Question

“… whether government can improve matters”. Here ‘matters’ indicates

• A. Economic efficiency
• B. Information imperfectness
• C. Knowledge gaps
• D. Good insurance markets
• E. Incomplete risk markets
• A. Free flow of short-term capital might fail to ensure economic growth.
• B. Insurance market is a proof that ‘markets, by themselves, do not lead to efficiency’.
• C. It is difficult to interpret the success of economic policies of Asian countries.
• D. Technology can impede market efficiency.
• J. State intervention and imperfect information can never go hand-in-hand.
• A. Paragraph I and paragraph II are parallel arguments that are unrelated.
• B. Paragraph I describes markets in general whereas Paragraph II describes market failures in Asian economics in particular.
• C. Paragraph I explains why markets fail. Paragraph II spells out why market based economic theories fail to explain success of Asian economics.
• D. Paragraph I raises question and paragraph II answers it.
• O. Paragraph I states an economic theory and Paragraph II cites a natural experiment to disprove it.

Answer 1

The Correct Option is A

Step 1: Understanding the context.
The phrase in the passage is “…whether government can improve matters.” The word “matters” here does not refer to trivial issues or physical objects. Instead, in an economic and governance context, “matters” refers to the state of efficiency, functioning, or effectiveness of the economy.
Step 2: Evaluating each option.
- (A) Economic efficiency: This makes sense. Governments intervene to correct market failures, reduce inefficiencies, and improve overall welfare. Thus, “improve matters” means making the economy more efficient. Correct.
- (B) Information imperfectness: This is one cause of inefficiency but not directly what “matters” refers to. It is too specific. Incorrect.
- (C) Knowledge gaps: This refers to lack of awareness, not directly linked to the meaning of “matters” here. Incorrect.
- (D) Good insurance markets: This is only one particular economic institution, not the broad meaning of “matters.” Incorrect.
- (E) Incomplete risk markets: Again, this is a specific cause of inefficiency, not the general condition meant by “matters.” Incorrect.
Step 3: Conclusion.
The word “matters” in this economic context refers broadly to the issue of economic efficiency, which the government is expected to improve.
\[ \boxed{\text{Correct Answer: (A) Economic efficiency}} \]

Answer 2

Step 1: Recall the theme of the passage.
The passage discusses limitations of free markets, possible inefficiencies caused by information gaps, issues with technology, and complexities in interpreting policies. It emphasizes that markets do not always ensure efficiency and that multiple factors can influence outcomes.
Step 2: Check each option.
- (A) The idea that free flow of capital may not guarantee growth is consistent with economic criticisms and can be inferred.
- (B) The insurance market is indeed a common example of market inefficiency due to imperfect information (adverse selection, moral hazard). This can be inferred.
- (C) The complexity of evaluating Asian economic policies is plausible and aligns with the passage. This can be inferred.
- (D) The passage mentions that technology can sometimes impede market efficiency (e.g., through disruption, monopoly power, or uneven access). This too can be inferred.
- (E) The claim that “State intervention and imperfect information can never go hand-in-hand” is an absolute statement. The passage does not support this extreme claim. In fact, state intervention is often meant to correct imperfect information. Thus, this statement cannot be inferred.
Step 3: Conclude.
Since (E) is an extreme, unsupported statement that contradicts the logic of the passage, it is the correct answer.
\[ \boxed{\text{Correct Answer: (E)}} \]

Answer 3

Step 1: Understand the role of Paragraph I.
Paragraph I deals with market failures, laying out the reasons why markets often fail to achieve desired efficiency or outcomes. It focuses on the general theoretical weaknesses of markets.
Step 2: Understand the role of Paragraph II.
Paragraph II applies this reasoning to the specific case of Asian economies. It shows that despite the theoretical assumptions of markets, Asian economies succeeded in ways that market-based theories could not fully explain. Thus, it extends the critique by connecting it to real-world evidence.
Step 3: Match with the options.
(A) Wrong — They are not unrelated; they are connected, with Para II extending Para I.
(B) Wrong — Para I is not just describing “markets in general”; it is analyzing failures.
(C) Correct — Para I = why markets fail; Para II = why market-based economic theories fail to explain Asian economic success. Perfect alignment.
(D) Partially correct — It is not simply a Q–A structure, but rather a logical flow from general failure explanation to application.
(E) Wrong — There is no explicit mention of a natural experiment; the focus is on theory vs. real-world economics.
Step 4: Conclude.
The best option that captures the essence is (C).
\[ \boxed{\text{Correct Answer: (C)}} \]