micro Flashcards
Who is considered as the founder of field of microeconomics
Adam Smith
The term microeconomics has been derived from which word
Greek word mikros, which means small
Which part of economics studies the behaviour of individual units of an economy
Microeconomics
Which study of economics involves the highest degree of aggregation
Macroeconomics
Which study of economics is also known as price theory
Microeconomics
Macroeconomics is also known as
Income and employment theory
Which study of economics involves limited degree of aggregation
Microeconomics
Microeconomics and macro economics are interdependent. True or false. 
True
If an individual saves, his family will be benefited, but if the whole economy start saving, it will result in contraction of demand. This is known as?
Micro macro paradox
Define micro macro paradox
It means that an act which is beneficial for an individual, may prove to be harmful for the economy as a whole 
The three reasons for existence of economic problem are
- Scarcity of resources
- Unlimited human wants
- Alternate uses
Which economics deals with what are the economic problems and how they are actually solved
Positive economic’s
Positive economics is _____ between ends
Neutral
Positive economics are statements of truth. True or false
false
Which economics tells us what ought to be or how the economic problem should be resolved
Normative economics
Which economics aims to determine the ideals
Normative economics
_____ Economics can be verified with actual data and is not suggestive however, _______ economics is suggestive and cannot be verified with data
“Income inequality should be reduced”, statement is what type of economics
Normative economics
Price theory is also known as
Microeconomics
Income and employment theory is also known as
Macro economics
National income and national output are examples of
Macro economics
Demand and supply are tools of
Microeconomics
Aggregate demand and aggregate supply are tools of
Macro economics
Micro economics and macro economics are interdependent on each other. True or false
True
What are the three central problems of an economy
1.what to produce 2. How to produce 3. For whom to produce
The two aspects of what to produce are
What commodities to produce and how much to produce
What are the possible commodities that can be produced in an economy
Consumer goods, capital goods, civil goods/war goods
What are the two techniques of how to produce
Capital intensive technique and labour intensive technique 
The problem that relates to the distribution of produced goods and services among the individuals within the country, that is selection of the category of people who will ultimately consume the goods is called
For whom to produce
The cost of next best alternative foregone is called
Opportunity cost
The amount of other goods and services, that must be sacrificed to obtain more of anyone good, is called?
opportunity cost of that good
Production possibility frontier is also called?
Production possibility schedule, production possibility curve
_____ Refers to a graphical representation of all possible combinations of two goods that can be produced with given resources and technology
Production possibility curve
Number of units of a commodity sacrificed to gain one additional unit of another commodity is called
Marginal opportunity cost
MOC is always a) Increasing b) Decreasing c) Constant 
Increasing
Ratio of number of units sacrificed to gain additional unit of another commodity is called
Marginal rate of transformation
The formula of marginal rate of transformation is
Delta of units sacrificed upon Delta of units gained
What are the two properties of PPC
- PPC curve slopes downwards
2. PPC is concave to the origin
Why does PPC slope downwards
Due to inverse relationship between change in quantity of one commodity and change in quantity of another commodity
More of one good can be produced only by taking resources away from production of another good, this leads to what characteristic of PPC
PPC sloping downwards
Why is PPF concave shaped
Increasing marginal rate of transformation
Where is MRT always increasing
because it is assumed that no resource is capable of producing all commodities with equal efficiency
does the economy always operate on PPF?
