Laissez Faire Theory and Critique during Colonialism of India MCQs and Answers

1. What is the name of the economic theory that advocates for minimal government intervention in the economy?

a. Keynesian economics

b. Monetarism

c. Fiscal policy

d. Laissez-faire

Answer: d

Explanation: Laissez-faire economics is a theory that advocates for minimal government intervention in the economy. The theory is based on the belief that the free market is the best way to allocate resources and that the government should not interfere in market activity.

Laissez-faire economics has been influential in shaping economic policy in a number of countries. The theory has been used to justify policies such as deregulation, tax cuts, and free trade. Supporters of laissez-faire economics argue that it promotes economic growth and efficiency.

Critics of laissez-faire economics argue that it leads to crony capitalism and economic inequality. They argue that the government should intervene in the economy to protect workers and promote social welfare.

Laissez-faire economics is a controversial theory, but it continues to be influential in shaping economic policy around the world.


2. What is the main criticism of laissez-faire economics?

a. That it leads to crony capitalism

b. That it leads to unequal outcomes

c. That it is inefficient

d. That it is outdated

Answer: b

Explanation:  The main criticism of laissez-faire economics is that it leads to income inequality and poverty. This is because laissez-faire economics results in an unfettered free market, which leads to businesses and individuals accumulating more wealth, while those at the bottom of the economic ladder fall further behind. This income inequality can then lead to social unrest and poverty.


3. What is the difference between laissez-faire economics and free market economics?

a. Laissez-faire economics advocates for complete government intervention in the economy, while free market economics advocates for no government intervention.

b. Laissez-faire economics advocates for complete freedom in the economy, while free market economics advocates for limited government intervention.

c. There is no difference between the two theories.

d. Laissez-faire economics advocates for minimal government intervention in the economy, while free market economics advocates for complete government intervention.

Answer: b

Explanation: There are a few key differences between laissez-faire economics and free market economics. The main difference is that laissez-faire economics is based on the idea that the government should not interfere in the economy, while free market economics is based on the idea that the government should intervene in the economy to promote competition.

Another key difference is that laissez-faire economists believe that the market is self-regulating, while free market economists believe that the government needs to intervene to ensure that the market is functioning properly.

Finally, laissez-faire economics is associated with a hands-off approach to government, while free market economics is associated with a more active role for government in the economy.


4. What did Adam Smith argue in favour of in his book “The Wealth of Nations”?

a. Free trade

b. Tariffs

c. Mercantilism

d. Laissez-faire

Answer: d

Explanation: Adam Smith argued in favour of free trade and laissez-faire capitalism in his book “The Wealth of Nations”. He believed that free trade and competition would lead to economic growth and prosperity, and that government intervention in the economy should be limited.


5. What economic system was in place in most of the world during the height of colonialism?

a. Laissez-faire economics

b. Communism

c. Mercantilism

d. Feudalism

Answer: c

Explanation: The economic system that was in place during the height of colonialism was mercantilism. Mercantilism is an economic theory that holds that the wealth of a nation is increased by its exports, and that its strength is increased by its political power. This system gave rise to a number of different trade practices, such as monopolies and tariffs, that were designed to benefit the home country at the expense of the colonies.


6. What are the benefits of laissez-faire economics?

a. It allows for economic freedom

b. It leads to greater efficiency

c. It leads to greater prosperity

d. All of these

Answer: d

Explanation: Laissez-faire economics is an economic theory that suggests that government intervention in the economy is unnecessary and harmful. Proponents of laissez-faire economics believe that the free market will always find a way to correct itself, and that government intervention only serves to interfere with this natural process.

There are many benefits to laissez-faire economics. First, it allows for economic freedom. Individuals are free to produce, exchange, and consume goods and services as they see fit. This allows for greater innovation and creativity as people are free to pursue the businesses and ventures they are passionate about.

Second, laissez-faire economics leads to greater efficiency. When the government intervenes in the economy, it often leads to inefficiencies and waste. By letting the free market operate, businesses are able to find the most efficient ways to produce and exchange goods and services.

Finally, laissez-faire economics leads to greater prosperity. When people are free to pursue their own economic interests, they are more likely to succeed and become prosperous. This in turn leads to a more prosperous society as a whole.


7. Laissez faire is a French phrase meaning “let do”. What is the basic theory behind laissez faire?

a. Government should be involved in the economy

b. Government should not be too involved in the economy

c. Government should drive the economy

d. None of these

Answer: b

Explanation: The basic theory behind laissez faire is that businesses and individuals should be free to pursue their own goals without government interference. The thinking is that, given the freedom to do what they want, people will naturally find ways to improve their circumstances and society as a whole will benefit.

There are a couple of key ideas behind laissez faire. First, that the government should not be too involved in the economy. Second, that businesses and individuals know what’s best for themselves and their businesses, so they should be free to pursue their own goals without government interference.


8. How did laissez faire economics contribute to the colonial rule of India?

a. Laissez faire economics helped to perpetuate the existing economic inequalities in India.

b. Laissez faire economics led to the exploitation of India’s resources.

c. Laissez faire economics resulted in a chronic shortage of essential goods in India.

d. All of these

Answer: d

Explanation: Laissez faire economics played a significant role in the colonial rule of India. Here are three ways in which this was the case:

(i) Laissez faire economics helped to perpetuate the existing economic inequalities in India.

The rich became richer and the poor became poorer under colonial rule, due in large part to laissez faire economics. This led to increased economic inequality and social injustice, which were major contributing factors to the outbreak of Independence movements in India.

(ii) Laissez faire economics led to the exploitation of India’s resources.

Britain’s policy of laissez faire economics allowed them to exploit India’s resources for their own benefit. This led to the depletion of India’s natural resources and the poorest people in India bearing the brunt of the resulting environmental degradation.

(iii)  Laissez faire economics resulted in a chronic shortage of essential goods in India.

Because the colonial government did not intervene in the economy, essential goods like food and medicine were often in short supply in India. This led to widespread poverty and suffering, especially among the poorest people in India.


9. How did laissez faire economics lead to the exploitation of Indian resources?

a. The British companies were given preferential treatment and were allowed to extract resources with paying maximum taxes.

b. The British companies were given preferential treatment and were allowed to extract resources without paying any taxes.

c. The British companies were not given preferential treatment and were did allowed to extract resources.

d. None of these

Answer:  b

Explanation: The laissez faire economic policies pursued by the British colonial government in India led to the exploitation of the country’s resources. The British companies were given preferential treatment and were allowed to extract resources without paying any taxes. This led to the depletion of the resources and the Indian people were left impoverished. The laissez faire economics also led to the rise of the big business houses which exploited the Indian markets and the consumers.


10. Who is the father of laissez faire economy?

a. Adam Smith

b. John Maynard Keynes

c. Milton Friedman

d. Jean-Baptiste Colbert

Answer: d

Explanation: French economist, Jean-Baptiste Say, is often credited with being the father of laissez faire economics. Say argued that government intervention in the economy is unnecessary and counterproductive. Instead, he believed that the free market would naturally produce the best results.

Say’s ideas were influential in shaping the economic thinking of the 19th century. His ideas were later popularized by economists such as Ludwig von Mises and Friedrich Hayek. Today, laissez faire economics is still a major force in economic thought.

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