Daily Quiz: UPSC Prelims Marathon (Economy) – June 23, 2020

Comparative advantage is an economic term that refers to an economy’s ability to produce goods and services at a lower opportunity cost than that of trade partners.

• A comparative advantage gives a company the ability to sell goods and services at a lower price than its competitors and realize stronger sales margins.
• The law of comparative advantage is popularly attributed to English political economist David Ricardo and his book “On the Principles of Political Economy and Taxation” in 1817, although it is likely that Ricardo’s mentor James Mill originated the analysis.
• One of the most important concepts in economic theory, comparative advantage is a fundamental tenet of the argument that all actors, at all times, can mutually benefit from cooperation and voluntary trade. It is also a foundational principle in the theory of international trade.

Statement 1 is incorrect: The chart clearly establishes that India has the 3rd largest entrepreneurship ecosystem in the world.

Statement 2 is correct: Literacy, education, physical infrastructure are the key areas that will foster entrepreneurship and thereby job creation and wealth creation.

Creative destruction refers to the incessant product and process innovation mechanism by which new production units replace outdated ones.

• This restructuring process permeates major aspects of macroeconomic performance, not only long-run growth but also economic fluctuations, structural adjustment and the functioning of factor markets.
• Over the long run, the process of creative destruction accounts for over 50 per cent of productivity growth.
• At business cycle frequency, restructuring typically declines during recessions, and this add a significant cost to downturns.
• Obstacles to the process of creative destruction can have severe short- and long-run macroeconomic consequences.
• It was coined by Joseph Schumpeter (1942), who considered it ‘the essential fact about capitalism’.

Market capitalization is the aggregate valuation of the company based on its current share price and the total number of outstanding stocks. It is calculated by multiplying the current market price of the company’s share with the total outstanding shares of the company.

The Herfindahl-Hirschman Index (HHI) is a common measure of market concentration and is used to determine market competitiveness, often pre- and post-Merger & Acquisition transactions.

• It is calculated by squaring the market share of each firm competing in a market and then summing the resulting numbers. It can range from close to zero to 10,000.
• Regulators use the HHI Index using the 50 largest companies in a particular industry to determine if that industry should be considered competitive or as close to being a monopoly.

Simply, default means non-payment of a loan availed by a borrower. A willful defaulter is an entity or a person that has not paid the loan back despite the ability to repay it.

Statement 1 is correct: Wilful default occurs when firms take loans, divert the proceeds out of the firm for the personal benefit of owners, default on loans and declare bankruptcy, thereby expropriating a range of stakeholders – lenders, minority shareholders, employees, regulators and state coffers.

Statement 2 is incorrect: While the penal measures would normally be attracted by all the borrowers identified as wilful defaulters or the promoters involved in diversion / siphoning of funds, keeping in view the present limit of Rs.25 lakh fixed by the Central Vigilance Commission for reporting of cases of wilful default by the banks / FIs to RBI, any wilful defaulter with an outstanding balance of Rs.25 lakh or more, would attract the penal measures.

Statement 3 is incorrect: From 2009 to 2018 the money owed by willful defaulters has constantly increased.

The Fraser Institute produces the annual Economic Freedom of the World report in cooperation with the Economic Freedom Network, a group of independent research and educational institutes in nearly 100 countries and territories.

It’s the world’s premier measurement of economic freedom, measuring and ranking countries in five areas:

• size of the government,
• legal structure and security of property rights,
• access to sound money,
• freedom to trade internationally and regulation of credit,
• labour and business.

Essential Commodities Act (ECA), 1955 was enacted to control the production, supply and distribution of, and trade and commerce in, certain goods considered as essential commodities.

• The Act itself does not lay out Rules and Regulations but allows the States to issue Control Orders related to dealer licensing, regulate stock limits, and restrict movement of goods and requirements of compulsory purchases under the system of levy.
• The Act also provides for action to confiscate the stock seized; to suspend/ cancel licences, if any and impose punishments like imprisonment.
• The Act also gives the power to fix price limits, and selling the particular commodities above the limit will attract penalties.
• Most of the powers under the Act have been delegated by the Central Government to the State Governments with the direction that they shall exercise these powers.
• Food and civil supply authorities in States execute the provisions of the Act.

The National list of essential medicines is one of the key instruments in balanced healthcare delivery system of a country which inter alia includes accessible, affordable quality medicine at all the primary, secondary, tertiary levels of healthcare.

• The first National List of Essential Medicines of India was prepared and released in 1996.
• The National List of Essential Medicines (NLEM), prepared by Ministry of Health and Family Welfare, is a list of medicines considered essential and high priority for India’s health needs.
• DPCOs are issued by the Government, in exercise of the powers conferred under section 3 of the ECA to ensure that the medicines listed under NELM are available at a reasonable price to the general public.

It may be noted that internationally, there is a move towards conditional cash transfers (CCTs), aimed at tackling problems of food insecurity and poverty and for nudging people towards improved health and education levels.