Definitions

1. Scarcity –arnav: It is a situation where there are not enough resources to satisfy
everybody’s wants. It is when unlimited wants exceed limited resources.

2. Explain the nature of economic problem? (Viraj Sinha) (4)
It is a situation where there are not enough resources to satisfy everybody’s wants.
It is when unlimited wants exceed limited resources. This lead to the problem of
choice resulting in opportunity cost. Every society has to face the 3 basic economic
questions which are what to produce? How to produce and for whom to produce?

3. Opportunity cost [Dhruv] - The next best alternative forgone while making a decision
between two things.

4. PPC [Dhruv] - The PPC shows the maximum output of two types of products and the
combination of those products that can be produced using the existing resources
and technology.
Full definition: (khayal) it is the graphical representation of opportunity cost. It
shows the maximum output of two types of products and the combination of those
goods that can be produced using existing resources and technology.

5. Needs and wants (Mahenoor)
o Needs are something which are required for the survival of the human being.
Eg. Food, clothing and shelter
o Wants are something which are not required for the survival but they add
comfort to ones life. Eg. Luxury car, branded T shirt

6. Market, command and mixed economy- khayal
o market- market economy is when all the resources are owned, controlled,
managed and financed by private individuals. Prices are determined by market
forces that is the demand for and supply of a product and not by the
government. Eg- The United States
o Mixed- is where all the resources are owned, controlled, managed and financed
by both the government as well as private individuals. eg- India
o Command- where all the resources are owned, controlled, managed and
financed by the government. Prices are determined by the government and not
by the market forces- demand for and supply of a product. E.g. North Korea

7. Merit, Demerit and public good - [Dhruv Behl]
o Merit Goods: If left on market forces (Demand and Supply), goods such as
healthcare and education will be underproduced and under-consumed as the
social benefits are underestimated.
o Demerit Goods: If left on market forces (Demand and Supply), goods such as
alcohol and cigarettes will be overproduced and overconsumed as the social
costs are underestimated.

o Public Goods: These have the characteristics of non-excludability and non-rivalry.

If left on market forces will not be produced at all due to free rider problem. Ex:
Streetlights and Metro

8. Demand, supply - increase, decrease, extension, contraction- khayal
o Demand refers to the willingness and ability to buy a product at a given price in a
given period of time. There is an inverse relationship between price and quantity
demanded; if price rises, demand contracts and as the price falls, demand
extends or expands.
o Supply refers to the willingness and ability to sell the product at a given price in a
given period of time. There is a direct relationship between price and quantity
supplied; as prince rises, quantity supplied expands or extends and as the price
falls, quantity supplied contracts.

9. Equilibrium price- khayal- it is the price at which quantity demanded is equal to
quantity supplied. There are neither any shortages or surpluses.

10. PED, PES, elastic, inelastic (Kavita)
o PED (Price elasticity of demand) refers to the numerical measure of
responsiveness of quantity demanded to the change in price of a product. The
formula is (% change in quantity demanded / % change in price). The more
elastic the PED is, the more it will respond to changes in demand. For example,
the price of a product with a relatively elastic PED decreases by 20% and the
demand for it increases by 50%.
o PES stands for Price elasticity of supply and refers to the numerical measure of
responsiveness of quantity supplied to a change in price of a product. Just as
with Price elasticity of demand, the formula is (% change in quantity supplied / %
change in price)

11. Market failure, private, external, social cost and benefit (Alina)
o Market Failure: Market failure occurs when market forces fail to produce the
[products that consumers demand, in the right quantities and at the lowest
possible costs.
o Private Benefits: Benefits that are received by those directly consuming or
producing a product.
o External Costs: Imposed costs, on those who are not involved in the consumption
and production activities of others directly.
o Social Costs: Total costs to a society of an economic activity.
o Private Costs: Costs borne by those directly consuming a product; (EG: coca cola
purchased by me directly from the vendor in the supermarket)
o External Benefits: Benefits enjoyed by those who are not involved in the
consumption and production activities of others directly.
o Social Benefits: the total benefits to a society of an economic activity.

