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What are the components of aggregate demand (AD)? Answer: The components of AD are as follows:AD = C + I + G + (X - M) By Simplifying AD = C + I, Here C refers to Household consumption demand and I
Describe the following terms: (i) Business fixed investment (ii) Inventory Investment (iii) Residential construction Investment (iv) Public Investment. Answer: (i) Business Fixed Investment: This is
Explain in short the income approach to evaluate national income. Answer: Under income method to compute the National Income, the steps given below have been taken into account: A) First of all pro
Types of market in economy: There are two kinds of market in this economy: Factor market-for Factors of Production and Product market-for goods and Services.
Elucidate the circular flow of Income in two sector model. Answer: There are just two sectors namely: Firms and households. Households give factor services to the firms and firms employ factor servic
What happens to equilibrium price if increase in demand is equivalent to increase in supply? Answer: In case of equivalent increase in demand and supply the equilibrium price stays unchanged however
Elucidate the consequence of an increase in demand of a commodity on its equilibrium quantity and price? Answer: Increase in demand causes a rightward shift in the demand curve keeping similar suppl
Features of Monopoly: A) A Single seller B) No close replacement available. C) No freedom for entry of new firms. D) Possibility of price discrimination.
Features of oligopoly: 1) Few sellers in the market 2) Firms sell homogenous or differentiated products. 3) Price Rigidity. 4) Behavior of each firms dependence on the other firms.
Find out the price elasticity of supply at any point on a straight line curve when A) supply curve intersects ox axis in its negative range B) supply curve intersects ox axis in its positive range. C)
Suppose that the price of peanut packets increases by 5 %, the quantity supplied of peanut increases by 8 %. Then what is the elasticity of supply? Answer: Es = Percentage Change in quantity supplie
What is the relationship among Total Revenue (TR) and Marginal Revenue (MR)? Answer: A) If MR is positive, TR rises although at diminishing rate. B) If MR is Zero, TR becomes maximum.
Describe the relationship among Average Variable Cost (AVC) Average, Total Cost (ATC) and marginal Cost (MC)? Answer: A) If MC < AVC and ATC, AVC and ATC are falling B) MC cuts ATC and AVC at th
What are the causes for diminishing returns to factor? Answer: 1) Over utilization of fixed factors: As more and more units of the variable factor carries to be joined with similar fixed factor, the
State the relationship among Average Product and Marginal Product? A) If MP > AP, then AP is rising B) If MP = AP, then AP is maximum C) If MP < AP, then AP is falling
Describe the law of demand with help of a schedule diagram? Answer: The Law of demand states that there is an inverse relationship among the price of a commodity and its quantity demanded supposing
At price of Rs. 20 the unit quantity demanded is 300 units. Its price downs by 10% its quantity demanded rises by 60 units. Compute price elasticity. Answer: Given: Rise in Price = 10% ∴ Ri
Describe the causes of Increase in demand?Answer: 1) Increase in income of the consumer.2) Price of substitute goods increase.3) Price of complementary goods down/fall.4) Tastes and preferences of a
Illustrate any three causes of decrease in demand? Answer: 1) Reduce in income of consumer. 2) Fall in the price of alternate good.3) Increase in the price of complementary goods.
Describe the Law of Diminishing marginal utility? Answer: Law of Diminishing marginal utility: As a consumer goes on consuming more and more units of a commodity the additional satisfaction which he
Describe the features of Indifference Curve? Answer: A) Indifference curves slopes downward from left to right.B) Indifference curves are Convex to origin. C) Two Indifference curve not at all inte
Describe the relationship between Total utility (TU) and Marginal utility (MU)? Answer: a) TU rises at diminishing rate whenever MU is declining and Positive. b) TU is maximum whenever MU is 0 (Z
Elucidate Production Possibility curve with the help of a diagram? Answer: The Production Possibility Curve refers to a curve that shows various production possibilities which can be produced with s
Describe the problem of How to Produce? Answer: This refers to the choice of techniques of production of services and goods and whether labor intensive or capital intensive method is to be accepted
Elucidate the central problems of an economy: A) What to produce? B) How to produce? C) For whom to produce? Answer: A) It refers to that what services and goods are produced and in what quantities.