Economics Basics

Question 1

What is definition of economics.

Answer 1

Rules and regulations made for management of wealth.

Question 2

What is definition of “Economy”

Answer 2

When economics is applied to a real time system.

Question 3

What is other name for “Budget” used in constitution and what’s the article number?

Answer 3

Annual Financial Statement : Article 112

Question 4

What are four important laws or concepts from Adam Smiths books “An inquiry into the nature and wealth of nations” ?

Answer 4

1. Natural Law
2. Invisible hand
3. Laissez Faire
4. Production function

Question 5

What do the concepts “natural law” and “invisible hand” mean from Adam Smiths book ?

Answer 5

Natural law : Every person in the world is selfish and as a person works for themselves, they will willingly or not work for others too.

Invisible Hand : An invisible hand works in market which keeps supply and demand in an equilibrium state.

Question 6

What is “Lasissez-faire” concept in Adam Smiths book ? What does it tell about which form of economy Adam smith supported : socialist or capitalist ?

Answer 6

It means “leave alone” that is, the production, prince fixing and distribution should be left alone to the market.

It tells us Adam Smith favoured capitalist economy.

Question 7

What are the three production functions according to Adam Smith ? Which one did he not mention and what’s function of the fourth unmentioned production function ?

Answer 7

Land, labour and capital.
He didn’t mention Entrepreneur : the one who sets up the factory and works for profit.

Question 8

What is more in sellers market : demand or supply?
Is the price more or less than usual? (Inflation or deflation?)

Answer 8

In sellers market demand > Supply.
Hence prince is decided by seller and prince goes high : inflation

Question 9

What is more in buyers market : demand or supply?
Is the price more or less than usual? (Inflation or deflation?)

Answer 9

Supply is more than demand in the sellers market.
Hence, buyer decided the price and so price goes down and deflation happens.

Question 10

What is oligopoly market ?

Answer 10

Whenever sellers are limited and buyers are unlimited.

Question 11

What is oligopsony market ?

Answer 11

Where buyers are limited and sellers are unlimited.

Question 12

What are monopoly and duopoly markets?

Answer 12

Monopoly : seller one and buyer unlimited
Duopoly : sellers two and buyers unlimited

Question 13

What are monopsony and duospony markets ?

Answer 13

Monopsony : buyer is 1, sellers unlimited .
Duos-pony : buyers are 2, sellers unlimited.

Question 14

1. Which act did government of India pass to limit the sellers market? 2. What did the act got converted to? 3. Name the commision set up for it.

Answer 14

1. MRTP act.
2. Competition act.
3. Competition commision of India.

Question 15

If deflation is there for _______ amount of time in any economy, then recession comes.

Answer 15

Two quarters.

Question 16

What is a perfect competitions market ? What are features of it in terms of quality and price ?

Answer 16

It is a market where demand = supply and quality is high and price is normal

Question 17

1.What is factor cost ?
2. What does it mean by primary and secondary factor costs ?
Give their 4 examples each

Answer 17

1. The cost of making a product in a factory
2. Primary factor costs are fixed while secondary factor costs are variable.
3. Primary factor costs : rent (land), wages ( labour) , interest ( capital) and profit (entrepreneur)

Secondary factor costs : energy, transport, marketing, R&D costs

Question 18

What does it mean by “goods” ? What are normal and inferior goods ? Give examples

Answer 18

When seller gives buyer a product which he can see, feel or touch, then it’s called goods.

Normal goods : demand of these goods increase when income of people increase. example : noodles, pizzas etc

Inferior goods : demand decreases when income increases. Example : second hand vehicles etc

Question 19

What does it mean by “goods” ? What are normal and inferior goods ? Give examples

Answer 19

When seller gives buyer a product which he can see, feel or touch, then it’s called goods.

Normal goods : demand of these goods increase when income of people increase. example : noodles, pizzas etc

Inferior goods : demand decreases when income increases. Example : second hand vehicles etc

Question 20

What are Giffen Goods ? Give example

Answer 20

Demand increases when price of goods Increase. Example : iPhones are

Question 21

What is meant by GDP?

Answer 21

The total market value of all final goods and services produced In a domestic territory over a specific period of time.

Question 22

Give four parts of what makes up a “domestic territory”.

Answer 22

1. Land boundary and sea boundary up to 12 nautical miles.
2. Net territory in embassies located abroad.
3. Aircraft’s and ships.
4. Oil platforms and gas rigs.

Question 23

What is NNP? Is it at factor cost or market price

Answer 23

NNP is the national income of a nation. It is at factor cost.

Question 24

What is difference between nominal and real GDP?

Answer 24

Normal GDP is calculated at current market price.

Real GDP is calculated from a base year.