HSC Economics Distinguish & Agree-Disagree

SKY EDUCATION
Economics
Q.2.B Distinguish between:
i. Slicing method and Lumping method (Chp 1)
Ans:
Slicing Method Lumping Method
1.When they aggregate is divided into 1.When the economy is not split up
small units for the purpose of study of into small slices but it is studied in big
each individual, in depth it is called as lumps as it is it is called as lumping
slicing method method.
2.Micro-economics uses slicing 2. Macro- economic uses lumping
method. method
3.It gives a worm’s eye view of the 3.It gives a bird’s eye view of the
economy. economy
4.It studies in depth individual units 4. It studies aggregate such as total
like household firm, consumer, employment national income,
producer, individual wages, prices and National output, total investment,
Incomes, particular commodity etc. total savings, total consumption,
aggregate supply, aggregate demand
etc.
ii. Partial equilibrium and General equilibrium (Chp 1)

Ans:
Partial Equilibrium General Equilibrium
1.Partial Equilibrium means an 1.General Equilibrium means an
equilibrium derived by considering the equilibrium which is derived by
effect of only two variables at a time. considering the effect of many
All other variables are considered to variables at a time.
be constant.
2. It neglects the interdependence 2. It takes into account the
between Variables. interdependence between Variables.
3. Micro-economics Analysis is based 3. Macro-economics analysis is based
on partial Equilibrium Analysis. on general equilibrium Analysis.
4.It studies the equilibrium position of 4. It studies the equilibrium position of
consumer, a firm, an industry, a the economy as a whole.
market etc.
iii. Time utility and Place utility (Chp 2)

Ans:
Time Utility Place Utility
1.When utility of a commodity 1.Whwn a change in the place of a
increases by storing it and making it commodity increases its utility, it is
available during the time of need, it is called as place utility.
called time utility.
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2. Time utility is created by storing the 2. Place utility is created by
goods from the time of production to transporting the goods from place of
time of consumption. production to place of consumption.
3.Warehousing creates time utility. 3.Transport services create place
utility.
4.E.g. Storing of mangoes till they are 4. E.g. Transportation of Mangoes
transported to local market’s. from farms to local market’s.
iv. Total utility and Marginal Utility (Chp 2)

Ans:
Total Utility Marginal Utility
1.Total Utility (TU) refers to the 1.Marginal Utility (MU) is the
aggregate of utility derived by the additional utility derived by the
consumer from all units of a consumer on consumption of an
commodity consumed. additional unit of the commodity.
2.TU initially increases at diminishing 2.MU goes on diminishing
rate. continuously.
3.At the point of satiety, TU is 3.At the point of satiety, MU is zero.
Maximum.
4. TU declines if consumption 4.MU becomes negative if
continues after the point of satiety. consumption continues after the point
of satiety.
5.TU is always Positive 5.MU can be positive, negative or
zero.
v. Direct demand and Indirect demand (Chp 3A)

Ans:
Direct Demand Indirect Demand
1.The demand for a commodity which 1.The demand for goods which are
directly satisfies wants of the needed in order to produce finished
consumer is called as direct Demand. goods is called indirect Demand.
2.All finished goods or consumption 2.All factors of production have
goods have direct Demand. indirect or derived demand.
3.E.g. Demand for food, cloth, house 3. E.g. Demand for land, labour, capital
etc. etc.
vi. Joint/Complementary demand and Composite demand (Chp 3A)

Ans:
Joint/Complementary Demand Composite Demand
1.When two or more goods are 1.The demand for a commodity which
demanded jointly to satisfy one single can be out to several uses is known as
want, it is known as joint or composite Demand.
complementary demand.
2.E.g. Car and Petrol, Pen and Refill, 2.E.g. Electricity can be used to satisfy
Mobile and Charger. the want to watching TV, using
washing machine, charging mobile
phone etc.
3.The demand for products having 3.The demand for a product having
complementary demand is relatively composite Demand is relatively
elastic. i.e. a change in price of one inelastic. i.e. a change in price will not
commodity will affect the demand for affect the demand of the commodity.
the other.
vii. Individual demand schedule and Market Demand Schedule (Chp 3A)
Ans:
Individual Demand Schedule Market Demand Schedule
1.Individual demand schedule is a tabular 1. Market demand schedule is a tabular
representation of quantity of goods representation of total quantity of goods
demanded by an individual consumer at demanded by all consumers at different
different prices during a given period of prices during a given period of time.
time.
2.Individual demand schedule represents 2. Market demand schedule represents
individual demand. market demand.
3. Individual demand curve is relatively 3. Market demand curve is relatively
steeper flatter.
viii. Demand curve and Supply Curve (Chp 3A)

