Economics 12th

OMTEX CLASSES
ECONOMICS
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ECONOMICS
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OMTEX CLASSES
ECONOMICS
Introduction:
Economics is a social science which studies economic behaviour of the people. Economic behaviour means how a man is earning income & how he is spending income for the satisfaction of wants. Thus, wants satisfaction through earning & spending is the main subject matter of economics. There are two branches of Modern Economics. These two branches are Micro Economics and Macro Economics. These two terms were first coined by Prof. Ragnar Frisch in 1933.
FATHER OF ECONOMICS
Adam Smith
OMTEX CLASSES
Q1.
ECONOMICS
WHAT IS MICRO ECONOMICS? EXPLAIN ABOUT ITS FEATURES?
Meaning: -The term Micro Economics is derived from the Greek work Mikros which means Small. Thus Micro Economics is the Study of the Economic actions of individuals units and small group of individual units. Micro economics may be defined as that branch of economic analysis which studies the economic behaviour of an individual unit. It is the study of one unit, rather than all the units combined together.
Micro Economic Theory
Value theory
Distribution theory
Theory of economic welfare Wages
Consumption Analysis
Production Analysis
Rent
Interest
Profits
FEATURES OF MICRO ECONOMICS 1. Study of Individual Unit: - Micro Economics is the study of the economic actions of individuals units such as individual consumer or producer, household, particular firm, price of particular commodity etc. 2. Microscopic Study: - Micro Economics is Microscopic Study of the economy. It is like looking at the economy through Microscope to find out behaviour of individual producers and consumers and working of the market for the individual commodities. 3. Price Theory: - Price is the core (heart) of Micro Economics. It is concerned with the Theory of Product Pricing with its two constituents. Theory of consumers behaviour and theory of production and costs. 4. Slicing Method: - Micro Economics is concerned with small or specific unit of an economy and a detailed study of it. Since Micro economics splits up the entire economy into small parts, it is also known as Slicing Method. 5. Science of Economising: - It suggests economising (optimum use of resources) as the way out to solve major economic problems in an economy.
6. Tools for evaluating economic policies: - Micro Economics provides tool for evaluating economic policies of the state (Government). It explains conditions of efficiency in production and consumption. 7. Not a study of Aggregates: - Micro Economics is distinct from Macro Economics. In Macro Economics we are concerned with the economy as a whole. In micro economics we are concerned with the study of Individual units. Successfully steppi ng into 5 t h year in o rder to achieve once again su ccess
OMTEX CLASSES Q2.
ECONOMICS
What is Macro Economics? What are the features of Macro economics?
Meaning: -The term Macro is derived from Greek word Makros which means large. Thus Macro economics deals with the economic system as a whole. Macro economics may be defined as that branch of economic analysis which studies the behaviour of not one individual unit but all the units combined together, that is the study of Aggregates.
Macro Economic Theory
Theory of Income and employment
Theory of General Price level and Inflation
Theory of Economics Growth
Macro Theory of Distribution
Consumption function
Investment function
FEATURES OF MACRO ECONOMICS 1. Overall economic growth: - Macro Economics is concerned with the economic fluctuations, inflation, instability, international trade an economic growth etc.
2. Overall employment: - It is the study of the causes of unemployment and various determinants of employment.
3. Trade cycle: - It also studies business cycles related to the effects of the investment on the total output, total income and full employment.
4. Study of foreign trade: - It also studies about the international trade relation to the problems of balance of payments.
5. Study of money and finance: - The study of macro economics is concerned with the effect of the total quantity of money on the general price level.
6. Study of national income: - It concerns with the problems of determinants of national income of a country and causes of its fluctuations.
OMTEX CLASSES Q3.
ECONOMICS
WHAT IS UTILITY? WHAT ARE THE CHARACTERISTICS OF UTILITY?
Meaning: -In economics, utility refers to the Want satisfying power of a commodity. For example: Water has utility because it can satisfy the thirst of a person. FEATURES OF UTILITY 1. Subjective concept: - Utility is a psychological concept. It depends on the state of mind of an individual. For example (1) Cigarette has much utility to a smoker, rather than that of a Non smoker. (2) Walking stick has much utility to an old man, rather than that of a young man.
2. Relative concept: - Utility of a commodity changes from time to time and place to place. For example (1) Woollen clothes has more utility in Kashmir, than in Mumbai. (2) Umbrella has more utility in rainy season, than in summer.
3. Different from satisfaction: - Utility is not ame as that of satisfaction. Utility is not same as the satisfaction. Utility is the power of commodity which a consumer expects before consuming a commodity. But satisfaction is something which he realise after consuming it.
4. Different from pleasure: - A commodity may have utility but need not give pleasure. For ex: Bitter medicine does not give pleasure. Yet it cures the disease.
5. Different from Usefulness: - Utility is the want satisfying power of the commodity. But usefulness is the benefit the consumer enjoys. A commodity may have utility but may not be useful. For ex: Liquor has utility to a drunkard, but it is not useful to his health.
6. Cannot be measured cardinally: - Utility, being a subjective concept, cannot be measured numerically. But it can only be measured ordinally, i.e. in the order of preference.
7. Multi purposive: - A single commodity may have many utilities. For ex. Electricity, water etc.
OMTEX CLASSES 4. PERFECT WHAT

IS PERFECT COMPETITION? COMPETITION?
ECONOMICS WHAT
ARE THE FEATURES OF
Meaning: -A perfect competition is a perfectly competitive market is one in which there exist large number of buyers and sellers engaged in buying and selling homogeneous products at uniform price without any restriction and possessing perfect knowledge of market conditions
Features of perfective competition

1. Large number of buyers and sellers: - There exist large number of buyers and sellers in a perfectly competitive market. The number of buyers and sellers are so large that a single buyer or a single seller cant influence (manipulate) the price or output through his action. 2. Homogeneous Product: - The products sold in market are homogeneous, that is identical in its taste, shape, size, colour, design, quality etc. 3. Freedom of entry and exit: - There is freedom of entry and exit to the firms under perfectly competitive market. Any firm (buyer or seller) can enter into the market, without any restrictions.
4. Perfect Knowledge: - Buyers and sellers must have a perfect knowledge about the market conditions. They should have complete information about the price at which goods are bought and sold and the place where the transactions take place etc.
5. Perfect mobility of goods and factors: - Factors of production are free to move from one region to other and from one occupation to other.
6. Absence of transportation cost: - It is assumed that ther is no transportation cost in carrying products from one place to another. All the producers work sufficiently close to each other and that there is no transportation cost. 7. Non Government Intervention: - Perfect competition is also characterised by Laissez faire policy or non intervention of the Government in the economic activities of the people.
8. Absence of Non Price competitions: -Since the products are standardised or homogeneous, there is no non price competition in the market.
9. Single Goal: - It is assumed that every firm has only one goal. i.e. maximisation of profit.
10. Rationality: - It is assumed that all buyers and sellers behave rationally. While the buyers aim at maximum satisfaction, the sellers aim at maximum profit.
OMTEX CLASSES 5. WHAT MONOPOLY?

DO YOU MEAN BY
ECONOMICS MONOPOLY? WHAT

ARE THE FEATURES OF
Meaning: -The word MONOPOLY is derived from two Greek words Mono which means Single and Poly which means Sellers. Thus Monopoly refers to market structure in which a single seller controls the entire market.
Features of Monopoly
1. Single seller: - There exists single seller or producer for a product in the market. Since he is the sole producer, he has complete control over the price or output sold in the market.
2. Absence of close substitutes: - There are no close substitutes for the products sold in the market. Since there is no close substitute for the products, no other firms produces the same product.
3. Barrier to Entry and Exist: - Under Monopoly, there is a barrier to the Entry and Exist of firm in the market. New firms are not allowed to enter into the market. 4. No distinction between firms and Industry: - Under Monopoly, there is no distinction between the firm and industry. The firm itself is the industry. The demand curve faced by the firm is industry demand curve itself. 5. Price Maker: - The firm under Monopoly is a price maker, not a price taker. Monopolist can set any price of his advantage. 6. Profit Motive: - The ultimate aim of the monopolist is maximisation of profit. Producer can fix any price for his product and can take the whole income of the consumer.
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OMTEX CLASSES
ECONOMICS
OMTEX CLASSES 6. FEATURES? WHAT

IS
ECONOMICS MONOPOLISTIC
COMPETITION?
WHAT
ARE ITS
Meaning: -Monopolistic competition refers to a market situation, in which a large number of firms sell a differentiated product. The competition is keen among many firms making or producing very similar products. Thus, Monopolistic competition refers to the competition among large number of sellers producing close but not perfect substitutes to each other. There exists competition among large number of sellers. At the same time, they have some degree of Monopoly power in the market, as they sell differentiated product.
Features of Monopolistic competition are

1. Large number of sellers: - There exist large number of sellers in the market. The number of sellers is so large that no one has complete control over the supply of the product in the market. 2. Product Differentiation: - Product differentiation is the most distinguishing feature of Monopolistic competition. Various firms sell differentiated products which are close substitutes to each other even though not so perfect. Differentiation may be in patent, trade mark, quality, design, colour or style.
3. Large number of Buyers: - There exist large number of buyers in the market. Each buyer has a preference for a specific brand of product. Thus he becomes patron (fan) of a particular seller. 4. Freedom of Entry and Exit: - There exist freedom of entry and exit of firms in the market.
5. Absence of Interdependence of firms: - Under Monopolistic competition, each firms are independent not inter dependent. Each firm have independent policies regarding price and output. 6. Selling cost: - Selling costs are the cost incurred for the sales promotion. Since products are differentiated and changes from time to time, advertising and other forms of sales promotion has become an integral part of marketing of goods. Thus selling cost is the unique feature of Monopolistic competition.
7. Two dimensional competitions: - Under Monopolistic competition, the competition among the sellers take place in two dimensional. i. Price competition: - Under Price competition the firms compete with each other by lowering the price of the product to take advantage of higher sales. ii. Non Price competition: - Under Non price competition the firms compete with each other by making variation in the product or through selling cost. Through this each seller tries to capture the market.
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OMTEX CLASSES 7.
Meaning: Following are the some of the important Features of Land
ECONOMICS
WHAT IS LAND? WHAT ARE THE FEATURES OF LAND IN ECONOMICS?
1. Natural factor: -Land is not a man made factor. It is the free gift of nature. It refers to all natural resources that are found on, above and under the surface of earth. Hence land has no cost of production. 2. Fixed supply: - Supply of land is fixed, as it is a natural factor. Man cannot increase its supply. He can secure more land by drying up a lake or a part of the sea. But it cannot be a new land. It is the part of the existing land not a new land. Thus it can neither be increased nor decreased. 3. Permanent factor: - Land is not a perishable factor, it is a permanent factor. It cannot be destroyed. Thus, unlike labour and capital it is a permanent factor. 4. Passive factor: - Unlike labour and capital Land is a passive factor. Land by itself cannot produce anything, thus it is not an active factor. It becomes active only if we apply other factors like labour and capital to it. 5. Land is heterogeneous in character. The quality of land changes from place to place. All units of land are not exactly same in terms of fertility. Some units of land are more fertile, while some units are less fertile. Due to this difference in fertility, productivity of land differs from place to place. 6. Land is an immobile factor: - Land is geographically immobile because it cannot be shifted from one place to another. But it has occupational mobility, since it can be put to alternative uses. I.e. the same land can be used for producing various crops. 7. No cost of production: - Since land is a free gift of nature, it does not involve cost of production. There is no cost of production involved in the supply of land.
Alfred Marshall
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OMTEX CLASSES 8.
ECONOMICS
WHAT IS LABOUR? WHAT ARE THE FEATURES OF LABOUR IN ECONOMICS?
Ans. Marshall Defined Labour as Any Exertion of mind of body undergone partly or wholly with a view to earn some income, other than the pleasure derived from work From the above definitions we can sum up the labour as_ 1. 2. 3. 4. 5. Any physical or mental work (exertion) Purpose behind the exertion is to earn some reward. It is not undertaken only for pleasure. It should add utility and create value. If and only if work is done in order to earn some livelihood (reward), then only that exertion can be regarded as Labour. 6. It is rendered by human beings. 7. Labour may be manual. Example physical work of carpenters, cobblers etc. 8. Labour may be Mental. Example work of Doctors, teachers, engineers, architects etc. Following are the some of the important Features of Labour are 1. Labour is a human factor: - Labour is a human factor. It is the service provided by human beings who participate in productive activities. 2. Labour is a living factor: - Since labour is a human factor, it is a living factor too. It is a part of human being. Labour has his own likes and dislikes.
3. Most active factor: - Without labour, there will be no production and economic development. It is the labour that makes use of all factors of production and makes the production possible. Hence labour is the most active factor of production. 4. Perishable factor: - Labour is a perishable factor because labour cannot be stored. It is not possible to store labour for future use. It a worker is absent for a day the days labour is gone. In the second day, he can supply the second days labour, bit not the first days labour. The amount of labour lost is lost for ever. 5. Heterogeneous factor: - Since labour is a human factor, it is heterogeneous in nature. One labour differs from other due to difference in skill, efficiency, talent, intelligence, willingness to work, capacity to work etc.
6. Labour is inseparable from the labourer: - Land and capital can be separated from heir owners but labour cannot be separated from their owners. All those who are interested in working have to go to the place of work. They cannot sit at home and send the work to working place. 7. Labour is mobile. Labour enjoys both geographical as well as occupational mobility. However the mobility of labour faces some limitations like age factor, language, climate, Transport, housing problems etc.
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OMTEX CLASSES 9.
ECONOMICS?
ECONOMICS CAPITAL? WHAT

ARE THE FEATURES OF
WHAT
IS
CAPITAL
IN
Meaning: -In Economics, the term capital refers to that part of wealth which is produced by man and is used for further production. Capital includes all man made goods which are used for further production. Following are the some of the important Features of capital 1. Capital is a Man made factor: - Capital is not the free gift of nature. It is a man made factor of production. It is born out of savings or investment made by man. 2. Capital is a Productive factor: - Capital is highly productive factor. Use of capital not only improved efficiency of land and labour; but also increases the total production. 3. Capital is a Passive factor: - Like land, capital is also passive factor of production. But it becomes active, when it is used along with labour. 4. Capital is a mobile factor: - Capital has highest mobility as compared to land and labour. It has both geographical and occupational mobility. 5. Capital satisfied human wants indirectly. Capital goods cannot satisfy the human wants directly. Capital goods are not demanded for their own sake. They are demanded because they help us to produce other things. For, e.g., Cotton textiles were demanding for raw cotton to produce the cotton textiles. 6. Physical capital assets have durability but are subject to depreciation: - Physical capital assets such as factory, building, machinery, tools & implements are durable in nature. But they are tends to be depreciation overtime. Hence after certain period of time they become useless in production activity. 7. Capital is a part of wealth: - Capital is a part of wealth. This is because capital has all features of wealth namely_
1. 2. 3. 4.
utility scarcity transferability & externality
So all capital is wealth but all wealth is not capital.
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OMTEX CLASSES 10. WHAT INCOME?

