Economics Sem-I, 2023 Common Paper Materialppap

JAGARLAMUDI KUPPUSWAMY CHOUDARY COLLEGE (Autonomous),
GUNTUR
DEPARTMENT OF ECONOMICS
MATERIAL ON
ECONOMICS – Unit – II
SEMESTER- I
B.COM Gen & Computers, BBA, B.Sc, B.Voc

With effect from 2023
Prepared by
Dr P.Bharathi Devi, M.A, M.Phil, Ph.D, NET

Lecturer, Department of Economics
Business Economics 1
JAGARLAMUDI KUPPUSWAMY CHOUDARY COLLEGE :: GUNTUR – 522 006
An autonomous college in the jurisdiction of AcharyaNagarjuna University, Nagarjuna Nagar – 522

510. A.P., India
FUNDAMENTALS OF Course – I w.e.f. I B.Com (Gen. & Comp), BBA,

COMMERCE B.SC, B.Voc
SEM - I 2023-2024
Theory 4 Hours
Credits : 4
Learning Objectives:
The objective of this paper is to help students to acquire conceptual knowledge of the Commerce,,
Economy and Role of Commerce in Economic Development to acquire knowledge on Accounting and
Taxation.
Learning Outcomes:
At the end of the course, the student will able to
Identify the role of commerce in Economic Development and Social Development, Equip with the
knowledge of imports and exports and Balance of Payments, Develop the skill of accounting and
accounting principles. They acquire knowledge on micro and micro economics and factors determine
demand and supply. An idea of Indian Tax system and various taxes levied on in India. They will acquire
skills on web design and digital marketing.
Unit – I: Introduction: Definitions of Commerce – Role of Commerce in Economic Development – Role

Commerce in Societal Development Imports and Exports, Balance of Payments, World Trade
Organisation.
Unit – II: Economic Theory: Micro Economics – Meaning definition, importance – Diminishing Marginal
Utility theory – Demand – demand function – determinants of demand – Law of demand – Elasticity of
demand – Supply – determinants – law of supply – Classification of markets, perfect competition –
Characteristics – equilibrium price – Macro economics – meaning – importance , National Income –
concepts – measurements of national income.
Unit – III: Accounting Principle: Meaning and objectives of Accounting – Accounting Cycle- Branches of
accounting – Financial Accounting, Cost Accounting Management, Management Accounting, Concepts
and convention of Accounting – GA/AP
Unit – IV: Taxation: meaning of Tax : Taxation – types of tax – Income tax Corporate taxation, GDT,
Customs & Excise, Differences between Direct and Indirect tax – Objectives of Tax – concerned
authorities – Central Board of Direct Taxes and Central Board of Excise and customs
Unit – V: Computer Essentials: Web Design , Word press Basics. Developing a Simple website , digital
marketing, Social Media Marketing, Content Marketing, Search Engine Optimization , E-mail marketing,
Data Analytics, prediction ;of customer behavior customized suggestion.
Ref:
1. S.P. Jain & K.L.Narang, Accountancy, Kalyani Publishers
2. R.L.Gupta & V.K.Gupta, Principles and Practice of Accounting, Sultan Chand
3. Business Economics – S. Sankaran, Margham Publications , Chennai
4. Business Economics – Kalyani Publications
5. Dr. Vinod K. Singhanta : Direct Taxes – Law and Practice, Taxmann Publiczations
6. Dr. Mehrotra and Dr. Goyal: Direct Taxes – Law and Practice, Sahitya Bhavan Publications
Unit – II, ECONOMIC THEORY
Q1. Critically explain the Wealth definition of Economics?
Ans: The definition is associated with classical economist Adam Smith, the Father of
Economics. He defined economics in his famous book “ An Enquiry into the Nature and Causes
of Wealth of Nations.
Adam Smith defined economics as the study of Wealth. It studies about the
acquisition, accumulation and spending of Wealth. Therefore the definition is called Wealth
definition of Economics.
Important Points of the definition:
1. Economics is the study of wealth only, how to acquire the wealth , spending and pass on
to his heirs.
2. the definition considered the material things
3. Smith considered only the civilized societies where money play a very important role
4. the definition made an economic man
Criticisms: the definition was severely criticized by economists;
1. According the criticizers, according to the definition, economics is a dismal science, pig
science, nothing is new in definition
2. the definition made a man into selfish. A man ignores good and bad in acquiring wealth
3. Adam Smith considered only material things as wealth. But services also satisfies
human desires
4. He considered only the civilized societies and ignored uncivilized societies. But wants
are common and money is needed for everyone is ignored by Adam Smith.
Q2. Critically examine Welfare the definition to Economics?
A. Introduction:-
Alfred Marshall published a book; “Principles of economics” in the year 1890. Marshall
was a neo-classical economist. He opposes wealth definition to economics and gave a new
definition to economics which is called as Welfare definition.
Definition:-
“Economics, on one side a study of wealth and the other and most important side a
study of mankind”.
-Marshall.
“Economics is the study of mankind on ordinary business of life. It examines that part of
the individual and social action, which is most closely connected with the attainment and with
the use of material requisites of well being”.
According to Marshall economics studies about, both wealth and welfare. But importance
is given to welfare. A.C Pigou, also express the same opinion.
Main points of the definition:-
1. According to welfare definition economics is a social science.
2. It studies about the individual as a part in the society.
3. It studies about only material activities.
4. It studies about the activities which we improve the welfare of human being.
5. Importance is given to welfare rather than wealth.
Criticisms:-
1. According to Marshall, economics is a social science. But according to Robins economics is a