12. Labor + Capital intensive- khayal
o Labour intensive- when the majority of the work is done by labour rather
than machines, eg- handmade clothes, agriculture in india

o Capital intensive- when the majority of the work is done by capital rather
than labour, eg- production of coca-cola, mass production of cars, etc

13. Production and productivity [ Dhruv ]
o Production: It is the total output per period of time. E.g: Per hour, day,
month, week, year.
o Productivity: Productivity is the output produced per factor/input. E.g. output
per worker per hour.

14. Explain the difference between productivity and production.
o Productivity is the output produced per factor / input, e.g. per worker (1) per
period of time, e.g. per hour (1) measure of efficiency / how quickly products
are produced (1).
o Production is the total output (1) the process of producing goods and services
(1) in a period of time, e.g. per year (1)

15. Specialization and division of labour (Mahenoor)
o Specialisation is a method of production whereby an entity focuses on the
production of a limited scopes of goods to gain a greater degree of efficiency.
o Division of labour is when the production process is broken down into
sequence of different tasks and each worker focusses on the task he is best
able to perform.

16. Trade union: Trade union is an organization that promote and protect the interest of
their members to improve wages and working conditions.

17. Fixed cost: A fixed cost is a cost that does not change with an increase or decrease in
the number of goods or services produced or sold.

18. Variable cost: Variable costs are costs that change as the quantity of the good or
service that a business produces changes.

19. Total cost: the sum of all costs incurred by a firm in producing a certain level of
output.

20. Average cost: average cost or unit cost is equal to total cost (TC) divided by the
number of units of a good produced.

21. Average fixed cost: is the fixed costs of production divided by the quantity of output
produced.

22. Average variable cost: the average variable cost is the variable cost per unit.

23. Economies and diseconomies of scale (Internal +External)-khayal
Economies of scale- it is when long run average costs decrease with an increase in the
output

Diseconomies of scale- it is when long run average costs increase with an increase in the
output
Internal economies of scale- When a firm’s long run average costs decrease with an increase
in the output
External economies of scale- When an entire industry’s long run average costs decrease
with an increase in output
Internal diseconomies of scale- When a firm’s long run average costs increase with an
increase in the output
External diseconomies of scale- When an entire industry’s long run average costs increase
with an increase in output
24. Profit maximization, sales maximization [Kavita]

Profit maximization: the short run or long run process in which a firm may determine the
price, resources/input and output they need to obtain the most profit.

Sales maximization: the process in which a firm tries to make as many sales of their
goods/serives as possible without making a loss.

25. Increasing, constant and decreasing returns to scale- omit
26. MNC-khayal- Multinational company/ corporation is one that produces in more
than one country
27. Primary, secondary, tertiary sectors- khayal-
primary- it is the sector in which businesses extract raw materials from natural resources.
Examples include mining, agriculture, fishing and forestry.
Secondary- is the sector which involves the converting of raw materials into finished
products, it includes businesses such as manufacturing, construction, gas, water supply and
electricity.
Tertiary- is the sector which involves the providing of goods and services (final), examples
include trade, transport, communication, finance, insurance, real estate, hotel and defense.
28. Horizontal, vertical & conglomerate integration [Vivaan]
Horizontal integration-The merger of firms producing the same product and at the
same stage of production.
Vertical integration-the merger of one firm with another firm that either provides an
outlet for its products or supplies it with raw materials, components or the product it
sells.
Forward vertical integration-a merger with a firm at a later stage of the supply chain.
Forward backward integration-a merger with a firm at an earlier stage of the supply
chain.
Conglomerate integration-a merger between firms producing different different
products.
29. Profit, revenue, average and total revenue [Kavita]

Profit: the difference between revenue and costs of production
Revenue: the money made by a business from the sale of a good or service
Average: the average revenue made per sale (total revenue/number of goods or services
sold)
Total Revenue: the full amount earned from sales of goods and services

