I. Answer the following questions in a sentence /word.

(each question carries 1 Mark )

1. Why does the problem of choice arise?

Problem of choice arises due to unlimited wants and limited resources.
2. What is market economy?
If most of the economic decisions are taken by the private business people rather than the government
is called market economy.
3. What do you mean by centrally planned economy?
If all the economic activities are controlled by the government then it is called centrally planned
economy.
4. Give the meaning of micro economics.
Microeconomics is the branch of economics which deals with the economic actions of individuals and
group of individuals. Eg: individual demand and consumption.
5. What do you mean by positive economics?
The positive economics is the study of ‘what was’ and ‘what is’ under the given set of circumstances.
6. What is normative economics?
The normative economics deals with the ‘what should be done’ and ‘what should not be done’.
7. What is budget line?
Budget line is a locus of different combinations of two goods which the consumer consumes whose cost
exactly equal his income.
8. What do you mean by Cardinal Utility Analysis?
When the utility is measured in numbers like 1,2,3,4….., it is called cardinal utility analysis.
9. Give the meaning of marginal utility?
Marginal utility is the additional utility derived by consuming additional unit of a commodity.
10. What is utility?
Wants satisfying power of a commodity is known as utility.
11. Expand MRS –
Marginal Rate of Substitution.
12. What do you mean by Indifference curve?
Indifference curve shows the different combinations of two commodities in which consumers get equal
satisfaction.
13. What is demand?
Demand can be defined as the quantity of a good that a consumer is willing and able to purchase in a
market at a particular price, at a particular time.
14. What do you meant by Total Product?
Total product indicates the total volume of goods and services produced during a specified period of
time generally a year.
15. What is Average Product?
Average product refers to per unit product of a variable factor.
16. Give the meaning of Marginal Product.
Marginal product is defined as the change in output per unit of change in the input.
17. Write the meaning of cost function of the firm.
The cost function of the firm describes the least cost of producing each level of output, given prices of
factors of production and technology.
18. What is total fixed cost?
Total fixed cost is payment made for fixed factors. It doesn’t change with the change in the level of
production.
19. What is average fixed cost?
Average fixed cost is the per unit fixed cost of production of a commodity.
20. Define marginal revenue.
Marginal revenue refers to the additional revenue generated from the sale of an additional unit of the
product.
21. To which side does supply curve shift due to the technological progress?
The supply curve shifts to the right side due to the technological progress.
22. Write the formula to calculate average revenue.
We calculate average revenue, by dividing total revenue by the quantity sold. The formula to calculate
average revenue is - AR = TR/Q
23. What is normal profit?
The minimum degree of profit that is required to keep an enterprise in the existing trade is defined as
normal profit.
24. Give the meaning of super normal profit.
The profit that an enterprise earns over and above normal profit is known as the super normal profit.
25. Define market equilibrium.
Market equilibrium is a situation where the plans of all consumers and firms in the market match and
the market clears.
26. What is equilibrium price?
The price at which equilibrium is reached is called equilibrium price.
27. What is price ceiling?
The government imposed upper limit on the price of a good or service is called price ceiling.
28. What is price floor?
The government imposed lower limit on the price of a good or service is called price floor.
29. Through which legislation, the government ensures that the wage rate of the laboures does not
fall below a particular level?
Minimum Wage Legislation (Minimum Wage Act)
30. Who are economic agents?
Economic agents are those individuals or institutions which take economic decisions. They can be
consumer, producers, banks, etc.
31. What does classical school of thought say?
The classical school of thought says that all the labourers who are ready to work will find employment
and all the factories will be working at their full capacity.
32. Give the meaning of imports.
If a country buys goods and services from the rest of the world is called imports.
33. Name the well-known work of Adam Smith.
An enquiry into the nature and causes of the wealth of nations.
34. What do you mean by wage rate?
The price paid for purchase of labour services is called wage rate.
35. What do you mean by final goods?