human science.
2. Robins oppose welfare definition why because; it reduces the scope of economics.
3. Robins oppose the concept of welfare. It varies from place to place, time to time and person to
person.
4. According to Robins economics must study about material and immaterial activities of human
being.
5. According to Marshall Economics must study only those activities which will improve the
welfare. But according to Robins economics must be natural between ends (wants).
Q3 . Examine Scarcity definition to Economics by Lionnel Robbins?
A. Introduction:-
Robins published a book “An essay on nature and significance of economics science” in
the year 1931. He opposes welfare definition to economics and gave a new definition, which is
called as scarcity definition.
Definition:-
“Economics is a science, which studies human behavior as a relationship between

ends and scares means which have alternative uses”.
-Robins.
Main points of the definition:-
1. Human wants are unlimited. Man is a bundle of desires.
2. Resources are very limited which can satisfy human wants.
3. Resources are not only limited but also they have alternative uses.
4. So the problem of choice will arise. Individuals are chosen which wants are to be satisfied and
which must be postponed. This is the problem of choice.
Superiority of the definition:-
1. Universality is there in Robin’s definition.
2. Marshall’s definition take into consideration of only material activities but Robins definition
take into consideration of both material & immaterial activities. Thus, Robin’s definition guides
the scope of economics.
3. Marshall’s definition made the economics as divisible. Robin’s definition made the economics
has analytical science.
4. According to Robins economics must be neutral.
Criticism:-1. Robin’s opposes the concept of welfare but it is implicitly in his definition.
2. Robin’s definition made the economics a static analysis, but the economy is dynamic
3. These are no concept of economics growth (or) development in this definition.
4. economic or choice problem arise not because of scarcity of resources but because of
unutilisation and underutilisation of resources.
5. He ignored the time element .i.e future
Q4. Write about Micro Economics?
A. Introduction:-
The term Micro &Macro economics are first used by Ragnar Frisch in the year 1933.
Micro Economics:-
The term micro economics derived from Greek word ‘MIKROS’. Micro means million
part or very small. Micro economics studies about the individual units of the economy. It is also
called as Price theory. It is developed by Alfred Marshall.
Scope:
Determination of prices of commodities, determination of prices of factors of production

Demand for a commodity, supply of a commodity, equilibrium of a consumer, firm, industry,
pricing of commodity, pricing of factors of production, welfare economics are the subject matter
of Micro Economics.
Importance:-
1. The study of micro economics is very useful for better understanding of the working condition
of the economy.
2. Knowledge about micro economics analysis is essential for optimum utilization of resources.
3. Micro economics is useful for better understanding of the tax stature.
4. It is useful for the understanding of exchange rates.
Q5. Write about Macro Economics with its importance
A. Introduction:-
The term micro & macro are used by Ragner Frisch in the year 1933. J.M. Keynes gave
importance to macro economics analysis. It is also called as income and employment theory or
General theory.
Macro Economics:- The term Macro was derived from Greek word ‘MAKROS’. Macro means
big. It studies about the aggregates or study of the economy as a whole. It is developed by
J.M.Keynes.
Scope:-
National income, aggregate demand, aggregate supply, level of employment, economics

