module 1

Question 1

What is Scarcity?

Answer 1

Scarcity refers to the basic economic problem where unlimited wants exceed limited resources.

Example: Time, money, natural resources — all are limited.

Question 2

What is Opportunity Cost?

Answer 2

The next best alternative foregone when a choice is made.

Example: Choosing to spend money on a phone instead of saving it for vacation; time spent studying instead of working.

Question 3

What is the Production Possibilities Frontier (PPF)?

Answer 3

A curve that shows the maximum attainable combinations of two goods/services an economy can produce using all available resources efficiently.

Question 4

What are the assumptions of the PPF?

Answer 4

Full employment, fixed resources, constant technology.

Question 5

What does a straight line PPF indicate?

Answer 5

Constant returns.

Question 6

What does a concave PPF indicate?

Answer 6

Diminishing returns.

Question 7

What does a convex PPF indicate?

Answer 7

Increasing returns.

Question 8

What causes shifts in the PPF?

Answer 8

Changes in resources or technology.

Question 9

What is an Attainable region on the PPF?

Answer 9

Any point inside or on the PPF.

Question 10

What is an Unattainable region on the PPF?

Answer 10

Outside the PPF.

Question 11

What is an Efficient region on the PPF?

Answer 11

On the PPF.

Question 12

What is an Inefficient region on the PPF?

Answer 12

Inside the PPF.

Question 13

What is Positive Economics?

Answer 13

Based on facts (e.g., ‘Unemployment is 5%’).

Question 14

What is Normative Economics?

Answer 14

Based on opinions or values (e.g., ‘The government should reduce unemployment’).

Question 15

What are the Resource Allocation Mechanisms?

Answer 15

Traditional economy, Market economy, Planned economy, Mixed economy.

Question 16

What is Total Utility?

Answer 16

Overall satisfaction.

Question 17

What is Marginal Utility?

Answer 17

Satisfaction from consuming one more unit.

Question 18

What does the Law of Diminishing Marginal Utility state?

Answer 18

As more units are consumed, the additional satisfaction decreases.

Question 19

What is an Indifference Curve?

Answer 19

Shows combinations of goods that provide equal satisfaction.

Question 20

What is a Budget Line?

Answer 20

Shows affordable combinations of goods.

Question 21

What is Consumer Equilibrium?

Answer 21

Consumers allocate income so that the marginal utility per dollar is equal across goods.

Question 22

What is the Indifference Curve Approach to Consumer Equilibrium?

Answer 22

At equilibrium, the budget line is tangent to an indifference curve.

Question 23

What is the Income Effect?

Answer 23

Change in quantity demanded due to change in purchasing power.

Question 24

What is the Substitution Effect?

Answer 24

Change in quantity demanded due to relative price change.

Question 25

What is Effective Demand?

Answer 25

Demand backed by willingness and ability to pay.

Question 26

How is the Demand Curve derived?

Answer 26

Can be derived from marginal utility or indifference curves.

Question 27

What are Normal Goods?

Answer 27

Demand increases with income.

Question 28

What are Inferior Goods?

Answer 28

Demand decreases with income.

Question 29

What are Giffen Goods?

Answer 29

Demand increases as price increases (rare).

Question 30

What causes a Movement along the Demand Curve?

Answer 30

Caused by price change.

Question 31

What causes a Shift in the Demand Curve?

Answer 31

Caused by non-price factors like income or taste.

Question 32

What is Price Elasticity of Demand?

Answer 32

Responsiveness to price changes.

Question 33

What is Income Elasticity of Demand?

Answer 33

Responsiveness to income changes.

Question 34

What is Cross Elasticity of Demand?

Answer 34

Responsiveness to price change of other goods.

Question 35

How is Elasticity interpreted?

Answer 35

Elastic (>1), Inelastic (<1), Unit elastic (=1).

Question 36

What is Consumer Surplus?

Answer 36

The difference between what consumers are willing to pay and what they actually pay.

Question 37

What are the Factors of Production?

Answer 37

Land, labour, capital, entrepreneurship.

Question 38

What is the Production Function?

Answer 38

Relationship between inputs and outputs.

Question 39

What is the Short Run in production?

Answer 39

At least one input is fixed.

Question 40

What is the Long Run in production?

Answer 40

All inputs are variable.

Question 41

What does the Law of Diminishing Returns state?

Answer 41

Adding more of a variable input to a fixed input eventually decreases marginal product.

Question 42

What are the Physical Product Calculations?

Answer 42

Total Product (TP), Average Product (AP), Marginal Product (MP).

Question 43

What are the Stages of Production based on?

Answer 43

Based on TP, AP, and MP behavior.

Question 44

What are the Cost Concepts?

Answer 44

Fixed cost, variable cost, total cost, marginal cost, average cost.

Question 45

What is the relationship of Costs?

Answer 45

MC intersects ATC and AVC at their minimums.

Question 46

What is the shape of the Supply Curve?

Answer 46

Upward-sloping due to rising marginal cost.

Question 47

What is Producer Surplus?

Answer 47

Difference between actual price and minimum acceptable price.

Question 48

What are Returns to Scale?

Answer 48

Increasing: Output increases faster than input. Constant/Decreasing returns.

Question 49

What are Economies of Scale?

Answer 49

Cost savings within firm.

Question 50

What are Diseconomies of Scale?

Answer 50

Industry-wide benefits.

Question 51

What causes Movements along the Supply Curve?

Answer 51

Caused by price change.

Question 52

What causes Shifts in the Supply Curve?

Answer 52

Caused by non-price factors.

Question 53

What is Elasticity of Supply?

Answer 53

Measures responsiveness of quantity supplied to price changes.

Question 54

How is Elasticity of Supply calculated?

Answer 54

Calculated and interpreted using formulas and graphs.

Question 55

What is Market Concept?

Answer 55

Place or system where buyers and sellers interact.

Question 56

What is Market Equilibrium?

Answer 56

Where quantity demanded equals quantity supplied.

Question 57

How is Equilibrium calculated?

Answer 57

Use demand and supply equations or tables.

Question 58

What causes shifts in Equilibrium?

Answer 58

Due to changes in supply or demand conditions.

Question 59

What is a Price Ceiling?

Answer 59

Maximum legal price (may cause shortages).

Question 60

What is a Price Floor?

Answer 60

Minimum legal price (may cause surpluses).

Question 61

What is the effect of Taxes on the market?

Answer 61

Increase prices, reduce supply.

Question 62

What is the effect of Subsidies on the market?

Answer 62

Lower prices, increase supply.

Question 63

What is Tax incidence?

Answer 63

Who bears the actual burden (consumer vs producer).