Ans:
Demand Curve Supply Curve
1.Demand curve is a graphical 1. Supply curve is a graphical
representation of a demand schedule. representation of a supply schedule
2.Demand curve has negative slope 2. Supply curve positive slope because
because there is an inverse there is direct relationship between
relationship between demand and Supply and price
price.
3.Demand curve slopes downward 3. Supply curve slopes upward from
from left to right. left to right
ix. Expansion of demand and Contraction of demand (Chp 3A)

Ans:
Expansion of Demand Contraction of Demand
1.Expansion of demand refers to a rise 1. Contraction of demand refers to a
in the demand only due to a fall in fall in Demand only due to rise in price
price
2.Expansion of demand takes place 2.Contraction of demand takes place
solely due to fall in price. All of the solely due to rise in price. All of the
factors affecting demand remain factors affecting demand remain
constant. constant
3.Expansion of demand is shown by a 3. Contraction of demand is shown by
downward movement on the same an upward movement on the same
demand curve demand curve
x. Increase in demand and Decrease in demand (Chp 3A)

Ans:
Increase in Demand Decrease in Demand
1.When more quantity is demanded 1. When less quantities demanded
than before at the same price, it is then before at the same price it is
called as increase in demand. called as decrease in demand
2.Increase in demand takes place due 2. Decrease in demand takes place due
to favourable changes in factors other to unfavourable changes in factors
than price like fashion, income, other than price like fashion income
taxation policy, advertisement etc taxation policy advertisements etc.
3.An increase in demand is indicated 3. A decrease in demand is indicated
by a shift in demand curve to right. by a shift in demand curve to left.
xi. Price elasticity of demand and Income elasticity of demand (Chp 3B)
Ans:
Price Elasticity of Demand Income elasticity of Demand
1.Price elasticity refers to proportionate or 1. Income elasticity refers to proportionate or
percentage change in quantity demanded of a percentage change in quantity demanded of a
commodity due to a proportionate or percentage commodity due to the proportionate or percentage
change in its price change in income
2.Price elasticity helps to measure the degree of 2. Income elasticity helps to measure the
responsiveness of demand for a commodity to responsiveness of demand for a commodity to change
change in its price in the consumer’s income
3.Five types of price elasticity: 3.Three types of income elasticity:
Perfectly inelastic Zero income elasticity
Perfectly elastic Positive income elasticity
Unitary elastic Negative income elasticity
Relatively inelastic
Relatively elastic
xii. Perfectly elastic demand and Perfectly inelastic demand (Chp 3B)
Ans:
Perfectly Elastic Demand Perfectly Inelastic Demand
1.When slight or zero change in the 1. Renting in the price of the commodity has
price brings about infinite change in no effect on the quantity demanded of that
the quantity demanded it is called commodity it is called as perfectly inelastic
perfectly elastic demand. demand
2.The value of Ed=∞ 2.The value of Ed=0
3.The demand curve is a horizontal 3.The demand curve is a vertical straight line
straight line parallel to x-axis parallel to y-axis
4.It is only a theoretical possibility and 4.Salt, water and medicines are
hence, there is no Practical example. commodities having perfectly Inelastic
Demand.
xiii. Stock and Supply (Chp 4)
Ans:
Stock Supply
1.Stock is a total quantity of goods 1. Supply refers to the quantity of
available for sale with the seller at a goods that the seller is able and willing
particular point of time to offer for sale at particular price
during a certain period of time
2.Stock is outcome of production 2. Supply is the derived out of stock
3.Stock can be increased if production 3. Supply can be increased if stock is
is increased increased
4.Stock is generally more than Supply 4. Supply can be less than or equal to
stock. However it cannot exceed stock
5.Stock is a static concept and is not 5. Supply is a flow concept and is
expressed in a relation to price and always expressed in a relation to time
time and price
xiv. Expansion of supply and Contraction of supply (Chp 4)

Ans:
Expansion of Supply Contraction of Supply
1.Expansion of Supply refers to rise in 1.Contraction in Supply refers to fall in
the quantity supplied of a commodity the quantity supplied of a commodity
only due to a rise in its price only due to a fall in its price
2.Extension in Supply takes place only 2.Contraction takes place only due to
due to a rise in price. All other factors a fall in price. All other factors are
are constant and have no effect on the constant and have no effect on the
supply of the commodity supply of the commodity
3.It is Sean by an upward movement 3.It is shown by a downward
along the same supply curve. movement along the same supply
curve.
xv. Increase in supply and Decrease in supply (Chp 4)
Ans:
Increase in Supply Decrease in Supply
1.When more quantity supplied at the 1.When less quantity supplied at the
same price it is called as increase in same price it is called as decrease in
Supply Supply
2.increase and Supply takes place due 2. Decrease in Supply takes place due
to favourable change in other factors to favourable changes in other factors
then price. The price of the then price. The price of the
commodity remains the same. commodity remains the same
3.Increase in Supply is shown by a shift 3. Decrease in supply curve is shown
in supply curve from left to right. by a shift in supply curve from right to
left.
xvi. Total cost and Total revenue (Chp 4)