deprecation inflation, physical policies, monetary policies are the subject matter of macro
economics.
Importance:-
1. It is useful to know about the working condition of the economy.
2. It suggests some measures to solve the problems of unemployment & poverty.
3. Macro economics analysis essential to prepare economic plans and allocation of resources.
4. It suggests some measures to solve the problems of inflation and deprecation.
5. To compare the growth of two countries (or) stranded of living of the people (or) to know the
growth rate macro economics analysis is very essential.
Q6. Examine the Law of Diminishing Marginal Utility?
A. Introduction:-
This theory was first proposed by H.H. Gossans in the year 1854. Jevons called it as
Goshen first law. Marshal developed this theory and renamed it as the Law of diminishing
marginal utility. This theory explains the relationship between utility and stock of a commodity.
According to this theory every human want has a limit.
Definition:- If a consumer consuming the commodities without any gap, from each and every
additional commodity he will get less and lesser satisfaction.
Assumptions:-
1. Utility can be measured based on cardinal utility concept
2. Consumer is rational.
3. The tastes and fashions of consumer remain constant.
4. the commodities must be homogenous in colour, size, taste etc.,
5. They are possibility to divide the commodity into small units.
6. They are no time gap between consumption of the unity.
7. Marginal utility of money remains constant.
Explanation of the Law:-
According to this theory every additional unit of commodity gives leaser and leaser level of
satisfaction.
Total Utility:- Total utility is the total satisfaction derived from the consumption of all units of a
commodity.
TU=f (x ).
Marginal Utility: Marginal utility is additional utility derived from the consumption of
additional unit of a commodity.
TU2 – TU1 Or ∇ TU/ ∇Q
This Law can be explaining with the help of an example.
Units Total Marginal

Utility Utility
According to the above table first unit of a commodity gives
1 10 10 10 units of utility and 2nd unit gives 18 units of utility. So 8
units is the marginal utility of 2nd commodity and 6 units of
2 18 8 3rd commodity has the consumer consuming more and more
units there is a decline in marginal utility and increased total
3 24 6
utility. When marginal utility becomes 0, Total utility
4 28 4 reechoes to maximum level. Behind that marginal utility
becomes negative and there is decrease in total utility.
5 30 2
6 30 0
7 28 -2
8 24 -4
In the above diagram TU curve indicates Total Utility, MU curve indicates Marginal Utility.
When the consumer consumes ‘ON’ units, MU curve touches the X-axis and TU curve reechoes
to maximum level behind that MU curve becomes negative and there is a decrease in total utility.
Q7. Explain Demand Function? What are the Determinates of Demand?
A. Demand:-
Desire to purchase with a pack up of purchasing power is called Demand.
Demand Function:-
Demand function denotes the functional relationship between Determinants of demand

and demand for a commodity.
F( Y, T, Tech, Cl, Pop, Ad………)
= Demand for ‘n’ commodity.
F = Function Relationship.
= Price of ‘n’ commodity.
Y = Income of the consumer.
= Price of substitutes.
= Price of complimentary goods.
T = Tastes and Fashions of the consumer.
= Taxes.
Tech = Technology.
Cl= Climate.
Pop= Population.
Ad= Advertisement.
Determinants of Demand:-
Price:-
Price of a commodity is the main determine of demand. There is an inverse relationship

between price& demand for a commodity.
Income of the Consumer:-
In general there is a direct relationship between income of the consumer and demand for
a commodity. So, income of the consumer is the one of the determent of demand.
Price of substitutes:-
A change in the one substitute brings a change in the demand for other substitutes.
E.g.:-
A rise in the price of coffee tends to an increase in the demand for tea.
Price of Complimentary goods:-
Rice in the price of complimentary goods will reduce the demand for other
complimentary goods.
E.g.:-
Rice in the price of petrol will reduce the demand for bikes.
Tests and fashions of the Consumer:-
Changes in tests and fashions of the consumer bring a change in the demand for
commodity.
Taxes:-
Imposition of taxes on commodities will reduce the demand. Subsides for commodities
will increase the demand.
Technology:-
Changes in the technology create more demand for certain commodities and reduce the
demand for certain commodities.
Climate:-
Changes in climate bring a change in demand.
E.g.:-There is more demand for ice-creams and cool drink in summer.
Size of Population:- There is a direct relationship between size of population or number of consumers
and demand for a commodity.
Advertisement:- Advertisement also influences the demand.
Q8. What is the cause for downward sloping of demand curve?
A. Demand:-
Desire to purchase with a pack up of purchasing power is called Demand. Demand curve
slopes downwards from left to right.
In the above diagram DD curve is demand curve. It slopes downwards from left to right.
Causes for downward sloping of demand curve:-
Diminishing marginal utility:-
Diminishing marginal utility is the main reason for downward sloping. Consumers spend
their income, in such a way they, marginal utility of commodity is equal to marginal utility of
money. So, they demand more quantity at lower prices.
Income Effect:-
A fall in the price of commodity shows the same infect of an increase in income.
Consumer demand more quantity at higher level of income. So, Income effect is also one of the
reasons for downward sloping.
Substitution Effect:-
Consumer substitutes low price commodities instead of high price commodities to