IS
ECONOMICS
ARE THE FEATURES OF
NATIONAL INCOME? WHAT
NATIONAL
Meaning: - The term National Income is defined by SIMON KUZNETS as the net output of commodities and services flowing during the year from the countrys productive system in the hands of ultimate consumers. Following are the some of the important Features of National Income
1. Overall study: - National income is a study of Macro economics.
2. Circular flow: - It is a flow concept in the process of production, income generation and expenditure.
3. Money value: - National income is expressed in terms of money. It is measured annually.
4. Productive services: - It includes only productive services which are exchanged for money viz services. E.g. Services by housewives are not included in national income. National income includes net earnings from abroad.
5. Mathematical Expression: - National income = Net National Product at Market price Indirect taxes + Subsides.
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OMTEX CLASSES 1.
ECONOMICS
WHAT ARE THE TYPES OF UTILITIES?
Meaning: - In economics, utility refers to the Want satisfying power of a commodity. For example: - Water has utility because it can satisfy the thirst of a person. There are five types of utilities. THERE ARE FIVE TYPES OF UTILITIES. 1. Time utility: - It is the utility created in a commodity due to change in time of utilisation. For ex. Ice cream has more utility in summer season than winter. 2. Place utility: - It is the utility created in a commodity by changing the place of utilisation. For ex. By transporting foodgrains from abundant region to the scarce region, place utility is created. 3. Form utility: - It is the utility added in a commodity by changing its form or structure. For ex. When a carpenter converts wood into a chair, form utility is created. 4. Service utility: - It is the utility derived from the personal services of Doctors, Lawyers, and Teachers etc. 5. Possession utility: - It is the utility derived due to the possession of a commodity. For ex. A person derives more utility from his own house, rather than from a rental house.
2.
WHAT ARE THE TYPES OF MONOPOLY?
Ans. The word MONOPOLY is derived from two Greek words Mono which means Single and Poly which means Sellers. Thus Monopoly refers to market structure in which a single seller controls the entire market.
Types of Monopoly
1. Pure, perfect or Absolute Monopoly: - Pure Monopoly refers to a market structure in which a single firm controls the entire supply of a commodity, which has no substitutes. Pure Monopoly is enjoyed by local public utility industries like Gas, Electricity, Water supply etc. 2. Imperfect Monopoly: - Under Imperfect Monopoly, firm lack absolute Monopoly power in deciding price and output. Hence, imperfect monopoly is referred to as Limited or Relative Monopoly. 3. Simple Monopoly: - If a firm charges a uniform price for its output sold to all the buyers, it is called simple Monopoly. In this case there is no price discrimination in the market. 4. Discriminatory Monopoly: - If a firm charges different prices for the same product to the different buyers, it is called Discriminatory Monopoly. There is no uniformity of price in such market. 5. Private Monopoly: - When an individual or a private body controls the Monopoly firm, it is called private monopoly. 6. Public Monopoly: - When the field of production is completely owned, managed, controlled and operated by the state i.e. Govt. it is called public monopoly. Successfully steppi ng into 5 t h year in o rder to achieve once again su ccess 15
OMTEX CLASSES 3.
ECONOMICS
WHAT ARE THE TYPES OF CAPITAL?
Meaning: - In Economics, the term capital refers to that part of wealth which is produced by man and is used for further production. Capital includes all man made goods which are used for further production. Types of capital are
1. Private Capital: - It is the capital owned by individual or group of individuals or firms. Example: private firm, plant etc. 2. Public Capital: - It is the capital owned collectively by the society or Govt. Example, Roadways, Railways etc. 3. National Capital: - It is the summation of private and public capital.
4. Fixed capital: - It is the capital which can be used again and again in the process of production. These are capital used repeatedly in the further production. They are Durable in nature. For example: Factory Building, Machinery etc.
5. Variable (working) capital: - It is the capital which can be used only once in the process of production. It cannot be used again and again in the further production. After the use of variable capital its utility gets exhausted. For example: raw material, fuel, coal, electricity etc.
6. Sunk Capital: - It is the capital which can be used only for a particular purpose. It is otherwise called as Specific capital. For example: - Road roller, washing machine, sewing machine etc. 7. Floating capital: - It is the capital which can be put to several uses. It has many alternative uses. It is multi purposive capital. Example: Raw material like sugarcane can be used for producing sugar or jaggery, fuel, electricity, Money etc.
8. Real Capital: - It is the Physical or tangible capital. It is the physical assets used in the production process. Example: - Machinery, raw material, plant, factory building etc.
9. Money capital: - Capital invested in the form of money is known as money capital. It includes cash, Investment in shares, debentures, deposits. etc.
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OMTEX CLASSES 4.
ECONOMICS
WHAT ARE THE TYPES OF MONEY?
Ans. According to Robertson, Money may be defined as Anything which is widely accepted in
payment for goods or in discharge of other kinds of business obligations is called money. Types of Money are Broadly speaking there are two main types of money. i. Metallic Money ii. Paper Money. They are further classified into different types given as below. 1. Standard Money: - The standard money is made of gold, silver or sometimes both. Usually its real or intrinsic value is equal to its face value. 2. Token Money: - Token money is made of cheaper metal. Its face value is greater than its intrinsic or metallic value. 3. Representative money: - In early times, when notes were introduced, they were backed by an exactly equal amount in gold or silver kept in reserve by the issuing authority. Such notes could be exchanged for coins when needed and did nothing more than represent coins. They were known as representative money. 4. Bank Money: - Bank money refers to bank deposits. The bank deposits can be turned into money by their depositors by means of cheques. 5. Money of account: - Money of account is the monetary unit in terms of which the accounts of a country are kept and transaction made. The rupee for instance is money of account in India, Sterling of England, and Dollar of U.S.A. Mark of West Germany etc.
5.
CLASSIFICATION OR TYPES OR KINDS OF DEMAND?
Answer. Demand means a desire to have something. But mere desire is not a demand. In economic the word demand is used in a particular sense. Demand is desire backed with purchasing power and willingness to pay for it. 1. Individual Demand: -An individual demand is the number of items demanded by a single person at a particular price at a particular time from a particular market. For eg. Mr. X demands 5kg of rice at Rs. 10/per kg. 2. Market demand: -Market demand is the total demand for a commodity made by all consumes. It is the sum total of individual demand at a particular price from a particular period of time. For eg. Demand for Rice is 15 tons at the rate of Rs. 10/- per. Kg. 3. Direct Demand: -A demand is said to be direct if a good is purchased for direct satisfaction of a want. For eg. Demand for consumable like Food, oils, fruits etc. 4. Derived Demand: -A demand is said to be derived demand if a factor of production like labour is demanded due to a demand for a final goods. For eg. When there is more demand for food grains, there is more demand for land and labour for cultivation. 5. Joint demand: -When two or more than two goods are demanded jointly to satisfy a want it is called joint or complementary demand. For eg. Bread And Butter, Pen and Ink, Car and Petrol etc. 6. Composite Demand: -When a good is demanded for several uses it is called composite demand For. eg. Coal may be demanded for cooking, steam engines etc. Similarly steel may be demanded for manufacturing cars, building, and construction of Railways etc.
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OMTEX CLASSES
ECONOMICS
5. WHAT DO YOU MEAN BY COMMERCIAL BANKING? WHAT ARE THE TYPES OF BANKING ORGANISATION?
Ans. According to Oxford Dictionary A Bank is an establishment for the custody of money, which it pays out on a customers order. Organisation & Structure of Commercial Banks are not the same in every country. The banking organization may be based on 1. Unit banking: - Under this system an individual banking company undertakes the whole banking business from a single office. U.S.A. is the originator of it. 2. Branch Banking: - In this case a big bank establishes several branches in the different parts of the country and undertakes banking business through these branches. In 1833 this type of banking was started in England. Branch banking system becomes popular in India. 3. Chain Banking: - A person or a group of person will have control over the existing bank known as chain banking. It was started in U.S.A. in 1925. 4. Group Banking: - Under this system, two or more banks are controlled by a corporation, trust, associations. This type of banking was operative in the U.S.A. between 1925 & 1929. 5. Pure Banking: - Under this system a commercial banks are engaged in financing only short term loans and other requirements of industry, trade and commerce. Short term loans are given only for a period of six months. This system is very popular in England. 6. Mixed Banking: - Under this system both short term and long term loans are sanctioned. Generally the banking business is undertaken by the mixed banking. In India commercial bank are performing the functions of mixed banking.
6.
WHAT ARE THE TYPES OF PRICE ELASTICITY OF DEMAND?
Meaning: -Price elasticity of demand can be defined as the percentage change in the quantity of a commodity demanded in response to a given percentage change in its price. The following are the different types of price elasticity of demand: 1. Unitary Elastic Demand: - The demand is said to be unitary elastic when proportionate change in price is equal to proportionate change quantity demanded. The numerical value of unitary elastic demand is one. D p P1 r Ed = 1 i P c P2 D e Q1 Q Q2 Quantity demanded 2. Relatively Elastic Demand: -The demand is said to be relatively elastic when a proportionate change in price is greater than the proportionate change in quantity demanded. The numerical value of relatively elastic demand is greater than one [ PP1 = QQ1] [PP2 = QQ2] Successfully steppi ng into 5 t h year in o rder to achieve once again su ccess 18
OMTEX CLASSES
ECONOMICS
3. Relatively Inelastic Demand: -The demand said to be relatively inelastic when a proportionate change in price is less than the proportionate change in quantity demanded. The numerical value of relatively inelastic demand is less than one
4. Perfectly in elastic demand: -The demand is said to be perfectively inelastic demand when proportionate change in the price is zero than the proportionate change in quantity demanded. The numerical value of perfectively inelastic demand is zero.
5. Perfectly elastic demand: -The demand is said to be perfectly elastic when slight proportionate change in the price is infinite (unlimited) proportionate change in quantity demanded. The numerical value of perfectly elastic is ( infinite)
7.
CLASSIFICATION OR TYPES OR KINDS OF INVESTMENT?
Meaning: - Investment refers to the use of saving for purpose of production made by an individual or a business firm. The aim of investment is to acquire capital goods or assets e.g. Machinery, plant, factory building, raw materials etc.
1. Gross investment: - Gross investment refers o total expenditure on capital goods. Includes all the machines, factories, houses and other capital assets added in a year, it also includes depreciation.
2. Net investment: - Net investment refers to expenditure incurred on increasing stock of capital goods it refers to the cost incurred by he firm against white washing, repairing of building, replacement of certain parts of machineries etc. it excludes depreciation.
3. Autonomous investments:- These are investments made by the government for the welfare and benefit of the people. These investments are made without any profit motives. This type includes investments made by the government in roads, railways, dams, etc. 4. Induced investment: - These are investments made by the private sector or private entrepreneurs mainly for profit motive; it is prominent in capitalistic and free market economics.
5. Financial Investment: - These are investments incurred on the purchase of shares, bonds, securities. These do not add to the stock of capital.
6. Real Investment: - These are investments incurred on real capital assets like machinery, raw materials, and buildings.
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OMTEX CLASSES 8.
ECONOMICS
CLASSIFICATION OR TYPES OF GOVERNMENT BUDGET?
Meaning: -Budget is a document containing estimates of revenue and capital receipts and also expenditure of the government for the next financial year.
1. Balanced Budget: - Balanced budget provides for all expenditures of the government during the next year from revenue receipts of that year.
2. Deficit budget: - if the budget provides for total expenditure of the government in excess of the revenue during the next year, it is a deficit budget.
a. Revenue Deficit: -Revenue expenditure of the government exceeds revenue receipts.
b. Budgetary Deficit: -When governments total expenditure exceeds total receipts, the difference is budget deficit.
c. Fiscal Deficit: - When governments total income exceeds revenue receipts and only a few designated capital receipts, the difference is fiscal deficit.
d. Primary Deficit; -it is the deficit after deducting the interest payments from the fiscal deficit.
3. Surplus Budget: -Surplus Budget provides for excess of revenue receipts over expenditure. It is a surplus revenue budget.
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OMTEX CLASSES 1.
ECONOMICS
WRITE ABOUT GIFFENS PARADOX OF VALUE?
Meaning: -A commodity may have high value in use but has no value in exchange. On the other hand, some goods have high value in exchange but relatively less value in use. For e.g. Air has high utility and high value in use but no value in exchange. On the other hand goods like gold, diamond have high value in exchange but very low value in use. This distinction between value in use and value in exchange is known as the paradox of value. 1. The phrase Giffens Paradox is used to describe the unusual behaviour of the consumers in case of the demand in relation to price. 2. Sir Robert Giffen found out that in case of inferior goods, the law of demand does not work.
3. The inferior goods such as cheap bread, match boxes, etc. are demanded less if their prices decrease and vice versa. 4. When the prices of Giffen goods fall, the consumers real income rises. Therefore, the consumer prefers to buy superior product available in the market. 5. Thus in case of Giffen gods, even though the price falls, the demand remains constant or even falls.
2. STATE THE PRACTICAL IMPORTANCE OF ELASTICITY OF DEMAND?

Meaning: - Elasticity of demand is the degree of responsiveness of the quantity demanded of a commodity due to change in its determinants like Price, Income, prices of related goods, etc. The practical importance of the elasticity of demand is explained as follows: 1. Fiscal Policy: - Government may raise indirect taxes on those goods whose demand is highly inelastic, for example, cigarettes, wine, etc. 2. Price Discrimination: -The monopolist can fix high prices for those commodities for which demand is inelastic (for example, quality soap demanded by rich) and less prices for those commodities for which demand is elastic (for example, ordinary soap demanded by masses) 3. Trade Unions: - Trade unions can successfully bargain for higher wages if they produce commodities for which demand is relatively inelastic. 4. International Trade: - A country can export those goods whose demand are inelastic in world market and should import those goods whose demand is more elastic in domestic market. 5. Public Utilities: -The necessary products have inelastic demand. Therefore, public utilities like postal services, rail. Roads, electricity, etc. should be under government hold to avoid exploitation by private sector. 6. Pricing: -The concept of elasticity of demand is useful in product pricing and factor pricing. The commodities and the factors having inelastic demand command high prices and vice versa.
21
OMTEX CLASSES
ECONOMICS
3. STATE THE FACTORS INFLUENCING (DETERMINANTS) THE ELASTICITY OF DEMAND?
Meaning: - Elasticity of demand is the degree of responsiveness of the quantity demanded of a
commodity due to change in its determinants like Price, Income, prices of related goods, etc. There are several factors influencing the Elasticity of Demand. They are as follows: 1. Nature of Commodity: -It is one of the important determinants of elasticity of demand. For example, the demand tends to be elastic for luxury goods like cars, perfumes, etc. and inelastic for necessities like salt, medicines, etc.
2. Availability of Substitute: - The commodities having many substitutes in the market have relatively elastic demand for example, soaps, shampoo, biscuits, and cold drinks, etc. have many substitutes; therefore, they have elastic demand. On the other hand, salt has no substitute and therefore it has always inelastic demand.
3. Number of uses: -The commodity is having many uses have relatively elastic demand. When its price falls, it can be put into many uses but when its price rises, it can be put only for important purposes. For example, electricity. The demand for a commodity having a specific use has relatively inelastic demand.
4. Income of the Consumer: - Change in price does not affect the demand of rich people. Thus people who have high level of income have relatively inelastic demand. The demand of poor individual changes according in price, thus it is relatively elastic.
5. Proportion of Income: - If an individual spends small proportion of his income on a commodity, it has relatively inelastic demand. For example, Paper pins. On the other hand, if an individual spends a major proportion of his income on a commodity, it has relatively elastic demand for example, Perfumes.
6. Urgency and postponement: -If the use of commodity is urgent, the demand is relatively inelastic. For example, medicines. On the other hand, if the use of commodity can be postponed to a future date, demand will be relatively elastic. For example, ice cream.
7. Influence of habits: -If an individual becomes habituated to use certain commodity, then the demand becomes inelastic. For example, smokers demand for cigarette.
22
OMTEX CLASSES 4.
i.
ECONOMICS
EXPLAIN THE DIFFERENT METHODS OF MEASURING PRICE ELASTICITY OF DEMAND.