Ans:
Total Cost Total Revenue
1.Total cost is the total amount 1.Total Revenue is the total sales
incurred by a firm on the factors of proceeds of a firm by selling a
production. commodity at a given price.
2.It is total expenditure of the firm 2.It is the total income of the firm.
3.Total Cost(TC) = Total Fixed Cost 3.Total Revenue (TR) = Price ×
(TFC) + Total Variable Cost(TVC) Quantity
xvii. Short period and Long period. (Chp 5)

Ans:
Short Period Long Period
1.Short period refers to a period of 1.Long period refers to a period of
Less than 1 year. upto five years.
2.During a short period, firms can only 2.During a long period, firms are able
make adjustments in input like labour to make adjustments in inputs like
to increase the Supply of goods and land, labour & capital to increase the
services marginally. supply of goods and services
substantially.
3.The factors of production and costs 3.All factors of production and costs
are more likely to be fixed. are variable.
xviii. Perfect Competition and Monopoly (Chp 5)

Ans:
Perfect Competition Monopoly
1.Perfect competition is a market 1.Monopoly refers to the form of a
structure where there are large market where Supply of the
number of sellers selling commodity is under the control of a
homogeneous goods to large number single seller or producer, i.e.
of buyers at uniform price without any monopolist.
government intervention.
2 There are large number of sellers. 2.There is only one seller.
3.The Products are sold homogeneous. 3.The product has no close substitute
4.There is free entry and exit. 4.There are entry and exit barrier
5.The price of product is fixed by the 5.The price of product is fixed by the
market forces of demand and supply. seller. He is a price maker and the
The sellers and buyers are price takers. buyers are the Price takers.
xix. Monopoly and Monopolistic competition (Chp 5)

Ans:
Monopoly Monopolistic Competition
1.Monopoly refers to the form of a 1.Monopolistic competition refers to
market where the Supply of the competition among a large number of
commodity is under the control if a sellers producing close but not perfect
single seller or producer. substitute.
2.There is only one seller. 2.There are fairly large number of
sellers but not as large as perfect
competition.
3.The product sold in a monopoly has 3.The products sold are differentiated
no close substitute. but they are close substitute to one
another.
4.There are barriers to entry. 4.There is no entry barrier.
xx. Simple index number and Weighted index number (chp 6)

Ans:
Simple Index Number Weighted Index Number
1.Simple index numbers is a method of 1.Weighted index numbers is a
constructing index number in which method of constructing index number
every commodity is given equal in which suitable weights are assigned
importance (weightage). to various commodities
2.This method can be applied to 2.The method can be applied to
determine price index number, determine price index number and
quantity index number and value special purpose index number.
index number.
3.It is the easiest method of 3.It is relatively complex as compared
constructing index numbers. to simple index numbers.
xxi. Price index number and Quantity index number (Chp 6)

Ans:
Price Index Number Quality Index Number
1.Price index measures the general changes in 1.Quantity index measures changes in the
prices of goods. level of output or physical volume of
production in economy.
2.It compares the level of prices between two 2.It compares the level of output between
different time periods. two different time periods.
3.Price Index Number: 3.Quantity Index Number:
xxii. Gross Domestic Product and Net Domestic Product (Chp 7)

Ans:
Gross Domestic Product Net Domestic Product
1.Gross Domestic Product (GDP) is the 1.Net Domestic Product (NDP) refers
gross market value of all final goods to the net market value of all final
and services produced within the goods and services produced within
domestic territory of a country, during the domestic territory of a country
a period of one year. during a period of one year.
2.GDP=C+I+G+(X-M) 2.NDP=GDP-Depreciation
C=Private consumption expenditure.
I=Domestic private Investment.
G=Government’s Consumption and
investment expenditure
X-M= Net export value.
3.It is greater than NDP. 3.It is lesser than GDP.
4.Depreciation is included in GDP. 4.Depreciation is ignored while
calculating NDP.
xxiii. Public finance and Private finance (Chp 7)

Ans:
Public Finance Private Finance
1.Public Finance aims to offer 1.Private Finance aims to fulfil private
maximum social advantage to the interests.
society.
2.Government first determines the 2. An individual considers his income
volume and different ways of its and then determines the volume of
expenditure. expenditure.
3.Government gets high degree of 3.Credit of a private individual is
credit in the market. limited.
4.The government can Print notes 4.Private individual does not enjoy
through Reserve Bank of India right to print currency.
5.Public Finance is more elastic. 5.There is not much scope for changes
in private Finance.
6.Public finance has tremendous 6.Private Finance has marginal effect
impact on the economy of country. on the economy of a country.
xxiv. Revenue expenditure and Capital expenditure (Chp 8)

