Price Mechanism In A Socialist Economy


The price mechanism has little relevance in a socialist economy as it is regarded as a distinguishing feature of a free market economy. In a socialist economy the various elements of the price mechanism costs, prices and profits- are all planned and calculated by the planning authority in accordance with the targets of the plan. Thus, rational economic calculation is impossible in a planned economy because unlike a free market economy the price mechanism is regulated and controlled. The various assumptions under which the price system works in a free market economy do not hold good in a socialist economy.

In a socialist economy, it is the central planning authority that performs the functions of the market. Since all the material means of production are owned, controlled and directed by the government, the decisions about what to produce are taken within the framework of a central plan. The decisions, as to the nature of goods to be produced and their quantities, depend upon the objectives, targets and priorities laid down by the central planning authority. The prices of the various commodities are also fixed by this authority. Prices reflect the social preferences of the common man. Consumers’ choice is limited only to the commodities that the planners decide to produce and offer.

The problem of how to produce is also decided by the central planning authority. It makes the rules for combining factors of production and choosing the scale of output of a plant, for determining the output of an industry, for the allocation of resources, and for the parametric use of prices in accounting.

The central planning authority lays down two rules for the guidance of plant managers.

(i) Each manager should combine productive goods and services in such a manner that the average cost of producing a given output is the minimum.

(ii) Each manager should choose that scale of output which equalises marginal cost with price.

Since all resources in the economy are owned and regulated by the government, the raw materials, machines and other inputs are also sold at prices which are equal to their marginal cost of production. If the price of a commodity is above its average cost, the plant managers will earn profits and if it is below the average cost of production, they will incur losses. In the former case, the industry would expand and in the latter case it would cut down production, and

ultimately a position of equilibrium will be reached where price equals both the average cost and the marginal cost of production.

In cases where costs differ with plants, the plant manager’s produce up to the point where marginal cost (LMC) is equal to price (P AR = MR). In such a situation, it is only in the marginal plant that LAC = LMC =MR = AC = Pat point E1, as shown in figure 5(B). All other plants would carn extra revenue (profit) equal to PABE, as shown in figure 5(A) which would go to the government. The low cost units will subsidise the high cost units and in equilibrium total revenue and total cost would be the same for the industry as a whole.

But the problem lies how the central planning authority finds out the equilibrium market and accounting prices? Considering historically given prices, it can instruct the plant managers to regard them as correct prices. If they are wrong, surpluses or shortages will emerge. Prices will be readjusted. This process will continue until the equilibrium position is reached by trial and error. The process of trial and error would proceed on the basis of historically given prices which would necessitate relatively small adjustments in prices from time to time. Thus all decisions of the managers of production and of the productive resources in public ownership and also all decisions of individuals as consumers and as suppliers of labour are made on the basis of these prices. Consequently to these decisions the quantity demanded and supplied of cach commodity is determined. If the quantity demanded of a commodity is not equal to the quantity supplied, the price of that commodity has to be changed. It has to be raised if demand exceeds supply and lowered if the reverse is the case. Thus the central planning board fixes a new set of prices which serves as basis for new decisions, and which results in a new set of quantities demanded and supplied.

The problem for whom to produce is also solved by the state in a socialist economy. The central planning authority takes this decision at the time of deciding what and how much to produce in accordance with the overall objectives of the plan. In making this decision, social preferences are given weightage. In short, higher weightage is given to the production of those goods and services which are needed by the majority of the people over luxury items. They are based on the minimum needs of the people, and are sold at fixed prices through the government. Since goods are produced in anticipation of demand, an increase in demand brings about shortages and this leads to rationing.

Thus, the problem of income distribution is automatically solved in a socialist economy because all resources are owned and regulated by the state. All interest, rent and profit are fixed by the state and go to the state exchequer. As regards wages, they are also fixed by the state according to the amount and quality of work done by an individual. Each individual is paid according to his ability and work. Economic surpluses are deliberately created and invested for capital formation and economic growth.

