ASSINGMENT ONE GENERAL ECONOMICS

1. (i) Demand is expression of willingness and ability of a potential buyer to acquire certain
quantities of a product or service for possible price.
Supply is the willingness and ability of sellers to make available different possible quantities of
goods at all relevant prices.
(ii) Scarcity, choice and opportunity cost

 Scarcity is the condition of having to choose among alternatives. A scarce good is one
for which the choice of one alternative use of the good requires that another be given up.
Choice

Opportunity cost is the value of the best alternative forgone in making any choice.
(iii) Relationship between marginal cost and average cost

Both average cost and marginal cost are derived from total cost. Average cost is
obtained by dividing total cost by the number of units produced. Marginal cost is the cost
of producing one additional unit of output.

When average cost falls with increase in output, marginal cost becomes less than
average cost.

(iv) Economic profit and zero economic profit

When economic profit is positive, it means a company is making above average profits and
attracts new companies to enter the market. The company can recoup lost opportunity costs. However,
if the economic profit is zero, the company has no reason to exit or enter the market.

(v) Monopoly and oligopoly market

Monopoly and oligopoly are economic market conditions. Monopoly is defined by the

dominance of just one seller in the market; oligopoly is an economic situation where a number of sellers
populate the market

(vi) Marginal utility and Indifference curve

Indifference curve is based on the same principle that gives rise to the

diminishing marginal utility curve. They are both based on the principle that the consumption of first
unit to a particular good provides greater utility than the next one.

(vii) Marginal rate of substitution and budget line

The marginal rate of substitution is a term used in economics that refers to the amount of one
good that is substitutable for another and is used to analyze consumer behaviors for a variety of
purposes
 Budget line is a graphical delineation of all possible combinations of the two commodities that can
be bought with provided income and cost so that the price of each of these combinations is equivalent
to the monetary earnings of the customer.

viii. Production possibility frontier and law of diminishing return

The law of diminishing returns states that an additional amount of a single factor of production
will result in a decreasing marginal output of production. The law assumes other factors to be constant.

The production possibility frontier is a visual representation showing the most efficient outcomes
when producing two goods using the same amount of limited resources.

ix. National income and personal income

Personal income is the total money income received by individuals in the community. Personal income
is the aggregate earned and unearned income

National income is a macroeconomic variable that helps economists to understand the earning power of
a country. The concept focuses mostly on income generated inside the country boarders