The economy operates on PPF if resources are fully and officiant utilised. Economy operate at any point inside PPF if resources are not fully and efficiently utilised
Can the economy operate any point outside ppf
No as it is unattainable with the available productive capacity
If the resources are used in the best possible manner then what is it called
Optimum utilisation of resources
Which two imaginary shapes can the PPF take
Convex and Downward sloping straight line
When will PPF be convex
If MRT is decreasing
When will PPF be a downward sloping straight line
If MRT is constant
an advancement or upgradation of technology or growth of resources leads to what change in PPF
rightward shift in PPF
Discovery of new natural resources will lead to what change in PPF
Rightward shift
Improved hygienic environment due to clean India Mission will lead to what change in PPF
Right word shift
Technological degradation will lead to what shift or movement in PPF
Left word shift
Destruction of resources in an earthquake will lead to what change in PPF
Left word shift
Skill development of human resources due to establishment of educational institutes or schemes like Pradhan Mantri Kaushal Vikas Yojana Will lead to what type of shift
Right word shift in PPF
Rotation in PPF occurs due to changes in what
Rotation for commodity on X axis will be a consequence of technological improvement or degradation or increase or decrease of productive resources for commodity X
Technological improvement or increase in resources for production of commodity on Y axis will lead to
Right word rotation of PPF on Y axis
Who propounded the cardinal utility approach
Marshall
Cardinal utility approach is also called
Marshall Utility analysis
Hicks and Alan give which theory
Ordinal utility approach
Indifference curve analysis is the other name for which theory
Ordinal utility approach
Which approach considers utility as a measurable value
Cardinal utility approach
Which utility approach considers utility as immeasurable and can be only ranked
Ordinal utility approach 
“Utility is the ability of a good to satisfy a want” Whose words are these?
Professor Hobson 
___ Refers to want satisfying power of a commodity
Utility
Imaginary measure which measures utility is called
util 
Util is part of which theory
Cardinal utility approach
Utility is the same as usefulness. True or false
False
Utility is the same as pleasure. true or false?
false
utility is objective. true or false?
false
Which of the following statements is true?
a) utility is not the same as usefulness
b) utility is the same as pleasure
c) utility and satisfaction are not the same
d) utility is objective
a)
____ Refers to the total satisfaction obtained from consumption of all possible units of a commodity
Total utility
Formula for total utility is
TUn = U1 + U2 + U3 + U4…… Un
Additional utility derived from consumption of one more unit of the given commodity is known as
Marginal utility
Formula for marginal utility is
MUn = TUn - TUn-1
formula for total utility which includes number of units added is
DELTA TU/ DELTA Q
Total utility is summation of marginal utility. True or false
true
When MU is positive then TU is?
Increasing at a diminishing rate
When MU is zero, then TU is
Maximum constant
What is maximum total utility also called as
Point of satiety 
When marginal utility becomes negative what happens to total utility
Starts decreasing
Negative utility is also known as
Disutility
Point of maximum satisfaction is also known as
Point to satiety 
Which law states that as we consume more and more units of a commodity the utility derived from each successive unit goes on decreasing
Law of diminishing marginal utility
Who gave the law of diminishing marginal utility
German economist HH Gossen 
What are the assumptions of law of diminishing marginal utility
- Rational consumers
- Continuous consumption
- No change in quantity
- MU of money remains constant
- Fixed income and prices

Law of diminishing marginal utility is a qualitative or quantitative statement
Qualitative
Another name for fundamental of satisfaction is
Law of diminishing marginal utility
Fundamental psychological law is also called
Law of diminishing marginal utility
Consumers who does not intend to change his level of the consumption and the derives maximum satisfaction is said to be in 
Equilibrium
In case of single commodity equilibrium, consumers are said to be in equilibrium only when
Marginal utility derived from X is the same as price of X
what happens when marginal utility of X is more than price of X
When MU of X > P of X, then consumers derives more marginal utility and hence goes on consuming more units of the commodity. As he continues the marginal utility derived from each additional unit goes on decreasing due to LDMU till the time MU become is equals to P. The consumer here attains equilibrium.