Ans:
Revenue Expenditure Capital Expenditure
1.The expenditure incurred for 1.The expenditure incurred for
carrying out day-to-day functions of progress and development of the
the government departments and country is called capital expenditure.
various services is called revenue
Expenditure.
2.It is recurring in Nature. 2.It is non-recurring in nature.
3.It can be developmental as well as 3.It is generally developmental or
non-developmental. productive in nature & helps to
increase productive capacity of the
nation.
xxv. Direct tax and Indirect tax (chp 8)

Ans:
Direct Tax Indirect Tax
1.Direct tax refers to the tax paid on 1.Indirect tax is levied on goods or
the basis of income and property of services. It is laid at the time of
taxpayer. production or sale & purchase of
Commodity/service.
2.The burden is borne by the person 2.The burden can be shifted by the
on whom it is levied. It is impossible to taxpayer(i.e. producers) to other
shift it. person/s.
3.The impact and incidence of tax falls 3.The impact and incidence of tax falls
on the same person. on different persons.
4.Personal income Tax, wealth tax etc. 4.Goods and Services Tax (GST) (in
India has replaced almost all indirect
taxes), custom duty.
xxvi. Internal debt and External debt (chp 8)
Ans:
Internal Debt External Debt
1.When the government borrows from 1.When the government borrows from
its citizens, banks, central bank, foreign governments, foreign banks or
Financial institutions, business houses institutions, international
etc. within as internal debt. organisations, it is known as external
debt.
2.It is voluntary or compulsory in 2.It is voluntary in nature.
nature.
3.It involves use if domestic currency. 3.It involves use of foreign currency.
4.It is less complex for management. 4.It is more complex for management.
xxvii. Money market and Capital market (Chp 9)

Ans:
Money Market Capital Market
1.Money market is a market where in 1.Capital market is a market for long-
lending and borrowing of short term term funds (both Equity and Debt)
fund take place. raised within and outside the country.
2.It is a market for near money that is 2.It is a market for long-term
short term instrument such as trade instruments like bonds, debentures,
bills government securities promissory Equity shares, mutual funds.
notes etc
3.Reserve Bank of India, Commercial 3.Government securities market,
banks, co-operative banks, DFI’s, DFHI, Industrial securities markets, Stock
indigenous bankers, money lenders, exchange, DFIs and financial
etc are all part of Indian money intermediaries are all part of the
market. Indian Capital Market.
4.The problems faced by money 4.The problems faced by capital
market include simultaneous presence market include Financial scams,
of organised and unorganized sector, insider trading and price manipulation,
lack of uniformity in the rates of inadequate debt instruments, decline
interest, shortage of funds, seasonal in the volume of trade and lack of
fluctuations, lack of Financial informational efficiency.
inclusions and delays in technological
upgradation.
xxviii. Demand deposits and Time deposits (chp 9)

Ans:
Demand Deposit Time Deposit
1.Demand deposits are withdrawable 1.Time deposits are repayable after a
on demand. certain period of time.
2.They are in the form of Current 2. They are in the form of Recurring
Account and Savings Account Deposit. Deposit and Fixed deposits.
3.Interest is only paid on savings 3.The interest rate on time Deposits is
account Deposit. No interest is paid on more than interest rate on demand
current account. Deposit.
4.It can be operated continuously for 4.It can be operated only till the time
many years. of its maturity.
xxix. Import trade and Export trade (chp 10)

Ans:
Import Trade Export Trade
1.Import trade refers to the purchase 1. Export trade refers to the sale of
of goods and services by one country goods and services by one country to
from another. another.
2.It is the inflow of goods and services 2 It is outflow of goods and services
to home country from foreign country. from home country to foreign country.
3.Import trade leads to outflow of 3.Export trade leads to inflow of
foreign currency. foreign currency.
4.E.g. India imports petroleum from 4. E.g. India exports tea, rice, jute to
Iraq, Kuwait, Saudi Arabia etc. China, Hong kong, Singapore etc.
xxx. Internal trade and Foreign trade (Chp 10)

Ans:
Internal Trade Foreign Trade
1.Internal trade refers to trade within 1.International trade refers to trade
the boundaries of a nation. between different countries.
2. It is also known as ‘Domestic trade’ 2.It is also known as ‘Foreign Trade’ or
or ‘Home trade’. ‘External Trade’.
3.e.g. Goods produced in Maharashtra 3.e.g. India imports petroleum from
are sold to Uttar Pradesh Iraq and exports tea to Singapore.
4.It does not result in inflow or 4.It results in inflow or outflow of
outflow of foreign exchange. foreign exchange.
xxxi. Balance of payment and Balance of Trade (Chp 10)