Financial Quiz Questions With Answers

1. Which of the following makes a financial institution a bank?

2. Creation of money by commercial banks refers to

3. How much money are banks able to create is determined by

4. The Value of Money Multiplier equal

5. When the central bank sells securities in the market, the credit creation capacity of the commercial banks is likely to

6. Lowering of CRR by the central bank has the following impact on the credit creation capacity of the commercial banks

7. Raising Reverse Repo Rate by the central bank is likely to have the following impact on demand for goods and services in the economy

8.With lowering margin requirements by the Central bank, the borrowing capacity of the borrowers

9. What items are not included in the Money supply measure?

10. High powered Money consists of

11. Money Supply refers to

12. Money Supply is a______concept

13. Which one of these is a limitation of the barter exchange?

14. Who regulates the money supply in India?

15. Which of the following is not a problem with the barter system of exchange?

16. Money supply includes

17. Supply of money refers to the quantity of money

18. ______is the main source of money supply in an economy

19. This bank operates in the public interest without any profit motive

20. Through the process of______commercial banks are able to create credit, which is in far excess of the initial deposits

21. What will be the effect of an increase in the ‘Repo Rate on the Money Supply?

22. Banks create credit

23. Which of the following will increase the money supply?

24. In order to reduce credit in the country, RBI may

25. The one rupee note and coins are issued by

26. Which of these is not the function of the central bank?

27. Other name of legal reserve requirement is

28. Which of the following is not the function of the central Bank

29. Which bank controls the banking and monetary structure of India?

30. Which institution performs the activity of credit creation

Indian Polity & Constitution MCQs

1. What is the minimum age prescribed by the Constitution of India for a candidate to be elected as Vice president of India?

