Consider the following statements about the use of a representative good and representative labour in macroeconomics:
(A) The level of production of the representative good corresponds to the average production level of all goods and services.
(B) The price of the representative good reflects the general price level of the economy.
(C) Treating one category of labour as the representative of all labour may hide the difference between the labour of a manager and that of an accountant.
(D) The output of the representative good shows the output of the largest industry of the economy.
Which of the above statements are correct?
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → (A), (B) and (C) only
Macroeconomics often studies one representative good in place of all goods, because their outputs and prices tend to move together.
(A) The level of production of the representative good corresponds to the average production level of all goods and services. — Correct. It stands for the average of all goods.
(B) The price of the representative good reflects the general price level of the economy. — Correct. Its price shows the general price level.
(C) Treating one category of labour as the representative of all labour may hide the difference between the labour of a manager and that of an accountant. — Correct. One category of labour cannot show such differences between kinds of work.
(D) The output of the representative good shows the output of the largest industry of the economy. — Incorrect. Its output stands for the average production level of all goods, not for any one industry.
NCERT (2026-27): “… Instead of dealing with the above mentioned variables at individual (disaggregated) levels, we can think of a single good as the representative of all the goods and services produced within the economy. This representative good will have a level of production which will correspond to the average production level of all the goods and services. Similarly, the price or employment level of this representative good will reflect the general price and employment level of the economy.” “While moving away from different goods and focusing on a representative good may be convenient, in the process, we may be overlooking some vital distinctive characteristics of individual goods. For example, production conditions of agricultural and industrial commodities are of a different nature. Or, if we treat a single category of labour as a representative of all kinds of labours, we may be unable to distinguish the labour of the manager of a firm from the labour of the accountant of the firm.” |