Ans:
Balance of Payment Balance of Trade
1.It is a systematic record of all 1.It refers to the difference between
international economic transactions of the value of a country’s exports and
a country during given period, usually imports for given period.
a year.
2.It is defined as “a summary 2.It is defined as the “Relation over a
statement of all the transactions period between the values of her
between the residents of one country exports and imports of physical goods”
and rest if the world”.
3.It includes the value of exchange of 3.It includes the value of imports and
goods and services among citizens, exports of visible goods and invisible
businessman, firms, government etc. goods.
4.Balance of payment is broader 4.Balance of trade is a part of balance
Concept than balance of trade. of payments.
Q.4 State with reasons whether you agree or disagree with the following statements:
i. The scope of microeconomics is unlimited
Ans: I Disagree with the given statement.
Reason:
a. Microeconomics and macroeconomics are the two main branches of modern economics.
b. The term micros derived from the Greek word mikros which means small or a millionth part.
c. Microeconomic deals with a small part of the national economy.
d. It studies individual economic units such as individual consumer, individual producer, individual firm, the price of a
particular commodity or a factor etc.
e. In simple terms, it is examination of the tree and not the forest.
f. The scope of microeconomics is limited to only individual firms.
g. It doesn’t deal with nation wide economic problems like inflation, deflation, balance of payments, poverty,
unemployment, population, Economic growth etc.
Therefore, the scope of microeconomics is limited.
ii. Macroeconomics is different from Microeconomics

Ans: I Agree with the given statement.
Reason:
a. Macroeconomics analysis the entire economy while microeconomics deal with the small part of national economy.
b. Macroeconomics deals with total employment, national income, National output, total investment, total
consumption, total savings, general price level, interest rates, inflation, trade cycles, etc.
c. Microeconomic studies the individual unit such as individual consumer, individual producer, individual firm, the
price of a particular commodity or a factor etc.
d. Macroeconomic uses lumping method while microeconomic uses slicing method.
e. Macroeconomics analysis is based on General equilibrium analysis why microeconomic analysis is based on partial
equilibrium analysis.
f. The scope of macroeconomics is wide while that of microeconomics is narrow or limited.
Therefore macroeconomic is different from microeconomics.
iii. When total utility is maximum, marginal utility is zero

Reason:
a. Total utility is the sum total of the utilities derived by a consumer by consuming all units of a commodity and point
of time. In simple words it is the sum of marginal utilities derived from successive consumption of units.
b. Marginal utility if the additional utility derived by the consumer or consumption of an additional unit of commodity.
In short it is additional utility derived from the last unit consumed.
c. Marginal utility derived from various units of a commodity and its total utility are interrelated. This can be explained
with the help of following schedule:
d. This shows that when total utility is maximum, marginal utility is zero.
iv. There are no exceptions to the law of diminishing marginal utility

Reason:
All exceptions to the law of DMU are only apparent. They violate some or the other assumptions of the law and hence they
are not real exceptions it can be explained as follows:
a. Hobbies: a person having hobby of collecting old coins gets more pleasure when he collects more of it. How about
the assumption of homogeneity is violated as a person does not collect the same coins. For the he does not collect
them in continuous succession. So the assumption of continuity is also violated.
b. Miser: MU of money increases for a miser as his stock of money keeps on increasing. However the assumption of
rationality is violated in this case.
c. Addiction: MU of alcohol keeps increasing for a drunkard as he consumes more of it. However in case of all addicts
the assumption of rationality is violated.
d. Power: the MU of power keeps increasing as a person continues to get more power. Have a what is not a real
exception as the assumption of rationality is violated.
e. Money: MU of money keeps on increasing a stock of money increases. However money cannot be considered to be
real exception.
Therefore there are no real exceptions to the law of DMU.
v. All desires are demand

Reason:
a. In ordinary language, demand means a desire.
b. Desire means and urge to have something.
c. In economics demand means a desire which is packed by willingness and ability to pay.
d. Thus, Demand is an effective desire.
e. Demand = Desire + Ability to Pay + Willingness to spend.
vi. Marginal utility curve slopes downwards

Reason:
a. That is an inverse relation between the stock of a commodity and its marginal utility.
b. As the stock of a commodity goes on increasing the MU decreases.
c. Law of DMU states that other things being equal the addition benefit which a person derives from the increase in
the stock of a thing diminishes with every increase in the stock that he already has.
d. Thus, the MU curve slope downward from left to right.
vii. When the prices of Giffen goods falls, demand for such goods rises
Reason:
a. Giffen goods are inferior or low quality Goods like vanaspati , low quality rice etc.
b. Sir Robert Giffen observed a behavior related to bread in England.
c. People had a limited money therefore they used to consume more bread (inferior and cheaper commodity)and Less
meat(a costlier commodity).
d. He observed that when price of bread decreased less bread was demanded than before.
e. The people saved money and used it to purchase meat and thus the demand for meet increased.
f. This happens because every person wants to constantly increase his standard of living.
g. Therefore, when price of Giffen goods fall, the demand for it also falls.
viii. There are no exceptions to the law of demand