30. Closed shop, Picketing [ Dhruv ]
Picketing - certain influential people stationed at the gate of the factory and dissuade
workers from reporting to work
Closed Shop - A company that only employs union members and requires them to secure
and maintain union membership as a condition of employment.
Eg: Indian Railway
31. Direct, Indirect, Progressive, Regressive, Proportional Tax (Dhruvi)
Direct tax is the tax imposed on the income and wealth of individuals and firms; it is usually
progressive in nature. The impact (initial burden) and the incidence of tax (final burden) is
on the same person. The tax burden cannot be transferred to anyone else. Examples of
direct tax include income tax, wealth tax, corporate tax, inheritance tax, etc.
Indirect tax is the tax imposed on expenditure of goods and services. It is usually regressive
in nature. The impact (initial burden) and incidence (final burden) is on different people. Tax
burden can be transferred to anyone else. Examples include GST, VAT, service tax, sales tax,
etc.
Progressive tax is the tax imposed so that the tax rate increases as the income increases.
Regressive tax is the tax imposed so that the tax rate decreases as the income decreases.
32. Inflation, deflation, disinflation, demand pull and cost pull inflation,CPI(Vivaan)
Inflation-It is the rise in the general price level of a basket of goods and services.
Deflation-it is a sustained fall in the prices of goods and services.
Disinflation- it is a fall in the rate of inflation
Demand pull inflation-it is a rise in the price level caused by excess demand
Cost pull inflation-It is a rise in the price level caused by higher costs of production.
CPI-Consumer price index it is the measure of the weighted average of the prices of
a representative basket of goods and services.
33. Aim of the government – Full B.E.R.P(Vridhi)
• Full employment = Those who are able to work and are looking for work are
employed
• Balance of payment stability = Imports and exports constant as well as flow of
finance
• Economic Growth = Increase in real GDP in the short run and increase in productive
potential output in the short run
• Redistribution of income = Government takes money from tax revenue using
progressive taxation and redistributes it to the poor population as unemployment
and social housing benefits
• Price stability = When the government aims to keep inflation at a stable rate. This
allows firms and individuals to plan for their future more accurately
34. Fiscal, monetary, expansionary, contractionary, supply side policies(Subsides,
privatization and rationalization) (Vridhi)
• Fiscal Policies = It is demand side policy. It is adopted by the government. It uses tax and
government spending to influence aggregate demand in the economy.
• Expansionary fiscal policy = Aim is to increase aggregate demand. It decreases tax
and increases government spending to increase AD in the economy.
• Contractionary fiscal policy = Aim is to decrease aggregate demand. It increases tax
and decreases government spending to decrease AD in the economy.

• Monetary policy = It is demand side policy. It is adopted by the Central Bank. It uses
interest rates and money supply to influence aggregate demand in the economy.
• Expansionary monetary policy = Aim is to increase AD. Central bank will decrease
interest rates and increase money supply in the economy
• Contractionary monetary policy = Aim is to decrease AD. Central bank will increase
interest rates and decrease money supply in the economy.
35. Economic growth, HDI, Economic Development, Recession, GDP, Real GDP-(Vridhi)
• Economic growth = The increase in real GDP in the short run and the increase in the
productive potential output in the short run
• Human Development Index = It is the measure of living standard (value from 0-1.
higher the value, higher the living standard)
• Economic development = It is the increase in the economic welfare of people
through growth in productivity scale and wealth of an economy
• Recession = This is the period where negative economic growth occurs. This is when
the real GDP falls.
• GDP = It is the money value of finished goods and services produced during a period
of time.
• Real GDP = It is GDP adjusted inflation. It is calculated at constant price

