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Questions and Answers
In which stage of production does Total Production (TP) increase at a decreasing rate?
In which stage of production does Total Production (TP) increase at a decreasing rate?
- Stage 1
- Stage 2 (correct)
- Stage 3
- None of the above
According to the Law of Diminishing Marginal Returns, what happens to Marginal Productivity (MP) as more units of a variable input are added to a fixed input, holding other factors constant?
According to the Law of Diminishing Marginal Returns, what happens to Marginal Productivity (MP) as more units of a variable input are added to a fixed input, holding other factors constant?
- It decreases at an increasing rate. (correct)
- It continues to increase.
- It remains constant.
- It decreases at a decreasing rate.
What is the relationship between Marginal Cost (MC) and Average Total Cost (ATC) when MC is increasing?
What is the relationship between Marginal Cost (MC) and Average Total Cost (ATC) when MC is increasing?
- The relationship cannot be determined based on the information given.
- ATC is increasing. (correct)
- ATC is decreasing.
- ATC is constant.
What is the correct formula for Total Cost?
What is the correct formula for Total Cost?
Which economic theory explains how individuals or organizations make decisions in situations where the outcome of each participant's depends on the choices of others?
Which economic theory explains how individuals or organizations make decisions in situations where the outcome of each participant's depends on the choices of others?
What is the difference between Total Variable Cost (TVC) and Total Fixed Cost (TFC)?
What is the difference between Total Variable Cost (TVC) and Total Fixed Cost (TFC)?
Which of the following is NOT a stage of production based on the Law of Diminishing Marginal Returns?
Which of the following is NOT a stage of production based on the Law of Diminishing Marginal Returns?
What is the significance of Pareto Efficiency?
What is the significance of Pareto Efficiency?
Which of the following is NOT a characteristic of a perfectly competitive market?
Which of the following is NOT a characteristic of a perfectly competitive market?
Which market structure is characterized by a few dominant firms that are interdependent on each other's actions?
Which market structure is characterized by a few dominant firms that are interdependent on each other's actions?
A company that sells luxury handbags and experiences an increase in demand as the price increases is likely operating in which type of market?
A company that sells luxury handbags and experiences an increase in demand as the price increases is likely operating in which type of market?
What is the difference between GDP and GNP?
What is the difference between GDP and GNP?
What is the "Free Rider Problem"?
What is the "Free Rider Problem"?
Which of the following is NOT a characteristic of a monopolistic competition?
Which of the following is NOT a characteristic of a monopolistic competition?
If a company produces a product that is highly differentiated and has a significant degree of market power, what type of market structure is it likely to operate in?
If a company produces a product that is highly differentiated and has a significant degree of market power, what type of market structure is it likely to operate in?
The airline industry, with a small number of dominant players, is an example of which market structure?
The airline industry, with a small number of dominant players, is an example of which market structure?
Which of these factors has the potential to directly impact the exchange rate of a currency?
Which of these factors has the potential to directly impact the exchange rate of a currency?
Which of these is NOT a factor that can influence the exchange rate of a currency?
Which of these is NOT a factor that can influence the exchange rate of a currency?
Which of the following represents an example of Foreign Institutional Investment (FII)?
Which of the following represents an example of Foreign Institutional Investment (FII)?
What is the main difference between direct taxes and indirect taxes?
What is the main difference between direct taxes and indirect taxes?
Which of the following is a characteristic of a progressive tax system?
Which of the following is a characteristic of a progressive tax system?
Which of these is an example of an indirect tax?
Which of these is an example of an indirect tax?
Which of the following statements correctly describes the relationship between government spending and inflation?
Which of the following statements correctly describes the relationship between government spending and inflation?
Which of these is a potential drawback of a regressive tax system?
Which of these is a potential drawback of a regressive tax system?
What is the main objective of imposing an Anti-Dumping Duty?
What is the main objective of imposing an Anti-Dumping Duty?
Which of the following is NOT a component of a Revenue Budget?
Which of the following is NOT a component of a Revenue Budget?
What is the difference between Fiscal Deficit and Primary Deficit?
What is the difference between Fiscal Deficit and Primary Deficit?
