12th HSC Board Economics:

Answer the following questions in detail

Economics

1.	Choose the Correct Option	Solution	5 Marks
2	Complete the Correction	Solution	5 Marks
3	Give Economic Term	Solution	5 Marks
4	Find the Odd Word	Solution	5 Marks
5	Complete the following Statements	Solution	5 Marks
6	Assertion and Reasoning Questions	Solution	5 Marks
7	Identify and Explain the Concepts	Solution	6 Marks
8	Distinguish Between	Solution	6 Marks
9	Answer in Brief	Solution	12 Marks
10	State with Reasons, Do you Agree/ Disagree	Solution	12 Marks
11	Table, Diagram, Passage Based Questions	Solution	8 Marks
12	Answer in Detail	Solution	16 Marks

Chapter 1: Introduction to Microeconomics

and Macroeconomics

(1) Explain the features of microeconomics.

Ans.

The following are the features of microeconomics

(a) Study of individual units:

Microeconomics is concerned with the study of economic behavior of small individual economic units of an economy. For example, microeconomics studies the economic behavior of particular household, particular firm, price of a particular product, etc.

(b) Price theory:

Microeconomics is primarily concerned with price determination of goods and services as well as factors of production, viz., land, labour, capital and entrepreneur. Therefore, microeconomics is also known as Price Theory.

(c) Partial equilibrium:

Microeconomics isolates individual economic units from the other forces of economy. It analyses the equilibrium positions of individual economic units such as individual consumer. individual firm separately. Therefore, microeconomie analysis is a partial equilibrium analysis. Partial equilibrium analysis is based on the assumption of 'Ceteris Paribus'. 1.e. Other things remaining the same. Thus, partial equilibrium neglects the Interdependence between economic variables of an economy.

(d) Based on certain assumptions:

Microeconomics is based on certain assumptions such as full employment, pure capitalism Laissez-faire policy, perfect competition, etc. prevailing in an economy. tat in reality, an economy with such conditions does not exist. Most of the theories of microeconomics are based on the Ceteris Paribus assumption, Le. Other things remaining the same.

(e) Slicing method:

Microeconomics splits the economy into small individual units. Then it studies the economic behaviour of ach individual unit separately in detail. Thus, microeconomics uses slicing method for its analysis.

(F) Use of marginalism principle:

Consumers as well as producers take all important microeconomic decisions at the margin. Therefore, microeconomics uses marginalism principle as a tool of analysis.

(g) Analysis of market structures:

Microeconomics studies market structures such as perfect competition, monopoly, oligopoly. monopolistic competition, etc. It also describes how the prices of goods and services are determined in these markets.

(h) Limited scope:

Microeconomics does not deal with national economic problems such as poverty, unemployment. inflation, depression, deficit in balance of payments, etc. Therefore. microeconomics has limited scope.

(2) Explain the scope of microeconomics.

Ans.

The scope of microeconomics is mainly confined to price theory and resource allocation. Microeconomics seeks to obtain solutions to the basic economic questions such as what goods are to be produced, how many goods are to be produced, who should produce goods, how the goods are to be produced, how the produced goods are to be distributed, how the resources are to be efficiently allocated to production and consumption, etc. Thus, the scope of microeconomics can be explained as follows:

(A) Price Theory:

The scope of microeconomics is confined to price theory. It includes following price theories:

(a) Product pricing:

Microeconomics explains how the prices of variety of goods and services are determined. The prices of various goods and services get determined by the equilibrium of their demand and supply forces. Thus, theories of demand, supply, cost and production function are within the scope of microeconomics.

(b) Factor pricing:

Microeconomics also explain how the prices of factors of production, viz., land, labour, capital and entrepreneur are determined. The prices of factors of production also get determined by equilibrium of their demand and supply forces. Thus, theories of rent, wages, Interest and profit lie within the scope of microeconomics.

(B) Theory of welfare:

Theory of welfare also lies within the scope of microeconomics. Theory of welfare basically deals with efficiency in the allocation of resources. Efficiency in allocation of resources is attained when it results in the maximum satisfaction of people in an economy. Therefore, microeconomics studies the following three efficiencies:

(a) Efficiency in production:

Efficiency in production means to produce maximum possible amount of goods from the given amount of resources. Microeconomics analyses how efficiency in production can be obtained.

(b) Efficiency in consumption:

Efficiency in consumption means distribution of produced goods and services among the people for consumption in such a way as to maximize total satisfaction of society. Microeconomics analyses how efficiency in consumption can be obtained.

(c) Overall economic efficiency:

Overall economic efficiency means producing those goods which are most desired by people in society. Microeconomics analyses how overall economic efficiency can be obtained.

From these points, it can be noticed that the scope of microeconomics is mainly concerned only with price theory and resource allocation. It does not study the aggregates relating to whole economy. It does not study national economic problems such as unemployment. poverty, Inequality in income, etc. It does not include study of theory of growth, monetary policy, fiscal policy, etc. Therefore, the scope of microeconomics is comparatively limited and narrower.

(3) Explain the importance of microeconomics.
Ans.

The importance of microeconomics can be explained with the help of the following points:

(a) Helpful in explaining price determination:

Microeconomics helps in explaining the price determination of goods and services as well as factors of production.

(b) Helpful to understand the working of free market economy:

Microeconomics helps to understand how free market economy works and gets regulated by demand and supply principles. Microeconomics helps producers to take business decisions about what to produce, how to produce, how much to produce, etc. at Individual levels. There is no intervention by government or any other agency in this decision-making process.

(c) Helpful in foreign trade:

Microeconomics is useful in studying the aspects related to foreign trade such as effects of tariff. determination of exchange rate, gains from international trade, etc.

(d) Helpful in economic model building:

Microeconomics helps in understanding complex economic situations with its variety of models. Many terms, concepts, terminologies, tools of economic analysis of microeconomics have valuably contributed to the science of economics.

(e) Helpful to businessmen in taking business decisions:

Microeconomics help businessmen in formulating prices of products or services, minimizing the cost of production, analysing profitability of investment, attainment of maximum productivity, etc. It also helps businessmen in demand forecasting.

(f) Useful to government:

Microeconomics is useful to government In framing economic policies such as tax policy, public expenditure policy, price policy, etc. Microeconomics also guides government in attaining the goal of efficient allocation of resources and economic welfare of society.

(g) Basis of welfare economics:

Microeconomics provides explanation for the conditions of economic welfare. It explains how the maximum welfare of people in society can be achieved by avoiding wastage of resources.

Thus, microeconomies has many theoretical and practical importance as well as uses.

(4) Explain the concept of macroeconomics and its features.
Ans.

The word macro is derived from the Greek word 'makros', meaning large or aggregate (total). Macroeconomics therefore is the study of aggregates covering the entire economy. It is also known as Theory of Income and Employment or simply as Income Analysis. The following are the features of macroeconomics:

(a) Study of aggregates :

Macroeconomics deals with the study of a nation's economy as a whole. It is the study of very large, economy- wide aggregates such as national output or national income, total employment, aggregate demand, aggregate supply, total investment, total consumption, general price level, etc.

(b) Income theory:

Macroeconomics is also known as Theory of Income and Employment or Income Analysis. Macroeconomics explains the determination of the level of national income and employment and what causes fluctuations in them. Further it explains the growth of national income over a long period of time and social accounting.

(c) General equilibrium analysis:

Macroeconomic analysis is based on general equilibrium analysis. This analysis deals with entire economy in the context of equilibrium. It studies the behaviour of number of economic variables at a time and takes into consideration their functional relationship and interdependence. It explains how aggregate supply and aggregate demand are brought into equality and how equilibrium between these forces determine price level as well as level of income and employment. This whole analysis involves the study of number of variables and their interactions.

(d) Based on interdependence:

Macroeconomics takes accounts of interdependence between aggregative economic variables such as national income, total output, employment level, total investment and price level, etc. For example, it explains how change in the level of wal investment will finally change the level of national income, total output, employment level and eventually level of economic growth.

(e) Use of lumping method:

Macroeconomics deals with the behaviour of aggregates, Le. total values of economic variables related to whole economy. It uses method of lumping to deal with macro variables such as aggregate demand, aggregate supply, national cutput, etc.

(f) Study of growth models: '

Macroeconomics studies in detail various factors that contribute to economic growth and development. Macroeconomics is useful in developing economic growth models. These economic growth models are used for studying economic development. For example, Mahalanobis growth model emphasized on basic heavy Industries.

(g) Study of general price level:

Macroeconomics studies the determination of general price level. General price level is the average of all prices of goods and services currently being produced in the economy. Macroeconomics also studies the changes in the general price level. 1.e. trade cycles.

(h) Policy-oriented:

Macroeconomics, according to Keynes, is a policy-oriented science. Macroeconomic analysis helps in formulating suitable economic policies to promote economic growth, to generate employment, to control inflation, to pull the economy out of depression, etc.

(5) Explain the importance of macroeconomics.
Ans.

The importance of macroeconomics can be explained with the help of the following points:

(a) Explanation of functioning of an economy:

Macroeconomic analysis gives an idea of the functioning of an economic system. It helps to understand the economic behaviour patterns of aggregative variables in a large and complex economic system.

(b) Explanation of economic fluctuations:

Macroeconomics helps to analyse the causes of fluctuations in national income, total output, trade cycle and employment level and makes an attempt to control them or reduce their severity.

(c) Study of national Income:

Study of immense importance as it is related to the study of national Income immense accounts. Without a study of national income. It is not possible to formulate correct economic policies.

(d) Consideration of economic development:

theories and models help to understand the economic and social problems of poor and developing countries such as poverty. Inequalities of income and wealth, differences in the standards of living of the people, etc. It suggests important steps to achieve economic development in these countries.

