Economics Questions and Answers

1. What do you understand by Microeconomics?

Microeconomics is the branch of economics that studies the behavior of individual consumers,

businesses, and markets. It examines how decisions regarding resource allocation, pricing, and

production are made. For example, it studies demand and supply in specific industries.

2. What is normative economics?

Normative economics is concerned with value-based judgments about what the economy should be

like. It focuses on policy recommendations, opinions, and ideal goals for economic welfare. For

instance, 'Taxes should be reduced to increase disposable income.'

3. Differentiate between economic activities and non-economic activities.

- Economic activities: These are undertaken to earn a livelihood or generate income, e.g., running a

shop or providing services.

- Non-economic activities: These are done for personal satisfaction, love, or social purposes, e.g.,

volunteering or taking care of family. The former involves money, while the latter does not.

4. Explain two central problems of an economy.

- What to produce: Every economy faces the problem of deciding which goods and services to

produce and in what quantity based on the needs of society.

- How to produce: It refers to choosing the method of production, whether labor-intensive or

capital-intensive, to use resources efficiently.

5. How many types of Economic systems are there?

There are three types of economic systems:

- Capitalist economy: Resources are owned by private individuals, e.g., the USA.

- Socialist economy: Resources are controlled by the state, e.g., North Korea.

- Mixed economy: Both private and public sectors coexist, e.g., India.
6. What is indifference curve?

An indifference curve shows the combinations of two goods that give the same level of satisfaction

to a consumer. It is downward sloping and convex, reflecting the consumer's willingness to

substitute one good for another.

7. What is Marginal utility?

Marginal utility refers to the additional satisfaction or benefit a person gets from consuming one

more unit of a good or service. For example, eating an extra slice of pizza gives you added

satisfaction, which is the marginal utility.

8. Distinguish between 'Desire' and 'Demand'.

- Desire: It is the wish to own or consume a product.

- Demand: It is the desire backed by the ability and willingness to pay for the product. For example,

wanting a car is desire, but being able to buy it is demand.

9. State four determining factors causing an increase in demand.

- Increase in income levels.

- Rise in the price of substitute goods.

- Decrease in the price of complementary goods.

- Change in consumer preferences in favor of the product.

10. What is Break-even point?

The break-even point is where total revenue equals total cost, meaning there is no profit or loss. It is

an important concept for businesses to determine the minimum sales needed to cover costs.

11. What is market supply?

Market supply refers to the total quantity of a good or service that all producers are willing and able

to sell at a given price during a specific period. It depends on factors like production costs and

market conditions.
12. Mention any two categories of price elasticity of demand.

- Perfectly elastic demand: Demand changes infinitely with any change in price.

- Perfectly inelastic demand: Demand remains unchanged regardless of the price change.

13. What is meant by production function?

Production function shows the relationship between input factors (like labor and capital) and the

output produced. It helps in understanding how resources are converted into goods and services.

14. Define fixed cost.

Fixed costs are those costs that do not change with the level of production, such as rent, salaries, or

interest on loans. Even if production is zero, fixed costs remain constant.

15. What is total revenue?

Total revenue is the total income a firm earns by selling its products. It is calculated as Total

Revenue = Price × Quantity sold.

16. How many types of supply elasticity are there?

There are five types of supply elasticity:

- Perfectly inelastic supply.

- Inelastic supply.

- Unitary elastic supply.

- Elastic supply.

- Perfectly elastic supply.

17. Define market.

A market is a place or platform where buyers and sellers interact to exchange goods and services. It

can be physical (e.g., a local market) or virtual (e.g., online platforms).

18. State any four features of imperfect competition.

- Few sellers in the market.

- Barriers to entry and exit for firms.

- Firms have some control over prices.

19. What is Macroeconomics?

Macroeconomics is the branch of economics that studies the economy as a whole, including issues

like inflation, unemployment, and national income. It focuses on aggregate demand and supply.

20. What is depreciation?

Depreciation refers to the gradual reduction in the value of an asset over time due to wear and tear

or obsolescence. For example, a car's value decreases as it gets older.

21. Define National income.

National income is the total value of all final goods and services produced within a country in a given

period, usually a year. It reflects the overall economic performance of a nation.

22. Write the names of two components of the primary sector.

- Agriculture and farming.

- Mining and extraction of natural resources.

23. State any four shortcomings of the barter system.

- Lack of a common measure of value.

- Difficulty in storing wealth.

- Lack of double coincidence of wants.

- Indivisibility of certain goods.

24. What are the secondary functions of money?

- Money acts as a store of value, allowing people to save.

- It serves as a standard for deferred payments in future transactions.

Time deposit refers to money deposited in a bank for a fixed period. It cannot be withdrawn before

maturity, and it usually earns higher interest than savings accounts.

26. What is the meaning of Cash Reserve Ratio?

Cash Reserve Ratio (CRR) is the percentage of total deposits that commercial banks must keep as

reserves with the central bank. It is used to control liquidity in the economy.

27. What is meant by aggregate demand?

Aggregate demand is the total demand for all goods and services in an economy at a given price

level and time. It includes consumption, investment, government spending, and net exports.

28. What is a Direct Tax?

A direct tax is a tax directly paid by individuals or organizations to the government. Examples

include income tax and corporate tax.

29. Define Balance of Payments.

Balance of Payments is a record of all economic transactions between residents of a country and

the rest of the world over a period. It includes the trade of goods, services, and financial capital.

30. State two sources of supply of foreign exchange.

- Exports of goods and services.

- Foreign investments and remittances.