Which of the following is an example of Revenue Expenditure?
Which of the following is an example of Revenue Expenditure?
What is the key distinction between Nationalisation and Privatisation?
What is the key distinction between Nationalisation and Privatisation?
Which type of economic planning involves the government setting targets and guidelines, but allowing the private sector to make most economic decisions?
Which type of economic planning involves the government setting targets and guidelines, but allowing the private sector to make most economic decisions?
What is the primary goal of Disinvestment?
What is the primary goal of Disinvestment?
Which of the following scenarios would NOT be considered a capital receipt?
Which of the following scenarios would NOT be considered a capital receipt?
Which curve represents the most efficient use of resources?
Which curve represents the most efficient use of resources?
What does the shape of the production possibility frontier curve indicate?
What does the shape of the production possibility frontier curve indicate?
What is an example of an implicit cost?
What is an example of an implicit cost?
Which of the following is NOT an explicit cost?
Which of the following is NOT an explicit cost?
What is the significance of the break-even point for a business?
What is the significance of the break-even point for a business?
Which of the following best describes the equilibrium point in a market?
Which of the following best describes the equilibrium point in a market?
What does Curve 'X' represent in the context of the production possibility frontier?
What does Curve 'X' represent in the context of the production possibility frontier?
How does the production possibility frontier illustrate the concept of opportunity cost?
How does the production possibility frontier illustrate the concept of opportunity cost?
Which of the following is NOT a component of the Balance of Payments?
Which of the following is NOT a component of the Balance of Payments?
What is the primary difference between a time deposit and a demand deposit?
What is the primary difference between a time deposit and a demand deposit?
What does a credit rating assess?
What does a credit rating assess?
Which of the following is NOT a characteristic of a credit rating?
Which of the following is NOT a characteristic of a credit rating?
Which of the following is TRUE about a trade surplus?
Which of the following is TRUE about a trade surplus?
What is SWIFT used for?
What is SWIFT used for?
Which of these is NOT a type of investment included in the Financial Account of the Balance of Payments?
Which of these is NOT a type of investment included in the Financial Account of the Balance of Payments?
What is the main difference between a fixed exchange rate and a floating exchange rate?
What is the main difference between a fixed exchange rate and a floating exchange rate?
Flashcards
Curve 'A'
Curve 'A'
Represents underutilization of resources in economics.
Curve 'X'
Curve 'X'
Shows economic growth within the production possibility frontier.
Curve 'BDC'
Curve 'BDC'
Indicates optimum utilization of resources in production.
Concave to Origin
Concave to Origin
Production possibility frontier is shaped like a curve that bows inward toward the origin.
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Implicit Cost
Implicit Cost
Costs representing opportunity costs of self-owned resources.
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Explicit Cost
Explicit Cost
Direct out-of-pocket expenses for a specific activity or transaction.
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Opportunity Cost
Opportunity Cost
Cost of forgoing the next best alternative when making a decision.
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Break Even Point
Break Even Point
Point when revenue equals total costs, leading to no profit or loss.
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Economy of Scale
Economy of Scale
Increasing production reduces average costs per unit.
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Law of Diminishing Marginal Returns
Law of Diminishing Marginal Returns
Adding inputs increases output initially, then effect declines.
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Total Production (TP)
Total Production (TP)
Total output produced by all inputs in a timeframe.
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Marginal Productivity (MP)
Marginal Productivity (MP)
Additional output gained from adding one more input.
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Average Productivity (AP)
Average Productivity (AP)
Total production divided by the number of inputs used.
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Marginal Cost (MC)
Marginal Cost (MC)
The cost of producing one more unit of output.
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Nash Equilibrium
Nash Equilibrium
Situation where no participant benefits by changing strategy unilaterally.
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Gini Coefficient
Gini Coefficient
Measure of income inequality within a population.
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Time Deposits
Time Deposits
Savings account where money is locked for a specified period to earn interest.
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Free Rider Problem
Free Rider Problem
When individuals benefit from a public good without paying for it.
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Demand Deposits
Demand Deposits
Accounts allowing withdrawals on demand without penalty, usually no interest earned.
