Analyse the following passage and provide appropriate answers for the questions that follow:
Advances in economic theory in the 1970s and 1980s illuminated the limits of markets; they showed that unfettered markets do not lead to economic e ciency whenever information is imperfect or markets are missing (for instance, good insurance markets to cover the key risks confronting individuals). And information is always imperfect and markets are always incomplete. Nor do markets, by themselves, necessarily lead to economic e ciency when the task of a country is to absorb new technology, to close the “knowledge gap”: a central feature of development. Today, most academic economists agree that markets, by themselves, do not lead to e ciency; the question is whether government can improve matters.
While it is di cult for economics to perform experiments to test their theories, as a chemist or a physicist might, the world provides a vast array of natural experiments as dozens of countries try different strategies. Unfortunately, because each country differs in its history and circumstances and in the myriad of details in the policies - and details do matter - it is often di cult to get a clear interpretation. What is clear, however, is that there have been marked differences in performance, that the most successful countries have been those in Asia, and that in most of the Asian countries, government played a very active role. As we look more carefully at the effects of particular policies, these conclusions are reinforced: there is a remarkable congruence between what economic theory says government should do and what the East Asian governments actually did. By the same token, the economic theories based on imperfect information and incomplete risk markets that predicted that the free ow of short-term capital - a key feature of market fundamentalist policies - would produce not growth but instability have also been borne out
“… whether government can improve matters”. Here ‘matters’ indicates
Show Hint
- Economic efficiency
- Information imperfectness
- Knowledge gaps
- Good insurance markets
- Incomplete risk markets
The Correct Option is A
Solution and Explanation
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.
\[ \boxed{\text{Correct Answer: (A) Economic efficiency}} \]
Which of the following options CANNOT be inferred from the above passage?
Show Hint
- Free flow of short-term capital might fail to ensure economic growth.
- Insurance market is a proof that ‘markets, by themselves, do not lead to efficiency’.
- It is difficult to interpret the success of economic policies of Asian countries.
- Technology can impede market efficiency.
- State intervention and imperfect information can never go hand-in-hand.
The Correct Option is
Solution and Explanation
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.
\[ \boxed{\text{Correct Answer: (E)}} \]
Which of the following statements BEST captures the ESSENCE of the two paragraphs in the above passage?
Show Hint
- Paragraph I and paragraph II are parallel arguments that are unrelated.
- Paragraph I describes markets in general whereas Paragraph II describes market failures in Asian economics in particular.
- Paragraph I explains why markets fail. Paragraph II spells out why market based economic theories fail to explain success of Asian economics.
- Paragraph I raises question and paragraph II answers it.
- Paragraph I states an economic theory and Paragraph II cites a natural experiment to disprove it.
The Correct Option is C
Solution and Explanation
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).
\[ \boxed{\text{Correct Answer: (C)}} \]
Top Questions on Reading Comprehension
- The advent of social media has dramatically transformed the way individuals consume and share information. In earlier times, people largely depended on newspapers, radio, or television as their primary sources of knowledge about the world. These were institutions that followed established editorial practices and fact-checking processes. With the rise of digital platforms, however, the traditional ‘gatekeepers’ of information have been bypassed. Today, anyone with internet access can create content, express an opinion, or broadcast an idea to a global audience within seconds.
This shift has certainly democratized access and given voice to communities and individuals who were often ignored by mainstream media. Yet, this democratization comes with challenges. Alongside genuine voices, social media has also amplified misinformation, rumours, and half-truths. Unlike traditional journalism, where accountability and verification are built into the system, social media thrives on speed, virality, and emotion. A misleading headline, a misinterpreted statistic, or even a doctored image can travel across the world before fact-checkers have the chance to intervene.
The consequences of such unchecked information can be serious, ranging from the spread of fear and panic to the manipulation of public opinion. The impact of this transformation extends beyond individual users to institutions and democracies. Political campaigns, corporate branding, and even social movements are now shaped by algorithms that decide what people see and when they see it. These algorithms prioritize engagement, often promoting content that provokes stronger emotional reactions rather than balanced analysis.
As a result, echo chambers form, online spaces where people are repeatedly exposed to opinions that mirror their own, reinforcing biases and reducing openness to differing perspectives. This has contributed to increasing polarization in societies across the world. Moreover, the competition for attention has blurred the line between information and entertainment, leading to the rise of sensationalism even in serious public discourse. The credibility of expertise too has been undermined, as opinions from unverified sources are often placed on the same footing as evidence-based knowledge.