Final goods are items that meant for final use and will not pass through any more stages of production
or transformations.
36. Expand CPI.
Consumer Price Index
37. Expand GNPMP
Gross National Product at Market Price
38. How do you get net value added?
We obtain net value added by deducting the value of depreciation from gross value added
39. Give the meaning of GDP.
Total market value of all final goods and services which can be produced within the country during a
year is called GDP.
40. Give meaning of Intermediate goods.
Goods which are used by some producers used by some other producers as material inputs are
intermediate goods.
41. What is Depreciation?
Depreciation is thus an annual allowance for wear and tear of a capital goods.
42. How do we get personal Disposable income?
If we deduct the Personal Tax Payments and Non-tax Payments from Personal Income, we obtain what
is known as the Personal Disposable Income.
43. Write the equation of GVA at market prices.
GVA at market prices = GVA at basic prices + Net product taxes.
44. What is GDP deflator?
The ratio of nominal GDP to Real GDP is called GDP deflator.
45. What do you mean by barter system?
Exchange of goods for goods is known as barter system.
46. Give the meaning of money.
Money is a medium of exchange which is commonly accepted.
47. What is Time deposit?
These are the deposits in which money deposited is fixed for a period of time and cannot be withdrawn
before stipulated time.
48. What is Fiat Money?
Fiat money is the money which does not have any intrinsic value.
49. Write the meaning of ‘High powered Money.’
The currency issued by the central bank can be held by the public or by the commercial banks is called
‘high powered money’.
50. Expand CRR
Cash Reserve Ratio.
51. What is Bank Rate?
Bank rate is the rate of interest charged by the Reserve Bank of India while lending loans and advances
to commercial banks.
52. Write the meaning of autonomous consumption.
The consumption which is independent of income is called as autonomous consumption.
53. Give the meaning of Marginal propensity to save (MPS).
It is the change in savings per unit change in income.
54. Define Average Propensity to save (APS).
It is the savings per unit of income.
55. Write the meaning of full employment level of income.
Full employment level of income is that level of income where all the factors of production are fully
employed in the production process.
56. Mention two fiscal variables which influence aggregate demand.
 Tax
 Government expenditure.
57. Write the formula of MPC.
It is the change in consumption per unit change in income. Its formula is MPC = ∆C/∆Y=c.
58. What are public goods?
Public goods are the goods provided by the government and cannot be provided by the market
mechanism. Eg:- roads, defence, etc.
59. Who are ‘free-riders’?
Non-paying users of public goods are known as free – riders.
60. What do you meant by public provision?
Public provision means that they are financed through the budget and can be used without any direct
payment.
61. Give the meaning of progressive Tax.
A progressive tax is a tax system in which the rate of tax increases as income increases, the rate of tax
decreases as income decreases.
62. What are Revenue receipts?
Revenue receipts are those receipts that do not lead to a claim on the government. They are therefore
termed non-redeemable.
63. Write the meaning of capital receipts?
Capital receipts are those receipts of the government which create liability or reduce financial receipts.
64. Give the meaning of Revenue expenditure.
The revenue expenditure is the expenditure incurred by the government out of its current revenue
receipts.
65. Give the meaning of capital expenditure.
Capital expenditure refers to the expenditure incurred on the acquisition of assets such as land,
buildings, investment on shares, machinery and equipments etc.
66. Expand FRBMA.
Fiscal Responsibility and Budget Management Act.
67. What is primary deficit?
Primary deficit is the fiscal deficit minus the interest payments.
68. What do you mean by open economy?
An open economy is one which interacts with other countries through various channels.
69. What is Balance of payment?
Balance of payment is a statement of systematic record of all economic transactions between one
country and the rest of the world during a year.
70. What is balance trade?
Balance of trade is the difference between the value of visible items of exports and imports during a year.
71. What do you mean by fixed exchange rate?
Fixed exchange rate is the rate which is fixed by the monetary authority.
72. Give the meaning of official reserve sale.
The reserve banks sells foreign exchange when there is a deficit. This is called official reserve sale.
73. Give the meaning of managed floating.
The managed floating exchange rate system is the mixture of a flexible exchange rate and fixed exchange
rate system. It is also called dirty floating.