Ratio or Percentage method: The percentage method measures the elasticity of demand by means of percentage change in the price and the demand for the commodity. The formula used for the measurement of elasticity is as follows.
ii.
Total outlay method: The total outlay or expenditure method of elasticity of demand was developed by Prof. Alfred Marshall. With the help of the following demand schedule, elasticity of demand is measured as follows. This method is also called as Total Revenue or Total Expenditure
method. The total outlay method can be expressed in the form of equation as follows.
23
OMTEX CLASSES
ECONOMICS
TOTAL OUT LAY METHOD PRICE PER UNIT X QUANTITY DEMANDED.
This is Marshalls method of measuring elasticity of Demand. Price (in Rs. ) 50 40 Quantity demanded 5 10 Total outlay 250 400 Elasticity Relatively Elastic Ep > 1
If a change in price brings about a change in quantity demanded in such a way that the total outlay goes on increasing, then demand is relatively elastic. Price (in Rs. ) 30 20 Quantity demanded 20 30 Total outlay 600 600 Elasticity Unitary Elastic Ep = 1
If a change in price brings about a change in quantity demanded in such a way that the total outlay remains the same, then demand is unit elastic. Price (in Rs. ) 10 05 Quantity demanded 40 50 Total outlay 400 250 Elasticity Relatively inelastic Ep< 1
If a change in price brings about a change in quantity demanded in such a way that the total outlay goes on falling, then demand is relatively inelastic. iii. Geometric Method: - This method is also called point method. This is the most simple and scientific method given by Marshall to measure elasticity of Demand at any point of the demand curve. A demand curve may be linear or not linear.
The above diagram No (1) shows that The point A and B is a segment. P is the point divides the segment into two parts. AP is the upper segment and BP is the lower segment. The price elasticity at point P is measured by a ratio of lower segment of the demand curve from point P. i.e. PB and the upper segment from point P i.e. PA. The formula is used.
24
OMTEX CLASSES 5.
ECONOMICS
EXPLAIN THE RELATIONSHIP BETWEEN TOTAL UTILITY AND MARGINAL UTILITY
Total utility is the sum total of the utilities derived at a particular level of consumption where as marginal utility is an additional utility derived by consuming one more unit of the commodity. The following illustration of a schedule and a diagram explain the relationship between total utility and Marginal utility. Let us assume that an individual consumer Mr. X found of mangoes and start consuming unit of mangoes in quick successive unit of mangoes.
Units of mangoes 1 2 3 4 5 6 7
Total Utility (T.U) 10 18 24 28 30 30 28 DIAGRAM
Marginal Utility(M.U) 10 8 6 4 2 0 -2
With the help of the Schedule and Diagram we derives the following three conclusion 1. To begin with as the consumer consumes unit after unit of a commodity the total utility goes on increasing in the early stages but the marginal utility goes on falling right from the beginning. 2. Then if the consumer keeps on consuming more units of mangoes a stage is reached where T.U. remains constant. Hence M.U. becomes Zero. Therefore Total Utility is constant or maximum when M.U. is zero.
3. If the consumer consumes still more and more units of Mangoes, then instead of adding to his level of satisfaction he finds that total utility goes on decrease. When total utility decreases, the marginal utility becomes negative.
25
OMTEX CLASSES 6.
ECONOMICS
WHAT ARE THE DETERMINANTS OF INDIVIDUAL DEMAND?
Introduction: - There are various factors which influence the quantity demanded of a commodity by all/ many individuals in a market.
The demand for a commodity is determined by the following factors
1. Price of a commodity: -Demand depends on price of a commodity. The higher the price the lower is the demand. The lower the price the higher is the demand.
2. Price of substitute: -Demand depends on the price of substitute for e.g. the demand for LUX soap depends on the price or other soaps like Hamam, Rexona, etc.
3. Availability of related goods: -In case of complimentary goods like ink and pen, car and petrol, bread and butter etc the demand will be more even if the price or only one product goes down.
4. Income: -The income of the person also determines the demand. The higher the income the higher is the demand. The lower the income the income the lower is the demand.
5. Utility: -The demand for a commodity depends on its utility. The higher the utility of a commodity the greater is the demand for it.
6. Quality: -The better the quality, the higher is the demand. Individual will buy a product of better quality even if the price is more.
7. Taste and Habit: -Demand for a commodity depends on taste, fashion and habit. A consumer will buy certain goods on account of force of habit e.g. Cigarette, tobacco, pan masala, wines etc. Therefore the quantity demands of these goods would change when there is a change in habit, such as giving up smoking, wines etc. Therefore the quantity demands of these goods would change when there is a change in habit, such as giving up smoking, wines etc.
8. Advertisement and salesmanship: -Advertisement and salesmanship also influences the demand. Individuals give preference for the products which are advertised. The better the advertisement, the higher is the demand
26
OMTEX CLASSES 7.
ECONOMICS
WHAT IS AGGREGATE DEMAND? WHAT ARE ITS DETERMINANTS?
Meaning: - Aggregate demand is the total demand in an economy which includes consumption, investment,
government expenditure and foreign demand. The aggregate demand is sympollically stated as: AD =C+I+G+ (X-M) Where, C = aggregate consumption expenditure I = aggregate investment expenditure G =aggregate Government expenditure X = Exports and M = Imports. Following are some of the determinants of Aggregate Demand 1. Consumption Expenditure: -Consumption Expenditure refers to the total consumption expenditure incurred on final goods and services by the individual and firms to fulfil their consumption needs in an economy. This consumption can be autonomous or induced. 2. Investment Expenditure: -Investment Expenditure refers to the expenditure incurred by the individuals, firms and the government for acquiring new capital assets. 3. Government Expenditure: -Government Expenditure implies expenditure incurred by the government on providing services, social welfare measures and development of infrastructure. 4. Foreign Transaction: -The Foreign Transactions are in the form of imports and exports. When earnings from the exports are greater than the payments made for imports, the net income is added to aggregate demand and vice-versa.
8. WHAT IS AGGREGATE SUPPLY? WHAT ARE ITS DETERMINANTS?

Meaning: -Aggregate Supply refers to the sum total of the output of goods and services produced and supplied in an economy during a given period of time usually a year. Thus aggregate supply includes the goods produced by all the sectors namely, Primary, Secondary and Tertiary sector. The production of goods and services depends on the availability and the use of natural resources, labour, capital and technology. 1. The determinants of the aggregate supply are Natural resources (N), Labour (L), Stock of Capital (K) and State of Technical Knowledge (T). The aggregate supply (AS) or Output (O) is the function of or depends upon the Natural Resources (N) Labour (L), Stock of Capital (K) and state of Technical Knowledge (T). 2. Thus, AS = O = f (N, L, K, T) where N, K and T are constant in the short run.
3. Natural Resources (N): -Renewable natural resources like land, water, etc. non-renewable resources like mineral, oil, etc. determine the level of aggregate supply. 4. Labour (L): -Labour is the most active and human factor determinants aggregate supply. Trainings, Experience, education increase labors productivity and in turn aggregate supply. 5. Stock of Capital (K): - All kinds of capital assets like machinery, infrastructure, transport, communication, etc. influences the level of aggregate supply.
6. State of Technology (T): - Technical knows how determinants Labour productivity and in turns determines aggregate supply. Advanced and sophisticated technology increases aggregate supply and vice versa.
27
OMTEX CLASSES
9.
ECONOMICS
WHAT ARE THE DETERMINANTS OF MARKET SUPPLY?
The market supply of any commodity X depends on a number of factors:
1. Price of commodity: - Firms produce goods and services to earn profit. So, higher the price of commodities, the larger is the supply and vice versa.
2. Price of factor of production: -The cos of production increases in prices of factor of production. Therefore, the supply rises if prises of factors of production are less and vice versa.
3. State of Technology: -Advanced and sophisticated technology increases the production and thus supply of goods. On the other hand, traditional and outdated technology decreases supply.
4. Transport and communication facility; -Modern and speedy transport facilitates increase the supply of goods in different markets but slow transport, breakdown, strikes, etc. decrease the supply of goods.
5. Export and Imports: -Export of goods result in reduced supply of goods in domestic market. On the other hand, import of goods increases the supply of different goods and services.
6. Time Period: - Supply can be more in the long run but less in short and very short period.
7. Weather Conditions: - The supply of agricultural products is determined by weather conditions, favourable climate, rainfall, temperature, etc. Increase the supply of agricultural products. On the other hand drought, floods, extreme variations in temperature, etc. reduce supply.
28
OMTEX CLASSES
10.
ECONOMICS
WHAT ARE THE DIFFICULTIES INVOLVED IN THE MEASUREMENT OF NATIONAL INCOME? OR THERE ARE NO DIFFICULTIES INVOLVED IN THE MEASUREMENT OF NATIONAL INCOME? DO YOU AGREE OR NOT?
Definition: - The term National Income is defined by SIMON KUZNETS as the net output of commodities and services flowing during the year from the countrys productive system in the hands of ultimate consumers.
Following are some of the difficulties involved at the time of measurement of national income:
1. Incomplete Records: -In villages and even in cities, many people do not maintain regular and complete accounts. Hence it is very difficult to obtain the correct information for the national income estimate.
2. Lack of systematic occupational classification: -It is very difficult to have a proper classification of the occupations of the people in rural areas because the majority of the people work on farms for sometime and also takes up other jobs during the off-season. Hence, no accurate measurement of national income is possible.
3. Indifference of the people: -Most of the people in rural areas, being uneducated, are indifferent to the work of preparing national income estimates. They do no co-operate fully with the government officials in supplying the required information.
4. Illegal income: -In India, there is a parallel unaccounted (black) economy which is as significant as the official Indian economy. The earnings from the barter economy and personal services in the non-magnetized sectors are a hidden fact.
5. Unpaid services: -The services of house-wives, self-employed persons and their family members in various sectors such as agricultural, industrial and tertiary are not computed.
6. Non-monetized sector: -Barter exchange is still prevalent in some areas. Because of the existence of such a non-monetized sector, it is not possible to know the correct market value of the many goods produced and sold.
7. Double Counting: -When the value added method is followed, there is always a possibility of double counting of income, e.g., value of sugar is to be included in the national income and not the value of sugar cane, because the value of sugar includes the value of the sugarcane.
29
OMTEX CLASSES 11.
ECONOMICS
WHAT ARE THE FUNCTIONS OF MONEY?
Meaning: -Money is anything that is generally accepted as a means of exchange and which at the same time acts as a measure and has store of value. The limitation and difficulties of the barter system led to the evolution of money as a common medium or means of exchange. The different functions of money are summed up in the following couplet: Money is a matter of functions four, a medium, a measure, a standard and a store. Definition: - According to Robertson, Money may be defined as Anything which is widely accepted in payment for goods or in discharge of other kinds of business obligations is called money. Definition: - According to Geoffrey Crowther, Money is one of the most important fundamental of all mans inventions. Every branch of knowledge has its fundamental discovery. In mechanism it is the wheel, in science it is fire, similarly in economics and in the whole commercial side of mans social existence, money is the essential invention on which all the rest is based.
FOLLOWING ARE SOME OF THE IMPORTANT FUNCTIONS OF MONEY
1. Medium of Exchange: -The primary function of money is to serve as a medium of exchange. Money serves as a means through which goods or services are exchanged, i.e. bought or sold.
2. Measure of Value: -Money serves as a common measure of value. It is a common yardstick of value. Values of all goods and services are expressed in terms of money is called price. Thus, the price comes into existence due to the use of money.
3. Store of value: -Today, we can store our wealth or other assets in the form of money. Money is not perishable and it can be converted into any other form of assets whenever necessary.
4. Standard for deferred payment: - Money also serves as a standard for deferred payments, i.e. payments to be made at a future date. All the payments of debts are finally received and paid along with interest, in terms of money. Money also facilitates credits transactions.
5. Miscellaneous Functions: - In addition to the fundamental functions mentioned above, there are many other functions which money performs. They are
1. Money is the most liquid asset. Money imparts liquidity to wealth. that is wealth can
Be easily converted into money. 2. Money makes wealth and capital more mobile. 3. Money is productive. It facilitates large-scale production and distribution of goods and services. 4. Money provides a base for the modern banking and credit system.
30
OMTEX CLASSES 12.
ECONOMICS
DEFINE A BANK AND OUTLINE THE FUNCTIONS OF COMMERCIAL BANK?
Meaning: -A bank is a dealer in the money market. It accepts deposits repayable on demand by cheques and lends or invests the surplus money as a part of normal business. It makes a profit by accepting deposits at a lower rate of interest and lending money at a higher rate of interest. Definition; -According to Prof, Sayers defines Commercial bank has Institutions whose debtsusually referred to as bank deposits-are commonly accepted in final settlement of other peoples debts. Following points are some of the important functions of commercial banks 1. Accepting Deposits: -One of the fundamental functions of the commercial banks is to attract and mobilize the savings of community in the form of deposits. The deposits are classified into the following categories. A. DEMAND DEPOSITS: -Demand Deposits are those deposits which are withdrawable on demand. The demand deposits can be classified as follows: a. Current account deposits: -They are mainly maintained by the business community to facilitate frequent transactions with big amounts. Such accounts are mostly held by companies, institutions, governments and private businessmen, etc. Generally no interest or very low rate of interest is paid on current account holder. b. Saving Bank Account: -It is a kind of demand deposits which is generally kept by people for the sake of safety. This facility is given for small savers and normally a small rate of interest is paid on this account. c. Time deposit: -Time deposits are those which can be withdrawn only after a specified period of time deposits can be classified as 1. Short term deposits 2. Fixed deposits 3. Recurring deposits etc. B. LENDING LOANS AND ADVANCES: -The second important function is lending loans and advances to corporate sector. Business man and individuals. Loans can be classified into the following types. 1. Call loans: -These loans are called back at any time. Normally, these loans are taken by billbrokers or stock-brokers. 2. Short term Loans: -These are sanctioned for a period up to one year. 3. Medium term loans: -These are sanctioned for a period varying between one and five years. 4. Long Term Loans: -These are sanctioned for a period more than five years. Like deposits, there are various kinds of advances given by the commercial banks. They are as follows. a. Over Draft b. Cash Credit Bills of Exchange etc. SECONDARY FUNCTIONS C. DEVELOPMENT OF CHEQUE SYSTEM: - Development of Cheque System is another important primary function of a commercial bank. Cheques are basically of two types: - 1. Bearer Cheque 2. Crossed Cheque. Commercial banks have encouraged the use of cheques in modern days. D. REMITTANCE OF FUNDS: -Commercial banks help their customers in remitting funds from one place to another place by issuing bank drafts, mail transfer, telegraphic transfer, etc. by charging nominal commission.
31
OMTEX CLASSES 13.
ECONOMICS
DEFINE AND EXPLAIN THE FUNCTIONS OF CENTRAL BANK?
Meaning: - A central bank is the apex financial institution of the banking system. It controls a countrys money and banking system. A central bank is a must for a modern state as the highest financial authority. It is indeed indispensable. A central bank controls the monetary and the banking system. It is the agency through which the state enforces the monetary part of its economic policy. A central bank performs many important functions. These are: 1. Issue of notes 2. To act as a Governments bank 3. To act as a bankers bank 4. To be the custodian of exchange reserves 5. To be a lender of last resort 6. To act as a clearing House 7. To regulate credit Following are the some of the important functions of central bank 1. Monopoly of note-issue: -In most of the countries, the Central Bank enjoys the monopoly of noteissue. As such, it can function as the monetary authority and exercise control over the volume of the currency of a country. 2. Governments Bank: -A Central Bank performs most of the monetary functions on behalf of the government. The government and municipalities have their accounts in the Central Bank. It acts as the custodian of the government funds and manager of public debts. In short, the Central Bank is an agent, advisor and banker to the government. 3. Lender of the last resort: -Whenever a bank is in difficulty or does not have enough cash to pay to customer, it approaches the Central Bank for help. There fore the Central Bank is called the lender of the last resort. 4. Exchange Control: -A Central Bank controls all the foreign exchange dealings of a country. It acts as the custodian of the foreign exchange reserves. It is the Central Banks duty to stabilise the exchange value of the home currency. 5. Clearing House: - A Central Bank arranges for the clearing of cheques through the clearing house. Clearing of cheques enables banks to settle their mutual dues by the process of book entries. Thus, inter banking payments are facilitated by the clearing system. 6. Control of Credit: -A Central Bank controls credit created by the banks in the country. Banks may advance unduly more or less credit. A Central Bank sees that the volume of credit in the country is adequate. It ensures that excessive bank credit is not used for speculative activities or to rig prices or to hoard essential goods. 7. Promoters of development: - A Central Bank also helps the government in its efforts to promote economic development by developing the financial sector of the economy.
32
OMTEX CLASSES 14.
ECONOMICS
EXPLAIN ABOUT THE FUNCTIONS OF THE ENTERPRENEUR?