In response, several governments and technology companies are exploring ways to promote digital literacy, enhance transparency in algorithms, and strengthen fact-checking collaborations. Ultimately, the challenge lies in balancing the openness of digital spaces with mechanisms that ensure responsibility and trustworthiness in public communication.- AILET BALLB (Hons.) - 2026
- English
- Reading Comprehension
- I have still to be brother to a Prince, though I once came near to kinship with what might have been a veritable King, and was promised the reversion of a Kingdom, army, law-courts, revenue, and policy, all complete. But, today, I greatly fear that my King is dead, and if I want a crown I must go and hunt it for myself. The beginning of everything was in a railway train upon the road to Mhow from Ajmir. There had been a deficit in the Budget, which necessitated travelling, not Second class, which is only half as dear as First class, but by Intermediate, which is very awful indeed. There are no cushions in the Intermediate class, and the population is either Intermediate, which is Eurasian, or native, which for a long night journey is nasty; or Loafer, which is amusing though intoxicated. Intermediates do not patronize refreshment rooms. They carry their food in bundles and pots, and buy sweets from the native sweet meat sellers, and drink the roadside water. That is why in the hot weather Intermediates are taken out of the carriages dead, and in all weathers are most properly looked down upon.
My particular Intermediate happened to be empty till I reached Nasirabad, when a huge gentleman in shirt sleeves entered, and following the custom of Intermediates, passed the time of day. He was a wanderer and a vagabond like myself, but with an educated taste for alcohol. He told daring tales of things he had seen and done, of out-of-the-way corners of the Empire into which he had penetrated, and of adventures in which he risked his life for a few days’ food. “If India was filled with men like you and me, not knowing more than the crows where they’d get their next day’s rations, it isn’t seventy millions of revenue the land would be paying, it’s seven hundred millions,” said he; and as I looked at his mouth and chin I was disposed to agree with him.
We talked politics, the politics of Loaferdom that sees things from the underside where the lath and plaster is not smoothed off, and we talked postal arrangements because my friend wanted to send a telegram back from the next station to Ajmir, which is the turning off place from the Bombay to the Mhow line as you travel westward. He had the air of one who had seen strange countries and stranger men, yet bore himself without vanity. There was a restless light in his eyes, the sort that belongs to men who have lived too long without a fixed purpose. When he spoke of the Empire, it was not with loyalty nor with bitterness, but with the detached amusement of one who has played his part and lost interest in the game. His laughter came easily, though it seemed to echo from some remembered hardship. It struck me then that his stories were less of adventure than of survival.- AILET BALLB (Hons.) - 2026
- English
- Reading Comprehension
Democracy, often hailed as the most equitable form of governance, is a system where power ultimately rests in the hands of the people. The word derives from the Greek words ”demos” meaning people and ”kratos” meaning power or rule. Democracy aims to provide equal political participation and protect the individual freedoms of all citizens. However, while the idea of democracy is simple, its practice is frequently complex and fraught with challenges. At its core, democracy functions on the principle of majority rule, yet it simultaneously guarantees the protection of minority rights.
This balance ensures that while the majority has the power to make decisions through voting, the fundamental rights of minorities are not trampled upon. Such a system requires consistent vigilance and respect for the rule of law. Without these, democracies can devolve into majoritarian tyranny or authoritarianism. The practice of democracy is not merely limited to voting in elections. It encompasses freedom of speech, an independent judiciary, free press, and protection of individual rights. These elements together create a political environment where citizens can express dissent, hold leaders accountable, and participate actively in decision-making. When any component is weakened, the democratic process becomes vulnerable.
In recent times, democratic societies worldwide have grappled with new challenges. The rise of misinformation and fake news has eroded public trust in institutions and polarized societies. Social media platforms, meant to facilitate communication, have sometimes amplified divisive narratives and falsehoods. This has resulted in voter manipulation and a growing skepticism toward democratic processes. Literacy in media and critical thinking is increasingly vital to safeguard democracy from such threats. Economic inequality poses another significant challenge. While democracy promises equal rights politically, vast disparities in wealth and opportunity undermine this ideal.