(e) Helpful in measuring the performance of an economy:

Macroeconomics helps to analyse the performance of an economy. National Income (NI) estimates are used to measure the performance of an economy over time by comparing the production of goods and services in one period with that of the other period.

(f) Study of macroeconomic variables:

To understand the working of the economy, macroeconomics focuses upon the study of macroeconomic variables. In India, main economic problems are related to the macroeconomic variables such as total income, total output, employment level and general price level in the economy. Macroeconomics studies the problems related to these macroeconomic variables.

(g) Study of level of Employment:

Macroeconomics helps to analyse the general level of employment and output in an economy.

(6) Write in brief about the historical review of macro- economics.
Ans.

The historical review of macroeconomics can be explained with the help of the following points:

(1) Macro approach to study economy is comparatively new and is of recent origin.

(2) Though it is a modern approach, it did prevail even before the evolution of microeconomics.

(3) In the 16th and 17th century, followers of Mercantilists (a group of English merchants) advocated policies to the government which were based on macro approach.

(4) In the 18th century, Physiocrats (French Thinkers) tried to analyse the concept of national income and wealth.

(5) The Classical Economic theories of Prof. Adam Smith. Prof. Ricardo and Prof. J. S. Mill discussed the determination of national income into total wages, total rent and total profit. But their macro analysis was combined with micro analysis.

(6) The Neo-classical economists especially Dr. Marshall and Pigou, relegated macroeconomics to the background. Their micro analysis ruled the world of economics till the Great Depression of 1930s.

(7) After the Great Depression, revolutionary and fundamental changes took place in the economic thinking. Lord John Maynard Keynes published his very famous book the "General Theory of Employment, Interest and Money" in 1936. Keynes used macro approach to analyse economic problems. After the publication of Keynesian theory, macroeconomic analysis became the more important and popular approach to economic analysis. Therefore, the credit for the development of macroeconomic approach goes to Lord Keynes.

(8) Besides Keynes, Malthus, Karl Marx, Wicksell, Walrus, Irving Fisher are other economists who have participated in the development of macroeconomics.

Chapter 2: Utility Analysis

(1) State and explain the law of DMU and explain its exceptions. (July '22)
Ans.

(A) The law of DMU:

(1) The law of DMU was first proposed by Mr. Gossen. However, this law was further explained by Dr. Alfred Marshall in his famous book, 'Principles of Economics' in 1890.

(2) Statement of Law:

According to Dr. Alfred Marshall, "Other things being equal, the additional benefit which a person derives from the increase in the stock of a thing diminishes with every increase in the stock that he already has."

(B) Exceptions:

There are no real exceptions to the law of DMU. In the following some cases it is considered that the law of DMU is not valid:

(a) Hobbies:

It is said that in case of certain hobbies such as collection of stamps, rare coins, etc. an individual derives more and more utility from every additional stamp or coin.

It is also said that people who are fond of music derive more and more utility from every additional listening of music. It is also said that people who are fond of reading books derive more and more utility from every additional reading of book.

But in fact as per the assumptions of homogeneity and continuity of the law of DMU, if an individual is asked to collect same type of stamp continuously or to listen same song continuously or to read the same book continuously, the marginal utility will fall and the law will become applicable.

(b) Misers:

It is said that for a miser, the marginal utility of money increases with every increase in the stock of money. But the miser's behaviour is irrational. Thus, he violates the rationality assumption of the law. Therefore, misers are not real exception to the law.

(c) Addictions:

It is said that, a drunkard derives more and more marginal utility from consumption of every additional unit of liquor. But the drunkard's behaviour is irrational. Thus, he violates the rationality assumption of the law. Therefore, the drunkards are not real exception to the law.

(d) Power:

It is said that a person derives more and more utility from every additional acquisition of power. But a person's lust for power is irrational. Thus, he violates the rationality assumption of the law. So power is not a real exception to the law.

(e) Money:

It is said that a person derives more and more marginal utility with every additional unit of a money. But in fact the marginal utility of money also diminishes as its stock increases.

For example, a poor person will get more marginal utility from a 5-rupee note, but a rich person will get less marginal utility from the same 5-rupee note. Thus, in fact, there are no real exceptions to the law of DMU. It has universal applicability.

(8) State and explain the law of DMU.
Ans.

The law of DMU can be explained with the help of the following points:

(1) The law of DMU was first proposed by Mr. Gossen. However, this law was further explained by Dr. Alfred Marshall in his famous book. 'Principles of Economics' in 1890.

(2) Statement of Law:

According to Dr. Alfred Marshall, "Other things being equal, the additional benefit which a person derives from the increase in the stock of a thing diminishes with every Increase in the stock that he already has."

(3) The law of DMU can be explained with the help of the following schedule:

Unit of a Commodity	1	2	3	4	5	6
MU	08	06	04	02	00	-02

(4) From the schedule, it can be seen that as the stock of commodity increases from 1 to 6, the marginal utility diminishes from 8 to-02.

(5) The law of DMU can be explained with the help of the following diagram:

(6) In the diagram, the Y-axis represents the marginal utility and the X-axis represents the units of consumption. It can be seen that. the consumer derives the maximum utility from the first unit of the consumption. As consumer keeps consuming the further units, the marginal utility keeps falling.

(7) On the consumption of the 5th unit, the marginal utility becomes Therefore, on the consumption of 5th unit, the marginal utility curve touches the X-axis. At this point the total utility is maximum. zero Therefore, this point is called the point of satiety.

(8) On the consumption of the 6th unit, the marginal utility becomes negative. As its effect, the total utility also starts diminishing From beginning to end, the marginal utility curve slopes downwards from the left to the right.

9) Explain the assumptions of the law of DMU.

Ans.

The assumptions of the law of DMU are as follows:

(a) Rationality:

The law of DMU assumes that a consumer is a rational person and his behaviour is normal. The law assumes that a rational consumer wants to maximise his satisfaction.

(b) Cardinal measurement: The law of DMU assumes that utility an be measured in numbers. It also assumes that utility derived from each unit of a commodity can be compared.

(c) Homogeneity:

The law of DMU assumes that units of a commodity consumed by a consumer are identical. It means all units of consumption of a commodity are perfectly uniform in respect of Size, shape, taste, colour, quality, etc.

(d) Continuity:

The law of DMU assumes that all units of Consumption are consumed in quick succession, one after another. Thus law assumes that there is no time gap between the consumption of any two units.

(e) Reasonability:

The law of DMU assumes that the size of unit of commodity of consumption is neither too small nor too big. Thus, The law assumes that the size of unit of commodity of consumption is reasonable.

(f) Constancy:

The law assumes that income, taste, habits, references, likings, etc. of a consumer as well as the price of commodity remains constant.

(g) Divisibility:

The law assumes that the commodity consumed by the consumer is divisible.

(h) Single want:

The law of DMU assumes that the commodity is used to satisfy only a single want, i.e. a want of consumption. Thus, law assumes that a commodity is not used for any other use except consumption.

(i) Constant marginal utility of money:

The law assumes that when the consumer spends his income on a commodity, the utility of remaining money income remains the same as his total income.

(10) Explain the exceptions to the law of DMU.

Ans.

There are no real exceptions to the law of DMU. In the following some cases it is considered that the law of DMU is not valid:

(a) Hobbies:

It is said that in case of certain hobbies such as collection of stamps, rare coins, etc. an individual derives more and more utility from every additional stamp or coin.

(b) Misers:

(c) Addictions:

(d) Power:

(e) Money:

It is said that a person derives more and more marginal utility with every additional unit of a money. But in fact the marginal utility of money also diminishes as its stock increases.

(11) State and explain the law of DMU. What are its limitations?

Ans.

(A) The law of DMU:

(1) The law of DMU was first proposed by Mr. Gossen. However, this law was further explained by Dr. Alfred Marshall in his famous book, 'Principles of Economics' in 1890.

(2) Statement of Law:

(B) Limitations:

(a) Unrealistic assumptions:

The law of DMU is based on unrealistic assumptions such as homogeneity of units, continuity in consumption, rationality of consumer, etc. but it is different to fulfil all these conditions at a point of time.

(b) Cardinal measurement:

The law of DMU wrongly assumes that utility can be measured in numbers, but in reality cardinal measurement of utility is not possible as utility is a psychological concept.

(c) Indivisible goods:

The law is not applicable to bulky and indivisible goods like T.V., cars, houses, etc. as they are purchased in single unit at a time.

(d) Constant marginal utility of money:

The law of DMU wrongly assumes that the marginal utility of money remains constant.

(e) A single want:

The law of DMU wrongly assumes that a person wants to satisfy a single want at a time.

(12) Explain the relationship between Marginal Utility and Price.

Ans.

The law of demand is based on the law of DMU. In order to understand how the law of demand is based on the law of DMU, it Is necessary to understand the relationship between marginal utility and price first. To understand the relationship between marginal utility and price, it is essential to convert marginal utility in terms of price. Marginal utility in terms of price can be derived by assuming certain monetary value per unit of marginal utility.

For example, one unit of Marginal Utility = 10 R. The relationship between marginal utility in terms of money and price can be explained with the help of the following schedule:

No. of Units	MU/ Units of X	MU in Terms of Money 1 unit = 10	Market Price /Unit of X = 50	Comparison between MU and Price
1	10	100 (10 x ₹ 10)	50	100 MU > ₹ 50
2	08	80 (8 x ₹ 10)	50	80 MU > ₹ 50
3	07	70 (7 x ₹ 10)	50	70 MU > ₹ 50
4	05	50 (5 x ₹ 10)	50	50 MU = ₹ 50
5	03	30 (3 x ₹ 10)	50	30 MU < ₹ 50
6	01	10 (1 x ₹ 10)	50	10 MU < ₹ 50

(1) From the table, it can be seen that, initially due to greater intensity of want, for initial units of consumption (1st, 2nd and 3rd units), marginal utility in terms of money is greater than the price paid. All these units of consumption will be demanded by a rational consumer.