The function of an entrepreneur can be broadly classified into the following three categories.
1. Organising Function
2. Risk and Uncertainty Bearing Function
3. Innovation Function
1. ORGANISING FUNCTION: As an organiser, an entrepreneur performs the following functions: Planning: -He takes economic decisions regarding what, how, where, how much to produce, etc. Factor Co-ordination: -He co-ordinates land, labour and capital in the right proportion to produce maximum output at minimum cost. Supervision: - He supervises the activities of labours and functioning of capital for optimum utilisation of time, money, energy and material. Policy making: -Entrepreneur should also make entire business policies i.e. Policy regarding inputs (factor of Production), size of the firm, advertisement and sales strategies etc. He should frame all such business policies in such a way that cost of production should e minimum and revenue (Profit) should be Maximum. Making Factor payments: -It is the responsibility of entrepreneur to make payments or remuneration to the factors (inputs) of Production. He should pay remuneration to the factors according to their contribution in the production process. 2. RISK AND UNCERTAINTY BEARING FUNCTION: -
3. INNOVATION FUNCTION : -
33
OMTEX CLASSES
19.
ECONOMICS
OUTLINE THE QUALITIES OF A SUCCESSFUL ENTERPRENEUR? OR WHY ENTERPRENEUR IS A CAPTAIN OF THE INDUSTRY
Meaning: -Entrepreneurs is regarded as the captain of an industry it is the Entrepreneurs who co-ordinates or combines, organise different factors of production. He not only organises, but also control directs supervises and administers the productive activities. Thus, the work of Entrepreneurs is rather tough complex and complicated. So, it requires special ability and experience.
An efficient and successful Entrepreneur must possess the following qualities.
1. Efficiency: -He should be highly intelligent, able and efficient so as to tackle day to day problems arising in business.
2. Organisation: - He should be a good organiser. He should have the ability to combine al factors of production optimally i.e. in such a way that the cost of production is minimum. Thus he should be a well co-ordinator.
3. Supervision: -He should be an efficient supervisor. He should be well equipped with supervising the working of factors inputs. He should be a good initiator of business. He should put right person in a right job.
4. Policy Maker: - He should be a good policy maker. He should be able to make entire business policies such as policy regarding input, size of the firm, sales, advertisement payments of remuneration to the factors etc.
5. Decision Maker: -He should be a quick decision maker. He should have the capacity to take quick decisions regarding location of industry, investment, product to be produced, price of it, cost of production, nature of production sales, etc. because delay in taking decision may result in financial losses to the firm.
6. Self Confident: -He should be confident and should be able to develop confidence in others regarding his integrity and honesty of purpose. It will help in building up and marinating good will and reputation to his firm in the market.
7. Innovator: -He should be a good innovator. He should introduce new techniques of production which minimise cost of production and should explore new raw material and market for his product.
34
OMTEX CLASSES
15.
ECONOMICS
EXPLAIN THE DIFFERENT METHOD OF MEASURING NATIONAL INCOME?
Meaning: - National Income may be defined as the money value of the aggregate of goods and services produced and exchanged by the people of a country during a given period. National Income is thus, the aggregate or total of all the incomes earned by the factors of production in the form of rent, wages, interest and profits in a country.
Methods of measuring the National income:
There are three methods of measuring the National Income.
1. The Output Method: -The Output method also known as inventory method or the production method. It implies the measurement of the national income by taking into consideration the sum total of the gross value of the final goods and services manufactured in different sectors like agriculture, industrial and tertiary sector, i.e. service sector of the economy, during the financial year under consideration.
2. The Income Method: - The income method is also known as factor cost method. it implies the summation of all the factor payments, viz rent, wages, interest and profits received by all the persons and enterprises during a financial year. Under this system the national income is computed by using the following formula: National Income = Rent +Wages + Interest - Profit +undistributed profit +self-employed income + Net income from private and public property + Net income from abroad Depreciation Transfer income.
3. The Expenditure Method: - The Expenditure method implies the summation of all the expenditures incurred by the households, firms and government during the financial year under consideration. Under this method, the national income is computed by considering the following items: National Income = Private Final Consumption expenditure + Government Consumption Expenditure + Net Capital Formation + Depreciation + Net foreign Income.
35
OMTEX CLASSES 16.
ECONOMICS
WRITE SHORT NOTES ON SAVING FUNCTIONS?
Meaning: -The Saving Function or propensity to save explains the functional relationship between income and saving. It shows how much a consumer will save at different levels of income. Symbolically, saving function can be shown as: S = f (Y). Following are the brief explanation of the Saving Function 1. Excess of income over consumptions called saving. Saving Function refers to the functional relationship between the aggregate level of income, consumption expenditure and saving. 2. Saving Function states that saving tends to increase with increase in income and decrease in Consumption. 3. In symbolically it can be defined as, S = Y =C and S = f (Y) where S stands for Saving, Y stands for Income and C stands for Consumption. 4. Saving Function is explained with the help of the following schedule and diagram INCOME (Y) 6000 9000 12000 15000 18000 21000 CONSUMPTION (C) 7200 9000 10500 11700 12600 13200 SAVING (S = Y-C) -1200 0 1500 3300 5400 7800
C O N S U M P T I O N
Y 18000 15000 12000 9000 6000 3000 O 3000 6000 9000 12000 15000 18000 21000 X
INCOME 5. From the schedule and diagram, we can observe that with the increase in income, the consumption increases at a lower rate and thereby saving increases at a higher rate.
36
OMTEX CLASSES
17.
ECONOMICS
WHAT IS THE CONSUMPTION FUNCTION? WHAT ARE THE FACTORS INFLUENCING CONSUMPTION FUNCTION?
Meaning: -Consumption Function or propensity to consume between income and consumption. It shows how much a consumer will spend on goods and services at different levels of income. Symbolically, consumption function can be shown as: C = f (Y) (A) Consumption Function: - Expenditure incurred by a consumer for the fulfilment of the needs is called the consumption function. Consumption Function refers to the schedule, which shows different levels of income. It expresses the direct relationship between consumption and income. Consumption expenditure goes on increasing with the rise in the level of income but not in proportion to the rise in the level of income. (B) Objective Function influencing the consumption function: - The factors that influence the consumption function are as follow:
1. Income: -According to Keynes, as the income increases, the consumption too increases but in
a lesser proportion.
2. Price Level: - The consumption is inversely related to the price level. When the prices of the
commodities increase, the purchasing power of the consumers declines and, as a consequence, the consumption decreases.
3. Distribution of incomes: -An even distribution of income among the people will result in an
overall increase in the consumption.
4. Unexpected profits and losses: -The unexpected profits add to and the lowers force a
reduction in the consumption.
5. Burden of debts: -The burden of debts and repayment of the borrowed funds along with
interest force individual to reduce the expenditure on the consumption and vice versa.
6. Credit facility: -Credit facilities and schemes like hire purchase system generate higher
consumption demand for comport and luxury goods.
7. Future Expectation: -Low-income and middle income group reduce consumption with a view
to making provision for future.
8. Saving Tendency: - The people with a conservative outlook try to save as much as possible
from their income and thereby reduce consumption.
37
OMTEX CLASSES
18.
ECONOMICS
EXPLAIN THE QUANTITATIVE AND QUALITATIVE WEAPONS OF THE CENTRAL BANK TO REGULATE AND CONTROL CREDIT? 183
38
OMTEX CLASSES 19.
ECONOMICS
WHAT ARE THE TYPES OF BANKS ACCOUNT?
Meaning: -Bank accepts money as deposits mostly in four ways: 1. Current Account 2. Saving Account 3. Fixed Deposit Account 4. Recurring Deposit Account.
Following are some of the important types of Banks Accounts:
1. Current Account: - A Current Account is meant for businessmen and institutions. There are no restrictions on the number and amounts of withdrawals from this account. On opening this account, the account holder is given a paying-in-slip book, a Chequebook and a Pass book. Cheques, bills of exchange, dividend warrants received from outside parties can be deposited in this account for collection overdraft facility is granted only to current account holder.
2. Saving Account: -A Saving Account aims at promoting the habit of saving among the fixed income earners. Interest at certain rates is paid on the balance in this account. Money can be withdrawn by cheque or withdrawal slip. Howe ever, there are restrictions on the number of withdrawals including the maximum amount that can be withdrawn art a time. Overdraft facility is not granted for this account.
3. Fixed Deposit Account: - A fixed deposit account is opened by those who have surplus funds. Under this account, a certain amount is deposited for a fixed period. Higher rate of interest is paid on the fixed deposits. The rate of interest depends upon the period of deposits. Money can not be withdrawn before the date of maturity.
4. Recurring Deposits Account: - A recurring deposit account is opened for some long-term objective such as marriage or education of children or purchase of costly articles, etc. under this account, a fixed sum is to be deposited every month for the fixed period.
39
OMTEX CLASSES
20. Meaning: -
ECONOMICS
EXPLAIN IN BRIEF THE DIFFERENT TYPES OF CHEQUES?
A. A cheque may be 1. Bearer Cheque 2. An order cheque 3. An open cheque 4. A Crossed Cheque 5. A post dated Cheque 6. An anti-dated cheque 7. A stale Cheque 8. Blank Cheque
The following are some of the important types of Cheques:
1. Bearer Cheque: -When the word or bearer appearing on the face of the cheque are not struck off, the cheque is called a bearer cheque. The bearer cheque is payable to the person specified therein or to any one else who presents it to the bank for payment. It is also called a risk cheque.
2. Order Cheque: -When the word bearer appearing on the face of the cheque is struck off or when in its place the word order is mentioned or when there is neither the word bearer nor order on the face of the cheque, the cheque is called an order cheque. Such a cheque is payable to the person specified therein as the payee, or to any one else to whom it is endorsed.
3. Open Cheque: -When a cheque is not crossed, it is known as an open cheque or uncrossed cheque. The Payment of such a cheque can be obtained at the counter of the bank. An open cheque may be a bearer cheque or an order one. 4. Crossed Cheque: -When a cheque bears across its face two parallel lines with or without additional words like & Co. or Account Payee or Not Negotiable. It is known as a crossed cheque. A crossed cheque cannot be Encashed at the cash counter of a bank but it can only be credited to the payees account. 5. Ante-dated Cheque: - If a Cheque bears a date earlier then the date on which it is presented to the bank, it is called an antedated cheque. Such a cheque is valid up to six months from the date of the cheque.
6. Post-dated cheque: - If a Cheque bears a date which is later than the date of presentation, it is known as post-dated cheque. A post dated cheque cannot be honoured earlier than the date on the cheque. 7. Stale Cheque: -If a cheque is presented for payment after six months form the date of the cheque it is called Stale Cheque. A stale cheque is not honoured by the bank. Successfully steppi ng into 5 t h year in o rder to achieve once again su ccess
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OMTEX CLASSES
21.
ECONOMICS
WHAT IS A BUDGET? EXPLAIN THE OBJECTIVES OF A BUDGET?
Meaning: -Budget is a document containing estimates of revenue and capital receipts as also expenditure of the government for the next financial year. Budget of the government indicates next years expenditure plans and programmes and attempts to find resources for the same.
Budget has two main components, namely revenue budget and Capital Budget.
A. Revenue Budget: - Revenue budget presents estimates of income from and expenditure on current goods and services by the government in the next year and revised estimates of these magnitudes for the current accounting year which comes to a close. 1. Revenue Receipt: -They are composed of receipts of the government which neither create a liability nor lead to reduction in assets. They are as follows : Tax receipt: -Governments revenue receipts are mainly composed of various taxes-direct and indirect-and customs, i.e., taxes on exports and imports. Non-Tax receipts: -These include incomes from profits of state-owned enterprises, earnings from public services like police, judiciary, etc. interest on loans advanced and sale of services. 2. Revenue Expenditure: - This is composed of payments for services received and transfer payments. Consumption Expenditure: - Government spends on direct consumption of servicesadministrations, law and order and legislation. Transfer Payments: -These are payments for the past services rendered or for charity: Grants to local self-governments like Panchayats, etc. pensions to retired persons, unemployment benefits and a part of defence expenditure. B. Capital Budget: -This part of the budget includes receipts and expenditure on capital account projected for the next financial year. 1. Capital Receipts: -These consist of government borrowings from the market, sale proceeds of treasury Bills, Borrowings from the Central Bank and Foreign debt. 2. Capital Expenditure: - Any projected expenditure which is incurred for creating assets with a long life is capital expenditure. Thus, expenditure on land, machines, equipments, irrigation projects, oil explorations and expenditure by way of investment in long term physical or financial assets are capital expenditure. A part of defence expenditure also is on Capital account. Thus, the budget mirrors projected receipts and expenditure. Note: -Normally Budget is prepared for one year, and it is prepared by our financial minister.
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OMTEX CLASSES
22.
ECONOMICS
WHAT IS A BUDGET? EXPLAIN THE OBJECTIVE OF A BUDGET?
Meaning: -Budget is a document containing estimates of revenue and capital receipts as also expenditure of the government for the next financial year. Budget of the government indicates next years expenditure plans and programmes and attempts to find resources for the same. Budget containing the following information relating to the economy: 1. A comprehensive account of the programmes and policies of the government during the last year and their effects on the economy. 2. Current economic situations of the country and analytical account of the governments finances. 3. Estimates of receipts from various sectors of the economy and the proposed expenditure in different sectors, projects and programmes. 4. Revised estimates of receipts and expenditure for the current year and analysis of variations in budget figures. 5. The budget has a decisive impact on the prices, output, savings, investments, etc. it has great importance as a document that mirrors the economic policies of the government. Following are some of the Important Objectives of Budget: The objectives and the emphasis on a particular objective may vary with the governments economic Philosophy. The three main objectives of a budget are 1. Economic Stability 2. Economic Growth 3. Economic equality 1. Economic Stability: -It is a major policy objective, both in the developed and developing countries. It means that the budget should aim at maximising incomes and employment without undue rise in prices During Recession or depression: -The budget would provide for more expenditure, exceeding revenues, so as to increase effective demand. Taxes would be reduced. During Inflation or prosperity: -The budget would aim at reducing government expenditure wherever possible, increase direct taxes and provide incentives for more production. 2. Economic Growth: -Economic Growth is an overriding objective in the developing countries. The budget is an instrument to help achieve this objective. The measures that government may take include: Incentives for Savings and investments by tax policies. Provision of programmes which would help both public and private sectors to expand production. Special Tax-holidays to certain areas and sectors. Promotional policies for business and industry. 3. Economic Equality: - Very often, economic growth does not automatically benefit the poor and low middle class people. It therefore becomes the duty of the government to transfer a part of increased incomes to the poor by fiscal measures. The budget may provide for high taxes on the rich and high expenditure for providing facilitates to the poor in the form of food, clothing, housing, education, health care, etc. A budget may provide for great reliance on direct taxes, indirect taxes on luxury goods, lower interest rates on loans to the poor, subsidies to essential consumer goods etc. Successfully steppi ng into 5 t h year in o rder to achieve once again su ccess 42
OMTEX CLASSES
A.
ECONOMICS
WRITE SHORT NOTES ON BANK RATE POLICY? 2. When the bank rate is increased, the cost of
borrowing from Central Bank also increases.
Meaning: Bank Rate is the rate charged by the Central Bank for rediscounting the bills of exchange presented by the commercial banks. When the bank rate is raised by the Central Bank, market rates of interest tend to rise. Then credit becomes costly and so there is contraction of the credit given by the banks. Lowering of the bank rate results in the expansion of bank credit. 1. Bank rate policy may be defined as the rate at
which the Central Bank rediscounts he first class commercial bills of exchange or at which it will advance loans against approved securities.
3. This in turn forces the commercial banks to 4. 5. 6. 7. 8.