Reason:
Under exceptional circumstances are consumer buys more when the price of commodity rises and buys less when price of
commodity falls such exception to the law of demand are as follows:
a. Habitual goods :
Due to habit of consumption, certain goods like tea is purchased in required quantities even at a higher price.
b. Ignorance :
Sometimes, due to ignorance people buy more of a commodity at high price. This may happen when consumer is
ignorant about the price of that commodity at other places.
c. Giffen's paradox :
Inferior goods or low quality goods are those goods whose demand does not rise even if their price falls. At times,
demand decreases when the price of such commodities fall. Sir Robert Giffen observed this behaviour in England in
relation to bread. He noted that, when the price of bread declined, people did not buy more because of an increase
in their real income or purchasing power. They preferred to buy superior good like meat. This is known as Giffen's
paradox.
d. Price illusion :
Consumers have an illusion that high priced goods are of a better quality. Therefore, the demand for such goods
tend to increase with a rise in their prices. For example, branded products
which are expensive are demanded even at a high price.
e. Prestige goods :
Expensive goods like diamond, gold etc. are status symbol. So rich people buy more of it, even when their prices are
high.
f. Speculation :
The law of demand does not hold true when people expect prices to rise still further. In this case, although the prices have
risen today, consumers will demand more in anticipation of further rise in price. For example, prices of oil, sugar etc. tend to
rise before Diwali. So people go on purchasing more at a high price as they anticipate that prices may rise during Diwali.
ix. There is an inverse relationship between price and demand

Reason:
a. The law of demand states that other factors remaining constant when the price of a commodity rises demand for it
falls and when the price of a commodity falls demand for it rises.
b. Demand Curve :
c. In fig., X axis represents the demand for the commodity and Y axis
represents the price of commodity x. DD is the demand curve which
slopes downward from left to right due to an inverse relationship between
price and quantity demanded.
x. The supply curve of labour is backward bending

Reason:
a. Labour supply is the total number of hours that workers to work at a given wage rate. It is represented graphically
by a supply curve. In case of labour, as the wage rate rises the supply
b. of labour (hours of work) would increase. So supply curve slopes upward. Supply of labour (hours of work) falls with
a further rise in wage rate and supply curve of labour bends backward. This is because the worker would prefer
leisure to work after receiving higher amount of wages. Thus, after a certain point when wage rate rises the supply
of labour tends to fall. It can be explained with the help of a backward bending supply curve. The schedule and
diagram explains the backward bending supply curve of labour.
xi. There is a direct relationship between price and quantity supplied

Reason:
a. “Other things being constant, higher the price of a commodity,
more is the quantity supplied and lower the price of a commodity
less is the quantity supplied”
In simple words, “other factors remaining constant, a rise in price
results in a rise in the quantity supplied and vice-versa. Thus, there
is a direct relationship between price and quantity
supplied.
Supply Curve:
b. In the figure X axis represents quantity supplied and Y axis represents the price of the commodity. Supply curve 'SS'
slopes upwards from left to right which has a positive slope. It indicates a direct relationship between price and
quantity supplied.
xii. There are many exceptions to the law of supply

Reason:
a. Supply of labour :
Labour supply is the total number of hours that workers to work at a given wage rate. It is represented graphically by a
supply curve. In case of labour, as the wage rate rises the supply of labour (hours of work) would increase. So supply curve
slopes upward. Supply of labour (hours of work) falls with a further rise in wage rate and supply curve of labour bends
backward. This is because the worker would prefer leisure to work after receiving higher amount of wages.
b. Agricultural goods :
The law of supply does not apply to agricultural goods as they are produced in a specific season and their production
depends on weather conditions. Due to unfavourable changes in weather, if the agricultural production is low, their supply
cannot be increased even at a higher price.
c. Urgent need for cash :
If the seller is in urgent need for hard cash, he may sell his product at which may even be below the market price.
d. Perishable goods :
In case of perishable goods, the supplier would offer to sell more quantities at lower prices to avoid losses. For example,
vegetables, eggs etc.
e. Rare goods :
The supply of rare goods cannot be increased or decreased according to its demand.
Even if the price rises, supply remains unchanged. For example, rare paintings, old coins,
antique goods etc
xiii. Seller is the price maker under perfect competition

Reason:
a. In a perfectly competitive market there are large number of sellers.
b. Each seller forms a negligible part of the entire Market.
c. No single seller is in a position to influence the market price.
d. Sellers are said to be price takers under perfect competition.
e. In contrast in Monopoly Market there is only one seller who controls the entire market supply for a product which
has no close substitute therefore the seller is a price maker in Monopoly.
xiv. There is product differentiation under monopolistic competition
Reason:
a. In monopolistic competition each product is different from other products and some way or the other.
b. The difference could be in the form of brand name, trademarks, shapes, quality, ingredients, design colors, smell
etc.
c. The products are different but they are closed substitute to each other.
d. The above points show that there is product differentiation under monopolistic competition.
xv. Selling cost is the only feature of monopolistic competition