maximize their satisfaction. It is called substitution effect. It is also one of the reasons for
downward sloping.
New Buyers:- Fall in the price of commodities, brings the commodities within the reach of poor
people, poor people also can purchase the commodities with a fall in his price. So, new buyers
are also one of the reasons for downward sloping.
Q9.. Explain the Law of Demand and its exceptions?
A. Demand:-
Desire to purchase with a pack up of purchasing power is called Demand. A more desire
or a more purchasing power is not treated as demand.
Quantity of Demand:-
Quantity of a commodity demanded at a given level of price is called Quantity of

Demand.
Demand Schedule:-
It is a statement, which shows various quantities demanded by a consumer at different levels of

prices.E.g.:-
Price Quantity of
(Rs) Demand
1 50
2 40
3 30
When the price is one rupee the buyer purchase 50 goods, when the price is increasing the
quantity demanded by the buyer will fall at Rs. 3/- he demands only 30 goods. It shows the
negative relation between price and demand.
Demand Curve:-
In the above diagram on x-axis demand and on y-axis, price are shown, DD curve is
demand curve. It is sloping downwards from left to right. Because as price increase demand falls
or as price falls the demand increase.
Law of Demand:-
“Other things being equal, the amount demanded increases with a fall in price and
diminishes with a rise in price”.
-Marshall.
Law of demand denotes the inverse relationship between price and quantity demanded if
there is no change in other conditions.
Exceptions to the Law of Demand:-
Geffen’s Paradox:-
Sir Robin Geffen a British Economist observed that low paid British workers demanding
more quantity of bread if there is a rise in its price. They are reducing the expenditure on meat
and demanding more quantity of bread to lead their life. This was first observed by robin Griffin.
The necessary commodities used by poor people are called as Geffen Goods. Geffen goods are
exception to the Law of Demand.
Prestigious Goods:-
Position of certain commodities is treated as prestige matter. According to Veblen, as the

prices of these commodities increases, rich people demand more of these commodities. It is
called Veblen effect. It is also an exception to law of demand.
Speculation:- According to some economist speculation is also an exception to the law of

demand but according to some economist it is not a real exception.
Q10. Explain various kinds of Price Elasticity?
A. Price Elasticity of Demand:-
Price elasticity of demand denotes the numerical relationship between changes in

quantity of demand due to change in price.
Kinds of Elasticity:-
1. Perfectly Elastic Demand:-
A small change in price trends to an infinite change in quantity of demand is called as

perfectly elasticity of demand. Demand curve is parallel to x-axis and value of elasticity is
infinity.
2. Perfectly Inelastic of Demand:-
Quantity of demand remains constant, though there are changes in price, is called as
perfectly inelastic of demand. Demand curve is parallel to y-axis and value of elasticity is zero.
3. Unitary Elasticity of Demand:- A Proportionate change in price tends to same
proportionate change in quantity of demand is called as unitary elasticity demand. Demand curve
is rectangular hyperbola to origin value of elasticity is equal to one.
4.Relatively Elastic Demand:-
A proportionate change in price tends to more than proportionate change in quantity of

demand is called as relatively elastic demand value of elasticity is greater than one.
5. Relatively Inelasticity of Demend:
:-
A proportionate change in price tends to less than proportionate change in quantity of
demand is called as relatively in elastic demand value of elasticity is less than one.
Q11. Explain various methods to measure price elasticity of demand?
A. Price Elasticity of Demand:-
It denotes the numerical relationship between changes in quantity of demand due to

change in price.
Methods to measure Price Elasticity of Demand:-
Mainly there are three methods to measure price elasticity of demand.
1. Total Expenditure Method.
2. Point Method.
3. Arc Method.
Total Expenditure Method:-
This method was used by Alfred Marshall in this method, exact value of elasticity is not
known. Total expenditure on a commodity increases with a change in price, is treated as
relatively elastic demand. Total expenditure on a commodity remains constant though there are
changes in price, is called unitary elasticity of demand. A decrease in total expenditure with a
change in price is called as relatively inelastic demand.
Price Demand Total (Elasticity)