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Veblen Goods
Veblen Goods
Luxury goods where demand increases as prices rise due to status.
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Credit Rating
Credit Rating
An assessment of a borrower's creditworthiness indicating credit risk level.
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Liquidity
Liquidity
The ease of converting an asset into cash quickly.
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Perfect Competition
Perfect Competition
Market with many buyers and sellers of homogeneous goods.
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Collateral
Collateral
An asset offered to a lender as security for a loan.
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Monopoly
Monopoly
Market dominated by one seller with a unique product.
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Monopolistic Competition
Monopolistic Competition
Market with many sellers offering differentiated products.
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Default
Default
Failure to make loan or debt payments as agreed.
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Oligopoly
Oligopoly
Market structured with a few dominant sellers and interdependent pricing.
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Balance of Trade
Balance of Trade
The difference between a country's exports and imports of goods and services.
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Fixed Exchange Rate
Fixed Exchange Rate
A currency's value fixed to a reference currency or a basket of currencies.
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Duopoly
Duopoly
Market with only two sellers providing a service or product.
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Gross Domestic Product (GDP)
Gross Domestic Product (GDP)
Total value of all goods and services produced within a country's borders in a year.
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Anti-Dumping Duty
Anti-Dumping Duty
A tax on imported goods sold below fair market value to protect domestic industries.
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Budgeting
Budgeting
The process of estimating revenues and planning expenditures for government functions.
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Capital Budget
Capital Budget
Allocation for long-term capital receipts and expenditures, like infrastructure.
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Revenue Budget
Revenue Budget
Allocation for day-to-day revenue receipts and expenditures.
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Budget Deficit
Budget Deficit
When total expenditures exceed total receipts.
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Nationalisation
Nationalisation
Transfer of private sector ownership to government control.
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Privatisation
Privatisation
Transfer of public sector ownership to private individuals or companies.
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Indicative Planning
Indicative Planning
Government provides guidelines but allows private sector autonomy.
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Floating Exchange Rate
Floating Exchange Rate
An exchange rate determined by market forces of supply and demand.
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Factors Affecting Exchange Rates
Factors Affecting Exchange Rates
Elements that influence currency value, including interest rates, inflation rates, political stability, and market sentiment.
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Foreign Direct Investment (FDI)
Foreign Direct Investment (FDI)
Investment by a foreign entity in a business or project in another country.
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Foreign Institutional Investment (FII)
Foreign Institutional Investment (FII)
Investing in financial assets like stocks and bonds in another country’s markets.
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Direct Taxes
Direct Taxes
Taxes paid directly to the government that cannot be transferred, like income tax.
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Indirect Taxes
Indirect Taxes
Taxes paid when consuming goods and services, which can be shifted to consumers like GST.
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Progressive Tax
Progressive Tax
A tax system where the rate increases as income increases.
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Regressive Tax
Regressive Tax
A tax system where lower-income earners pay a larger percentage of their income than higher earners.
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Demand & Supply
- Microeconomics begins with scarcity, meaning limited resources exceed human needs. This forces economic agents (consumers, businesses, governments, banks) to make choices.
- Market price and quantity are influenced by demand and supply.
- Demand is the quantity a customer is willing to buy at various prices during a specific period.
- Supply is the quantity producers are willing to offer at different prices during the same period.
- Both demand and supply curves are U-shaped, downward-sloping (convex to the origin) for demand, and upward-sloping (cannot be negative, but can start from zero) for supply.
General Demand & Supply Factors
-
Demand:
- Price: Higher prices decrease demand, lower prices increase demand.
- Income: Higher income increases demand (except for inferior goods).
- Related goods: The price of related goods influences demand (complementary or substitute).
- Population: Increased population generally increases demand.
- Taste: Changes in customer preferences impact demand.
-
Supply:
- Price: Higher prices increase supply to maximize profits.
- Production Cost: Increased costs limit the willingness to supply more.
- Related Goods: Prices of related goods (complementaries) affect supply.
- Government Policies: Policies like regulations impact supply decisions.
- Future Price Expectations: Expectations on future prices influence present-day supply.
Demand-Income Relation
- Normal Goods: Demand increases with income.