(2) Units which a rational consumer is willing to buy (demand) and consume for which he has to pay less than the MU in terms of money are called as "Intra-marginal units" (MU_x > P_x)

(3) Due to continuity in consumption, at a certain point (At 4th unit) marginal utility in terms of money and price becomes equal. This is the state of consumer's equilibrium. At this point, the want of a rational consumer gets fully satisfied and therefore he stops demanding further units of consumption.

(4) Unit which a rational consumer is willing to buy (demand) and consume for which he has to pay equal to the MU in terms of price is called "Marginal unit" (MU_x = P_x)

(5) Beyond the state of consumer's equilibrium, if consumer continues to consume the further units of consumption (5th and 6th unit), MU in terms of money is less than the price paid. Therefore. all these units of consumption will not be demanded by a rational consumer.

(6) Units which are oval consumer is not willing to buy (demand) and consume dashich he has to pay more than the MU in terms of money are called as "Extra-marginal units" (MU_x < P_x)

(7) From the schedule, it can be seen that, if consumer consumes various units of consumption of a commodity in quick succession, the marginal utility diminishes. Therefore, consumer is willing to buy initial units of consumption at comparatively higher price, but the further units of consumption only at a comparatively low price.

(8) Thus, the relationship between marginal utility and price paves way for law of demand.

(13) Explain the features or characteristics of utility.

Ans.

The following are the important features or characteristics of utility:

(a) Relative concept:

Utility changes from time to time and from place to place. For example, woollen clothes possess more utility during winter and less utility during summer. Similarly, they possess more utility in Kashmir and less utility in Mumbai.

(b) Subjective concept:

Utility gets influenced by person's likes. dislikes, habits, preferences, etc. Therefore, utility changes from person to person. For example, a non-vegetarian finds utility in mutton, but the vegetarian does not find utility from it.

(c) Ethically neutral concept:

The concept of utility is morally and ethically colourless. Utility never takes into account the concepts such as good or bad, moral or immoral, etc. For example, in economics, milk as well as wine possesses utility.

(d) Utility differs from usefulness:

Commodity possessing Utility may not always possess usefulness. Utility and usefulness are totally different concepts. For example, a harmful product like poison possesses utility but it does not possess usefulness.

(e) Utility differs from pleasure:

A commodity possessing utility may not always provide pleasure to the consumer. Thus, utility and pleasure are totally different concepts. For example, injection possesses utility, but its consumption does not give pleasure to the patient.

(f) Utility differs from satisfaction:

Utility and satisfaction are totally different concepts. Utility is the starting point of consumption. whereas satisfaction is derived after consumption. For example, for a thirsty person a glass of water has utility. When he drinks that glass of water he derives satisfaction from it.

(g) Measurement of utility is hypothetical:

Utility is a psychological concept. It has no physical existence. Therefore it cannot be measured in numbers. Therefore, only hypothetical measurement of utility is possible.

(h) Utility is multipurpose:

A particular commodity can satisfy many wants of a particular individual or more than one individual at a time. For example, one individual can make use of electricity for operating washing machine, another individual can make use of electricity to operate air-conditioning unit.

(i) Depends upon the intensity of want:

Utility has direct relation to intensity of want. Individual finds more utility in a commodity if his want is more intense and vice versa. For example, hungry individual finds more utility in food than a person who is not so hungry.

(j) It is the basis of demand:

Utility forms the basis for demand. Generally, an individual demands a commodity when it has utility for him. Unless a commodity provides utility, it is not demanded.

(Write any eight points in the answer.)

Chapter 3 (A): Demand Analysis

(14) State the Law of Demand with its assumptions. (Sept. '21)

Ans.

(A) Statement of the Law of Demand:

According to Dr. Alfred Marshall, "Other things being equal, the amount demanded rises with a fall in price; and diminishes with a rise in price."

(B) Assumptions:

Ans. The following are the assumptions to the Law of Demand:

(a) Constant level of income:

If there is rise in the income of a consumer, demand for different goods and services tends to rise even at a higher prices. In that case, the law becomes inapplicable. Therefore, to prove the law, it is assumed that there is no change in consumer's income.

(b) No change in the size of population:

Due to a rise in the size of population, the demand for all goods and services tends to rise at their constant prices. In such a situation, the Law of Demand becomes inapplicable. Therefore, to prove the validity of the law, it is assumed that the size and the composition of population remain constant.

(c) No change in prices of substitute goods:

Due to the availability of cheaper substitute goods, the demand for a commodity in question tends to fall at its existing price and vice versa. Therefore, the law assumes that there is no change in the prices of substitute goods of a commodity in question.

(d) No change in prices of complementary goods:

If the prices of complementary goods rise, the demand for a commodity in question tends to fall at its existing price and vice versa. Therefore, the law assumes that there is no change in the prices of complementary goods of a commodity in question.

(e) No expectations regarding future price:

If a consumer anticipates a fall in price of the commodity in the near future, the demand for the commodity in question falls at the present price and vice versa. Therefore, the law assumes that consumers do not have any expectations regarding rise or fall in the price of a commodity in the near future.

(f) No change in tastes, habits, fashions:

If consumer's liking for a particular commodity increases, then the demand for such a commodity tends to rise even at a higher price and vice versa. In such circumstances, the Law of Demand does not hold good. Therefore, to maintain the validity of the law, it is assumed that there is no change in tastes, habits, preferences of the consumer.

(g) No change in government policy:

Rise in the taxes leads to decrease in the disposable income of the consumer. This in turn decreases the demand for goods and services at their current prices and vice versa. Therefore, to prove the law, it is assumed that there is no change in government's taxation policy.

(Write any six points in the answer.)

(15) Explain the concepts of variations and changes in demand with the help of diagrams. (March '22)

Ans.

(A) Variations in demand:

Variations in demand can be explained with the help of the following points:

(1) Meaning:

Other factors remaining constant, a rise or fall In demand due to the change in the price of a commodity, is called variation in demand. Variation in demand is of the following two types:

(2) Expansion in Demand:

Other factors remaining constant. arise in demand due to fall in the price of a commodity, is called expansion in demand.

(3) Contraction in Demand:

Other factors remaining constant, fall in demand due to a rise in the price of a commodity, is called contraction in demand.

(4) Diagram:

Variation in demand can be explained with the help of the following diagram:

From the given diagram, it can be seen that, other things being equal, 25 price falls from OP to OP1 demand rises from OQ to OQ1. This rise In demand is called expansion in demand. In expansion in demand, the equilibrium point of price and demand moves downwards from the left to the right (e to e1) on the same demand curve.

On the other hand, as price rises from OP to OP2 demand falls from OQ to OQ2 This fall in demand is called contraction in demand. In contraction in demand, the equilibrium point of price and demand moves upwards from the right to the left (e to e2 ) on the same demand curve.

(B) Changes in demand:

Change in demand can be explained with the help of the following points:

(1) Meaning:

Price remaining constant, a rise or fall in demand due to the change in the other factors, is called change in demand. Change in demand is of the following two types:

(2) Increase in Demand:

Price remaining constant, a rise in demand due to favorable changes in other factors, is called increase in demand.

(3) Decrease in Demand:

Price remaining constant, a fall in the demand due to unfavourable changes in other factors is called decrease in demand.

(4) Diagram:

Change in demand can be explained with the help of the following diagram:

From the diagram, it can be seen that price remaining equal, i.e. OP due to favourable changes in other factors, demand rises from Og to OQ1 This rise in demand is called as increase in demand. In increase in demand, demand curve shifts to the right of the original demand curve and the equilibrium point of price and demand shifts from the left to the right (e to el) on the new demand curve

On the other hand, price remaining equal, 1.e. OP due to unfavourable changes in other factors, demand falls from OQ to OQ1,. This fall in demand is called as decrease in demand. In decrease in demand. demand curve shifts to the left of the original demand curve and the equilibrium point of price and demand shifts from the right to the left (e to e₂) on the new demand curve.

(16) State and explain the Law of Demand with exceptions. (March 123; July '23)

Ans.

(A) Statement of the Law of Demand: According to Dr. Alfred Marshall, "Other things being equal, the amount demanded rises with a fall in price; and diminishes with a rise in price."

The following are the exceptions to the Law of Demand:

(a) Giffen goods:

Sir Robert Giffen from England noticed that in the case of inferior quality products (Giffen goods), the Law of Demand does not hold good. When the price of Giffen goods falls, buyers' real Income gets increased. As its effect, buyers demand more of superior quality goods. Thus, a fall in the prices of Giffen goods leads to fall in their demand. For example, as the price of bread falls, people demand less of bread and more of meat.

(b) Prestige goods:

Diamonds, luxury cars, posh bungalows, etc. are considered as prestige goods. Such goods have a snob appeal. Therefore, prestige goods are demanded in greater quantities at higher prices and vice versa.

(c) Speculation:

Some consumers anticipate a fall in the price of a commodity in the near future, so the demand for the commodity in question falls at the present price. Similarly, some consumers anticipate a rise in the price of the commodity in the near future, so the demand for the commodity in question rises at the present price.

(d) Price illusions:

Many consumers wrongly assume that high priced goods are of better quality. Due to this illusion, such buyers demand costlier goods in greater quantities.

(e) Ignorance:

Many times the buyers do not have a complete knowledge of a market. Due to such ignorance, they demand costlier goods in greater quantities.

(f) Habitual goods:

Certain goods like tobacco, cigarettes, etc. are consumed due to the habits. Therefore, demand of such goods remains constant even if their prices change.

In all these cases, the Law of Demand becomes inapplicable. Therefore, they are considered as exceptions to the Law of Demand. The exceptions to the Law of Demand can be explained with the help of the following diagram:

In the diagram. Y-axis represents the price of a commodity and X-axis represents the demand of commodity x. From the diagram, It can be seen that the exceptional demand curve, Le. DD slopes upwards from the left to the right. In exceptional cases the price and demand are directly related to each other. Therefore, the exceptional demand curve has a positive slope.