charge higher lending rate to cover up their increased cost. As a result businessmen are discounted to borrow. Therefore, during inflationary period Central Banks raises the bank rate. When the bank rate is decreased, the cost of borrowing decreases which in turn reduces the lending rate of commercial bank. The decreased lending rate encourages the businessman to borrow more. Therefore, during deflationary periods Central Bank reduces the bank rate.
B. WRITE SHORT NOTES ON OPEN MARKET OPERATIONS

1. Open Market operations means, the purchase and sale by the Central Bank not only of Government securities but also eligible papers like bills and securities of private concerns. 2. The sale of securities reduces credit creating base of commercial bank which in turn leads to credit contraction 3. The Purchase of securities increases credit creating base of commercial bank which in turn leads to credit expansion.
C. BALANCED BUDGET
1. Balanced Budget is a budget where total receipts of the government and total expenditure of the government are equal over a period of time. 2. In balanced budget there is neither any surplus, nor any deficit. 3. Thus, balanced is a type of budget where, Government Receipts = Government Expenditure
D. CASH RESERVE RATIO

1. A ratio by which a commercial bank holds minimum cash reserves of its total deposit liabilities is known as cash reserve ratio. 2. Under the RBI Act of 1935, every commercial bank has to keep certain minimum cash reserves with RBI. 3. It can very between 3% to 15% of the total time and demand deposit. 4. Increases in cash reserves ratio reduce the capacity of credit creation of commercial bank and vice versa
E. CREDIT CRDITS
1. Credit cards are a facility provided by commercial banks to its customers which allows a person to buy goods and services up to a certain limit without immediate payment. 2. The amount is paid to the shops, restaurants, etc. by the banks. 3. The bank collects the due amounts from the customers by debiting their account.
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OMTEX CLASSES
1.
ECONOMICS
DISTINGUISH BETWEEN DEMAND AND DESIRE?
DESIRE DEMAND 1. The term desire is used by anybody to show the 1. The term Demand is a desire backed by willingness or wish to get something. For e.g. a purchasing power and willingness to pay. beggar wishing for a car. 2. Desire has no limits. 2. Demand has many limits such as income, fashion, etc. 3. Desire is an independent term for e.g. a person can 3. Demand is a dependent term related to desire to go the moon. money for eg. A person can have a demand for food if he has enough money to purchase it. 4. Desire plays a negative role in the minds of people 4. Demand place a positive role in the mind because desire without the capacity to pay for the of people because want will only being frustration. (willingness)
2. INDIVIDUAL DEMAND 1. An individual demand is the number of items demanded by a single person at a particular price at a particular time from a particular market. 2. Mr. X demands 5kg of rice at Rs. 10 per Kg. is an example of individual demand. 3. It is less in quantity. 4. It can be zero at a particular time.
MARKET DEMAND 1. Market demand is the total demand for a commodity made by all consumers, at a particular price from particular period of time. 2. Demand for rice is 15 thousand kg. is an example of market demand. 3. It is larger in quantity. 4. It is rarely zero in the market.
Price (in Rs.)
Price (in Rs.)
D Quantity Demanded X
D Quantity Demanded X
Ind ua D a ivid l em nd
M rket D a a em nd
44
OMTEX CLASSES ECONOMICS MICRO ECONOMICS V/S MACRO ECONOMICS

3. MICRO ECONOMICS MACRO ECONOMICS 1. It is derived from the Greek word Mikros i.e. 1. It is derived from the Greek word Makros i.e. Small Large 2. Dr. Marshall was first to adopt this approach 2. Lord Keynes developed the concept of macro economics during the great depression
3. Micro Economics concepts are independent in 3. Macro economics concepts are interdependent nature. in nature 4. Individuals consumers may spend more or 4. Total income of economy should be equal to less money then he receives in a given period. the total expenditure for economic stability. 5. 5. It is basically refers to Product theory or 5. It is basically refers to growth theory as its Price Theory related to micro variables. relates to economic stability and macro variables.
GROSS NATIONAL PRODUCT V/S NET NATIONAL PRODUCT