- Inferior Goods: Demand decreases with income.
- Giffen Goods: A specific type of inferior good where demand increases as price rises.
- Cross-Price Effect: Change in demand for one good due to a price change in another good.
- Substitute Goods: If the price of one good rises, demand for a substitute good increases.
- Complementary Goods: If the price of one good rises, demand for a complementary good decreases.
Elasticity
- Elasticity is the percentage change in quantity divided by the percentage change in price.
- Perfectly Inelastic: Elasticity = 0. Demand is unresponsive to price changes.
- Inelastic: Elasticity < 1. Demand is relatively unresponsive to price changes.
- Elastic: Elasticity > 1. Demand is highly responsive to price changes.
- Perfectly Elastic: Elasticity = ∞. Demand is infinitely responsive to price changes.
- Unit Elastic: Elasticity = 1. Percentage change in quantity demanded equals percentage change in price.
Budget Line
- A budget line shows all possible combinations of goods and services that can be purchased with a certain budget.
- It is always a straight line concave to the origin.
Utility
- Total Utility: Overall satisfaction from consuming a quantity of a good or service.
- Marginal Utility: Extra satisfaction gained from consuming one more unit of a good.
- Diminishing Marginal Utility: Marginal utility decreases as more units of a good or service are consumed.
- Rational Choice: Consumers aim to maximize total utility while considering marginal utility and budget constraints.
Indifference Curves
- Graphical representation of various combinations of two goods that provide the consumer with the same level of satisfaction.
- Downward sloping, concave to the origin.
- They do not intersect.
Production Theory
- Production involves using factors of production (land, labor, capital, and entrepreneurship) to create goods and services.
- Production Possibility Frontier (PPF): A graphical representation of the maximum possible output combination given the available resources and technology.
- Implicit Cost: Cost of forgone opportunities.
- Explicit Cost: Actual out-of-pocket expenses.
- Opportunity Cost: Cost of the next best alternative forgone.
- Break-Even Point: Where total cost equals total revenue.
- Equilibrium Point: Where supply equals demand in a market.
- Economies of Scale: Reductions in average cost as production increases.
Law of Diminishing Marginal Returns
- Increasing one input (such as labor) while holding other inputs constant will eventually lead to diminishing increases in production.
Cost Functions
- Relationship between production (inputs) and costs.
- Total Cost (TC): Sum of fixed cost (FC) and variable cost (VC).
- Marginal Cost (MC): The change in total cost resulting from producing one more unit of output.
- Average Total Cost (ATC): Total cost divided by the number of units produced.
General Microeconomic Key Points
- Marginal Productivity: Explains differing earnings based on input contribution (labor, rent).
- Nash Equilibrium: Participants' strategy decisions are independent of others decisions in a game, making changes in strategy not beneficial for a participant.
- Pareto Efficiency: A state where one participant cannot be made better off without making someone else worse off.
- Gini Coefficient: Measure of income inequality.
- Free Rider Problem: Benefiting from a public good without contributing.
- Veblen Goods: Luxury goods with increasing demand as price rises.
Market Structures
- Perfect Competition: Many buyers and sellers; homogeneous products.
- Monopoly: One seller with unique product; high barriers to new entry.
- Monopolistic Competition: Many sellers; differentiated products.
- Oligopoly: Few dominant sellers; interdependent firms.
- Duopoly: Only two sellers.
Macroeconomics
- GDP: Total value of goods and services produced within a country's borders.
- GNP: Total value of goods and services produced by a country's citizens, including earnings from abroad.
- NNP: Gross National Product minus depreciation.
- National Income: Wage, rent, and profit before taxes.
- Personal Income: Income earned by people after taxes and other obligations.
- Disposable income: Money left after taxes and obligations.
- Real income: Money adjusted for inflation.
- GDP Calculation (3 approaches):
- Production: Sum of value added each stage of production.
- Income: Sum of all income earned.
- Expenditure: Sum of all expenditures.
Inflation & Deflation
- Inflation: Rising prices, decreasing purchasing power.
- Deflation: Falling prices, increasing purchasing power.