(17) Explain the assumptions to the Law of Demand.

Ans. The following are the assumptions to the Law of Demand:

(a) Constant level of income:

(b) No change in the size of population:

(c) No change in prices of substitute goods:

(d) No change in prices of complementary goods:

(e) No expectations regarding future price:

(f) No change in tastes, habits, fashions:

(g) No change in government policy:

(18) What are the exceptions to the Law of Demand.

Ans.

The following are the exceptions to the Law of Demand:

(a) Giffen goods:

(b) Prestige goods:

(c) Speculation:

(d) Price illusions:

Many consumers wrongly assume that high priced goods are of better quality. Due to this illusion, such buyers demand costlier goods in greater quantities.

(e) Ignorance:

Many times the buyers do not have a complete knowledge of a market. Due to such ignorance, they demand costlier goods in greater quantities.

(f) Habitual goods:

Certain goods like tobacco, cigarettes, etc. are consumed due to the habits. Therefore, demand of such goods remains constant even if their prices change.

Chapter 3 (B): Elasticity of Demand

(19) What are the factors influencing the elasticity of demand?

Ans.

The factors influencing the elasticity of demand are as follows:

(a) Nature of Commodities:

Nature of commodities is one of the important factors influencing the elasticity of demand. We can classify commodities as necessaries, comforts and luxury goods. The necessary goods like salt, medicines, etc. have less elastic demand. On the other hand, comfort and luxury goods like cars, perfumes. jewellery, etc. have more elastic demand.

(b) Availability of Substitute Goods:

A commodity having larger number of substitutes tends to have elastic demand and vice versa. For example, due to the availability of larger number of substitutes, the demand for cold drinks tends to be elastic. Similarly due to a lack of substitutes, the demand for salt is inelastic.

(c) Number of uses:

A commodity which has specific use has less elastic demand. For example, a demand for a particular vegetable is less elastic. A commodity which can be put to several uses has elastic demand. When the price of such a commodity falls, it is put into various uses. Similarly, when the price of such a commodity rises, it is put only for important purposes. For example, electricity has elastic demand.

(d) Habits:

The demand for habituated goods tends to be inelastic. For example, a smoker's demand for cigarettes is inelastic. On the other hand, the demand for non-habituated goods tends to be elastic.. For example, demand for biscuits is more elastic.

(e) Durability:

Elasticity of demand also gets influenced by the durability of a commodity. Durable commodities such as washing machine, television set tend to have elastic demand and the perishable commodities such as milk, eggs tend to have inelastic demand.

(f) Complementary Goods:

Demand for complementary goods is inelastic. Complementary goods are demanded jointly. Therefore. their demand remains almost fixed. For example, the demand only for sim card or mobile phone tends to be inelastic. The goods which are not complementary to each other have more elastic demand. For example, the demand of only magazines or only cold drinks is elastic.

(g) Income of consumer:

The demand for commodities tends to be inelastic with a rise in income and elastic with a fall in income. For example, a rich person's demand for a particular commodity may be inelastic, but a poor person's demand for that same commodity may be elastic.

(h) Urgency of needs:

The commodities that are needed urgently, Le. the commodities whose consumption cannot be postponed have less elastic demand. For example, demand for medicines. On the other hand, the commodities that are not needed urgently, i.e. the commodities whose consumption can be postponed have more elastic demand. For example, demand for computer.

(i) Time period:

In a short run, the demand for specific commodity may tend to be inelastic. In the long run, a consumer may demand a cheaper substitute commodity. Thus, the demand for an original commodity tends to be elastic in the long run.

(20) Explain the geometric method of measuring elasticity of demand.

Ans.

(1) Geometric method of measuring elasticity of demand is also developed by Dr. Alfred Marshall. This method is also known as point method of measuring elasticity of demand. The ratio method and total outlay method are unable to measure elasticity of demand at a given point on a demand curve. Geometric method is therefore used to find out the elasticity of demand at any given point on a demand curve.

(2) For measuring the elasticity of demand at a given point on the linear demand curve, the linear demand curve can be extended to meet the Y-axis at P and X-axis at as follows:

The price elasticity of demand at a point 'A' can be calculated with the help of the following formula :

Lower segment of the demand curve below the given point Upper segment of the demand curve above the given point ... Ed = AQ / AP = 2 / 6=0.33

At point 'A' the numerical value of elasticity of demand is less than one (Ed = 0.33). Therefore at point 'A' the demand is relatively inelastic.

(3) For measuring the elasticity of demand at a given point on the non-linear demand curve, tangent from a given point touching the Y-axis and X-axis is drawn as follows: RQ = 6 cm, RP = 2 cm

The price elasticity of demand at a point 'R' can be calculated with the help of the following formula:

Ed = Lower segment of the tangent below the given point / Upper segment of the tangent above the given point

Ed = RQ / RP = 6/2 = 3

At point 'R' the numerical value of elasticity of demand is greater than one (Ed=3). Therefore at point 'R' the demand is relatively elastic.

(4) The following conclusions can be drawn with the help of the geometrical method of measuring elasticity of demand:

A position of a given point with reference to Y-axis and X-axis	Value of Elasticity of Demand	Type of Elasticity of Demand
1. Given point on a Y-axis.	Infinity (Ed = α)	Perfectly demand elastic
Given point is relatively close to Y-axis	Greater than one (Ed > 1)	Relatively elastic demand
Given point is equally close to Y-axis and X-axis	One (Ed = 1)	Unitary demand elastic
Given point is relatively close to X-axis	lesser than one (Ed < 1)	Relatively inelastic demand
Given point on the X-axis	Zero (Ed = 0)	Perfectly inelastic demand

Chapter 4: Supply Analysis

(21) State and explain the Law of Supply.

Ans.

The Law of Supply can be stated and explained with the help of the following points:

(a) Law of Supply: The Law of Supply was propounded by Dr. Alfred Marshall in his famous book. 'Principles of Economics. The Law of Supply explains the direct relationship between the price and the supply.

(b) Statement of Law: "Other things being constant, the higher the price of a commodity, greater is the quantity supplied and lower the price of a commodity, smaller is the quantity supplied."

(c) Symbolic Representation: The Law of Supply can be expressed symbolically as follows:

S=f(Px)

Where, S, stands for supply of a commodity x, ƒ stands for function of and P, stands for the price of a commodity x.

(d) Individual Supply Schedule:

The Law of Supply can be explained with the help of the following individual supply schedule:

Price (₹)	Quantity Supplied (in units)
10	100
20	200
30	300
40	400
50	500

(e) Explanation:

From the above individual supply schedule it can be observed that at a lesser price (₹10) less units of commodity x are supplied (100 units). Similarly, at a higher price (₹50) more units of commodity x are supplied (500 units). Thus, there exists a direct relationship between the price and the quantity supplied.

(f) Individual Supply Curve:

The Law of Supply can be explained with the help of the following diagram of the individual supply curve:

(g) Explanation:

In the above diagram, Y-axis represents price of a commodity x and X-axis represents supply of a commodity x. From the above diagram it can be seen that the supply curve, i.e. SS slopes upwards from the left to the right. The supply curve has positive slope as there is direct relationship between the price and the supply.

(22) Explain the assumptions of the Law of Supply.

Ans.

The following are the assumptions of the Law of Supply

(a) Constant cost of production:

If the cost of production rises, producer's profit margin decreases. In such case, supply may decrease at a constant price. Similarly, if the cost of production falls. producer's profit margin increases. In such case, supply may increase at a constant price. In such conditions, the Law of Supply does not hold good. Therefore, to verify the law, it is assumed that the cost of production remains constant.

(b) Constant technique of production:

Improved technique of production may lead to an increase in production. This in turn may lead to increase in the supply at a constant price. Similarly, outdated technique of production may lead to decrease in production. This in turn, may lead to decrease in supply at a constant price. In such conditions, the Law of Supply becomes invalid. Therefore, to verify the law, it is assumed that techniques of production remain constant.

(c) No change in weather conditions:

Natural calamities like floods, earthquakes, etc. may decrease supply at constant prices. Similarly, due to favourable weather conditions production of agricultural goods may increase which may increase supply of agricultural goods at constant prices. Therefore, to verify the law it is assumed that there is no change in the weather conditions.

(d) No change in Government policy:

Increased taxes decrease the profit margin of the sellers. Therefore supply may decrease even at high price. Similarly, decreased taxes increases the profit margin of sellers. Therefore, supply may increase even at lower price. Similarly. government's financial assistance to particular industry may increase the supply of goods at a constant price. Therefore, to verify the law, it is assumed that government policies like taxation policy, trade policy. etc. remain unchanged.

(e) No change in transport cost:

Speedy transportation facilities saves the time and cost of transporting goods. This in turn may lead to increase in supply at constant prices. Similarly, slow transportation facilities increases the time and cost of transporting goods. This in turn may lead to decrease in supply at constant prices. Therefore, to verify the law, it is assumed that there is no change in transport cost.

(f) Prices of other goods remain constant:

If the prices of other products increases, the producer may transfer his resources to the production of these products. This in turn may lead to decrease in supply of the original product in question at its constant price. In such situation the Law of Supply will not hold True. Therefore, to verify the law, it is assumed that prices of other goods remain constant.

(g) No future expectations:

If the seller expects the price of a good to rise in the near future, he may not supply more of a good even its current price is high and vice versa. Thus, the future expectations regarding the change in the price make the law inapplicable. Therefore, the law assumes that the sellers do not expect future changes in the price of the product.

(23) Explain the exceptions to the Law of Supply.

Ans.