36. ARNAV Absolute: It is when household income is below a certain level, it is difficult
for people to meet the basic needs of life. Relative poverty: It is a condition in which
people lack the minimum amount of income needed in order to maintain the
average standard of living.
37. Arnav: Birth rate- It is the number of live births per thousand population per year of
the total population of the country.,
death rate- It is the number of deaths per thousand population per year of the total
population of the country., Formula:
net migration- It refers to the difference between the number of people coming into the
country to live and the number of people leaving the country to live elsewhere,
population pyramid- It is the graphical representation of age-wise and gender-wise
distribution of population of a country over a period of time.
ageing population- It is the increasing median age in a total population of the country.
Dependent population: It is the part of the population that does not work and relies on
others for goods and services.
38. Absolute and comparative advantage-khayal
Absolute advantage- a country has an absolute advantage in the production of the product
when it can produce that product at a much lower cost per unit than any other country.
Comparative advantage- a country has a comparative advantage in the production of a
product relative to other countries when its opportunity cost of producing that product is
lower than in any other country. (If one country has a comparative advantage over another,
both parties- countries, benefit from trading)
39. Labor force, labor force participation rate, unemployment, unemployment rate,
full employment and types of employment
40. Exchange rate, Appreciation, Depreciation, Floating, Fixed, revaluation and
devaluation (Vridhi)
• Exchange rate = It is when the value of a currency is expressed in terms of another

• Appreciation = It is when the value of one currency is expressed in terms of another

currency
• Depreciation= It is the loss of value of currency with respect to one or more foreign
currency
• Floating Exchange rate = It is the type of exchange rate system in which a currency
value fluctuates in response to the demand and supply of a currency
• Fixed exchange rate = This is when the central bank keeps the value currency fixed
against another currency
• Revaluation= It is an increase in the price of a currency within a fixed exchange rate
• Devaluation = It is a fall in the value of a fixed exchange rate

41. Current account deficit, surplus, B.O.P(Sonaakshie)
balance of payment is a systematic record of all economic transaction that takes place
between one country and rest of the world in a given period (1 year). It includes trade in
goods, services, and financial flows.
CURRENT ACC DEFICIT is when the combined value of the debit side of the four components
of the current account exceeds the value of the credit side of the four components.
CURRENT ACCOUNT SURPLUS is when the combined value of the credit of the four
components of the current account exceeds the value of the debit side of th four
components.
Expenditure switching and expenditure dampening:
Balance of trade



42. Free trade, protectionism, methods of protectionism (Viraj Sinha)
• Free Trade- It is the unrestricted purchase and sale of goods and services between
countries, it involves the movement and exchange of physical goods such as
materials, component parts, equipment and finished products as well as services,
ideas, money and labor, across international borders without any trade barriers.
• Protectionism- involves the use of trade barriers by government to restrict
international market access and competition
• Tariffs are tax on imports and are used to raise the prices of imports to make them
more expensive than home produced goods to stop people buying from them.EG-
Tariffs on imports of Chinese tyres into US.
• Quota- Reduces the Quantity of imports without changing their prices. example a
country may limit the imports of foreign cars to 500,000 each year, or the import of
footwear to 5 million pairs of shoes each year.
• Embargo- Ban against the import or export of a good, Example- happy drugs like
cocaine
• Exchange Control- The government can limit imports therefore, by restriction the
amount of foreign currency available to firms wishing to import goods. EG- Chinese
currency manipulation. By reducing the value of its currency, China helps to make its exports
more competitive at the expense of the EU and US producers.
• Quality Standard's- Imported goods have to satisfy and qualify the standards and
expectations I terms of quality and excellence, safety standards set by the

government. Example- cars which have a 2 out of 5 safety rating cannot be given out
to the Indian market


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43. Investment, infrastructure, dividend, dumping
Investment:- Increase in the stock of capital goods.
44. Piece rate, Time rate, Salary, bonus, commission. (Vridhi)
Types of payment of labor:-
• Piece rate = When wage is given based on the output produced
• Time rate = When wage is given based on the number of hours and employee works
• Salary = It is the monthly payment give to employees, usually to given to employees
who do non manual jobs
• Bonus = Usually given above wage/ salary due to increasing companies profit,
securing a deal with a customer, finishing a project fast etc.
• Commision = This is usually given to sales people as a proportion of value of sales
they made

45. Microeconomics and macroeconomics(Viraj Sinha)
• Microeconomics- Microeconomics is the study of the behavior and decisions of
households and firms, and the performance of individual markets.
• Macroeconomics-Macroeconomics are the study of the whole economy.
46. Commercial bank and central bank- khayal
central bank- government owned bank that provides banking services to the government
and to the commercial banks
Commercial bank- a private sector bank that aims to make a profit by providing a range of
banking services