What happens when MU is less than the price of X
Price of commodity is more than the satisfaction derived from it. so the consumer will reduce consumption of the commodity, due to reversal law of diminishing marginal utility, satisfaction derived from the commodity will increase and consumer will attain equilibrium
State the formula for equilibrium in one commodity case
MUx/ MUm = Px
State the formula for consumers equilibrium in case of two commodities
MUx/ Px = MUy/ Py
Which curve refers to the graphical representation of various alternative combinations of bundles of two goods among which the consumers in different
Indifference curve
On the same in difference curve, at what point does the consumers attain maximum satisfaction
Every point on the indifference curve represents same level of satisfaction
What are monotonic preferences
Monotonic preferences means that a rational consumer always prefers more of a commodity as it offers him a higher level of satisfaction
More of both or more of one and no less of the other is an example of what kind of bundle
Monotonic preference
The family of indifference curves that represent consumers preferences over all the bundles of two goods is called
Indifference map
The slope of indifference curve is called
Marginal rate of substitution
Why is the slope of indifference curve always negative
Because it measures the units to be sacrificed in order to gain one additional unit of another commodity
What is the formula for MRS
Units to be sacrificed upon units willing to gain
MRS is always a) increasing b) decreasing c) Constant 
b) 
Is indifference curve concave or convex
Convex to the origin
Why is indifference curve convex
Because of diminishing MRS
Why does indifference curve slopes downwards
Because a consumer must consume less of one good to consume more of another good so that total satisfaction remain same
Higher indifference curves represent higher levels of satisfaction. True or false
True
Can two indifference curves ever intersect each other
no
_____ is a graphical representation of all possible combinations of two goods which can be purchased with given income and prices, such that the cost of each of these combinations is equal to the money income of the consumer
budget line
____ Is the set of all possible combinations of two goods which can be bought by a consumer’s income and prevailing prices in the market
budget set
What is the formula of budget set
M = Pa * Qa + Pb * Qb
What is your budget line called
Marginal rate of exchange or price ratio
Why is the budget line a downward sloping straight line
Because price ratio between two commodities is always constant, hence the slope of budget line is constant, thus the budget line is a download sloping straight line
Why is the budget line downward sloping
inverse relationship between commodity sacrificed and commodities gained
What causes shift in budget line
Change in income or change in price of commodity
What will happen to Budget line if income of consumer increases
Right word shift
What happens to the budget line if income of the consumer decreases
Left word shift
What happens to the budget line if price of good X increases
Budget line shift on the X axis towards the left but remains constant at the Y axis
What happens to the budget line if commodity why becomes cheaper
The budget line on the Y axis moves upwards what remains the same at the X axis
What is the condition for equilibrium in ordinal approach
MRSxy = Px/Py
if MRSxy > Px/Py Then what happens
It means that to obtain one more unit of X the consumer is willing to sacrifice more as compared to what is required in the market. It induces the consumers to buy more of X as a result MRS falls and continues to fall till it becomes equal to the ratio of prices and equilibrium is established
if MRSxy < Px/Py then what happens
when MRS is less than the price ratio then to gain more units of X the consumer is willing to sacrifice less units of Y than what is required in the market. It induces the consumer to buy less of X and more of Y. as a result MRS rises till it becomes equal to price ratio and equilibrium is established. 
when budget line intersects IC, what is it called?
equilibrium
____ refers to the quantity of a commodity that a consumer is willing and able to buy, at each possible price during a given period of time
individual demand
____ refers to the quantity of a commodity that all consumers are willing and able to buy, at each possible price during a given period of time.
market demand
price and quantity demanded have an ____ relationship
inverse
substitute goods have a ____ relationship with demand of a commodity
direct
complementary goods have a _____ relationship with demand of a given good
inverse
demand of a normal good ____ with increase in income
rises
demand of inferior goods ____ with rise of income
falls
tastes and preference have a ____ direct relationship
direct
expectation of price in future has a ____ relationship with demand
direct
list all determinants of market demand
- Price of the given commodity
- Price of related goods
- Income of consumers
- Taste and preferences
- Expectation of change in price in future
- Size and composition of population
- season and weather
- distribution of income
____ Is a tabular statement showing various quantities of a commodity being demanded as areas levels of price, during a given period of time
Demand schedule
____ is a graphical representation of demand schedule
Demand curve
Which curve is flatter market demand or individual demand?