This phenomenon raises questions about whether democracy is achievable without addressing socioeconomic inequalities. Furthermore, the involvement of citizens is crucial. Democracy requires that people are informed, engaged, and willing to participate beyond casting votes. Civic education and awareness campaigns play an essential role in nurturing responsible citizenship. Apathy or disengagement weakens the democratic fabric, opening avenues for corruption and other dangers to the system. In conclusion, democracy thrives on the collective responsibility of governments and citizens to protect its pillars and ensure inclusive, fair governance.- AILET BALLB (Hons.) - 2026
- English
- Reading Comprehension
The Rule of Law
by Tom BinghamJustice: What’s the Right Thing to Do?
by Michael J. SandelLetters to a Law Student
by Nicholas J. McBrideIn The Rule of Law, former Lord Chief Justice Tom Bingham explores how the principle of legality underpins modern democratic life. He defines the rule of law as more than just adherence to formal rules; it is the assurance that power is exercised within clear, fair, and publicly known boundaries.
Bingham distills the concept into eight principles, including equality before the law, access to justice, and respect for fundamental human rights. Drawing on cases and historical examples, he warns that national security and administrative efficiency must never override the rights of individuals.
The book bridges legal philosophy and practice, arguing that law must be both predictable and humane. For Bingham, the rule of law represents a moral ideal, one that sustains public trust in justice and curbs arbitrary governance.Michael Sandel’s Justice: What’s the Right Thing to Do? examines moral reasoning in law and politics. Through examples like price gouging, affirmative action, and taxation, Sandel invites readers to explore competing notions of fairness.
He engages with philosophical traditions such as utilitarianism, libertarianism, and Rawlsian egalitarianism, showing that questions of justice cannot be separated from questions of virtue and the common good.
Sandel rejects the idea of a morally “neutral” legal system, arguing that public deliberation about values is essential to democracy. Ultimately, he argues that a just society is one that cultivates civic responsibility, not merely individual rights.Nicholas McBride’s Letters to a Law Student is a practical and reflective guide for aspiring lawyers. Written as a series of letters to a student beginning law school, it explores what legal study truly involves.
This includes mastering case analysis, understanding precedents, and developing critical reasoning. McBride distinguishes between knowing the law and thinking like a lawyer, the latter requiring analytical discipline and ethical awareness.
He emphasizes that good lawyers combine intellectual rigor with moral judgment and clarity of expression. Beyond academic success, the book urges students to reflect on law’s purpose, balancing order, justice, and compassion in human affairs.- AILET BALLB (Hons.) - 2026
- English
- Reading Comprehension
Urban gardening has become increasingly popular as a means to address food security, sustainability, and mental well-being in cities. By growing their own fruits, vegetables, and herbs, individuals can reduce their reliance on commercial supply chains that contribute to extensive transportation, energy consumption, and synthetic chemical use. In addition to providing fresh, nutritious food, urban gardening also contributes to environmental sustainability by mitigating urban heat island effects, improving air quality, and managing water runoff. Furthermore, it offers psychological benefits, including reduced stress, improved mood, and a sense of accomplishment. Despite its many benefits, urban gardening faces challenges like space limitations, poor soil quality, and inadequate sunlight, which gardeners overcome using innovative techniques such as vertical farming and hydroponics.
- AILET BALLB (Hons.) - 2026
- English
- Reading Comprehension
Questions Asked in XAT exam
- Arun selected an integer \( x \) between 2 and 40, both inclusive. He noticed that the greatest common divisor of the selected integer \( x \) and any other integer between 2 and 40, both inclusive, is 1. How many different choices for such an \( x \) are possible?
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- Adu and Amu have bought two pieces of land on the Moon from an e-store. Both the pieces of land have the same perimeters, but Adu’s piece of land is in the shape of a square, while Amu’s piece of land is in the shape of a circle. The ratio of the areas of Adu’s piece of land to Amu’s piece of land is:
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- A and B bought lands on the Moon from an eStore, both with the same diameter but A’s land is square-shaped, and B’s land is circular. What is the ratio of the areas of their respective lands?
- XAT - 2025
- Ratio and Proportion
- A bought a phone from a store and paid \(\frac{1}{6}\) of the price using UPI, \(\frac{1}{3}\) of the price in cash, and the remaining balance a year later. He also paid 10% interest on the remaining balance after one year. What was the original price of the phone?
- XAT - 2025
- Percentage