Reason:
In addition to selling cost monopolistic competition as many other features as follows:
a. Fairly large number of sellers :
In monopolistic competition, the number of sellers is large but comparatively it is less than that of perfect competition. Due
to this reason sellers’ behaviour is like monopoly.
b. Fairly large number of buyers :
In this market there are fairly large number of buyers. Consequently, no single buyer can influence the price of the product
by changing his individual demand.
c. Product differentiation :
Product differentiation is the main feature of monopolistic competition. In this market, there are many firms producing a
particular product, but the product of each firm is in some way differentiated from the product of every other firm in the
market. This is known as product differentiation. Product differentiation may take the form of brand names, trade marks,
peculiarity of package or container, shape, quality, cover, design, colour etc. This means that the product of a firm may find
close substitutes and its cross elasticity of demand is very high. For example, mobile handsets, cold drinks etc.
d. Free entry and exit :
Under monopolistic competition there is freedom of entry and exit, that is new firms are free to enter the market if there is
profit. Similarly, they can leave the market, if they find it difficult to survive.
e. Close substitutes :
In monopolistic competition, goods have close substitutes to each other. For example, different brands of soaps,
toothpastes etc.
f. Concept of group :
Under monopolistic competition, Chamberlin introduced the concept of ‘Group’ in place of industry. Industry means the
number of firms producing identical products. A ‘Group’ means a number of firms producing differentiated products which
are closely related. For example, group of firms producing medicines, automobiles etc.
xvi. Index numbers measure changes in the price level only

Reason:
a. An index number is device to measure changes in economic variable over a period of time.
b. Index numbers are one of the most used statistical tool in economics.
c. Index numbers were originally developed to measure changes in price level.
d. In present time it is also used to measure trends in wide variety of areas such as stock market prices cost of living,
industrial agricultural production, changes in exports and imports etc.
e. Hence, index numbers measure changes in many economic variables.
xvii. Any year can be selected as the base year
Reason:
a. The year with which the changes are measured is termed as the base year in other words the year with respect to
which comparisons are made in base year it is denoted by suffix.
b. The base year should be normal. i.e. it should be free from natural calamities.
c. Also it should not be too distant in the past.
d. Therefore any year cannot be selected as the base year.
xviii. There are many theoretical difficulties in the estimation of national income
Reason:
a. There are various difficulties in the measurement of national income.
b. There are Two difficulties in the measurement of national income. i.e. Theoretical difficulties and Practical
difficulties.
c. Some of the Theoretical difficulties are transfer payments, illegal income, unpaid services, valuation of government
services, etc.
xix. Transfer payments are included in national income

Reason:
a. Transfer incomes or transfer payments such as scholarships gives donation, charity, old age pensions,
unemployment allowance, etc are ignored while calculating national income.
b. They are a part of individual income on one hand and part of government expenditure on the other hand.
c. These payments represent a mere transfer of income without any addition to the production.
d. Therefore transfer payments are excluded from national income.
xx. Obligatory functions is the only function of the government

Reason:
a. Government is a formal or informal institution created by the people in specific region to perform various functions.
b. The functions of government can be classified as obligatory function and optional functions.
c. The obligatory functions include protection from external attacks maintaining internal Law and order etc.
d. The optional functions include provisions of education and health Services provision of social security like pensions
and other welfare measures etc.
e. Therefore obligatory function is not the only function of the government.
xxi. Public finance is more elastic compared to private finance