Expenditure
5 2 10 >1(Relatively elastic)
4 3 12
4 3 12 =1(Unitary elastic)
3 4 12
3 4 12 <1(Relatively inelastic)
2 5 10
In the above diagram ABCD curve is demand curve AB part of the demand curve is
relatively elastic, BC part is Unitary elastic and CD part is relatively inelastic.
Point Method:-
Point method is used to know the exact value of elasticity.
Elasticity =
= (or)
X=
In the above diagram AB is demand curve. Assume that the length of a demand curve is
4cm and the gap between point A and point , p, p and B is one centimeter.
Elasticity at point
P= = =1 (Unitary Elastic Demand)
= = = 0.33 (Relatively Inelastic Demand)
= = =3 (Relatively Elastic Demand)
B = = =0 (Perfectly Inelastic)
= = = (Perfectly Elastic)
Arc Method:- It is used to know the elasticity if there are gaps in demand schedule & price schedule.
= +
E.g.:-
=
P QD
10 100
= 1.727
9 120
Q.12. What are the determinants of Supply ? or what is Supply function?
Ans: The law of supply expresses a relationship between price and quantity supplied of a
commodity on the assumption that the conditions of supply remain constant. Supply function
expresses the relation between the supply of a commodity and the factors determine it.
Sx = f ( Px, Psc,, Pf, T, Gf, Gp, ….µ )

Sx = Supply of x commodity
f = function of
Px = Price of x commodity
Psc = Prices of Substitutes and Complementaries
Pf = Prices of factors of production
T = technology used by the firm

Gf = Goal of firm
Gp = Government policies ( taxation and subsidies)
µ = other factors ( weather conditions, bundhs, and lockdowns etc.,)
Price of commodity (Px): the supply of a commodity depends on its price. There is positive
relation between the price and supply. If the price increase, the supply also increase and vice
versa.
Prices of Substitutes and Complementaries (Psc): the supply of a commodity depends on the
prices of substitutes and complementaries.
Prices of factors of production (Pf): the supply of a commodity depends on the prices of
factors of production, like land, labour, capital and organization, raw material etc.,
Technology (T): the supply of a particular commodity depends on the technology used by the
firm. If it use modern technology automatically the supply will be more.
Goal of firm (Gf): the supply of a commodity depends on the objective or goal of the firm in
producing a particular commodity.
Government Policies (Gp); the supply of a commodity falls with tax policy of the government
and the supply increase with the subsidies given by the government to produce a commodity.
Other factors: supply of a commodity is determined by climate and weather conditions,

bundhs, lockouts etc., also.
Q13. Explain the law of Supply and its exceptions?
Ans: the word Supply is different to the Stock. Stock is the total quantity of a commodity with
the seller. Out of which certain quantity is offer for sale. The quantity of a commodity is offered
for sale at a particular price and at a given time is called Supply.
Law of Supply:
Other things reaming unchanged, the supply of a commodity expands (rise) with a rise in
its price and contracts (falls) with a fall in its price
It can be expressed as..
Sx = f ( Px)
Here Sx = Price of x commodity

f = function of
Px = price of x commodity
There exists positive or direct relation between price and supply. At higher price the seller sell
more
of a commodity and at lower price he sell less.
Explanation of the Law: the law of Supply can be explain with the help of a supply schedule and
curve
Price of a Quantity
commodity Supplied
(Rs)
1 10
2 13
3 20
4 25
In the above table when the price of commodity is 1/- the seller sell only 10 commodities.
When the price increased to 4/- the seller sell 25 commodities. It shows positive relation.
This can be explained with the following diagrame.
In the above diagram, on x-axis, quantity of Supply and on y-axis price is shown, when the price
increased from P to P1 the supply increased from Q to Q1. Because of the positive relation
supply curve always goes upwards from left to right.
Exceptions to the law of supply:
1.Goods that are rare such as artistic or precious goods have a limited supply. The supply of
these goods cannot be increased according to their demand or prices , even if their price
increases their supply cannot be increased
2. supply of labour is an exception to the law of supply. For labour supply curve will a backward
bending
3. If the seller or producer is in need or money, he sell the more quantity at lower price
4. if the seller/producer wants to quit the business , he clears the quantity at lower price
5. agricultural products, and perishable goods are highly fluctuated.
Q.14. What is market? Explain the classification of markets.
Ans:Market is a place where goods and services are bought and sold. Markets are classified
into three types on the basis of area, on the basis of time and on the basis of competition.
I. On the basis of Area : on the basis of Area markets are divided into three types; they are
1. Local Markets: If the goods are marketed within a particular area where it is produced is
called local market. Vegetables, flowers, fruits etc., have local markets
2.National Markets: A commodity will have national market if it is demanded and supplied by
people in different parts of the country. Ex. Wheat, sugar, cotton have national market.
3.International Markets: If a commodity is sold land purchased in different countries, it is said