2. Which among the following articles of the Constitution of India abolishes untouchability?

3. New All India services can be initiated in India only if the following makes a recommendation?

4. How many states are part of the North eastern Council ?

5. In which year the legislative council of Tamilnadu was abolished?

6. Who among the following presidents of India was the first Chief Minister of Modern states in India?

7. Who called the Governor of a state as “federal fireman”?

8. In which year, Daman & Diu were separated from Goa?

9. Freedom of Press is implicit under which article of the Constitution of India?

10. In which case, the Supreme Court held that the Preamble is an integral part of the constitution?

11. How many times does the word “Secular” appear in our constitution?

12. The Upper House of Egypt parliament is known as

13. Which of the following is not a correct feature of the parliamentary system of government in India?

14. In which year was the first linguistic State formed?

15. Under which Article the Parliament can prescribe residence within a state or union territory?

16. Which of the following articles of Part III belongs to a different category?

17. In which country does the institution of ‘Shadow Cabinet’ exist?

18. According to which Constitutional Amendment defectors have no more protection on grounds of splits?

19. When was the Parliamentary Forum on Millennium Development Goals created?

20. What is the maximum age until which a Supreme Court judge can hold office?

Indian Polity & Constitution MCQs SET:- 02

1. Who administers the oath of office to the President?

2. Where can be the impeachment charges initiated against the President of India?

3. In how much time the vacant post of President should be filled?

4. To whom does the Vice-President submit his resignation?

5. Who described the Prime Minister as “the steering wheel of the ship of the state”?

6. Which act of Parliament abolished the Jammu and Kashmir Legislative Council?

7. Who has the final power to decide whether a particular bill is a money bill or not?

8. Which of the following can only discuss the budget but cannot vote on the demands for grants?

9. Which of the following Union Territories has a High Court of its own?

10. The Advertising Standards Council of India (ASCI) was established in which year?

11. When was the Customs Excise and Service Tax Appellate Tribunal (CESTAT) constituted?

12. How many ex-officio members are there in the National Human Rights Commission?

13. Where is the headquarters of the National Human Rights Commission?

14. Who can be the chair of the Finance Commission in India?

15. What is the main basis for allocation of seats to various States in the Lok Sabha?

16. Which article contains provisions regarding removal and suspension of a member of a Public Service Commission?

17. In which year was  the Telecom Regulatory Authority of India established?

18. Where is the headquarters of the National Human Rights Commission?

19. Which part of the Constitution makes provisions with regard to the electoral system in India?

20. In which year elections to the parliament were de-linked from elections to the state assemblies?

Constitution MCQs SET:- 03

1. Which article of the Indian Constitution provides for Vice-President of India?

2. Which among the following constitutional amendment acts, reduced the age of voting from 21 years to 18 years?

3. What is the maximum gap / interval between two sessions of parliament?

4. Which among the following articles defines the Money Bill?

5. Which among the following schedules is related to the responsibilities of Municipalities?

6. Which of the following are the conditions for acquiring Indian Citizenship?

7. Which Constitutional Amendment gave Right to Education to children in India?

8. Which among the following acts was known as the Anarchical and Revolutionary Crime act 1919?

9. Which of the following statements is an incorrect statement about the Finance Commission?

10. Which part of the Indian Constitution deals with the Panchayats?

12. Which of the following depicts the correct sequence in the context of Preamble of the Constitution of India?

13. India had transferred Berubari territory to which of the following countries?

14. Which of the following writs guarantee personal freedom?

15. What are Dilatory motions in context with the procedure in parliament?

16. Which act of British India was one of the main sources of the Constitution of India?

17. Who is called ‘Modern Manu’?

18. Currently how many Union Territories are there in India?

19. How many Fundamental Rights did the Indian Constitution contain initially ?

20. Who is the leader of the Parliament?


Q1. The Universal/World Children’s Day is celebrated on __________.

Q2. Who has been selected for the prestigious Lifetime Achievement Award for 2021 by the Badminton World Federation (BWF) Council?

Q3. Prime Minister Narendra Modi has handed over the indigenously built light combat helicopters (LCH), developed by __________.

Q4. Which two will be facilitated with the Indian Film Personality of the Year award at IFFI 2021

Q5. SIDBI has entered into a partnership with which of the following to help MSMEs?

Q6. Who has authored her first Novel ‘Lal Salaam: A Novel’?

Q7. What is the theme of Universal/World Children’s Day 2021?

Q8. According to the latest ‘World Bank’s Remittance Prices Worldwide Database’ report by the World Bank, which country became the world’s largest recipient of remittances by receiving USD 87 billion in 2021?

Q9. Who has written the book “Srimad Ramayanam”?

Q10. Who has received the 12th Manipur State Award for Literature 2020 for his book “Ei Amadi Adungeigi Ithat”?


1.Which among the following is popularly called Hypo?

2.“Oil of mirbane” is the most common name of which among the following?

3.Which compound of mercury is used as antiseptic?

4.Which among the following is a major component of Gobar Gas?

5.What is the common name of Calcium Sulphate Hemihydrate?

6.Which among the following was the first artificially produced element?

7.Which of the following elements have the lowest and highest boiling point in the Periodic table?

8.Consider the following comparisons of Alkali Metals and Alkaline Earth Metals

9.Nerve agents are a class of

10. Which of the following is the poorest conductor of heat in comparison to other options?


1. Which of the following is the poorest conductor of heat in comparison to other options?

2. The energy required to remove an electron from the outermost shell of an atom in its isolated gaseous state is called?

3. Which among the following is a Noble Gas?

4. Which among the following is responsible for depletion of Ozone?

5. Which among the following is an example of a Chemical Change?

6. When a tube light breaks, a cracking sound is produced because __?

7. Which among the following gas was leaked at Bhopal during the Bhopal gas tragedy on 2-3 December 1984?

8. Which of the following is not a non-metallic mineral?

9. Trimethylxanthine is a chemical name of a stimulant which is found in tea and coffee. What is the popular name?

10. Which among the following is also known as white gold?

11. Which compound of mercury is used as antiseptic?

12. Which among the following is a common salt in Detergents?

13. When Sulphur is heated with rubber, the process is commonly known as ?

14. PVC is a polymer of ?

15. Which among the following was the first artificially produced element?

16. Which among the following minerals is also known as Horn Silver?

17. Which among the following impurity in drinking water causes the “Bamboo Spine” disorder?

18.The patient is instructed to drink which of the following solutions before undergoing radiological examinations?

