated with the global economy.

4. Mention the challenges of the WTO.

1. Strong international competition: Domestic industries may face competition from large foreign companies.
2. Weak production capacity: Nepal has limited industrial and productive capacity to compete internationally.
3. Trade deficit: Increased imports may widen Nepal’s trade deficit.
4. Dependence on foreign goods: Greater trade openness may increase dependence on imported products.
5. Limited infrastructure: Poor transport, energy and communication infrastructure can reduce Nepal’s export competitiveness.

5. Give an introduction to the main components of an economic plan.

1. Objectives: They specify the economic goals that the plan intends to achieve.
2. Targets: They establish measurable levels of production, employment, income and other outcomes.
3. Strategies: They determine the broad approaches used to achieve the planned objectives.
4. Policies and programmes: They provide specific measures and activities for implementing the plan.
5. Resources: They identify the financial, physical and human resources required for implementation.

6. Describe various methods used for classifying data, highlighting practical applications.

1. Qualitative classification: Data are classified according to qualities such as gender, religion or occupation.
2. Quantitative classification: Data are grouped according to numerical values such as income, age or marks.
3. Chronological classification: Data are arranged according to time, such as yearly production or population.
4. Geographical classification: Data are grouped according to places or regions, such as provincial population.
5. Manifold classification: Data are classified according to two or more characteristics at the same time.

Practical application: Classification makes large amounts of data simple, meaningful and easier to compare and analyze.

7. Write the meaning and explain the uses of classification of data.

Meaning: Classification of data is the process of arranging raw data into different groups or classes according to their common characteristics.

Uses:

1. Simplifies data: It converts large and complicated data into simple groups.
2. Facilitates comparison: Classified data make comparison between groups easier.
3. Helps analysis: It provides a systematic basis for statistical analysis.
4. Saves time: Grouping data reduces the time required to study individual observations.
5. Helps presentation: Classified data can easily be presented through tables, diagrams and graphs.

8. What do you mean by free trade? Mention any four advantages of it.

Free trade means international trade carried out with minimum government restrictions such as tariffs, quotas and other trade barriers.

1. Specialization: Countries can specialize in producing goods in which they have a comparative advantage.
2. Larger market: Producers can sell their products in international markets.
3. Lower prices: Greater competition can reduce prices and benefit consumers.
4. Better quality: Competition encourages producers to improve the quality of goods and services.

9. Mention the objectives of SAFTA.

1. Promote regional trade: SAFTA aims to increase trade among South Asian countries.
2. Reduce trade barriers: It seeks to reduce tariffs and other restrictions on regional trade.
3. Increase economic cooperation: It promotes economic cooperation among member countries.
4. Expand investment: It aims to create a favorable environment for regional investment.
5. Promote economic growth: Increased regional trade is expected to support economic development.

10. Mention the importance of SAFTA with reference to Nepal.

1. Larger market: SAFTA provides Nepal with access to the markets of South Asian countries.
2. Export promotion: It creates opportunities to increase Nepal’s exports to neighboring countries.
3. Import of essential goods: Nepal can obtain goods and raw materials from regional markets more easily.
4. Foreign investment: Regional economic cooperation can encourage investment in Nepal.
5. Economic cooperation: SAFTA strengthens Nepal’s economic relationship with other South Asian countries.

GROUP C

8-Mark Questions

1. What is rent? Explain the Ricardian theory of rent with the help of a table and diagram.

Rent is the payment made for the use of land, or the reward received by the owner of land for its use.

Ricardian Theory of Rent

According to David Ricardo, rent is the portion of the produce of land paid to the landlord for the original and indestructible powers of the soil.

The main assumptions of the theory are:

1. Land is fixed in supply: The total supply of land is limited and cannot be increased.
2. Different fertility: Different plots of land have different levels of fertility.
3. Different location: Some lands are closer to markets than others.
4. Diminishing returns: When more labour and capital are applied to land, additional output eventually decreases.
5. Rent arises from scarcity: Rent arises because superior land is scarce compared with demand for its produce.