4. GROSS NATIONAL PRODUCT NET NATIONAL PRODUCT 1. GNP refers to aggregate market value of all 1. NNP refers to the total money value of the net final gods and services produced in an output of an economy during a year. economy during a year. 2. GNP is expressed as GNP = C+I+G+(X-M) 2. NNP is expressed as NNP = GNP + (R-P) Depreciation 3. It involves consumption, investment 3. It is derived by deducting depreciation which Government services net earning from abroad refers to wear and tear of capital goods during and net receipts from foreign transaction. the process of production. 4. GNP is always greater than NNP 4. NNP is less than GNP
5. 1.
2.
3. 4. 5.
NNP AT MARKET PRICE V/S NNP AT FACTOR COST NI AT MARKET PRICE NI AT FACTOR COST Meaning: -National Income at market price is 1. National Income at factor costs is the value of the value of the goods produced in a year at the goods produced in a year when valued at the prices of the goods prevailing in the their cost of production. market. Indirect Taxes: -It shows the value of all 2. It shows the income actually received by the goods and services produced at current market factors of production which therefore does not price which therefore includes indirect taxes. include indirect taxes. Formula: -NI at market price: NNP at factor 3. NI at factor cost: NNP at cost = NNP at Cost + Indirect taxes subsidies. market price Indirect taxes + subsidies. Use: -It is useful in knowing the total income 4. It is useful for knowing the true income of the arising in the country. people in the country. Volume: -It is generally higher than national 5. It is generally lower than national income at income at factor cost. market price.
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OMTEX CLASSES
STOCK V/S SUPPLY
ECONOMICS
6. STOCK SUPPLY 1. Stock is the entire quantity that is kept by the 1. Supply is that quantity which the seller seller in a stored-up form. actually brings out into the market for sale. 2. Stock is potential supply and it is static in 2. Supply is the actual supply and it is a flow nature concept. 3. The nature of stock varies from commodity to 3. The nature of the supply varies from commodity. For perishable commodities, the commodity to commodity. For perishable stock is either zero or very small irrespective commodities whatever is available is supplied of the price level. However for durable irrespective of the price level. However for commodities the stock could be large. durable commodities the supply can be varied according to the price level. 4. Stock can be greater than supply because it 4. Supply cannot be greater than stock. It can can contain the currently produced goods as either be equal to stock or less than the stock. well as the carried over goods from the previous stock. FIXED CAPITAL V/S VARIABLE CAPITAL FIXED CAPITAL VARIABLE CAPITAL It refers to the capital which can be used again 1. It refers to the capital which can be used and again in the process of production. only once in the process of production. It refers to machinery, plant, factory building, 2. It refers to power, fuel, raw material etc. equipments etc. which can be used again and which can be used in only once in the again in the production. process of production. 3. Y Y VC c c oC FC oC s s t O X t O X Out put Out put It indirectly participates in the process of 4. It directly participate in the process of production. production In the short period it remains fixed. 5. In the short period it changes.
7. 1. 2.
3.
4. 5.
8. TOTAL UTILITY MARGINAL UTILITY 1. Total utility is the sum total of the utilities 1. Marginal utility is an additional utility derived by consuming one more unit of the Commodity. derived at a particular level of consumption. 2. The formula for marginal utility is 2. The formula for Total utility is 3. In the beginning total utility goes on 3. Marginal Utility goes on falling right from the increasing but at diminishing rate. beginning. 4. Its numerical value always positive. 4. Its Numerical value can be positive, negative or ever Zero.
46
OMTEX CLASSES
ECONOMICS
a a of at of
9. INDIVIDUAL SUPPLY MARKET SUPPLY 1. An individual supply is the number of items 1. Market supply is the total supply of supplied by a single person at a particular commodity made by all consumers, at price at a particular time from a particular particular price from a particular period market. time. 2. Mr. X supplied 5 kg of rice at Rs. 10 per kg. 2. 15 tones of rice supplied by the producer Is an example of individual demand. the rate of Rs. 10 per kg. Is an example market supply. 3. It is less in quantity. 3. It is larger in quantity. 4. It can be zero at a particular price 4. It is rarely zero in the market
10. PURE COMPETITION PERFECT COMPETITION 1. The characteristics of pure competition are 1. The characteristics of perfect competition are large number of buyers and sellers, large number of buyers and sellers, homogeneous product & free entry and exit of homogeneous product, free entry and exist of firms. firms, perfect knowledge, no transport const, no government intervention. 2. Pure competition may not be always perfect. 2. Perfect competition is always pure. 3. Pure competition is simpler and less inclusive 3. Perfect competition is wider, more perfect and concept. more competitive in character. 4. Pure competition is a real concept. Market for 4. Perfect competition is not a reality, it is not agricultural commodities like wheat, rice is found anywhere in the world. pure competition. 11. AUTONOMOUS INVESTMENT INDUCED INVESTMENT 1. Autonomous investment means investment 1. Induced investment means investment which which is not dependent on current level of depends on the current level of production. production. 2. Autonomous investment includes 2. Induced investment includes investment in investment in new products, new techniques new machines and other capital goods for or investment by government. producing more finished goods. 3. Autonomous investment is not continuous 3. Induced investment is continuous and investment and can rise or fall suddenly. changes in proportion to output of goods. 4. Autonomous investment plays a dominant 4. Induced investment play a dominant role in role in the economic socialistic countries the countries like U.S.A. like china. 12. GROSS INVESTMENT 1. Gross investment refers to total expenditure on capital goods. 2. Gross investment = Net investment + Depreciation. 3. It is always more than net investment. 4. It includes all the machines, factories, houses and other capital assets added in a year. 5. It is a wider concept. NET INVESTMENT 1. Net investment refers to expenditure incurred on increasing stock of capital goods. 2. Net investment = Gross investment + Depreciation. 3. It is always less than Gross investment. 4. It refers to the cost incurred by the firm against white washing, repairing of building, replacement of certain part of machines etc. 5. It is a narrow concept.
47
OMTEX CLASSES
ECONOMICS
13. CONSUMPTION INVESTMENT 1. Consumption expenditure means money 1. Investment expenditure means money spend spends on goods and services which satisfy on goods which help to produce other goods. human wants directly. 2. Money spend on food, clothing etc are the 2. Money spend on machines, Building, example of consumption expenditure. Transport etc are the example of investment expenditure. 3. In the volume of consumption is more or 3. If the volume of production is more than the equal to the production, there will be no scope volume of consumption there will be scope for investment. for investment. 4. Consumption depends upon the capacity to 4. Investment depends upon the capacity to spend. save. 14. FINANCIAL INVESTMENT 1. It refers to the expenditure incurred on the purchase of bonds, shares, securities. 2. It results in addition to the money capital of a nation. 3. This refers to financial assets. 4. It does not actually produce any goods and services. 15. CONSUMPTION 1. Expenditure made for fulfillment of the needs is called consumption. 2. Consumption = Income saving 3. Consumption is a component of aggregate demand. I.e. C =Y-S. 4. The consumption is guided by the intensity of wants and availability of funds. REAL INVESTMENT It refers to the expenditure incurred on real capital assets like machinery, raw materials and buildings. It results in addition to the real capital of a nation. This refers to Physical assets. It leads to production of carious goods and services. SAVING Saving is that part of income which is not spent on consumption. Saving = Income Consumption. Saving is not a component of aggregate Demand. The investment of saving is guided by the rate of interest.
1.
2. 3. 4.
1. 2. 3. 4.
16. AGGREGATE DEMAND AGGREGATE SUPPLY 1. Aggregate demand refers to the total demand 1. Aggregate supply refers to the total quantity for different types of goods and services in an of goods and services produced and supplied during a particular period of time. economy at different prices during a given period of time. 2. It depends upon the availability of natural 2. It depends upon the availability of aggregate resources, Labour, capital and level of consumption expenditure, government technology. expenditure and net foreign expenditure. 3. Symbolically_ 3. Symbolically_ 4. It is mainly related to income. 4. It is mainly related to cost of production.
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OMTEX CLASSES
17. CENTRAL BANK 1. Central bank is the apex of the banking system of the country. 2. The central bank has the sole authority to issue notes (except for the standard money; via Rs one note. 3. The Central bank regulates money supply in the country it plays the role of banker, agent and advisor to the government, 4. Central bank is owned by the Government.
ECONOMICS
COMMERCIAL BANK 1. Commercial banks are a part of the countrys banking system. 2. Commercial banks cannot print and issue currency. 3. Commercial banks accept deposits for the purpose of lending
4. The main objectives of the commercial banks are to earn more profits. 5. The objective of the central bank is not profit 5. Commercials Banks includes the nationalized but maintaining price stability and economic and non-nationalized banks as well as the growth of the country foreign banks. 6. Central Bank has supervisory and regulating 6. Commercial bank can regulate only for their power over the countrys financial system own branches.
18. DIRECT DEMAND 1. Direct demand is a demand for consumer goods which satisfy a human demand directly. 2. This demand comes from the consumer directly. 3. Demand for food, cloth and house etc. are direct demand. 4. All the finished goods have direct demand.
DERIVED DEMAND 1. Derived or indirect demand is the demand for goods which satisfies producers want. 2. This demand comes from the producer. 3. Demand for land, Labour, capital etc. is derived demand. 4. All factor of production have derived demand.
INDIVIDUAL SUPPLY MARKET SUPPLY 1. An individual supply is the number of items 1. Market supply is the total supply of a supplied by a single person at a particular commodity made by all consumers, at a particular price from a particular period of price at a particular time from a particular time. market. 2. Mr. X supplied 5 kg of rice at Rs. 10 per kg. 2. 15 tones of rice supplied by the producer at is an example of individual demand. the rate of Rs. 10 per kg. is an example of market supply . 3. It is less in quantity. 3. It is larger in quantity. 4. It can be zero at a particular price. 4. It is rarely zero in the market. 19. BUDGETARY DEFICIT 1. Budgetary deficit defined as the excess if total expenditure over the revenue. 2. Budgetary deficit = Total Expenditure Total Receipts =(Revenue expenditure + Capital Expenditure) (Revenue receipts + Capital receipts) 3. It is a narrower concept 4. The implication of budgetary deficit are (1) Rise in inflation (2) Rise in money supply (3) Rise in inequalities of income, etc. FISCAL DEFICIT 1. Fiscal deficit is over and above budgetary deficit. I.e. if borrowing and other liabilities are added to budgetary deficit, we obtain fiscal deficit. 2. Fiscal deficit = Total expenditure (Revenue receipts + Recoveries + Sale of Public assets) 3. It is a broader concept. 4. The implications of fiscal deficit are (1) More growing inflation (2) More rise in money supply (3) More rise in inequalities of income etc.
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OMTEX CLASSES
20. LAND 1. Meaning: - Land refers to all kinds of natural resources on, below and above the surface of the earth. 2. Nature: -Land is a natural factor of production 3. Mobility; -Land is perfectively immobile 4. Elasticity of Supply: -The supply of land is perfectively inelastic. It cannot be increased or decreased. 5. Durability; -land is permanent factor of production. 6. Social Cost: -There is no social cost in making land.
ECONOMICS
CAPITAL 1. Capital refers to that part of wealth, which is issued for the production of goods and services 2. Capital is a man made factor of production 3. Capital is perfectly mobile 4. The supply of capital is elastic. It can be increased or decreased. 5. Capital is not a permanent factor as it depreciates. 6. There is a social cost in making Capital.
21. LAND 1. Meaning: - Land refers to all kinds of natural resources on, below and above the surface of the earth. 2. Durability; -Land is permanent factor of production 3. Nature: -Land is a passive factor of production 4. Mobility: -Land is perfectly immobile. It cannot be physically shifted from one place to another place 5. Payment: -Land receives rent as reward.
LABOUR 1. Labour refers to any physical or mental exertion directed towards the production of goods and services. 2. Labour is a perishable factor of production 3. Labour is an active factor of production 4. Labour are imperfectly mobile. They can shift from one place another place up to a certain extent. 5. Labour receives wages as a reward.
22. CAPITAL 1. Meaning: -Capital refers to that of production which is used for the production of goods and services 2. Interrelationship: - All capital is wealth/t of producer capital goods of wealth is known as capital 3. Concept: -Capital is a narrower concept that wealth. 4. Creation; -Capital is a produced means of production i.e. it is a man made factor. 5. Example: - (1) money (2) Land (3) Machinery
WEALTH 1. Wealth refers to all the economic goods which possess (1) utility (2) Scarcity (3) Transferability and (4) externality 2. all wealth is not capital, as wealth includes producer/ capital goods as well as consumer goods 3. Wealth is a broader concept than capital. 4. Wealth is created by nature as well as manufactured by man. 5. The examples of wealth are: - (1) Money (2) Land (3) Machinery (4) Clothes (5) Furniture
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OMTEX CLASSES
23. CONSUMPTION FUNCTION 1. Meaning: - Consumption function is defined as the amount of expenditure spent out of given level of income. 2. Relationship: -It shows the functional relationship between national income and total consumption. 3. Formula: -C =f (Y) OR C = Y-S where, C, Y and S stands for consumption, income and savings respectively. 4. Interrelationship: -Increase in consumption decreases the savings and vice versa 24. STANDARD COINS 1. Meaning: -Standard Coins are those coins, whose face value is equal to the value of the metal contained in it. 2. Face Value: -The face Value of the Standard Coins is equal to their intrinsic value. 3. Material Used: - Standard Coins are made out of costly metals like Gold, Silver, etc. 4. Purpose: - Standard Coins are usually minted for the higher considerations. 5. Circulation: - Standard Coins are rarely used in circulation
ECONOMICS
SAVING FUNCTION 1. Saving function is defined as the amount of money saved out of given level of income. 2. It shows the functional relationship between national income and total savings. 3. S = f (Y) or S=Y-C where, S, Y and C stands for Savings, income and consumption respectively. 4. Increase in savings decreases the consumption and vice versa. TOKEN COINS 1. Token Coins are those, whose face value is greater than the value of metal contained in it. 2. The face value of Token Coins is greater than their intrinsic value. 3. Token Coins are made out of relatively cheaper metals like copper, bronze, etc. 4. Token Coins are usually minted for the lower denominations. 5. Token Coins are commonly used in circulation.
25. ELASTIC DEMAND 1. If for a small change in price, there is a big change in demand, it is known as elastic demand. 2. Luxuries have elastic demand e.g. T.V, Refrigerator etc. 3. Its measure is more than one or infinitive. 4. In elastic demand, the demand curve is either parallel to the x-axis or gently sloped.
INELASTIC DEMAND 1. If for a big change in price, there is small change demand, it is known as inelastic demand. 2. Necessaries have inelastic demand e.g. Rice, salt etc. 3. Its measure is less than one. 4. In inelastic, demand the demand curve is either parallel to Y-axis or Steeply Sloped. OPEN MARKET OPERATION
1. Open market operations refers to deliberate direct sale and purchase of government securities by the Central government 2. Open Market operations are indirect or qualitative credit control method. 3. This method of credit control is superior to bank rate policy. 4. The Central Bank sells the securities to control credit, and purchase the securities to expand credit. 5. The Important limitation of open market operations are unsuitability during depression, lack of adequate stocks of cash and securities with the Central Bank, etc.
26.
BANK RATE
1. Meaning: -Bank Rate is the rate at which the Central Bank discounts the bills of exchange of commercial bank. 2. Types of Control: -Bank Rate is a direct or quantitative credit control method. 3. Quality: -This method of credit control is inferior to open market operations. 4. Measures: - The Central Bank raises bank rate to control credit, and decreases the bank rate to expand credit. 5. Limitations: - The important limitations of bank rate are lack of flexible economic structure dependence of commercial banks for rediscounting, etc.
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OMTEX CLASSES
25. SHORT PERIOD 1. Meaning: -Short period is that period of time in which the quantity produced and supplied can be increased to a small extent by optimum utilization of the existing resources. 2. Duration: - According to Marshall, short period can be of a few days or few months, depending upon the nature of the product and the gestation period of production 3. Supply Position: S Y
P R I C E
ECONOMICS
LONG PERIOD 1. Long Period is that period of time in which the quantity produced and supplied can be increased to meet the market demand.
2. According to Marshall, long period can be of a few months or few years, depending upon the nature of the product and the gestation period of production. S
S
quantity supplied X O quantity supplied X
During this period, the supply tends to be During this period, the supply tends to be elastic inelastic as it can be only marginally as it can be increased to the extent of demand in increased. The supply curve slopes market. The supply curves slopes gently upwards. steeply upwards. 4. Price Determination: - Since the Supply is Since the supply is elastic, the price is determined inelastic, the price is to a large extent, by the interaction of demand and supply. determined by the forces of demand.
26. DEMAND CURVE 53 1. Meaning: -A demand Curve is the graphical; representation of price and demand relationship. 2. Representation; - Demand curve represents variations in the quantity demanded in response to changes in the price 3. Relation with price: -It represents inverse relationship between price and demand. 4. Diagram: D P1 P P2 O Q1 Q Q2
SUPPLY CURVE 1. A Supply is the graphical representation of price and supply relationship. 2. Supply curve represents variations in the quantity supplied in response to changes in the price. 3. It represents direct relationship between price and Supply. 4. Diagram: -
DEMAND
5. Explanation: - The demand curve slopes 5. The Supply curve slopes upwards from left downwards from left to the right. It has a to the right. It has a positive slope. negative slope. Successfully steppi ng into 5 t h year in o rder to achieve once again su ccess
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OMTEX CLASSES
27. QUANTITATIVE CREDIT CONTROL 1. Meaning: - The methods which are used to control the total volume of credit in the economy are called quantitative credit controls. 2. Nature: -They are macro economic in nature and influence the whole economy. 3. Alternative uses: They are also called as General credit control measures. 4. Measures: -Quantitative credit controls include : 1. Bank Rate Policy 2. Open Market Operations 3. Variables reserve ratio
ECONOMICS
QUALITATIVE CREDIT CONTROL 1. The methods which are used to control the flow of credit into particular sector or use are called qualitative credit controls. 2. They are micro economics in nature and do not influence the whole economy. 3. They are also called as selective credit control measures. 4. Qualitative credit controls include: 1. fixation of margins 2. Consumer credit regulation 3. issue of directives 4. Rationing of credit 5. Moral Suasion 6. Direct action 7. publicity
28. DIRECT TAX INDIRECT TAX Meaning: The taxes which are paid by consumers to the The taxes which are paid by consumers to the government indirectly are called indirect taxes. government directly are called direct taxes. Shifting burden: The burden of direct taxes cannot be shifted to The burden of indirect taxes can be shifted to any other person. other persons. Nature: Direct taxes are considered just and equitable Indirect taxes are considered unjust and they have narrow tax base. inequitable and they have broad tax base.
and
Escape: People sometimes can escape from paying direct People cannot escape from paying indirect taxes taxes by showing fewer propensities or less while purchasing goods and services. income. Examples: Income tax, Property tax, Wealth tax, etc. are the Customs duties, service tax, excise duties, etc. are examples of direct taxes. the examples of indirect taxes.
53
OMTEX CLASSES ECONOMICS 1. EXPLAIN THE LAW OF D.M.U? AND EXPLAIN ITS ASSUMPTION AND EXCEPTION?
Meaning: -The law of diminishing Marginal utility is one of the fundamental laws in economics, advocated by Prof. Alfred Marshal. The law explains the human behaviour in relation to consumption of goods. A consume buys a commodity because it gives him some satisfaction. Definition: -In he words of Marshal the Law states that, Other thing being equal, with every increase in the stock of a commodity consumed, its marginal utility diminishes. The law of diminishing Marginal Utility can be explained with the help of a schedule and a diagram. Units of consumption 1 2 3 4 5 6 7 Total Utility (T.U) 10 18 24 28 30 30 28 Marginal Utility(M.U) 10 8 6 4 2 0 -2
The schedule shows that with every increase in the units of Consumption, the total utility is increasing. It reaches Maximum with the 5th & 6th unit and remains the same, but with 7th unit the total utility decreases from 30-28. The Marginal Utility can be derived from total utility. It is observed the Marginal Utility is falling continuously. It reaches zero and then become negative. The Marginal Utility is Zero when total utility is Maximum and Marginal utility is negative when total utility is falling.
In the above diagram X- Axis represents units of consumption and Y-Axis represents Marginal Utility. Various points from the table are plotted on graph. Join those points we can get a curve known as Marginal utility curve. The curve slopes down wards from left to right. It touches X- axis and becomes negative. It is observed from the diagram that at 6th unit of consumption the marginal utility becomes zero, when the total utility becomes maximum. It is the point of Satiety i.e. the want is completely satisfied and its intensity is nil. With the 7th unit of consumption the total utility started falling and the Marginal Utility becomes negative.
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OMTEX CLASSES
ECONOMICS
ASSUMPTION TO THE LAW OF DIMINISHING MARGINAL UTILITY.
a. Homogeneous Units: - The law of Diminishing Marginal utility will be true only when the units of a commodity consumed are homogeneous or identical in all respect i.e. same size, colour and taste etc.
b. Suitable and reasonable size: - The units of a commodity consumed must be of standard units. They
should not be too small or too big for e.g. the law of diminishing marginal utility of water is counted in number of glasses and not in drops or spoons of water. c. Continuous consumption: - There is no time gap or time interval between the consumption of two units. It is assumed that the consumer has many units continuously and he gets lesser marginal utility with every additional unit. For e.g. a person eats mangoes one after another without any time interval. d. Rationality: -The consumer is a rational human being whose behaviour is normal. He can take decision by himself according to the changing circumstances.
e. Taste and preference remain unchanged: - The like and dislikes of the consumer remains the same during the period. No new habit should be started and no old habit should be dropped by the consumer. f. Income is constant: - It is also assumed that the money income of the consumer and marginal utility of
money also remain constant. It is because of income changes that additional commodity consumed may be superior and hence give more utility than the first one. g. Utility can be measured: -Marshallian's Utility analysis is based on the assumption that utility can be measured in cardinal number.
EXCEPTIONS TO THE LAW OF DIMINISHING MARGINAL UTILITY
1. Hobbies: - It is observed that law of Diminishing Marginal Utility is not applicable in case of Hobbies. Many people are interested in rare collection of Stamps, old coins etc. The person who is found of doing that will get more and more satisfaction with every additional item. 2. Money: - It is generally argued that in case of Money, as the stock of Money increases the Utility from additional Money goes on increasing instead of diminishing. As money represent general purchasing power of a commodity. 3. Music & Books: - A music lover may get more marginal utility with more number of songs if the song is not repeated. As well as a scholar reading books may also get more satisfaction with every additional book, provided the books are not same. 4. Love and Affection: - In case of love and affection of a mother toward the children goes on increasing instead of diminishing. Hence the law of diminishing marginal utility is not applicable to love and affection. 5. Drunkards: - The law of Diminishing marginal utility is inapplicable in case of Drunkards. As the intoxication of a drunkards increase with every successive dose or liquor. He gets more and more satisfaction as he drinks more and more liquor. 6. Miser: - In case of miser, his greed increases with every increase in the stock of goods or money and hence Marginal utility goes on increasing instead of diminishing with more and more use of money or goods.
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OMTEX CLASSES
ECONOMICS
2. EXPLAIN THE LAW OF Demand? AND EXPLAIN ITS ASSUMPTION AND EXCEPTION?
Meaning: -The law of demand is given to us by Prof. Alfred Marshall. In this law the general tendency of Consumers behaviors in demanding a commodity in relation to the change in its price is described. The law of demand expresses the nature of functional relationship between two variables. Viz. The price and the quantity demanded. Definition: -According to Marshall the law of demand, is defined as Other thing being equal, the amount demanded increases with a fall in price and diminished with the rise in price. We can explain this law with the help of a schedule and a diagram. PRICE (RS.) 1 2 3 4 5 QUANTITY DEMANDED 50 40 30 20 10
The Schedule shows that with an increase in Price the quantity demanded is decreasing. It indicates inverse relationship between the two variables price and quantity demanded. When the price is Re. 1 the consumer demand 50 units and when the price rises to Rs. 5 he demands the least that is 10 units. Thus D = F (P) Where: D = Demand Where: F = Function Where: P = Price
In the above diagram X-axis represents quantity demanded and Y-axis represents price. Various points from the schedule are plotted on the graph, joint those points we will be getting demand curve. DD is the demand curve which slopes downward from left to right indicating inverse relationship between price and Quantity demanded. This happens when the price is more, demand is less and when price is less, and demand is more.
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OMTEX CLASSES
ECONOMICS
ASSUMPTIONS TO THE LAW OF DEMAND

1. No change in Consumers income: -Income of the consumer remains the same. If the income changes the consumer may buy more even when the price more. 2. No change in Consumers Taste, Preference and habit: -Consumers taste, preference and habits should remain the same. If a commodity has gone out of fashion the consumer may not buy the product even when the price is less. 3. No change in prices of related goods: -Price of the related goods should be same. If prices changes than the law may not be applicable. For e.g. If price of Coffee goes up then demand for tea increases.
4. No Change in future expectation. -If the consumer expects a fall or rise in price of goods in future then the law may not be applicable. For e.g. If a consumer expect fall in price after two months, he may prefer to purchase less, even though price is low at present. This due to expectation. 5. No change in Government policy: -The level of taxation of the government should be remaining the same through out the operation of the law. Otherwise changes in income tax may bring about change in the consumer preference and so the law may not be applicable. 6. No change in Weather condition: -It is assumed that climatic and weather conditions should remain the same. If there is a changes in weather condition may also bring about changes in demand for goods like woollen clothes. Umbrella, ice creams etc. 7. No change in population. -It is also assumed that the size of population should remain the same in a country. Otherwise, if population changes there will be additional buyers in the market as a result the law may not be applicable.
EXCEPTION TO THE LAW OF DEMAND

