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
- ”In recent years, technological advancements in AI and machine learning have fundamentally altered how we approach daily tasks. The growing reliance on these systems brings both challenges and opportunities, especially in areas like automation, healthcare, and customer service.”
What is the primary concern regarding the increased use of AI in daily tasks as mentioned in the passage?
- NMAT - 2025
- English Language Comprehension
- Reading Comprehension
Meta is recalibrating content on its social media platforms as the political tide has turned in Washington, with Mark Zuckerberg announcing last week that his company plans to fire its US fact-checkers. Fact-checking evolved in response to allegations of misinformation and is being watered down in response to accusations of censorship. Social media does not have solutions to either. Community review — introduced by Elon Musk at X and planned by Zuckerberg for Facebook and Instagram — is not a significant improvement over fact-checking. Having Washington lean on foreign governments over content moderation does not benefit free speech. Yet, that is the nature of the social media beast, designed to amplify bias.
Information and misinformation continue to jostle on social media at the mercy of user discretion. Social media now has enough control over all other forms of media to broaden its reach. It is the connective tissue for mass consumption of entertainment, and alternative platforms are reworking their engagement with social media. Technologies are shaping up to drive this advantage further through synthetic content targeted precisely at its intended audience. Meta’s algorithm will now play up politics because it is the flavour of the season.
The Achilles’ Heel of social media is informed choice which could turn against misinformation. Its move away from content moderation is driven by the need to be more inclusive, yet unfiltered content can push users away from social media towards legacy forms that have better moderation systems in place. Lawmakers across the world are unlikely to give social media a free run, even if Donald Trump is working on their case. Protections have already been put in place across jurisdictions over misinformation. These may be difficult to dismantle, even if the Republicans pull US-owned social media companies further to the right.
Media consumption is, in essence, evidence-based judgement that mediums must adapt to. Content moderation, not free speech, is the adaptation mechanism. Musk and Zuckerberg are not exempt- IPMAT - 2025
- Verbal and Logical Ability
- Reading Comprehension
According to the French philosopher Jean Baudrillard, commodities available for consumption are not inherently negative things. Baudrillard tried to interpret consumption in modern societies by engaging with the ’cargo myth’ prevalent among the indigenous Melanesian people living in the South Pacific. The Melanesians did not know what aeroplanes were. However,they saw that these winged entities descended from the air for white people and appeared to make them happy. They also noted that aeroplanes never descended for the Melanesian people. The Melanesian natives noted that the white people had placed objects similar to the aeroplane on the ground. They concluded that these objects were attracting the aeroplanes in the air and bringing them to the ground. Through a magical process, the aeroplanes were bringing plenty to the white people and making them happy. The Melanesian people concluded that they would need to place objects that simulated the aeroplane on the ground and attract them from the air. Baudrillard believes that the cargo myth holds an important analogy for the ways in which consumers engage with objects of consumption.
According to Baudrillard, the modern consumer ”sets in place a whole array of sham objects, of characteristic signs of happiness, and then waits for happiness to alight”. For instance, modern consumers believe that they will get happiness if they buy the latest available version of a mobile phone or automobile. However, consumption does not usually lead to happiness. While consumers should ideally be blaming their heightened expectations for their lack of happiness, they blame the commodity instead.
They feel that they should have waited for the next version of a mobile phone or automobile before buying the one they did. The version they bought is somehow inferior and therefore cannot make them happy. Baudrillard argues that consumers have replaced ’real’ happiness with ’signs’ of happiness. This results in the endless deferment of the arrival of total happiness. In Baudrillard’s words, ”in everyday practice, the blessings of consumption are not experienced as resulting from work or from a production process; they are experienced as a miracle”. Modern consumers view consumption in the same magical way as the Melanesian people viewed the aeroplanes in the cargo myth. Television commercials also present objects of consumption as miracles. As a result, commodities appear to be distanced from the social processes which lead to their production. In effect, objects of consumption are divorced from the reality which produces them.- IPMAT - 2025
- Verbal and Logical Ability
- Reading Comprehension
CONVERSATION ANALYSIS: Read the following transcript and choose the answer that is closest to each of the questions that are based on the transcript.