Illustrative Table

Here, D is the marginal land, so it earns no economic rent. The rent of superior land is measured by the difference between its output and the output of marginal land.

• Rent of A = 40 − 10 = 30 units
• Rent of B = 30 − 10 = 20 units
• Rent of C = 20 − 10 = 10 units
• Rent of D = 10 − 10 = 0

Diagram

Output
 40 | █████████████████████████ A
 30 | ███████████████████       B
 20 | █████████████             C
 10 | ██████                    D
    +------------------------------
       A          B       C     D
             Grades of Land

Thus, according to Ricardo, rent is a differential surplus earned by superior land over marginal land.

2. Explain critically the Ricardian theory of rent.

The Ricardian theory explains rent as a differential surplus arising from differences in the fertility and location of land.

Main ideas:

1. Difference in fertility: More fertile land produces greater output than less fertile land.
2. Difference in location: Land situated closer to markets has an advantage over distant land.
3. Marginal land: The least productive land in cultivation is called marginal land and earns no rent.
4. Differential surplus: Rent is the difference between the output of superior land and marginal land.
5. Diminishing returns: Increasing doses of labour and capital on a fixed piece of land eventually produce diminishing additional returns.

Criticisms:

6. Rent is not limited to land: Modern economics considers rent as a payment to any factor whose supply is relatively inelastic.
7. Land is not completely fixed: The productivity and supply of land can be changed through irrigation, technology and improvements.
8. Scarcity is more important: Modern economists emphasize scarcity and opportunity cost rather than only differences in fertility.

Conclusion: Ricardo’s theory is important for explaining differential rent, but it is not sufficient to explain all forms of economic rent in the modern economy.

3. Explain the subsistence theory of wages, highlighting its main ideas.

The subsistence theory of wages, mainly associated with David Ricardo, states that the long-run level of wages tends toward the minimum amount necessary for workers and their families to maintain their standard of living.

Main ideas:

1. Natural wage: The natural wage is the minimum wage required for workers to maintain their lives and continue working.
2. Market wage: The market wage is the actual wage determined by the demand and supply of labour.
3. Population effect: When wages rise above the subsistence level, workers’ standard of living improves and population tends to increase.
4. Labour supply: An increase in population increases the supply of labour and puts downward pressure on wages.
5. Fall in wages: If wages fall below the subsistence level, population growth decreases and labour supply eventually falls.
6. Long-run tendency: Market wages tend to move toward the subsistence level in the long run.
7. Role of food prices: Higher prices of necessities increase the subsistence level and may raise the natural wage.
8. Criticism: Modern economics rejects the theory as too rigid because wages are also influenced by productivity, skills, unions, technology and labour demand.

4. What is wages?

Wages are the payment or remuneration received by labour for providing its services in the production process.

5. Explain how commercial banks can contribute to the economic development of Nepal.

1. Mobilization of savings: Commercial banks collect scattered savings from individuals and institutions and make them available for investment.
2. Provision of loans: Banks provide credit to agriculture, industry, trade and other productive sectors.
3. Capital formation: Bank deposits and investment loans help increase the stock of productive capital.
4. Promotion of agriculture: Banks provide agricultural loans for seeds, machinery, irrigation and other farming activities.
5. Industrial development: Banks provide the financial resources required to establish and expand industries.
6. Employment generation: Expansion of business and industry through bank credit creates employment opportunities.
7. Foreign trade support: Banks facilitate international payments, foreign exchange and trade financing.
8. Economic growth: By mobilizing savings and financing productive activities, commercial banks contribute to national income and economic development.

6. Construct Laspeyres’ and Paasche’s Price Index Numbers for 2076, taking 2074 as the base year.

Formulae

Laspeyres’ Price Index:

P_L = (ΣP₁Q₀ ÷ ΣP₀Q₀) × 100

Paasche’s Price Index:

P_P = (ΣP₁Q₁ ÷ ΣP₀Q₁) × 100

Calculation Table

Laspeyres’ Index

P_L = (202 ÷ 91) × 100 = 221.98

Paasche’s Index

P_P = (199 ÷ 92) × 100 = 216.30

Answer: Laspeyres’ Price Index = 221.98 and Paasche’s Price Index = 216.30.