1. Prestige goods: -Prestige goods are those, bought by the rich class to show off their economic status in the society. When the price of such prestige goods like Diamonds, ruby, car etc rises, people buy more of them not because they are needed, but to show off. 2. Giffen Goods: -Sir. Robert Giffen was an economist who pointed out that the law of demand is not applicable in case of inferior goods. He said that when the price of inferior goods falls people buy less of that product. They try to save money to buy superior goods. For e.g. when price of jaggery falls instead of buying more people buy less. They save money and try to buy sugar which is considered as superior goods. 3. Illusion effect.: -The consumer dies not know the technical difference between electronic goods produced by different companies like T.V, Radio, V.C.R etc. They only feel if the price is more quality is better so they try to buy the product with higher price. 4. Share market :-In the share market if the prices of the company shares rises quantity demanded also rises, because people believe that the company is well managed and that is why prices of the shares are going up. As a result people buy more shares at higher rate. 5. Fashion:-Sometimes due to fashionable thinking people fall under the impression that certain item provides them more satisfaction and prefer to pay higher prices. This is called as snap appeal. For e.g. the demand for Reebok, cat shoes etc. has been ever increasing in spite of the price hike every year. 6. Speculation: - If the consumer expects change in Price of commodity in future he may act against the law of demand. If the consumer expect future rise in the price of sugar he will purchase sugar at large scale and store them at home though the price is high at present.
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OMTEX CLASSES
EXCEPTION?
ECONOMICS
3. EXPLAIN THE LAW OF SUPPLY? AND EXPLAIN ITS ASSUMPTION AND
Meaning: -The law of supply is given to us by Prof. Alfred Marshall. The law explains the sellers behaviors according to change in price. It states that generally seller prefer to supply more when price increases and supply less when price decreases.
Definition: -According to Marshall the law of supply is defined as Other thing being equal, the supply of a commodity expands with the rise in its price and contracts with a fall in price. THE LAW CAN BE EXPLAINED WITH THE HELP OF SUPPLY SCHEDULE AND A DIAGRAM.
SUPPLY SCHEDULE
PRICE (RS.) 1 2 3 4 5 QUANTITY SUPPLY 10 20 30 40 50
The schedule shows that with an increase in price the quantity supplied is also increasing. It indicates direct relationship between the two variables Price and quantity supplied. When the price is Re. 1 the seller offers only 10 units for sale. When Price increases to Rs. 5 he expands supply to 50 units. Thus S = F (P) Where: S = Supply Where: F = Function of Where: P = Price
In the above diagram X-axis represents quantity supplied and Y-axis represents price. Various points from the schedule are plotted on the graph join those points we will be getting supply curve which is called as named as SS. SS sloped upward from left to right showing direct relationship between price and quantity supplied. This happens when price is more, supply is also more and when price is less, and supply is also less.
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ASSUMPTIONS TO THE LAW OF SUPPLY
ECONOMICS
1. Cost of production remains the same: -It is assumed that cost of production remain unchanged. If cost of production changes supply also changes. I.e. if the cost of production is high supply will be less and vice versa.
2. Technology of production remains the same: -The technology of production is not allowed to change. If technology changes, cost of production, quality of product etc will be changed and as the reason the law may not be applicable.
3. Government policy remains the same: -The law assumed that government policy like taxation, trade policy should be constant. If the taxation policies changes the law may not be applicable.
4. Weather condition remains the same: -If weather conditions are same, supply will increase and if there is a change in weather conditions supply will decrease.
5. Transport facilities remain the same: -It is also assumed that transport facilities and its cost remain unchanged. Otherwise if there is rise in transport cost, the supply will decrease and vice versa.
6. Future Expectation remains the same: -It is assumed that the seller should not expect any change in the price in future. If they expect change in future they will not supply product at present.
EXCEPTION TO LAW OF SUPPLY
1. Labour Supply: -Generally when price raises supply also rises. However the law of supply is not applicable in case of labour supply. It is observed that with every increase in the price of labour the supply of labour will not increase.
2. Capital supply (or) Savings: -The law of supply is not applicable in case of capital supply. Many times saving will not increase even when rate of interest goes up.
3. Auction: -In case of auction, the goods are sold away on whatever price is offered. It is possible if a seller faces urgent need of money, he may supply more units of a commodity even at a lower price. This is also a case of exception to law of supply.
4. Speculation.: -When a price of a commodity has risen, a seller may not sell his commodity as he expects further rise in price and similarly a fall in the price of a commodity he will sell more, if he expects a further fall in price.
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ECONOMICS
4. WHAT IS CONSUMPTION FUNCTION? GRAPHICALLY EXPLAIN THE PSYCHOLOGICAL

LAW OF CONSUMPTION? Or EXPLIAN THE RELATION BETWEEN INCOME AND CONSUMPTION.
Meaning; - Consumption Functions is also known as propensity to consume. It is defined as the amount of expenditure spent out of given level of income. It is the functional relationship between income and consumption. Symbolically, C=f (Y) or C = f (Yd) where C stands for Consumption f stands for function of an d Y OR Yd stands for disposable income. Consumption functions explain the relationship between Consumption and disposable income. Consumption implies the utilisation of economic goods for the satisfaction of wants. Consumption function refers to a schedule which shows the changing consumption expenditure at different levels of income. It expresses the direct functional relationship between the income and consumption expenditure. According to J.M.Keynes, when income increases, the consumption increases too but at a lower rate. This is because the increased income gets divided into consumption and savings. The relationship between the income and consumption has been explained in the schedule given below. CONSUMPTION FUNCTION SCHEDULE Consumption (C) Rs Saving (S) Rs 1200 (autonomous -1200 consumption) 3000 (break-even point) 0 5400 600 7800 1200 10200 1800
Disposable Income Rs 0 3000 6000 9000 12000
From the above schedule, it is observed that when income increases, Consumption increases, but at a diminishing rate and savings increases at an increasing rate. The details in the schedule have been plotted on the diagram given below Y 15000
C O N S U M P T I O N
(Y =C) U SAVING C
12000 9000 6000 3000

B
450
3000 6000 9000 12000 15000 18000 Disposable Income (Y)
From the above diagram, the line OU is shown through the origin (O) and it makes 450 angles at O. All the points on OU indicate equality between the income and Consumption. The line ABC is the Consumption Function curve. It slopes upwards from the left to the right. It has positive slope, indicating that as the income increases, the Consumption also increases but at a slow rate.
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OMTEX CLASSES
1. Explain the Law of Equi-Marginal Utility.
ECONOMICS
Meaning: -The Law of Equi-Marginal utility states that the consumer will distribute his money income between the goods in such a way that the utility derived from the last rupee spent on each goods is equal. Following are some of the brief explanation about the Law of Equi-Marginal Utility 1. The Consumer is in equilibrium when the marginal utility of money expenditure on each goods is the same. 2. Symbolically, MUm = MUx Px
=
MUy Py
3. The law can be explained with the help of the following examples: It is assumed that the consumer consumes commodity X (apple) and commodity Y (banana) Price of a banana is Rs. 2 and price of an apple is Rs. 3. Marginal utility of money is constant at Rs. 1 = 6 units. Consumer has total 19 rupees. Units MUx MUy MUx MUy Px Py 1 20 24 10 8 2 18 21 9 7 3 16 18 8 6 4 14 15 7 5 5 12 9 6 3 6 10 3 5 1
4. From the above table it can be observed that MUx is equal to 6 units when consumer buys 5 ban Px Bananas and is equal to 6 units when he buys 3 apples. 5. Consumers will be in equilibrium when he buys 5 bananas and 3 apples and will be spending (Rs. 2 * 5 + Rs. 3 * 3) = total Rs. 19.
Explain the following concepts: 1. Balanced Budget: 1.Balanced budget is a budget where total receipts of the government and total expenditure of the government are equal over a period of time. 2.In balanced budget there is neither any surplus, nor any deficit. 3.Thus, balanced is a type of budget where, Government Receipts = Government Expenditure. 2. Surplus Budget: 1.Surplus budget is a budget where total receipts of the government are greater than total expenditure of the government. 2.Normally, developed economics have surplus budget. 3.Thus, surplus budget is a type of budget where, Government receipts > Government Expenditure. Successfully steppi ng into 5 t h year in o rder to achieve once again su ccess
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3. Deficit budget: -
ECONOMICS
1. Deficit budget is a budget where total government expenditure is greater than total receipts of the government. 2. Normally, developing economics have deficit budget. 3. Thus, deficit budget is a type of budget where, Government Receipts < Government Expenditure. 4. Bank Draft: 1. A bank draft is a cheque drawn by a bank on its branch or vice versa. 2. It is useful for remitting money from one place to another. 3. In case of bank draft the drawer and drawee banks are the same. Therefore, it cannot be dishonoured.
5. Bank Money: 1. It is also called as Credit money 2. The money that is based on the promise of the bank to pay is called bank money. 3. The bank deposits kept by the people with banks which are payable on the demand are included in this type of money. 4. Cheques, Bank drafts, Travellers cheque, Credit cards, are the instruments of bank money. 6. Personal Disposable Income: 1. The Personal Disposable income (PDI) is the total income of an individual in the community which can be actually spent or save by him. 2. It is an income of the households available for consumption and saving. 3. Disposable income is obtained by subtracting the personal direct taxes like income tax, wealth tax, professional tax, etc. from the personal income. 4. It is calculated by using the following equation: Personal Disposable Income (PDI) = Personal Income Direct taxes. Alternatively, PDI = C+ S. Where, C stands for Consumption and S stands for saving. 7. Inflation: 1. Inflation refers to a persistent and rapid rise in the general price level. 2. It may be small and gradual or large and accelerating. 3. It reduces the value of money or the purchasing power. 4. It is the phenomenon of too much money chasing too few goods.
8. Reservation Price: 1. An expected minimum price by seller for his goods and services is called the reservation price. 2. In order to cover the production cost and to earn reasonable profits, sellers determine the reservation price. 3. The seller cannot afford to sell his product below the reservation price. 9. Demand for Salt is inelastic. (True) 1. Any change in the price of salt does not affect the demand of salt, as it is an utmost necessary product. 2. Salt is a basic necessity. It is necessary to make our food more palatable. 3. If the Prices of salt fall or rise, consumers keep on demanding the same quantities of salt as earlier. 4. Salt has no other substitute. Therefore, its demand remains almost fixed. Therefore, demand for salt is inelastic.
10. An entrepreneur is called as a captain of the industry. (True)

1. 2. An entrepreneur is the pioneer, organiser, controller and risk-taker of an enterprise. He brings together all other factors of production like land, labour and capital for producing different goods and services. 3. He takes the decisions regarding what to produce, when to produce, where to produce, how to produce, etc. 4. He also bears different risks and uncertainties involved in business. There fore, an entrepreneur ,
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ECONOMICS
11. Utility is a Subjective Concept: - (True) 1. Utility gets affected by personal likes, dislikes, preferences, habits, etc. 2. Utility, thus, changes from person to person. 3. For example, a non-vegetarian person finds utility in mutton, but a vegetarian person will not. 4. Thus, utility is psychological feeling which is subject to change from person to person. therefore 12. Why has water less price though it is of much use? 1. Price of any commodity gets affected by marginal utility. 2. Water is essential for survival. Thus its total utility is more. 3. Water is available in plenty; therefore, its marginal utility is very less. 4. As marginal utility of water is negligible, it has less value in exchange. Therefore, 13. Medicines are exception to the law of demand? 1. Medicines are essential for the survival of patient. 2. Though the prices of medicines rise, people cannot purchase less or postpone it. Thus, their demand remains constant. 3. Similarly, though the prises of medicines fall, people cannot purchase more of it than requirement and store them. 4. Thus, as medicines are necessary products, the demand for them remains almost constant, though their price changes. Therefore 14. Define Economic Man 1. The term Economic Man implies that individuals act rationally in specifying their objectives and then take decisions that are consistent with those objectives. 2. Thus, an economic man is an assumption that rational consumer, producer, etc. tries to maximise their level of satisfaction. 3. For example, entrepreneur will set a goal of profit maximisation. He will accordingly adjust the output and prises of his product to achieve this goal. 15. Slicing Method ;1. Slicing method is a method used by microeconomics for an in depth analysis. 2. Microeconomics studies the behaviour of individual firms, prices of a particular product, etc. rather than the aggregates like national income, general price level, etc. 3. Thus, slicing method is useful for microscopic study of small individual units. 4. Speaking metaphorically, this method of microeconomics is applied to examine a particular tree or trees and not the entire forest. 16. Partial Equilibrium: 1. Partial equilibrium is a technique used by microeconomics to study the equilibrium position of an individual, a firm, an industry or a market. 2. It assumes ceteris paribus, i.e., Other things being constant. 3. For example, the law of demand in microeconomics studies relationship between price and demand on the assumption that factors other than price (like population, fashion, etc.)Remain constant. 17. Stock of Perishable commodities tends to be almost zero? 1. Stock refers to the entire quantity of the goods kept or stored by the seller in a stored form for the purpose of sale. 2. In case of perishable commodities like vegetables, flowers, fruits, eggs, etc. storing cost is high. 3. Therefore, the sellers try to sell these products as early as possible; some times even at fewer prices. So, stock of perishable commodities tends to be almost zero. 18. National Income: 1. National income refers to the money value of final goods and services produced by the people of a country during a given period of time. 2. National income is a macroeconomics concept. It is expressed and counted in money terms for one year. 3. According to National Income Committee (1951), A national income estimates measures the volume of commodities and services turned out during a given period and counted without duplication. 4. National income can be calculated in three ways: - 1. Output method, 2. Income Method. 3. Expenditure method.
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ECONOMICS
19. Lumping Method: 1. Lumping Method is used by macroeconomics for studying overall dimensions of economic life. 2. Macroeconomics is largely concerned with the behaviour of economic aggregates such as national income, total investment, import-export, price level, etc. 3. It also assumes and analyses interdependence of these aggregates. 4. To summarize and connect various aggregates and to show relations between them, macroeconomics uses lumping method. 20. Stock 1. The term refers to the quantity of a commodity available with the producer or trader, for a sale at a particular point of time. 2. It includes the total quantity produced in current year plus the balance remaining from last years stock. 3. Thus, Stock = Total current production + Balance of last year. 22. All Factors of production have direct demand. (No or False) No, I do not agree with this statement, because, Land, Labour, Capital and Entrepreneur are the four factors of production. These factors of production are considered as inputs which produce the output. Thus land, labour, capital, etc. are used for producing different consumer goods and services. For example, to produce food grains, the land, labour, capital, are demanded. Thus, factors of production cannot satisfy human wants directly. They are used in producing different consumable goods. If demand for consumer goods increases, the demand for land, labour, capital and entrepreneur increases and vice versa. Thus, demand for all factors of production is determined by demand for consumer goods which they produce. Therefore, all factors of production do not have direct demand rather they have derived (indirect) demand.
1. 2. 3. 4. 5. 6. 7. 8.
23. Price is the only/ sole determinant of demand? No, I do not agree with this statement, because1. Though price of a commodity is the main determinant of demand, there are many other factors which determine the demand of a commodity. 2. The following diagram will help to under stand there are many determinants of demand. . Price + * Price of Substitutes Price of Complementary goods Income Taste, habits, preferences Quality Utility Advertisement Fashion etc. 3. From the diagram it is clear that many non-price factors like income, habits, quality of a product, advertisements, size of population, etc. also have great impact on demand. 4. For example, Price of Substitutes: if the price of substitutes (T-shirts) falls, the demand for original commodity (shirts) rises, even though its (shirts) price remains constant. 5. For example, Fashion: if a commodity goes out of fashion, people start demanding less of such commodity even though the prices are constant or even less than earlier. 6. For example Income: 7. Thus, the demand of a particular commodity gets determined by price as well as many other non-price factors. 8. Therefore, price is not only the sole/single determinant of demand.
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1. 2. 3. 4. 5. Column A Microeconomics Macroeconomics Adam Smith Alfred Marshall J.M Keynes 1. 2. 3. 4. 5. 6. 7.
ECONOMICS
Column B Wealth of Nations Price Theory Employment Theory Slicing Method Rationality Wastage Income Theory Column B Usefulness Sum total of utilities of the given stock Last unit Satiety Want satisfying power of a commodity Law of Diminishing Marginal Utility Pleasure
1. 2. 3. 4. 5.
Column A Marshall Utility Total utility Marginal Utility Zero Marginal Utility
1. 2. 3. 4. 5. 6. 7.
1. 2. 3. 4. 5.
Column A Demand Demand and Price Market demand schedule Demand Curve Giffen Paradox
1. 2. 3. 4. 5. 6. 7.
Column B Direct relationship Less quantity demanded when the price falls More quantity demanded at a higher price Effective Desire Graphical presentation of the demand schedule Inverse relationship Horizontal summation of individual demand schedules
1. A cheque is optional money. 1. 2. 3. 4. Money that carries no legal sanctions but which is accepted by the people is called optional money. As a cheque carries no legal sanction, one can accept or can refuse it. No person can be forced to accept the payment in the form of cheques by law. Therefore, a cheque is an optional money.
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ECONOMICS
COMPLETE THE FOLLOWING BY CHOOSING THE CORRECT ALTERNATIVES.

