Question

From the following statements, identify the incorrect statement in case of underemployment equilibrium.

(Choose the correct alternative)

• A. Resources are fully and efficiently utilised.
• B. An existence of excessive production capacity in the economy.
• C. Aggregate supply is equal to Aggregate demand below full employment level.
• D. Resources are not fully and efficiently utilised.

Hint:

In underemployment equilibrium AD equals AS at a level below full employment. So resources are not fully used and capacity is idle.

Answer 1

The Correct Option is A

Step 1: Understand the question:
We must find the incorrect statement about underemployment equilibrium.

Step 2: Recall the concept:
Underemployment equilibrium is a situation where aggregate demand equals aggregate supply, but at a level below full employment.
Some resources, including labour, lie idle or are not used well, and the economy has excess capacity.

Step 3: Check option (A):
It says resources are fully and efficiently used. That describes full employment, not underemployment. So (A) is the incorrect statement.

Step 4: Check option (B):
Excess production capacity exists because demand is too low to use all capacity. This is true of underemployment equilibrium. So (B) is correct.

Step 5: Check option (C):
AS equals AD at a point below the full employment level. This is the definition of the situation. So (C) is correct.

Step 6: Check option (D):
Resources are not fully and efficiently used. This is correct for underemployment equilibrium.

Final Answer:
Statement (A) is the incorrect one. The correct option is (A).