7. Construct a frequency distribution table and find the simple arithmetic mean.

Given data:

5, 10, 15, 25, 55, 5, 15, 10, 25, 50, 10, 5, 15, 55, 5, 10, 35, 25, 45, 45, 10, 25, 5, 35, 30, 5, 55, 5, 25, 55

Frequency Distribution

Arithmetic Mean

X̄ = Σfx ÷ Σf = 750 ÷ 30 = 25

Answer: Simple arithmetic mean = 25.

8. Complete the table by calculating TC and MC, and draw the AC and MC curves.

Formulae:

TC = AC × Q

MC = TC_n − TC_n−1

Points for drawing the curves

• AC: (1,50), (2,45), (3,40), (4,35), (5,30), (6,30), (7,35), (8,40)
• MC: (1,50), (2,40), (3,30), (4,20), (5,10), (6,30), (7,65), (8,75)

Plot Q on the horizontal axis and cost on the vertical axis, then join the respective points smoothly.

9. Fill in the table and construct the AR and MR curves.

Formulae

AR = TR ÷ Q

MR = TR_n − TR_n−1

Points for drawing

AR curve: (1,6), (2,5), (3,4), (4,3), (5,2)

MR curve: (1,6), (2,4), (3,2), (4,0), (5,−2)

Plot Q on the horizontal axis and AR/MR on the vertical axis.

10. Show the given data in a pie diagram.

Total expenditure:

1200 + 1600 + 600 + 800 + 400 + 200 = 4800

Formula:

Central angle = (Expenditure ÷ 4800) × 360°

Use these angles to construct the pie diagram.

11. Construct Laspeyres’ and Paasche’s Price Index Numbers for 2018, taking 2015 as the base year.

Formulae

P_L = (ΣP₁Q₀ ÷ ΣP₀Q₀) × 100

P_P = (ΣP₁Q₁ ÷ ΣP₀Q₁) × 100

Calculation Table

Laspeyres’ Price Index

P_L = (157 ÷ 103) × 100 = 152.43

Paasche’s Price Index

P_P = (335 ÷ 184) × 100 = 182.07

Answer: Laspeyres’ Price Index = 152.43 and Paasche’s Price Index = 182.07.

12. Give an introduction to the barter system and explain its difficulties.

Meaning and Introduction

The barter system is a system of exchange in which goods and services are directly exchanged for other goods and services without using money.

For example, a farmer may exchange rice for clothes.

Difficulties of the Barter System

1. Double coincidence of wants: Both parties must want each other’s goods at the same time.
2. Lack of a common measure of value: There was no common unit for measuring the value of different goods.
3. Difficulty in storing wealth: Many goods are perishable and cannot be stored for a long time.
4. Difficulty in deferred payments: Future payments could not easily be fixed because the values of goods could change.
5. Difficulty in division: Some goods cannot be divided into smaller units without losing their value.
6. Difficulty in transfer of value: Bulky or heavy goods were difficult to transport from one place to another.

Thus, the difficulties of barter exchange created the need for the invention and use of money.

13. Give the meaning of barter exchange and money exchange. How does the invention of money solve the problems of barter exchange?

Barter Exchange

Barter exchange is a direct exchange of one good or service for another good or service without using money.

Money Exchange

Money exchange is a system in which goods and services are exchanged through money, which acts as a medium of exchange.

How Money Solves the Problems of Barter

1. Solves double coincidence of wants: Money allows a person to sell goods for money and use that money to buy desired goods.
2. Provides a measure of value: Money provides a common unit for measuring and comparing the values of different goods.
3. Facilitates deferred payments: Money provides a standard unit for making future payments.
4. Stores value: Money can be saved and used later to purchase goods and services.
5. Facilitates division and exchange: Money allows goods and services of different values to be exchanged easily.
6. Facilitates transfer of value: Money makes it easier to transfer purchasing power from one person or place to another.

Therefore, the invention of money removed many major difficulties of the barter system and made exchange easier, faster and more efficient.