Lucia Rahilly (Global Editorial Director, The McKinsey Podcast): Today we’re talking about the next big arenas of competition, about the industries that will matter most in the global business landscape, which you describe as arenas of competition. What do we mean when we use this term?
Chris Bradley (Director, McKinsey Global Institute): If I go back and look at the top ten companies in 2005, they were in traditional industries such as oil and gas, retail, industrials, and pharmaceuticals. The average company was worth about $250 billion. If I advance the clock forward to 2020, nine in ten of those companies have been replaced, and by companies that are eight times bigger than the old guards.
And this new batch of companies comes from these new arenas or competitive sectors. In fact, they’re so different that we have a nickname for them. If you’re a fan of Harry Potter, it’s wizards versus muggles.
Arena industries are wizardish; we found that there’s a set of industries that play by very different set of economic rules and get very different results, while the rest, the muggles (even though they run the world, finance the world, and energize the world), play by a more traditional set of economic rules.
Lucia Rahilly: Could we put a finer point on what is novel or different about the lens that you applied to determine what’s a wizard and what’s a muggle?
Chris Bradley: Wizards are defined by growth and dynamism. We looked at where value is flowing and the places where value is moving. And where is the value flowing? What we see is that this set of wizards, which represent about ten percent of industries, hog 45 percent of the growth in market cap. But there’s another dimension or axis too, which is dynamism. That is measured by a new metric we’ve come up with called the ”shuffle rate.” How much does the bottom move to the top? It turns out that in this set of wizardish industries, or arenas, the shuffle rate is much higher than it is in the traditional industry.
Lucia Rahilly: So, where are we seeing the most profit?
Chris Bradley: The economic profit, which is the profit you make minus the cost for the capital you employ is in the wizard industries. It’s where R&D happens; they’re two times more R&D intensive. They’re big stars, the nebulae, where new business is born.- IPMAT - 2025
- Verbal and Logical Ability
- Reading Comprehension
- On the first day of January 2025, the Indian Meteorological Department [IMD] announced that 2024 was the hottest year on record. A study by the Council on Energy, Environment and Water shows that nearly eight out of ten Indians live in districts that are at risk of either a flood, a cyclone, or a drought. Nearly twenty three States in India are heatwave-prone. In the summer of 2024, India recorded more than 44,000 cases of heatstroke and over 300 heat-related mortalities, as per the bulletin of the Ministry of Health and Family Welfare. Water reservoirs and the energy demand that keeps India powered are impacted too. During a ten-day long heatwave in Delhi, peak power demand was 16% higher than the previous year.
- IPMAT - 2025
- Verbal and Logical Ability
- Reading Comprehension
Questions Asked in XAT exam
Match the following airlines with the countries where they are headquartered.
Airlines Countries 1. AirAsia A. Singapore 2. AZAL B. South Korea 3. Jeju Air C. Azerbaijan 4. Indigo D. India 5. Tigerair E. Malaysia - XAT - 2025
- Business and Economy
Match the following authors with their respective works.
Authors Books 1. Andy Weir A. Dune 2. Cixin Liu B. The Time Machine 3. Stephen Hawking C. The Brief History of Time 4. HG Wells D. The Martian 5. Frank Herbert E. The Three Body Problem - XAT - 2025
- Books and Authors
- What is the name of the AI-based app recently launched by the central government of India to provide study materials in regional languages?
- XAT - 2025
- Scientific Developments
- Which shipyard built INS Tushil, a stealth guided missile frigate, commissioned on Dec 9, 2024?
- XAT - 2025
- General Science
- Who won the SVERIGES RIKSBANK PRIZE in ECONOMIC Sciences in memory of Alfred Nobel 2024 for studies of how institutions are formed and affect prosperity?
- XAT - 2025
- Economy