- Nominal GDP: Uncorrected GDP measures.
- Real GDP: Adjusted GDP for inflation.
- Recessions: Negative economic growth periods.
- Depressions: Severe and prolonged recessions.
- Economic Models:
- Classical Model: Free Market
- Keynesian Model: Government Intervention
Fiscal and Monetary Policy
- Fiscal Policy: Government spending and taxation to manage the economy.
- Monetary Policy: Central bank actions to control money supply and credit conditions.
Unemployment
- Cyclical Unemployment: Driven by economic downturns (recessions).
- Frictional Unemployment: Temporary unemployment between jobs.
- Structural Unemployment: Unemployment due to mismatch between skills and job market demands.
- Key Economic Sectors:
- Primary: Direct resource use (agriculture, mining).
- Secondary: Manufacturing.
- Tertiary: Services (retail, finance, tourism).
Money and Banking
- Functions of Money: Medium of exchange, store of value, unit of account, standard of deferred payment.
- Reserve Bank of India (RBI): Issuing currency, managing exchange reserves, and regulating banks.
- RBI Monetary Tools: Statutory liquidity ratio (SLR), cash reserve ratio (CRR), open market operations (OMO), and repurchase agreements (REPO).
- Commercial Banks: Accept deposits, make loans, support transactions (cheques, transfers, electronic payments).
International Trade
- Balance of Trade: Difference between a country's exports and imports of goods.
- Balance of Payments: Record of a country's transactions with the rest of the world.
- Current Account: Exports, imports, income, and current transfers.
- Capital Account: Capital transfers and ownership of non-produced assets.
- Financial Account: Foreign investment (direct and portfolio).
- Foreign Exchange Reserves: A country's central bank holds these reserves for stability.
- Foreign Direct Investment (FDI): Long-term investment in a business activity.
- Foreign Institutional Investors (FII): Short-term investments in financial assets (bonds, stocks).
Public Finances
- Taxes: Government revenue from income, consumption, property, and other sources.
- Direct Taxes: Paid directly by taxpayers.
- Indirect Taxes: Paid indirectly through goods/services.
- GST: Comprehensive value-added tax; widely implemented in India.
- Government Budgeting: Estimating revenue and planning expenditures.
- Capital Budget: Managing assets and investments.
- Revenue Budget: Managing recurring revenue and expenditure.
- Budget Deficit: Difference between total expenditure and total receipts.
- Fiscal Deficit: Budget deficit excluding borrowing.
Nationalisation, Privatisation and Disinvestment
- Nationalization: Transferring ownership and control from private to public sector.
- Privatization: Transferring ownership and control from public to private sector.
- Disinvestment: Reducing government stake in a public sector enterprise (e.g., by selling shares)
Economic Planning
- Imperative Planning: Centralized government planning regarding production and distribution.
- Indicative Planning: Government provides guidelines, but private sector retains flexibility.
- Perspective Planning: Long-term planning covering several years.
- Rolling Plan: Updated and revised plan regularly to allow for feedback
Environmental Reforms
- Cost-Benefit Analysis : Assessing economic and environmental factors.
- Environmental Valuation: Assigning economic values to environmental benefits in order to gain more support for conservation or restoration measures.
- Green GDP: Modifying GDP to account for environmental effects of production/consumption.
- Carbon Trading: Market system for trading emission permits in order to limit emission levels.
- UNFCCC: United Nations Framework Convention on Climate Change
- Kyoto Protocol: International agreement on reducing greenhouse gas emissions.
Sustainable Development Goals
- The global effort to improve conditions and create a better future for all
Economic Laws and Theories
- Say's Law: Supply creates its own demand.
- Phillips Curve: Inverse relationship between inflation and unemployment.
- Laffer Curve: The relationship between tax rates and tax revenue.
- Trickle-Down Economics: Benefits for wealthy will "trickle down" to others.
- Multiplier Effect: Initial spending leads to greater increases in income and activity.
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Test your knowledge of key microeconomic concepts such as production stages, marginal returns, cost formulas, and market structures. This quiz covers essential theories and principles that drive economic decision-making. Perfect for students looking to reinforce their understanding of microeconomics.