to have international market. Ex. Gold, silver, wheat medicine, crude oil etc.,
II.Time based markets: On the basis of time markets are divided into three types
1.Very Short Period market: it is also called market period. Supply remains constant in this
period. The market may be for one or two days.
2.Short Period: It is a period in which supply can be changed to some extent. It is possible by
changing certain inputs.
3.Long period market: A producer makes changes in all inputs depending upon the demand in
the long period.
III.On the basis of Competition: On the basis of competition markets are three types
1.Perfect Competition: It is a market with a very large number of buyers and sellers,
homogenous commodity, uniform price.
2.Imperfect Competition: if there is any change in the features of perfect competition, it

becomes imperfect completion. Monopoly, monopolistic completion, oligopoly, duopoly are
some of the examples of imperfect competition.
Q. 15. What are the main features of Perfect Competition?
Ans: A market with a large number of buyers and sellers who promote competition is called
perfect competition. The features of perfect competition are…
1. Large number of buyers and sellers: There will a large

number of buyers and sellers for a good in this market.
2. Homogenous commodities: Products in this market are

similar in size, colour, taste etc., as a result of this, there will be one price all over the
market.
3. Uniform Price: there exists single price throughout the
market. Producer/seller is the price taker but not maker.
4. Free entry and exit: Any firm can enter into the market as
its desire and can leave the market at any time.
5. Mobility of factors of production: factors of production

will move from one production to another easily
6. No transportation costs: there are no transportation cost ,

when all of them come from the same place, transport costs will the same.
7. Perfect knowledge of markets: Buyers and sellers in this

market will have a clear knowledge about the commodity and market conditions.
8. AR, MR, price and demand all are same and curve is
horizontal to x-axis
In the diagram, on axis output and on y-axis revenue and price are shown. As there exist
uniform price AR, MR, price and demand are same and the curve is horizontal to x axis
Q.16. Define Perfect Competition, How price of a commodity is determined under Perfect
Competition?
Ans: Perfect Competition is a market with a large number of sellers and buyers. They sell
homogenous goods and sell at uniform price as decided by market.
Price determination under perfect completion: two forces called Demand and Supply
determine the price of a commodity. Market brings about a balance between the demand and
supply.
1.Aggregate Demand: Aggregate Demand is the quantity of a commodity purchased by all
the buyers in the market.
2. Aggregate Supply: Aggregate Supply is the quantity of commodity offered by all the
sellers in the market
The following table explains the equilibrium of price
Price Quantity Demanded Quantity Supplied

1 50 10
2 40 20
3 30 30
4 20 40
1 10 50
The above table shows the demand and supply schedule of a good. As price increases there is a
fall in the quantity demanded. It means, price and quantity demanded have negative relation.
But rise in prices has increased the supply of goods. The relation between price and supply of
goods is positive. At RS.3, the quantity supplied and demand is equal. This is called equilibrium
price. It can be explained with the following diagram.
In diagram, the quantity demanded and supplied is