Reason:
a. Public Finance aims to offer maximum social advantage to the society while private Finance aims to fulfill private
interest.
b. That is not much scope for changes in private Finance.
c. On the other hand government determines the volume and different ways of its expenditure based on the need of
an hour.
d. The government can also print notes through Reserve Bank of India.
e. Hence Public Finance is more classic than private Finance. i.e. accent of public expenditure can be varied as per the
needs.
xxii. Issue of currency notes is the only function of Reserve Bank of India
Reason:
In additions to issue of currency notes RBI performs a range of functions as follows:
a. Banker to the Government :
RBI acts as a banker, agent and advisor to the Government. It transacts the business of both, the Central and State
Governments. It accepts money as well as makes payments on behalf these Governments. It also undertakes the
management of public debt. It advises the Government on a wide range of economic issues.
b. Banker’s Bank :
RBI exercises statutory control over the commercial banks. All scheduled banks are compulsorily required to maintain a
certain minimum of cash reserves with the RBI against their demand and time liabilities. RBI provides financial assistance to
banks in the form of discounting of eligible bills. Loans and advances are also provided against approved securities.
c. Custodian of Foreign Exchange Reserves :
RBI acts as a custodian of the country’s foreign exchange reserves. It has to maintain the official rate of exchange of rupee
as well as ensure its stability. RBI also undertakes to buy and sell the currencies of all the members of the International
Monetary Fund (IMF).
d. Controller of Credit :
As a supreme banking authority of the country, RBI has the power to influence the volume of credit created by commercial
banks. It also monitors the purpose or use of credit. Quantitative
methods such as bank rate, open market operations, variable reserve ratios such as Cash Reserve Ratio (CRR), Statutory
Liquid Ratio (SLR) etc. control the volume of credit created. Qualitative methods such as fixing margin requirements, credit
rationing, moral suasion etc. regulate the purpose or use of credit.
e. Collection and Publication of Data :
RBI collects and compiles statistical information related to banking and other financial sectors of the economy.
f. Promotional and Developmental Functions :
RBI also performs certain promotional and developmental functions such as extending banking services to semiurban and
rural areas, providing security to depositors, development of specialized institutions for agricultural credit, industrial finance
etc.
g. Other Functions :
RBI acts as a clearing house for settling the accounts between its member banks. As a lender of last resort, it also provides
liquidity.
xxiii. Commercial banks create credit

Reason:
a. Commercial banks are the creators of credit.
b. Demand and time deposits constitute the primary deposits of Bank.
c. After meeting a reserve requirements the balance amount is used for giving loans.
d. The procedure is followed by entire banking system in the country leading to credit creation.
xxiv. Foreign trade leads to division of labour and specialization
Reason:
a. Foreign trade refers to trade between different countries of the world. Some countries have plentiful natural
resources.
b. Ideally search countries should export raw materials and import finish goods from the countries which have
abundant supply of skilled manpower.
c. Foreign trade enables countries to specialize in production of those goods for which it has abundant resources.
d. In other words each country can specialize in production of those goods which is best suited for them as per the
availability of resources.
e. Therefore, foreign trade leads to division of labor and specialization.
xxv. There is no difference between Balance of payment and Balance of trade.

Reason:
a. Balance of payments is a systematic record of all International economic transactions of a country during given
period usually a year.
b. On the other hand balance of trade refers to the difference between the value of a country’s export and imports for
given period.
c. Balance of payment is broader concept than balance of trade.
d. Balance of payments includes the value of exchange of goods and services among citizens and businessmen and
also forms and governments etc.
e. Balance of trade includes the value of imports and exports of visible goods and invisible Goods.
f. Therefore a balance of payment and balance of trade are two different concepts.

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SKY EDUCATION

ii. Partial equilibrium and General equilibrium (Chp 1)

iii. Time utility and Place utility (Chp 2)

iv. Total utility and Marginal Utility (Chp 2)

v. Direct demand and Indirect demand (Chp 3A)

vi. Joint/Complementary demand and Composite demand (Chp 3A)

viii. Demand curve and Supply Curve (Chp 3A)

ix. Expansion of demand and Contraction of demand (Chp 3A)

x. Increase in demand and Decrease in demand (Chp 3A)

xiv. Expansion of supply and Contraction of supply (Chp 4)

xvi. Total cost and Total revenue (Chp 4)

xvii. Short period and Long period. (Chp 5)

xviii. Perfect Competition and Monopoly (Chp 5)

xix. Monopoly and Monopolistic competition (Chp 5)

xx. Simple index number and Weighted index number (chp 6)

xxi. Price index number and Quantity index number (Chp 6)

xxii. Gross Domestic Product and Net Domestic Product (Chp 7)

xxiii. Public finance and Private finance (Chp 7)

xxiv. Revenue expenditure and Capital expenditure (Chp 8)

xxv. Direct tax and Indirect tax (chp 8)

xxvii. Money market and Capital market (Chp 9)

xxviii. Demand deposits and Time deposits (chp 9)

xxix. Import trade and Export trade (chp 10)

xxx. Internal trade and Foreign trade (Chp 10)

xxxi. Balance of payment and Balance of Trade (Chp 10)

ii. Macroeconomics is different from Microeconomics

iii. When total utility is maximum, marginal utility is zero

iv. There are no exceptions to the law of diminishing marginal utility

v. All desires are demand

vi. Marginal utility curve slopes downwards

viii. There are no exceptions to the law of demand

ix. There is an inverse relationship between price and demand

x. The supply curve of labour is backward bending

xi. There is a direct relationship between price and quantity supplied

xii. There are many exceptions to the law of supply

xiii. Seller is the price maker under perfect competition

xv. Selling cost is the only feature of monopolistic competition

xvi. Index numbers measure changes in the price level only

xix. Transfer payments are included in national income

xx. Obligatory functions is the only function of the government

xxi. Public finance is more elastic compared to private finance

xxiii. Commercial banks create credit

xxv. There is no difference between Balance of payment and Balance of trade.

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