The exceptions to the Law of Supply are as follows:

(a) Labour supply:

In the initial stages, labour supply increases as wage rate increases. However, at a later stage, workers would prefer leisure to work. They prefer to earn same amount of income by working for less hours.

Therefore, in the initial stage, the labour supply curve slopes upwards from the left to the right. However, in the later stage, the labour supply curve bends backward. This is explained in the following schedule and diagram:

Wage Rate (Rs.) (Per share)	Hours of Work (Per Day)
100	5
200	7
300	6

From the schedule and diagram, it can be seen that in the initial stages as wage rate rises from 100 to 200, the supply of labour also rises from 5 hours to 7 hours. However, when the wage rate rises from ₹200 to 300, the supply of labours do not rise further; rather it is reduced from 7 hours to 6 hours. Thus, after the wage level 200, the supply curve slopes backwards from the point A towards Yazis Indicating that at higher prices fewer labour hours are supplied.

(b) Agricultural goods:

Agricultural goods require suitable climatic conditions and sufficient period of growth. Therefore, the supply of agricultural goods cannot be increased overnight though their prices rise. Similarly, due to favourable conditions, the supply of agricultural goods may rise even at their constant prices. Therefore, in case of agricultural goods the law is inapplicable. Therefore, agricultural goods are exception to the Law of Supply.

(c) Urgent need for cash:

If a seller needs cash urgently he is forced to sell more even at less prices/below market prices. Therefore, the sale of goods influenced by the need for cash is considered as an exception to the Law of Supply.

(d) Perishable goods:

Perishable goods like vegetables, flowers, eggs, etc. cannot be stored for a long period of time. Seller has to bear a huge loss, if perishable goods do not get sold. Therefore, in case of perishable goods, the supplier would offer to sell more quantities at lower prices to avoid losses. Therefore, the sale of perishable goods at low price is considered as an exception to the Law of Supply.

(e) Rare goods:

The seller shows less willingness to sell the rare and precious articles like rare paintings, old coins, antique goods, etc. even though their prices are high. The supply of rare articles remains unchanged though their prices are high. Therefore, rare articles are exceptions to the Law of Supply.

(24) Explain the determinants of supply.

Ans.

The determinants of supply are as follows:

(a) Price:

Price is the most important factor influencing the supply of a commodity. Price and supply are directly related to each other. i.e. more is supplied at a higher price and less is supplied at a lower price.

(b) State of technology:

Technological improvements reduce the cost of production, which lead to an increase in production and supply. On the other hand, traditional and outdated technology reduced the supply.

(c) Cost of production:

Cost of production and supply have Inverse relation. For example, if the price of factors of production creases, the cost of production also increases. This in turn decreases the profit margin of supplier and this in turn decreases the supply the other hand, fall in the cost of production increases the supply.

(d) Infrastructural facilities:

Infrastructure in the form of transport, communication, power, etc. influences the production process as well as supply. Inadequate infrastructural facilities decrease the supply and vice versa.

(e) Government policy:

Government policies on taxation, subsidies, industrial policies, etc. may encourage or discourage production and supply depending upon government policy measures. For example, government subsidies tend to increase the supply.

(f) Natural conditions:

The supply of agricultural products depends on the natural conditions. For example, a good monsoon and favourable climatic condition will produce a good harvest, so the supply of agricultural products will increase. On the other hand, unfavourable climatic conditions will lead to poor harvest and thus to a decrease in supply of agricultural goods.

(g) Future expectations about price:

If the prices are expected to rise in the near future, the producer may withhold the stock. This will reduce the supply though the current prices are high. On the other hand, if the prices are expected to fall in the near future, the producer sells more though current prices are low.

(h) Other factors:

Other factors like nature of the market, relative prices of other goods, export and imports, industrial relations. availability of factors of production, etc. determine the supply of various goods. For example, availability of factors of production increases the supply. On the other hand, shortage of factors of production decreases the supply.

Chapter 5: Forms of Market

(25) Explain the meaning of monopoly with its features. (March '23)

Ans.

(A) Meaning:

'Mono' means single and 'poly' means seller. Thus monopoly means single seller who has complete control over the supply of the commodity. According to Prof. E.H. Chamberlin, "A monopoly refers to a single firm which has control over the supply of a product which has no close substitute."

(B) Features: The following are the important features of monopoly:

(a) Single seller:

In a monopoly market, there is a single seller (monopolist). The monopolist has no rivals and therefore he faces no competition.

(b) No close substitute:

There are no close substitutes for the commodity sold in the monopoly market. Therefore buyers in a monopoly market have no choice. They have to buy a product from a monopolist or go without it. The cross elasticity of demand for a commodity sold by monopolist is zero.

(c) Barriers to entry:

Under monopoly, the entry of rival firms is restricted due to natural, legal or technical barriers. Thus, rival firms are not allowed to enter in a monopoly market.

(d) Complete control over the market supply:

The monopolist has the complete hold over the market supply as he is a sole producer of the commodity.

(e) Price maker:

The firm/monopolist in a monopoly market is a price maker and not a price taker. Monopolist can set any price of a commodity as he has complete control over the market supply of the product.

(f) Price discrimination:

Being a single seller, monopolist can charge consumer wise, place wise, timewise and use wise different prices for the same product. Price discrimination is an important feature of monopoly market. For example, Indian Railways provides railway tickets at concessional rates to the students and senior citizens.

(g) No discrimination between firm and industry:

As monopolist is the only seller in the monopoly market, a monopolist's firm itself is an industry in a monopoly market.

26) Explain the meaning of Perfect Competition with its features. (July '23)

Ans.

(A) Meaning: According to Mrs. Joan Robinson. "Perfect competition prevails when the demand for the output of each producer is perfectly elastic."

(B) Features: The features of perfect competition are as follows:

(a) Large number of buyers and sellers :

Large number of buyers:

In perfect competition, there is a large number of potential buyers buying commodity in market. Their number is so large that a single buyer cannot influence the market price. Thus, in perfect competition, a buyer is a price taker.

Large number of sellers:

In perfect competition, there is a large number of potential sellers selling their commodity in the market. Their number is so large that the single seller cannot influence the market price. The price of the product is determined by the interaction of market demand and market supply of a commodity. Thus, in perfect competition, a seller is a price taker.

(b) Homogeneous product:

In perfect competition, every firm produces and sells identical products, i.e. units of a commodity produced by each firm are uniform in respect of their size, shape, colour, quality, etc. Therefore, the commodities sold in perfect market are perfect substitutes to one another.

(c) Free entry and exit:

In perfect competition, any firm can freely enter or can exit the market without any restrictions. If there is a hope of profit, a new firm can easily enter the market. Similarly, if there is possibility of losses, the existing firm can freely exit the market.

(d) Single price:

In perfect competition, all units of a commodity have uniform price and it is determined by the equilibrium of the market demand and market supply.

(e) Perfect knowledge of market:

In perfect competition, the buyers as well as sellers have perfect knowledge of market conditions such as price of product, quality of product, source of supply of product, etc.

(f) Perfect mobility of factors of production:

In perfect competition, land has occupational mobility and other factors of production viz. labour, capital and entrepreneur have occupational mobility as well as geographical mobility.

(g) Absence of transport cost:

It is assumed that there is no transport cost in perfect competition. Therefore, uniform price prevails in perfect competition.

(h) No government intervention:

Laissez-faire policy prevails under perfect competition. It means that there is no government intervention in economic activities.

(27) What is Perfect Competition? Explain price determination under perfect competition.

Ans.

(A) Meaning:

A perfectly competitive market is one which has a large number of buyers and sellers of a homogeneous product. According to Mrs. Joan Robinson, "Perfect competition prevails when the demand for the output of each producer is perfectly elastic."

(B) Price Determination:

(1) The price of the product in perfect competition is determined by the interaction of market demand and market supply forces. This price is called an equilibrium price.

(2) According to Alfred Marshall, market demand and market supply are like two blades of a pair of scissors. Just as cutting cloth is not possible with the use of one blade, equilibrium price of a commodity cannot be determined either by the forces of market demand or by market supply alone.

(3) The equilibrium price determination under perfect competition is explained in the following schedule:

(4) Explanation:

(a) From the schedule, it can be seen that when the price of the commodity is low, the quantity demanded is more and quantity supplied is less. (For example, at price of apples₹ 100, quantity demanded is 5000 > quantity supplied is 1000. Similarly, at price of apples 200, quantity demanded is 4000 > quantity supplied is 2000.) In this condition of excess of market demand, the price of the commodity starts rising. Due to a rise in the price, the market demand starts contracting and market supply starts expanding In this way, the process of equilibrium in market demand and market supply gets initiated.

(b) From the schedule, it can be seen that when the price of the commodity is high, the quantity demanded is less and quantity supplied is more. (For example, at price of apples 400, quantity demanded is 2000 < quantity supplied is 4000. Similarly, at price of apples₹ 500, quantity demanded is 1000 < quantity supplied is 5000.) In this condition of excess of market supply, the price of the commodity starts falling. Due to a fall in the price, the market demand starts expanding and market supply starts falling. In this way, the process of equilibrium in market demand and market supply gets initiated.

(c) From the schedule, it can be seen that at a particular price, the market demand and market supply are equal to each other. (For example, at price of apples300, quantity demanded is 3000 = quantity supplied is 3000.) This is called an equilibrium price. An equilibrium price is the price at which quantity demanded is equal to the quantity supplied. In this way an equilibrium price is determined in perfect competition. This equilibrium price is accepted by the large number of buyers as well as large number of sellers.

(5) The equilibrium price determination under perfect competition Is explained in the following diagram:

(6) Explanation:

(a) In the diagram. Y-axis represents the price of apples and the X-axis represents the market demand and market supply of apples. In the diagram. DD is a downward sloping demand curve indicating the inverse relationship between the price and quantity demanded. SS is an upward sloping supply curve indicating the direct relationship between the price and the quantity supplied.