shown on x-axis and price is shown on y-axis. The supply
curve is upward sloping. It means, at higher price more
quantity and at lower price less quantity is supplied by
producer. On the other, demand curve is downward sloping.
That is, at higher prices less quantity and at lower prices
more quantity is demanded by consumers. At point E, both
demand curve and supply curves are intersected each other.
That point is called equilibrium price. At point E price is OP
and quantity demanded and supplied is OQ.
Q17. What are the definitions of National Income? Explain various concepts of National
Income.
Ans: The concept of National Income occupies a prominent place in economic theory. The
market value of all goods and services produced in a country during a period of time is called
National Income.
1. Marshall’s definition: “The labour and capital of a country, acting on its natural resources,
produce annually a certain net aggregate of commodities, material and immaterial, including
services of all kinds.”
2.Pigou’s definition: “the national dividend is that part of the objective income of the
community including, of course, income derived from abroad which can be measured in money”
Concepts of National Income: The following are the main concepts of National Income:
1.Gross National Product (GNP): Gross National Product at market prices is the current market
value of all final goods and services produced in a country during a given period. The main
components of GNP are: NI= C+I+G+X-M
a. the goods and services purchased by consumer; C
b. the investment made by public and private sector; I
c. Government expenditure on public utility services; G
d. Net value of exports and imports; x-m
2.Gross Domestic Product at market prices (GDP): This is the part of the GNP that is
produced within the country in a given period of time usually a year
3.Net National Product (NNP): The country’s stock of fixed capital undergoes certain amount
of war and tear in producing goods and services over a period of time. The amount is called
‘user cost or depreciation charges’. It must be deducted from the GNP.
NNP at market prices = GNP at market prices – Depreciation charges.
4.National Income or Net National Product at factor Cost: It is the total income received by
the four factors of production in the form of rent, wages, interest and profits in an economy
during a given period of time. The NNP is not available for distribution among the factors of
production. The amount of indirect taxed paid by the firms to the Government and similarly the
government gives subsidies to firms for production of certain types of goods and services.
Indirect taxes must be deducted and subsidies to be added to the NNP.
NNP at factor cost = NNP at market prices – Indirect taxed + subsidies.
5.Personal Income: (PI): It is the total income received by all persons or households in a
country during a given period of time. The whole of National Income earned by factors of
production is not available to them. Corporate taxed have to be paid by firms to the
shareholders. Similarly, employees make contributions for social security,. The government
may provide social security allowances like pensions, unemployment allowances, scholarships
etc., These are incomes for some sections of the society even though no productive services are
made by them.
Personal Income (PI) = NI at factor cost – undistributed profits – corporate taxes – social security
contributions + transfer payments.
6.Disposable Income: Disposable income is that part of personal income which is left with the
individual after payment of all direct taxed like income tax, property tax etc.,
DI = Personal Income – Direct taxes
7.Per capital Income: The per capita income is the average income of an individual in a
country. It is calculated by dividing national income by population of the country.
Per capital Income = National Income
Population
This concept is a good indicator of the average standard of living in a country.
Q18. Explain the various methods of calculating/measuring/estimating the National

Income?
Ans: National Income is the total market value of all goods and services produced in a country
during a given period. There are three methods to measure national income.
1. Output method/Product method/ Value added method
2. Expenditure method
3. Income method
1. Output Method: It is also known as inventory method or commodity service method.

In this method the entire output of final goods and services produced by three sectors called
agricultural sector, industrial sector and service sector in a country are multiplied by the price.
NI = (P1xQ1 + P2xQ2 + ……….Pnx Qn - Depreciation Charges – Indirect taxes
Where NI = National Income, P = Price of the goods and services, Q = Quantity of goods and
services produced
The value of raw material, intermediary goods etc., should not be included. Only the
final value of goods should taken into account. Here, we find out the value added in the different
sectors like Agriculture, Government Professionals, Industry and Service sectors. Hence it is
called Value added method.
2. Income Method: in this method the incomes earned by all factors of production are
aggregated. The four factors of production receive incomes in the form of wages, rent, interest
and profits. This is also called National income at factor Cost.
NI = R+ W+ I+ P + Net income from abroad.
(NI = National Income, R= Rent, W= Wages, I= Interest, P= Profits
Precautions: the following precaution to be taken while using this method
1. alltranfer payments should excluded, old-age pensions, unemployment benefits etc.,
2. value of production for self consumption and imputed rent of owner-occupied houses
have to included
3. illegal incomes should not be included
4. windfall gains like lotteries should not be included
5. corporation tax is a part of profits.
3. Expenditure method: in this method we add the personal consumption expenditure of