19. Which of the following chemicals is used as a molecular sieve to filter common salts from seawater to produce potable water?

20. What is the unit of Stress?

Children’s Day

1. When was Jawaharlal Nehru born?

2. Educated in England at Harrow and Cambridge, what occupation did Nehru qualify for?

3. Nehru became friends with Mahatma Gandhi and joined what independence group in 1918?

4. From where Jawaharlal Nehru had completed his studies for a barrister?

5. When did Jawaharlal Nehru first meet Mahatma Gandhi?

6. International Children’s Day is observed on ____ ?

7. Luxor is the city of_____?

8. Who began the Children’s Day celebration?

9. Which of these countries first declared Children’s Day as a public holiday?

10. In which place Jawaharlal Nehru organised the first Kisan March?

11. On what important issue did Nehru and Gandhi differ?

12. In which place Jawaharlal Nehru organised the first Kisan March?

13. When Jawaharlal Nehru became the General Secretary of the All India Congress Committee?

14. Which of the following legislative initiatives did Nehru not introduce?

15. In preparing India for the future, which of the following was not an area Nehru influenced?

16.  When was Jawaharlal Nehru elected as the President of the Lahore Session of the Indian National Congress?

17. What incident affected Nehru’s political standing and his health?

18. Which newspaper was started by Jawaharlal Nehru?

19. Which of the following legislative initiatives did Nehru not introduce?

20. Who swore in Nehru as India’s first Prime Minister?


1. Gandhi’s inspiration for civil disobedience came from the writings of

2. Mohandas Karamchand Gandhi was called as Mahatma by

3. During the Non-Cooperation Movement, which award did Gandhiji return?

4. When was Mahatma Gandhi arrested during the ‘Quit India Movement’ of 1942?

5. Gandhiji believed that

6. At which one of the following places did Mahatma Gandhi first start his Satyagraha in India?

7. Who is the author of Gandhiji’s favourite Bhajan ‘Vaishnava jana to tene kahiye’?

8. In Gandhian Socialism

9. October 2, the birthday of Mahatma Gandhi is internationally observed as –

10. At which of the following sessions of the Indian National Congress, did Gandhiji preside as the President?

11. Which of the following Round Table Conferences was attended by Mahatma Gandhi?

12. Who said about Gandhiji “Generations to come will scarce believe that such a one as this walked the earth in flesh and blood?

13. Who led the salt Satyagraha Movement with Gandhi?

14. In which of the following movements did Mahatma Gandhi make the first use of hunger Strike as a weapon?

15. Gandhiji organized ‘Dandi March’ in 1930 against :

16. Who led the extremists before the arrival of Gandhi on the political scene for India’s freedom struggle?

17. Which of these slogans is associated with Gandhiji?

18. Who of the following is considered the political guru of Mahatma Gandhi?

19. Which of the following newspapers was NOT published by Mahatma Gandhi?

20. Which of the following books has NOT been written by Mahatma Gandhi?

21. In which year did Mahatma Gandhi finally return to India from South Africa?

22. To how many years of imprisonment was Mahatma Gandhi sentenced for the first time in India?

23. Which of the following movements was NOT started by Gandhiji?

24. In relation to which of the following did Gandhi use the phrase “Post-dated cheque on a crashing bank”?

25. Which of the following is not correct about Mahatma Gandhi?


1. What was the age of Gandhi ji at the time of his marriage?

2. Where was Gandhi Ji born?

3. Who was the political guru of Mahatma Gandhi ji?

4. From which station in South Africa Gandhi was thrown out of the train?

5. How old was Gandhi when he reached London to become a barrister?

6. At which place was Gandhiji arrested for the first time by the British Government for sedition?

7. On which day of March 1930, the famous Dandi March launched by Gandhi ji?

8. When was the Gandhi – Irwin Pact signed?

9.  Who killed Gandhi Ji?

10. Who was given the slogan ‘Do or die’?

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