(b) From the diagram, it can be seen that both the curves intersect each other at point E which is the equilibrium price of apples. In this example, the equilibrium price is 300.

(28) Explain the types of monopoly.

Ans.

The following are the types of monopoly

(a) Private monopoly:

Private monopoly refers to sole ownership of the supply of goods or services by the private firm or individual. The main objective of private monopoly is earning the maximum profit. For example. Tata Group.

(b) Public monopoly:

Public monopoly refers to sole ownership of the supply of goods or services by the government. The main objective of public monopoly is not to earn the profit but to provide the maximum welfare to the society. For example, Indian Railways.

(c) Legal monopoly :

The monopoly that emerges on account of Igal provisions like patents, trade mark, copy rights, etc. is called legal monopoly. In a legal monopoly, the law forbids the potential competitors to imitate the design, form or shape of a product which is registered with a particular trade mark. If any firm violates the rights of the trade mark, legal action is taken against them. For example, Amul's products.

(d) Natural monopoly:

The monopoly created on the basis of natural conditions like climate, rainfall, specific location, etc. is known as natural monopoly. For example, monopoly created by the state of Punjab in the production of wheat due to favourable climatic conditions and fertile soil.

(e) Simple monopoly:

It is a type of monopoly, in which a monopolist charge consumerwise, placewise, timewise and usewise uniform price to the same product.

(f) Discriminating monopoly:

It is a type of monopoly, in which a monopolist charge consumerwise, placewise, timewise and usewise different prices to the same product. For example, In India, the electricity charges are comparatively less for its domestic use and comparatively high for its commercial use.

(g) Voluntary monopoly:

It is a type of monopoly where some monopolists voluntarily come together and form a group of monopolists to avoid cut-throat competition. This facilitates them to maximise the profit. For example, Organisation of Petroleum Exporting Countries (OPEC).

(29) What is meant by Oligopoly? Explain the features of Oligopoly.

Ans.

(A) Meaning:

The term oligopoly is derived from the Greek words 'Oligo' which means few and 'poly' which means sellers. Thus, oligopoly is a market where there are a few firms (sellers) in the market producing and selling either a homogeneous product or a differentiated product. For example, few firms providing mobile services.

(B) Features: The features of oligopoly are as follows:

(a) Few firms or sellers:

Under oligopoly market, there are few firms or sellers. From these few firms, some firms dominate the market and enjoy a considerable control over the price of a product.

(b) Interdependence:

Under oligopoly market, every seller has to be cautious with respect to any action taken by the competing firms. Since there are few sellers in the market, if any firm makes the change in the price, all other firms in the industry also try to follow the same to remain in the competition.

(c) Advertising:

Advertising is a powerful instrument in the hands of oligopolist. A firm under oligopoly uses aggressive and attractive advertising campaign with the intention of capturing a large part of the market. The cost incurred on advertising is called selling cost.

(d) Entry barriers:

Under oligopoly market, any firm can easily exit from the industry whenever it wants or when there is possibility of losses. On the other hand, a new firm has to face certain natural, technical entry barriers as well as legal entry barriers like government license, patents, etc.

(e) Lack of uniformity:

Under oligopoly, there is a lack of uniformity among the firms in terms of their size. Under oligopoly. some firms may be small with respect to its business operations while others may be of bigger size with respect to their business operations.

(f) Uncertainty:

Uncertainty is an important feature of oligopoly market. There is a considerable element of uncertainty due to change in demand of products as an effect of advertisements as well as different behaviour patterns shown by various firms. For example, in oligopoly market, rivals may join hands and co-operate or may try to fight each other.

(30) Explain the features of monopolistic competition.

Ans. The features of monopolistic competition are as follows:

(a) Fairly large number of sellers:

Although the number of sellers in a monopolistic competition is large, it is still smaller than that in a perfectly competitive market. Since number of sellers is large, each seller has a limited control over the market supply. However, each seller has monopoly over his brand. Thus, in monopolistic competition each producer enjoys an element of monopoly on one hand and on the other they have to face competition from sellers selling close substitutes.

(b) Fairly large number of buyers:

In monopolistic market, there are fairly large number of buyers. Consequently, no single buyer can influence the price of the product by changing his individual demand.

(c) Product differentiation:

Product differentiation is the main feature of monopolistic competition. In monopolistic competition. there are many firms producing differentiated products. In this market, the product of each firm is in some way differentiated from the product of every other firm in the market. Product differentiation may take the form of brand names, trademarks, peculiarity of package or container, shape, quality, cover, design, colour, etc. This means that the product of each firm may find close substitutes and the cross elasticity of demand for each firm's product is very high. For example, mobile handsets, soaps, toothpastes, two wheelers, etc.

(d) Free entry and exit:

Under monopolistic competition there is freedom of entry and exit. The new firms are free to enter the market if there is opportunity of earning profit. Similarly, existing firms can exit the market, if they find it difficult to survive due to possibility of losses.

(e) Selling Cost:

Selling cost is a peculiar feature of monopolistic competition. Selling cost refers to the cost incurred by the firm to create more demand for its product and thus increase the volume of sales. Selling cost includes expenditure on advertisements, radio and television broadcasts, hoardings, exhibitions, window display, free gifts, free samples, etc.

(f) Close substitutes:

In monopolistic competition, goods have close substitutes to each other. For example, different brands of cold drinks, biscuits, tea, etc.

(g) Concept of group:

Under monopolistic competition. Chamberlin introduced the concept of 'Group' in place of industry. Industry means the number of firms producing identical products On the other hand, a 'Group' means a number of firms producing differentiated products which are closely related to each other. For example, group of firms producing medicines, automobiles, etc.

(31) Explain the meaning of monopolistic competition with its features.

Ans. (A) Meaning: Monopolistic competition is very realistic in nature. In this market, there are some features of perfect competition and some features of monopoly acting together. Prof. E. H. Chamberlin coined the concept of monopolistic competition in his book "Theory of Monopolistic Competition" which was published in 1933. According to Chamberlin. "Monopolistic competition refers to competition among a large number of sellers producing close but not perfect substitutes."

(B) Features:

The features of monopolistic competition are as follows:

(a) Fairly large number of sellers:

(b) Fairly large number of buyers:

In monopolistic market, there are fairly large number of buyers. Consequently, no single buyer can influence the price of the product by changing his individual demand.

(c) Product differentiation:

(d) Free entry and exit:

(e) Selling Cost:

(f) Close substitutes:

In monopolistic competition, goods have close substitutes to each other. For example, different brands of cold drinks, biscuits, tea, etc.

(g) Concept of group:

Chapter 6: Index Numbers

(32) Explain the meaning of Index Number. Explain the steps involved in the construction of index numbers. (March '22)

Ans.

(A) Meaning:

According to Spiegel: "An index number is a statistical measure designed to show changes in a variable or a group of related variables with reference to time, geographical location and other characteristics such as income, profession, etc."

(B) Steps: The steps involved in the construction of index numbers are as follows:

(a) Deciding the purpose of index numbers:

Deciding the purpose of index numbers is the first important step in the construction of index numbers. The purpose for constructing the index number, its scope as well as which variable is intended to be measured should be clearly decided to achieve fruitful results. For example, if the purpose of constructing index numbers is to find out the changes in the wholesale prices of a particular commodity, then collecting the retail prices of a particular commodity will not be fruitful.

(b) Selecting the base year :

Base year is also called the reference year. It is the year against which comparisons are made. The base year should be normal, i.e. It should be free from natural calamities. warlike conditions, emergencies, etc. It should not be too distant in the past.

(c) Selecting items:

It is necessary to select a representative sample of the number of items to be included in the construction of index numbers. The representative sample of number of items should represent the tastes, habits and customs of the people. Similarly, only standardized or graded items should be included to give better results. For example, while measuring the trends in consumption pattern of poor people, the data related to quantities of essential goods consumed by poor people over a period of time is to be collected. The collection of data related to quantities of luxury goods consumed by rich people will not be fruitful.

(d) Selecting price quotations:

Prices of the selected commodities may vary from place to place and shop to shop in the same market. Therefore, while calculating index numbers, it is desirable that price quotations should be obtained from an unbiased price reporting agency. Proper selection of representative places and persons is required to achieve accuracy in the construction of index numbers.

(e) Choosing suitable average:

Construction of index numbers requires choice of a suitable average. Generally, Arithmetic mean is used in the construction of index numbers as compared to other averages, it is simple to compute.

(f) Assigning proper weights:

Weight refers to the relative Importance of the different items in the construction of an index number. Weights are of two types, viz., (1) Quantity weights (q) and (2) Value weights (p x q). Since all items are not of equal importance, while constructing index numbers, specific weights are assigned to Various commodities for achieving better results.

(g) Selecting an appropriate formula:

Various formulae are devised for the construction of index numbers. According to the purpose of index number and availability of data, a suitable formula is chosen for constructing index numbers.

Chapter 7: National Income

(33) Explain income method and expenditure method of measuring national income. (Sept. '21)

Ans.

(A) Income method:

Income method of measuring national income is also known as factor cost method. This method approaches national income from the distribution side. This method can be explained with the help of the following points:

(1) According to this method, the income parents received by a citizens of a country, in a given year are added up. The data pertaining to income are obtained from income tax returns, reports, books f accounts as well as estimates from small income.

(2) In this method, the incomes accrued to land, labour, capital and entrepreneur in the forms of rents, wages, interest and profits are all added together. The sum of factor income is treated as Gross National Product. However, in this method, the income received in the form of transfer payments is ignored.

(3) In India, the national income committee of the Central Statistical Organization uses the income method for adding up the income arising from trade, transport, professional and liberal arts, public administration and domestic services.

(4) GNP according to income method is calculated as follows: NI = Rent + Wages + Interest + Profit + Mixed Income + Net income from abroad.