households, expenditure of the firms, government expenditure goods and services.
NI =EH + EF + EG +Net exp, (NI = National Income)
EH = Expenditure of Household Sector
EF = Expenditure of Firms
EG = Expenditure of Government
Care should be taken to include spending or expenditure made on final goods and services only.
JAGARLAMUDI KUPPUSWAMY CHOWDARY COLLELGE, GUNTUR
QUESTION BANK
on
ECONOMICS – Unit -II
Semester –I, B.com General and Computers, BBA, B.CA. B.Voc
(with effect from 2023)
Essay Questions
1. Explain the subject matter and importance of Micro and Macro Economics
2. . Explain the law of Demand and its exceptions
3. Define Elasticity of Demand and explain the methods to measure elasticity of demand
4. What is Law of Supply and what are its exceptions
5. Describe the classification of markets
6. How the price is determined under perfect competition
7. Define National Income and what are the concepts of National Income
8. Explain the methods to measure National Income
9. Explain the law of Diminishing Marginal Utility
Short Questions:
1. Subject matter and importance of micro economics
2. Subject matter and importance of micro economics
3. Demand function/determinants of demand
4. Exceptions to the law of demand
5. Causes for the downfall of the demand curve
6. Types of price elasticity of demand
7. Supply function/determinants of supply
8. Classification of markets
9. Determinants of national income
10. Features of perfect competition

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JAGARLAMUDI KUPPUSWAMY CHOUDARY COLLEGE (Autonomous),

B.COM Gen & Computers, BBA, B.Sc, B.Voc

Dr P.Bharathi Devi, M.A, M.Phil, Ph.D, NET

An autonomous college in the jurisdiction of AcharyaNagarjuna University, Nagarjuna Nagar – 522

FUNDAMENTALS OF Course – I w.e.f. I B.Com (Gen. & Comp), BBA,

At the end of the course, the student will able to

Unit – I: Introduction: Definitions of Commerce – Role of Commerce in Economic Development – Role

1. S.P. Jain & K.L.Narang, Accountancy, Kalyani Publishers

2. R.L.Gupta & V.K.Gupta, Principles and Practice of Accounting, Sultan Chand

3. Business Economics – S. Sankaran, Margham Publications , Chennai

4. Business Economics – Kalyani Publications

Unit – II, ECONOMIC THEORY

Q1. Critically explain the Wealth definition of Economics?

Important Points of the definition:

2. the definition considered the material things

4. the definition made an economic man

Criticisms: the definition was severely criticized by economists;

Main points of the definition:-

1. According to welfare definition economics is a social science.

2. It studies about the individual as a part in the society.

3. It studies about only material activities.

5. Importance is given to welfare rather than wealth.

1. According to Marshall, economics is a social science. But according to Robins economics is a

Q3 . Examine Scarcity definition to Economics by Lionnel Robbins?

“Economics is a science, which studies human behavior as a relationship between

Main points of the definition:-

1. Human wants are unlimited. Man is a bundle of desires.

2. Resources are very limited which can satisfy human wants.

Superiority of the definition:-

1. Universality is there in Robin’s definition.

4. According to Robins economics must be neutral.

3. These are no concept of economics growth (or) development in this definition.

5. He ignored the time element .i.e future

Q4. Write about Micro Economics?

Determination of prices of commodities, determination of prices of factors of production

3. Micro economics is useful for better understanding of the tax stature.

4. It is useful for the understanding of exchange rates.

Q5. Write about Macro Economics with its importance

National income, aggregate demand, aggregate supply, level of employment, economics

1. It is useful to know about the working condition of the economy.

2. It suggests some measures to solve the problems of unemployment & poverty.

4. It suggests some measures to solve the problems of inflation and deprecation.

Q6. Examine the Law of Diminishing Marginal Utility?

According to this theory every human want has a limit.

1. Utility can be measured based on cardinal utility concept

3. The tastes and fashions of consumer remain constant.

4. the commodities must be homogenous in colour, size, taste etc.,

6. They are no time gap between consumption of the unity.

7. Marginal utility of money remains constant.

Explanation of the Law:-

TU2 – TU1 Or ∇ TU/ ∇Q

This Law can be explaining with the help of an example.

Units Total Marginal

Q7. Explain Demand Function? What are the Determinates of Demand?

Desire to purchase with a pack up of purchasing power is called Demand.

Demand function denotes the functional relationship between Determinants of demand

F( Y, T, Tech, Cl, Pop, Ad………)

= Demand for ‘n’ commodity.

= Price of ‘n’ commodity.

Y = Income of the consumer.

= Price of complimentary goods.

T = Tastes and Fashions of the consumer.

Price of a commodity is the main determine of demand. There is an inverse relationship