Market demand
Give the formula for slope of demand curve
delta price/ delta quantity
Why is the slope of demand curve negative
Due to inverse relationship between price and demand
Why is the slope of demand curve negative
Due to inverse relationship between price and demand
Why is the slope of demand curve negative
Due to inverse relationship between price and demand
Why is the slope of demand curve negative
Due to inverse relationship between price and demand
Why is the slope of demand curve negative
Due to inverse relationship between price and demand
Which law states the inverse relationship between price and quantity demanded, keeping all other factors constant
Law of demand
Law of demand is also known as
First law of purchase
What is the other name for other factors constant
ceteris paribus 
Is law of demand a qualitative statement or quantitative statement
Qualitative
Is law of demand a one-sided law or a two sided law
One-sided law
List some exceptions of law of demand
- giffen goods
- Status symbol goods
- Goods of ostentation
- Fear of shortage
- ignorance
- Fashion related goods
- necessities of life
- change in weather
Special kind of inferior goods on which the consumers spend a large part of their income and their demand rises with an increase in price and demand falls with a decrease in price are called
Giffen goods
Who was the pioneer of Giffen goods
Sir Robert Giffin
Giffen goods was observed on which commodity
jowar and bajra
Explain rise in price with goods of ostentation
Prestige goods like diamond, gold, antique paintings et cetera are bought only due to the prestige they confer upon their possessor. Such goods are demanded only because their prices are very high, if their buy prices were to fall they will no longer be considered as status symbol goods and their demand will decrease
What happens to demand in case of fear of shortage
If the consumers expect a shortage of a particular commodity in the near future, then they would start buying more and more of that commodity in the current period even if their prices are rising
Explain the effect of rise of price on the Necessities of life
commodities like wheat, salt, medicines are purchased even if their prices increase as they are necessities
Change in price of a commodity will lead to movement/shift in demand curve
Movement
Change in other factors of a commodity keeping keeping price of commodity constant, will lead to shift/movement along the demand curve?
Shift
Downward movement in demand is also known as
Expansion of demand
Upward movement along demand curve is also known as
Contraction in demand
A rise in price of substitute goods would lead to
Right word shift along the same demand curve
Fall in price of complimentary goods would lead to
Right word shift along the same demand curve
Which demand refers to the relationship between the demand of a given commodity and the price of related commodities other things remaining constant
Cross demand
Is change in weather a part of cross price demand
No
Is change in complimentary and substitute goods a part of cross price demand
True
Rise in income will result in what type of shift in the demand curve for inferior goods
Leftward shift
Which demand refers to the relationship between the price and demand of a commodity assuming other factors constant
Price demand 
Which demand refers to relationship between the income of a consumers and the quantity demanded of a commodity assuming all other factors constant
Income demand
When two or more goods are demanded simultaneously to satisfy a particular want then demand is called
Joint demand
When a commodity can put to several uses, its demand is known as
Composite demand
Demand for a commodity which depends on the demand of other goods is known as
Derive demand
When a commodity satisfied the want directly, its demand is termed as
Direct demand
Which demand can be satisfied by different alternatives
Alternative demand
When two goods are close substitutes of each other and increase in demand for one of them will decrease the demand for the other then the demand is any one of them is known as
Competitive demand
The concept of elasticity was given bye
Professor Marshall
How many types of elasticity are there
Prize elasticity of demand, cross elasticity of demand, income elasticity of demand
What is the formula of elasticity of demand
Percentage change in quantity demanded upon percentage change in price
What is the formula for elasticity of demand using proportionate method
(delta Q/delta P)* P/Q
What are the different degrees of elasticity
Perfectly in elastic, perfectly elastic, highly elastic, highly in elastic, unitary elastic
Define perfectly elastic demand
Define perfectly in elastic demand
Define highly elastic demand
Define highly inelastic demand
Define perfectly elastic demand
Define unitary elastic demand
which out of these three is most elastic- comfort commodity, luxury commodity, necessity commodity?
luxury
Demand for a commodity with large number of substitutes will be more or less elastic
More elastic
Elasticity of demand for any commodity is generally less or more for high income level groups
Less
Costly goods like laptop, AC have highly elastic or less elastic demand
Highly elastic demand
Commodities whose consumption can be postponed and are not urgent are highly elastic or less elastic
Highly elastic
A commodity with several uses will be highly elastic less elastic
highly elastic
Demand for commodities that have a greater share of proportion of income of the consumers are more or less elastic
More elastic 
For short time period is demand elastic or in elastic
In elastic
Why is demand in elastic for shorter time periods
Because people find it difficult to change their habits in a shorter time period
Commodities which become habitual necessities for the consumers have less or more elastic demand
Less elastic demand