(B) Expenditure method:

Expenditure method of measuring national income is also known as Outlay Method. According to this method, national income is calculated by summing up all consumption expenditure and investment expenditure made by all individuals, firms as well as the government of a country during a year. Thus, gross national product is found by using the following formula: NI = C +I+G+ (X-M) + (R-P). The expenditure method can be explained with the help of the following points:

(1) Private Final Consumption Expenditure (C):

Private final consumption expenditure by households may be on non-durable goods such as food which are used immediately, or on durable goods such as car, computer, television set, washing machine, which are generally used for a longer period of time or on services such as transport services, medical services, etc. National income takes into account the private final consumption expenditure.

(2) Gross Domestic Private Investment Expenditure (I):

It refers to expenditure made by private businesses on replacement, renewals and new investments. National income takes into account the gross domestic private investment expenditure.

(3) Government's Final Consumption and Investment Expenditure (G):

Government's final consumption expenditure refers to the expenditure incurred by government on various administrative services like law and order, defense, education, etc. Government's investment expenditure refers to the expenditure incurred by government on creating infrastructural facilities such as construction of roads, railways, bridges, dams, canals, which are used by the business sector for production of goods and services in any economy. National income takes into account the government's final consumption expenditure and investment expenditure.

(4) Net Foreign Investment/Net Exports (X-M):

It refers to the difference between exports and imports of a country during a period of one year. National income takes into account the value of net exports.

(5) Net receipts (RP):

It refers to the difference between expenditure incurred by foreigners in the country (R) and expenditures incurred abroad by residents (P). National income takes into account the value of net receipts.

(34) Explain the concept of national income and explain the features of national income. (July '22)

Ans. (A) National income: According to NIC "A national estimate measures the volume of commodities and services turned out during a given period counted without duplication."

(B) Features of national income:

Ans. The features of national income are as follows:

(1) Macroeconomic concept:

National income represents income of the economy as a whole rather than that of an individual. Therefore, national income is a macroeconomic concept.

(2) Inclusion of value of only final goods and services:

In order to avoid double counting, the value of only final goods and services produced in the economy are considered while calculating national income. While calculating national income, the value of intermediate goods or raw materials is not considered. For example, while estimating the value of sugar, the value of sugar cane is not taken into account, as it is already included in the price of the sugar.

(3) Inclusion of net aggregate value:

National income includes net value of goods and services produced and does not include depreciation cost (i.e. wear and tear of capital assets).

(4) Inclusion of net income from abroad:

National income includes net income from abroad, i.e. difference between export value and import value (X-M) and net difference between receipts from abroad and payments made abroad (R-P).

(5) Expressed with reference to financial year:

National income is always expressed with reference to a specific time period. In India, it is calculated for every financial year, i.e. from 1st April to 31st March.

(6) Flow concept:

National income is a flow concept. It shows flow of goods and services produced in the economy during a financial year.

(7) Expressed in monetary terms:

National income is always expressed in monetary terms. It represents only those goods and services which are exchanged for money.

(Write any four points in the answer.)

(35) Define national income. Explain the final goods approach to avoid double counting of goods and services in the estimation of national income.

Ans.

(A) National income: According to NIC "A national estimate measures the volume of commodities and services turned out during a given period counted without duplication."

(B) The final goods approach to avoid double counting of goods and services in the estimation of national income:

The national income is calculated by various methods. The output method is one of the methods of measuring national income. In this method, the national income is calculated either by valuing all the final goods and services, produced during a year at their market price or by adding up all the values at each higher stage of production until these products are turned into final products. To avoid double counting, this method uses either the final goods approach or the value added approach for estimation of national income. The final goods approach can be explained with the help of the following points:

(1) Final goods are those goods which are ready for final consumption.

(2) According to final goods approach, the value of all final goods and services produced in primary, secondary and tertiary sector are included and the value of all intermediate goods are ignored.

(3) For example, bread is the final good. The price of bread includes the cost of wheat, making of flour, etc.

(4) Wheat and flour are both intermediate goods. Their values are paid up during the process of production of bread.

(5) In the value of the final product. i.e. bread, the values of intermediate goods are already included.

(6) A separate accounting of the values of intermediate goods (wheat, flour, etc.) along with the accounting of the value of final product (bread) would lead to double counting.

(7) To avoid this double counting, the value of only final product is computed.

(36) Explain the practical difficulties involved in the measurement of national income.

Ans.

Practical difficulties in measuring national income are also known as statistical difficulties in measuring national income. The practical difficulties in measuring national income are as follows:

(a) Problem of double counting:

The greatest difficulty in calculating national income is of double counting. It arises from the failure to distinguish properly, between a final and an intermediate product. For example, flour used by a bakery is an intermediate product and that by a household is final product. Therefore, sometimes the flour used by bakery is taken wrongly as a final product. This results in the problem of double counting. Double counting leads to overestimation of national income.

(b) Existence of non-monetized sector:

In a developing country like India, especially in rural areas, there exists the non-monetized sector. In India, agriculture, still being in the nature of subsistence farming, a major part of production is consumed at the farm itself and a very small part produced is exchanged for other goods and services. Thus, exchange activities are carried out without the use of money. Therefore, they are not calculated in national income.

(c) Inadequate and unreliable data:

In developing country like India, no permanent machinery exists for the collection of data. Therefore, adequate and correct data on production and cost data relating to crops, fisheries, animal husbandry, forestry, construction workers, small enterprises, etc. are not available. Besides this, data on unearned incomes, consumption and investment expenditure of rural and urban population are also not available. This does not reveal the actual size of national income and it leads to underestimation of national income.

(d) Depreciation:

Depreciation refers to wear and tear of capital assets, due to their use in the process of production. There are no uniform, common or accepted standard rates of depreciation applicable to the various capital assets. Thus, it is difficult to make correct deductions for depreciation due to an element of subjectivity.

(e) Capital gains or losses:

Capital gains or capital losses, which accrue to the property owners by increase or decrease in the market value of their capital assets or changes in demand, are not included in the national income because these changes do not result from current economic activities.

(f) Illiteracy and ignorance:

Due to illiteracy and ignorance, small producers do not keep an account of their production. So they cannot give information about the quantity or value of their output. This distorts the estimation of national income.

(g) Difficulties in the classification of working population:

In India, working population is not clearly defined. For instance, farmers in India are not engaged in agriculture all round the year. Obviously, in the off season, they engage themselves in alternative occupations. In such a case, it is very difficult to identify their incomes from a particular occupation. This leads to underestimation of national income.

(h) Valuation of inventories:

Raw materials, intermediate goods, semi-finished and finished products in the stock of the producers are known as inventories. Valuation of inventories required careful assessment. Any mistake in measuring the value of inventory, distorts the value of the final production of the producer which in turn distorts the estimation of national income.

Chapter 8: Public Finance In India

(37) Explain various reasons for the growth of public expenditure. (July 22: March (23)

Ans.

The reasons for the growth of public expenditure are as follows:

(a) Increase in the activities of the Government:

For the economic and social development of the country, the modern government is continuously spending a large amount on activities like dissemination of education. provision of health facilities, provision of recreational services, implementation of social welfare schemes. The government is adopting new optional functions and performing traditional obligatory functions more efficiently. The government has to spend a lot to carry out all these functions. As a result, public expenditure is rising.

(b) Rapid increase in population:

As India is a developing country, population growth in India is accelerating. According to the 2011 census, India's population was 121.02 crore. Public expenditure is increasing as the government has to spend heavily to meet the various needs of the growing population.

(c) Growing urbanization:

In modern times, the pace of urbanization is increasing in many countries of the world. In newly emerging and developed urban areas, the government has to provide water supply, electricity supply. transportation facilities, sanitation facilities, recreational facilities. For providing these various facilities, the government has to incur continuous expenditure and as a result public expenditure is increasing.

(d) Increasing defense expenditure:

In modern times, unstable and hostile international relations have increased. Many countries around the world are increasing defence spending to cope with potential foreign aggression and war. As a result, public expenditure is rising.

(e) Spread of democracy:

Most of the countries of the world have adopted the system of democracy. In a system, the process of forming a government is carried out by holding general elections after a certain period of time. In a country like India, which is large in size and population huge expenses have to be incurred for elections. As a result public expenditure is rising. democratic

(f) Inflation:

Just as a person spends money on purchasing various goods and services to meet his personal needs so the government spends money on purchasing various goods and services to meet the needs of the society. Prices of most goods and services continue to rise. As a result public expenditure is rising.

(g) Industrial Development:

In order to achieve the objectives of increase in production, increase in employment and overall growth in the economy, large scale industrial development is required in the country. As a result, in developing countries like India, a large amount of money is being spent on industrial development schemes to boost industrial development. As a result, public expenditure is rising.

(h) Disaster Management:

The modern government is spending heavily on managing natural disasters like floods, earthquakes, hurricanes and man-made disasters like social unrest, riots, wars, etc. As a result, public expenditure is rising.

(38) Explain various sources of public revenue. (March '22)

Ans.

(A) Tax sources:

Direct Tax

Meaning; A tax which is levied on the income or property of an individual and so in which the impact and incidence of tax is on same head is called direct tax.

Example: Income tax, property tax, etc. are the examples of direct tax.

Indirect Tax

Meaning: A tax which is levied on goods and services and so in which the impact of tax is on one person (seller) and the incidence of tax is on another person (buyer) is called indirect tax.

Example: Goods and Services Tax, Customs Duty, etc. are the examples of indirect tax

(B) Non-Tax sources:

Non-tax sources of revenue of the government are as follows:

(1) Fees:

Fee is paid by citizens in return for certain specific services rendered by the government. For example, education fee, registration fee, etc.

