Micro and Macro Economics Module 1
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Questions and Answers

Which market structure is characterized by a single seller and high barriers to entry?

  • Perfect competition
  • Oligopoly
  • Monopoly (correct)
  • Monopolistic competition

    • What is the main characteristic of Cobb-Douglas production function?

  • Decreasing marginal returns
  • Increasing returns to scale
  • Constant elasticity of substitution (correct)
  • Linear relationship between inputs and outputs

    • Which of the following factors does NOT typically contribute to market failure?

  • Externalities
  • Public goods
  • Asymmetric information
  • Perfect competition (correct)

    • What phenomenon describes a situation where increased savings leads to decreased aggregate demand?

    <p>Paradox of Thrift (C)</p> Signup and view all the answers

    In game theory, what does Nash equilibrium signify?

    <p>A stable state where players' strategies are in equilibrium (C)</p> Signup and view all the answers

    Which of the following is an example of a Veblen good?

    <p>Designer handbags (C)</p> Signup and view all the answers

    Which measure is used to indicate the average price change over time for a basket of consumer goods and services?

    <p>CPI (D)</p> Signup and view all the answers

    What primarily drives the concept of monopolistic competition?

    <p>Many firms offer slightly differentiated products (A)</p> Signup and view all the answers

    What role does elasticity of demand play in understanding consumer behavior?

    <p>Elasticity of demand measures how sensitive the quantity demanded is to price changes, helping firms predict sales and adjust pricing strategies effectively.</p> Signup and view all the answers

    How do fixed and variable costs impact a firm's pricing strategy?

    <p>Fixed costs do not change with the level of production, while variable costs do; both influence the price at which a firm can sell its products for profitability.</p> Signup and view all the answers

    What is the significance of the Nash equilibrium in oligopoly market structures?

    <p>Nash equilibrium represents a stable outcome where firms, knowing the strategies of their competitors, do not gain by changing their own strategy unilaterally.</p> Signup and view all the answers

    Explain the concept of opportunity cost in economic decision-making.

    <p>Opportunity cost is the value of the next best alternative forgone when a choice is made, guiding individuals and businesses in resource allocation.</p> Signup and view all the answers

    How does the theory of cost influence a firm’s production decisions?

    <p>The theory of cost helps firms determine the most efficient level of production by balancing fixed and variable costs against their potential revenue.</p> Signup and view all the answers

    What are the potential effects of inflation on the economy, particularly regarding purchasing power?

    <p>Inflation erodes purchasing power, meaning consumers can buy fewer goods and services with the same amount of money, affecting overall economic stability.</p> Signup and view all the answers

    How do public goods differ from private goods in terms of market economics?

    <p>Public goods are non-excludable and non-rivalrous, meaning they are available to all without reducing availability for others, unlike private goods.</p> Signup and view all the answers

    What is the paradox of thrift, and how does it relate to macroeconomic stability?

    <p>The paradox of thrift suggests that while saving is beneficial for individuals, if everyone saves more, overall demand may decrease, leading to economic contraction.</p> Signup and view all the answers

    Flashcards

    Market Equilibrium

    The point where supply and demand for a product are equal.

    Elasticity of Demand

    How responsive quantity demanded is to a change in price.

    GDP (Gross Domestic Product)

    The total market value of all final goods and services produced within a country in a given period.

    Monopoly

    Market structure with one seller and no close substitutes.

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    Phillips Curve

    A relationship between inflation and unemployment, inverse.

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    Opportunity Cost

    The value of the next best alternative forgone.

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    Production Function (Cobb-Douglas)

    Mathematical relationship between inputs and outputs in production.

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    Market Failure

    A situation where markets do not efficiently allocate resources.

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    Supply and Demand

    The forces that determine the price and quantity of goods and services traded in a market.

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    Equilibrium Price

    The price at which the quantity supplied equals the quantity demanded, resulting in a balanced market.

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    Profit Maximization

    The goal of a firm to produce the level of output that yields the highest possible profit.

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    Inflation

    A general increase in the price level of goods and services over time.

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    Unemployment

    The state of being unemployed, actively seeking work but unable to find it.

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    Study Notes

    Module 1 - Micro Economics

    • Consumers, Producers, and Market Structures: Economic way of thinking, ten principles of economics, laws of supply and demand, market equilibrium, income and price elasticity, elasticity of demand, indifference curves, substitutes and complements.

    • Production and Cost: Firm as a producer, production function (Cobb-Douglas), returns to scale, theory of cost, fixed and variable costs, opportunity cost, profit maximization, cost minimization, market structures (perfect competition, oligopoly, monopoly, monopolistic competition).

    • Theory of Price: Price and output decisions in different market structures (monopoly, monopolistic competition, oligopoly, cartel, price leadership), market failure, game theory, asymmetric information, NASH equilibrium, bargaining, auctions, Veblen goods, emergence of the leisure class, conspicuous consumption.

    Module 2 - Macroeconomics and Public Policy

    • National Income Accounting: Methods of measuring GDP/GNP, growth theory, endogenous growth, growth traps, theory of income determination, concepts of a multiplier, aggregating supply and demand, public policy, paradox of thrift, crowding out effect.

    • Macroeconomic Policies: Savings and investments, inflation, unemployment, measures of inflation (WPI and CPI), Phillips Curve, fiscal and monetary policy, externalities, public goods, introduction to the money market, foreign trade, balance of payments, tariff and non-tariff barriers.

    • Indian Economy: From 1947 to 1991, charting the path from a developing economy to a developed economy, role of natural resources, infrastructure, population growth in economic development, trends in national income growth, per capita income, services-led growth, poverty, calculation, Indian agriculture, NITI Aayog, banking and capital market structures, role of public sector, India's foreign trade, current and capital account convertibility.

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    Description

    Explore the fundamental concepts of Micro and Macro Economics in this quiz. Cover topics including consumers, producers, market structures, production and cost, as well as theories of price and national income accounting. Test your understanding of economic principles and theories.

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