1. 2. 3. 4. 5. 6.
The term microeconomics derived from the Greek Word _____________
Microeconomics is concerned with the study of ______________/__________________ Microeconomics is a _______________ equilibrium analysis. Microeconomics adopts ______________approach The credit for the development of micro economics approach goes to ____________ ________________ implies that every individual under consideration behaves in an economically rational manner. 7. Microeconomics deals with Factor Pricing. 8. A rational Consumer wants ________________ Satisfaction. 9. Utility depends on the __________________ of the want. 10. Marshall assumes ____________________ measurement or utility. 11. _______________Utility is the sum of all the marginal utilities from the consumption of a commodity. 12. The utility from an extra unit of consumption is called ______________ utility. 13. When Total utility falls, the marginal utility becomes___________________. 14. The Marginal utility tends to diminish with the ___________________ in the units of consumption of a commodity. 15. When Marginal Utility is zero, the total utility will be the ________________. 16. The law of demand is based on the concept of ________________. 17. The Law of DMU is not applicable for ________________. 18. Producing Sugar from sugarcane is an example of _________________. 19. The law of DMU is useful for ________________. 20. A desire backed by ability to buy and willingness to pay for a commodity is called_________. 21. The law of demand is based on the Law of _______________. 22. Other thing remaining constant, when the price of a product increases, the demand for it_____. 23. The relationship between the price and demand is ______________. 24. The normal demand curve slopes ________________. 25. Electricity has_______________demand. 26. Salt has _________________ demand. 27. The demand for necessities is _______________ demand. 28. ______________ Demand curve is parallel to Y-axis. 29. Demand for Pin is ________________. 30. The demand for Luxuries is _______________. 31. The relation between the price of a commodity and its supply is _____________. 32. The slope of the supply curve is _________________. 33. If monsoon fails, the supply of food grains would _______________. 34. Reservation price is _______________- expected price. 35. The Law of Supply represents general tendency of Sellers. 36. Stock refers to the State Concept. 37. Discriminating monopoly implies that the monopolist charges Different Prices. 38. A single Seller market category is Monopoly. 39. Selling Cost is an important feature of Monopolistic Competition. 40. Demand Curve for a firm in a perfect competition is Horizontal line. 41. The land is a ________________ factor. 42. There are _______________ factor of production. 43. Labour has a _______________ bargaining power. 44. _____________is an activity that results in goods and services intended for exchange. 45. Labour is _______________factors of production. 46. Reward paid for capital is known as _________________. 47. Land is subject to ___________ returns.
48. Capital is a _____________ factor of production. 49. _____________ is regarded as primary factors of production.
50. Reward obtained by entrepreneur is known as PROFIT. 51. The Captain of the Industry is ENTREPRENEUR. 52. Land does not include Machinery.
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53. 54. 55. 56. 57. 58. 59. 60. 61. 62. 63.
ECONOMICS
The Supply of labour in short run is _________________. The term macroeconomics is derived from the Greek word_________________. Macroeconomics is concerned with the study of_________________. Macroeconomics follows _________________ equilibrium. In _________________, there was worldwide depression. The credit for the development of macro economic approach goes to _________________. Microeconomics assumes _________________. Subject matter of macroeconomics deals with _________________. The word macro is derived from makros, which is a _________________ word. Macroeconomics does not deal with _________________. The revolutionary book named The General Theory of Employment, Interest and Money was written by _________________. 64. The value of national _________________ indicates national income. 65. A _________________ economy does not have transactions with other countries. 66. Real national income means the national income at _________________ prices. 67. Net _________________ is added to gross expenditure in order to derive national income in an open economy. 68. By adding together rents, wages, interest and profits, national _________________ is obtained. 69. When we deduct indirect taxes from National Income at Market Price, we get National income at _________________. 70. When we deduct Net factor Income from abroad from National Income, we get _________________. 71. When we add net factor income from abroad to Domestic Income we get. _________________. 72. For obtaining Net National Product, we deduct _________________ from Gross National Product. 73. The estimates of National Income in India are prepared by _________________. 74. The value of output within the country in an accounting year is called. 75. The value of output contributed by citizens of a country in an accounting year is called _________________. 76. Macroeconomics is related to the study of the _________________. 77. The determination of national Income is a subject matter of _________________ economics. 78. The distribution of national income among factors of production is known as _________________ distribution. 79. National income refers to value of goods and services produced in a _________________. 80. Depreciation is also called as _________________. 81. The economy, having foreign trade relations is called _________________. 82. The aggregate output is based on total _________________. 83. _________________ is the sum total of the output of goods and services produced in an economy. 84. Except _________________, all the other factors of the aggregate supply remain constant. 85. Effective demand is the point of _________________ employment equilibrium. 86. Real investment implies creation of new _________________. 87. When exports are greater then imports, earnings will be _________________. 88. The level of output has _________________ relationship with the level of employment. 89. At full employment level, the aggregate supply function will be a _________________straight line. 90. In a closed economy, AD is determined by ___________________. 91. Intersection between aggregate demand and aggregate supply curves determines the point of effective demand. 92. The General Theory of Employment, Interest and Money was propounded by J.M. Keynes. 93. The Aggregate Demand constitutes the flow of Expenditure. 94. Lord Keynes gave the concept of Consumption Function. 95. Consumption Function is refers to the propensity to consume. 96. The expenditure incurred on railways, public parks, etc. is treated as Public Capital Expenditure. 97. Consumption Expenditure at Zero income level is called autonomous consumption Expenditure. 98. Investment based on profit motive is called as Induced Investment. 99. Aggregate Demand is determined by Government Demand. 100. Aggregate Supply is determined by Natural Resources. 101. Net exports will be negative if Imports exceeds Exports. 102. Net exports are added to aggregate demand. 103. Investment made irrespective of the rate of interest or the profit motive is called autonomous. 104. A cheque which bears a future date is called a __________________cheque.
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OMTEX CLASSES
ECONOMICS
105. _____________ Cheques are not payable at the counter of the bank. 106. Loans advanced by banks create derivative deposits. 107. A _____________ cheque is safest cheque. 108. Deposits on current account are referred to as ______________ deposits. 109. A current account is most suitable for __________________. 110. The payee gets cash on banks counter against ________________ cheque. 111. Investment Corporation of India is an example of _________________bank. 112. Overdraft facility is given to _____________________ account holder. 113. Cash credit is given for a ____________________ period 114. Use of cheques, is a sign of ___________________money. 115. Saving bank account is suitable for people from ____________class. 116. _______________account holder earns lowest interest rate from the commercial banks. 117. Safe deposit lockers facility provided by the bank is one of the Utility functions. 118. Higher the cash reserve ratio lower is the power to create credit by commercial bank. 119. E-Banking is provided through _______________. 120. Deposits received by a bank are its Liabilities. 121. Credit creation is a function of Commercial bank. 122. Money-at-call is a loan for a Very short Period. 123. ____________ Functions is not performed by the commercial bank. 124. Primary function of a commercial bank is accepting deposits. 125. ATM facility is available for 24 hours. 126. Cheque which can be Encashed immediately at bank counter is bearer cheque. 127. _____________ Banks that develops saving habits. 128. Loan facility is given to all the account holders. 129. Bills discounted method is popular in developed countries. 130. The currency notes issued by the central banks are ____________legal tender. 131. The monetary policy of the Central Bank regulates money supply to realize_________goals. 132. Quantitative Credit Control weapons aim at controlling the Volume of Credit. 133. To control inflation, the bank rate must be ______________________. 134. ____________________ acts as the banks of banks. 135. ___________________rate is a rate at which the Central Bank rediscounts bills of exchange from commercial bank. 136. The bank of England is the oldest Central Bank in the World. 137. Cash reserve ratio is the Quantitative measures of credit control. 138. Central bank is the render of the last resort. 139. The Central banks lends loans to government and commercial bank 140. The number of Central Bank in a Country is one 141. During Depression, the Central Bank adopts the _______________________. 142. The Budget is presented by the _____________________before the parliament. (PM, HM,CM,FM) 143. _________________contains estimates of anticipated revenue by way of taxes and other means. 144. In India budget is also known as ___________________________. 145. The Budget is a ______________________statement. 146. _______________________taxes are paid directly by the people to the government. 147. _______________Policy is related with public revenue and pubic expenditure. 148. The Income of government through all sources is called public__________________________. 149. If the total expenditure exceeds revenue receipts, the budget is ________________________. 150. The right of minting coins is the monopoly of the State. 151. ___________________money is issued at the time of emergency. 152. Refusal to accept the legal tender is a punishable offence. 153. In India, all the currency notes, except one (1) rupee notes, are issued by Reserve Bank of India. 154. Value expressed in terms of money is called Price. 155. Paper money was first initiated by Shroffs. 156. Paper money was first introduced in ______________. (China, Russia, India, Canada, U.S.A) 157. At Break-even point Income=Consumption. 158. The part of income not spent on consumption is called as saving. 159. An increase income leads to Increase in consumption and saving. 160. In poor countries marginal propensity to save is Low. 161. Consumption is a Decreasing function of saving.
68
OMTEX CLASSES
ECONOMICS
O U R A C H I E V E R S . SINCE 2003
CENT PERCENT RESULTS SINCE 2003

S.Y.J.C
NAME OF THE STUDENTS PERCNETAGE
S. SUBHASHINI (SIWS) M. AZIM (SIWS)

I. KALPANA (ANDHARA) G. GUPTA VIJAY (SIWS) B. KAVITHA (SIWS) ANANDA KRISHNAN (SIWS) DIVYA (SIWS) MURUGESH (GURU NANAK) C. SHANTHI (SIWS) KAVITHA (SIES) SHIV SHANKARI (SIWS) ASHRAF ALI (ARYAN) SUNDARI (SIWS) A. SHANTHI (SIWS) PUSHPA (SNDT) AGILA (AMBEDKAR) A. PENCY (AMBEDKAR) K. RUKAIYA (SNDT) V. SARASHWATI (SIWS) P. PADMA (SIWS) M.THIRUMALAI KUMAR
= 83.00% = 80.00%
= 78.00% = 77.23% = 76.00% = 75.17% = 75.17% = 75.00% = 75.00% = 75.00% = 74.23% = 74.00% = 73.00% = 73.00% = 72.17% = 72.00% = 72.00% = 71.33% = 70.00% = 70.00% = 70.00%
69
OMTEX CLASSES
ECONOMICS
SUNIL (SIWS) DAISON (SIWS) N. SELVI (SIWS) INDIRA (SIWS) C.SADHANA (SIWS) SUBRAMANI (AMBEDKAR) KANI (SIWS) SUBRAMANI (SIWS) BHAVIK KUMAR (SIWS) C. INDIRA (SIWS) DHANA LAKSHMI (SNDT) H. PRIYADARSHINI (SIWS) R. ELAVARASAN (AMBEDKAR) PRISKILLA (W.R.COLLEGE) KARTHIK (AMBEDKAR) RADHA KRISHNAN (SIWS) ANISHA (SIWS) NIRMALA (AMBEDKAR) YESODHARAN (ARYAN)
= 69.17% = 69.00% = 68.67% = 68.33% = 68.00% = 67.00% = 66.67% = 66.67% = 66.00% = 66.00% = 65.00% = 65.00% = 65.00% = 64.83% = 64.00% = 63.00% = 62.33% = 60.83% = 60.00%
70
OMTEX CLASSES
ECONOMICS
71

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Economics 12th

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OMTEX CLASSES

______________________________ S.Y.J.C (Second year junior college)

You dont know what you can do until you try

Successfully steppi ng into 5 t h year in o rder to achieve once again su ccess

Successfully steppi ng into 5 t h year in o rder to achieve once again su ccess

Successfully steppi ng into 5 t h year in o rder to achieve once again su ccess

WHAT IS MICRO ECONOMICS? EXPLAIN ABOUT ITS FEATURES?

Theory of economic welfare Wages

OMTEX CLASSES Q2.

What is Macro Economics? What are the features of Macro economics?

Theory of Income and employment

Theory of General Price level and Inflation

Theory of Economics Growth

Macro Theory of Distribution

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OMTEX CLASSES Q3.

WHAT IS UTILITY? WHAT ARE THE CHARACTERISTICS OF UTILITY?

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OMTEX CLASSES 4. PERFECT WHAT

Features of perfective competition

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OMTEX CLASSES 5. WHAT MONOPOLY?

ECONOMICS MONOPOLY? WHAT

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OMTEX CLASSES 6. FEATURES? WHAT

Features of Monopolistic competition are

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WHAT IS LAND? WHAT ARE THE FEATURES OF LAND IN ECONOMICS?

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WHAT IS LABOUR? WHAT ARE THE FEATURES OF LABOUR IN ECONOMICS?

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ECONOMICS CAPITAL? WHAT

utility scarcity transferability & externality

So all capital is wealth but all wealth is not capital.

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OMTEX CLASSES 10. WHAT INCOME?

NATIONAL INCOME? WHAT

1. Overall study: - National income is a study of Macro economics.

3. Money value: - National income is expressed in terms of money. It is measured annually.

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WHAT ARE THE TYPES OF UTILITIES?

WHAT ARE THE TYPES OF MONOPOLY?

WHAT ARE THE TYPES OF CAPITAL?

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WHAT ARE THE TYPES OF MONEY?

CLASSIFICATION OR TYPES OR KINDS OF DEMAND?

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WHAT ARE THE TYPES OF PRICE ELASTICITY OF DEMAND?

CLASSIFICATION OR TYPES OR KINDS OF INVESTMENT?

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CLASSIFICATION OR TYPES OF GOVERNMENT BUDGET?

a. Revenue Deficit: -Revenue expenditure of the government exceeds revenue receipts.

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WRITE ABOUT GIFFENS PARADOX OF VALUE?

2. STATE THE PRACTICAL IMPORTANCE OF ELASTICITY OF DEMAND?

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3. STATE THE FACTORS INFLUENCING (DETERMINANTS) THE ELASTICITY OF DEMAND?

Meaning: - Elasticity of demand is the degree of responsiveness of the quantity demanded of a

Successfully steppi ng into 5 t h year in o rder to achieve once again su ccess

EXPLAIN THE DIFFERENT METHODS OF MEASURING PRICE ELASTICITY OF DEMAND.

Successfully steppi ng into 5 t h year in o rder to achieve once again su ccess

TOTAL OUT LAY METHOD PRICE PER UNIT X QUANTITY DEMANDED.

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