(2) Prices of public goods and services:

Modern governments sell various types of commodities and services to the citizens. A price is a payment made by the citizens to the government for the goods and services sold to them. For example, railway fares, postal charges, etc.

(3) Special assessment:

The payment made by the citizens of a particular locality in exchange for certain special facilities given to them by the authorities is known as 'special assessment. For example, local bodies can levy a special tax on the residents of a particular area where extra/special facilities of roads, energy, water supply, etc. are provided.

(4) Fines and penalties:

The government imposes fines and penalties on those who violate the laws of the country. The objective of the imposition of fines and penalties is not to earn income, but to discourage the citizens from violating the laws framed by the government. For example, fines for violating traffic rules. However, the revenue from this source is comparatively limited.

(5) Gifts, grants and donations:

The government may also earn some income in the form of gifts by the citizens and others. The government may also receive grants from the foreign governments and institutions for general and specific purposes. Foreign aid has become an important source of development finance for a developing country like India. However, this source of revenue is uncertain in nature.

(6) Special levies:

The government levies duties on those commodities, the consumption of which is harmful to the health and well-being of the citizens. Like fines and penalties, the objective of special levies is not to earn income, but to discourage citizens from the consumption of harmful commodities. For example, duties levied on wine, opium and other intoxicants.

(7) Borrowings:

The government borrows from the citizens in the form of deposits, bonds, etc. Government also gets loans from foreign governments and international organizations such as IMF. World Bank, etc. In modern times, loans are becoming more and more popular source of revenue for the governments.

(Write any four points in the answer.)

Chapter 9: Money Market and Capital Market in India

(39) Explain the functions of the RBI. (July '23)

Ans.

The functions of RBI are as follows:

(a) Issue of currency notes:

The Reserve Bank of India has a monopoly on printing of all rupee notes except one rupee note and all coins. According to the Minimum Reserve Policy of 1957, the Reserve Bank of India has to reserve at least 200 crore. Of this, 115 crore is kept in terms of gold and 85 crore are kept in terms of foreign currency.

(b) Acting as a banker to the government:

The Reserve Bank of India acts as a banker to the government. The Reserve Bank of India accepts deposits from the Central and State Governments and makes payments on their behalf as a representative of the Government. The Reserve Bank of India assists the government in managing public debt and provides advice on a number of financial issues.

(c) Acting as a banker to banks:

The Reserve Bank of India has statutory control over all banks in India. All Scheduled Banks in India are required to reserve minimum cash with the Reserve Bank of India as per their demand and term liabilities. The Reserve Bank of India provides financial assistance to banks by discounting of eligible bills, providing advances against approved securities.

(d) Acting as a custodian of foreign exchange reserves:

The Reserve Bank of India acts as the custodian of foreign exchange reserves. The Reserve Bank of India conducts the buying and selling of currencies of all member countries of the International Monetary Fund. The Reserve Bank of India helps in maintaining the official rate of exchange of rupee as well as ensure its stability.

(e) Controlling credit:

As the Supreme bank in the country, the Reserve Bank of India controls the credit creation process of commercial banks. The Reserve Bank of India uses quantitative techniques to control the volume of credit, such as bank rates, open market operations, Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR). The Reserve Bank of India uses qualitative tools to regulate the use of credit, such as fixing margin requirements, credit rationing, moral suasion, etc.

(f) Collection and publication of data:

The Reserve Bank of India collects and publishes statistical information related to banking and other financial sectors of the economy.

(g) Carrying out promotional and developmental functions:

The Reserve Bank of India carries out promotional and developmental functions such as extending banking services in semi-urban and rural areas of India, providing financial securities to depositors, providing agricultural credit to farmers, providing industrial credit to boost industries.

(h) Performing other functions:

The Reserve Bank of India acts as a clearing house for settling the accounts between its member banks. The Reserve Bank of India acts as the lender of last resort to all banks in India and provides liquidity to banks experiencing financial difficulties.

(40) Explain the role of money market in India.

Ans.

The role of money market in India can be explained with the help of the following points:

(a) Meeting the short-term requirements of the borrower:

Due to the money market, the short-term financial needs of the borrower are met at realistic interest rates.

(b) Liquidity management:

Money market facilitates better management of liquidity and money in the economy by the monetary authorities. As a result, the country enjoys economic stability and economic development.

(c) Portfolio management:

Money market deals with different types of financial instruments that are designed to suit the risk and return preferences of investors. This enables the investors to manage portfolios to minimize the risks and to maximize the returns.

(d) Equilibrating mechanism:

Money market leads to rational allocation of financial resources. The money market accelerates savings in the investment stream. The money market helps to strike a balance between the demand for and the supply of short-term funds.

(e) Meeting the financial requirements of the government :

Money market helps the government to fulfil its short-term financial needs on the basis of the Treasury Bills.

(f) Implementation of monetary policy:

The main objective of monetary policy is to manage the quantity of money in the economy. In India, monetary policy is implemented by the Reserve Bank of India. Monetary policy makes it possible to meet the economic needs of different sectors of the economy and accelerate economic growth. The money market guides the Reserve Bank of India in developing appropriate interest rates. Thus, a fully developed money market in the economy helps in the successful implementation of monetary policy.

(g) Economising the use of cash:

The money market is not about the actual money but about various financial instruments that are the close substitutes to money. As a result, the money market helps to use cash sparingly.

(h) Promoting the growth of commerce, industry and trade :

Local traders as well as international traders who are in the need of short-term funds have the facility to discount bills of exchange in the money market. Money market provides working capital for agro- industries and small scale industries. As a result, the money market drives the growth of commerce, industry and trade in the country.

Chapter 10: Foreign Trade of India

(41) Explain the meaning and role of foreign trade.

Ans.

(A) Meaning of foreign trade: The concept of foreign trade is as follows:

(1) Foreign trade is trade between different countries of the world. Foreign trade is also called international trade or external trade.

(2) According to Wasserman and Hultman. "International trade consists of transactions between residents of different countries."

(B) Role of foreign trade:

The role of foreign trade can be explained with the help of the following points:

(a) To earn foreign exchange:

Foreign exchange is earned through foreign trade. The foreign exchange received can be used for various productive activities. Foreign trade promotes the production and market expansion of domestic goods and services.

(b) Encourages investment:

Foreign trade provides an opportunity for producers to sell goods and services in the domestic market as well as export to the world market. As a result, the production of various goods and services in the country is boosted and investment is encouraged.

(c) Division of labour and specialization:

Foreign trade leads to division and specialization of labour at the global level. For example, if workers in country A are skilled in agricultural production and workers in country 'B' are skilled in making electronic products, then country 'A' can export agricultural products to country 'B' by acquiring specialization in agricultural products. 'B' country can export electronic products to 'A' country by acquiring specialization in electronic products.

(d) Optimum allocation and utilization of resources:

Due to foreign trade, each country channelized the available resources to the production of the same goods from which maximum benefit can be obtained at minimum production cost. For example, if it would be possible to produce wheat at the lowest cost based on the resources available in country 'A' and if it would be possible to produce medicines at the lowest cost based on the production resources in country 'B', then country 'A' manufactures wheat and export wheat to country B. Similarly, country 'B' manufactures drugs and exports drugs to country 'A'. Thus foreign trade leads to adequate allocation and utilization of resources internationally.

(e) Stability in price level:

Foreign trade helps in balancing the demand and supply of goods and hence brings stability in price level in the economy.

(f) Availability of multiple choices:

Foreign trade provides multiple choices of imported commodities. It thus creates competition in the market and hence high quality goods can be made available to the consumers at reasonable prices. Thus, foreign trade helps in raising the standard of living.

(g) Brings reputation and helps earn goodwill:

Exporting countries get reputation and goodwill in the international market. For example, Japan and Switzerland have gained a great deal of goodwill in the international market by exporting electronic goods worldwide.

12th HSC Economics: Answer the following questions in detail (8 marks each)

12th HSC Board Economics:

Answer the following questions in detail

Chapter 1: Introduction to Microeconomics

and Macroeconomics

(1) Explain the features of microeconomics.

(2) Explain the scope of microeconomics.

(3) Explain the importance of microeconomics.
Ans.

(4) Explain the concept of macroeconomics and its features.
Ans.

(5) Explain the importance of macroeconomics.
Ans.

(6) Write in brief about the historical review of macro- economics.
Ans.

Chapter 2: Utility Analysis

(1) State and explain the law of DMU and explain its exceptions. (July '22)
Ans.

(8) State and explain the law of DMU.
Ans.

(18) What are the exceptions to the Law of Demand.

Chapter 4: Supply Analysis

Chapter 5: Forms of Market

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12th HSC Economics: Answer the following questions in detail (8 marks each)

12th HSC Board Economics:

Answer the following questions in detail

Chapter 1: Introduction to Microeconomics

and Macroeconomics

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(1) Explain the features of microeconomics.

(2) Explain the scope of microeconomics.

(3) Explain the importance of microeconomics.Ans.

(4) Explain the concept of macroeconomics and its features.Ans.

(5) Explain the importance of macroeconomics.Ans.

(6) Write in brief about the historical review of macro- economics.Ans.

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Chapter 2: Utility Analysis

(1) State and explain the law of DMU and explain its exceptions. (July '22)Ans.

(8) State and explain the law of DMU.Ans.

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(18) What are the exceptions to the Law of Demand.

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Chapter 4: Supply Analysis

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Chapter 5: Forms of Market

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TYBMS Semester 6 Operation Research (Q.P. April 2019 with Solution)

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Economics

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Most Recent

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(3) Explain the importance of microeconomics.
Ans.

(4) Explain the concept of macroeconomics and its features.
Ans.

(5) Explain the importance of macroeconomics.
Ans.

(6) Write in brief about the historical review of macro- economics.
Ans.

(1) State and explain the law of DMU and explain its exceptions. (July '22)
Ans.

(8) State and explain the law of DMU.
Ans.