SKY EDUCATION

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

ii. Partial equilibrium and General equilibrium

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

Ans:
Time Utility
1.When utility of a commodity
increases by storing it and making it
available during the time of need, it is
called time utility.
Place Utility
1.Whwn a change in the place of a
commodity increases its utility, it is
called as place utility.

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 2. Time utility is created by storing the
goods from the time of production to
time of consumption.
3.Warehousing creates time utility.
4.E.g. Storing of mangoes till they are
transported to local market’s.
2. Place utility is created by
transporting the goods from place of
production to place of consumption.
3.Transport services create place
utility.
4. E.g. Transportation of Mangoes
from farms to local market’s.

iv. Total utility and Marginal Utility

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

v. Direct demand and Indirect demand

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

vi. Joint/Complementary demand and Composite demand

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
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 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

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

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

ix. Expansion of demand and Contraction of demand

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

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 2.Expansion of demand takes place
solely due to fall in price. All of the
factors affecting demand remain
constant.
3.Expansion of demand is shown by a
downward movement on the same
demand curve
2.Contraction of demand takes place
solely due to rise in price. All of the
factors affecting demand remain
constant
3. Contraction of demand is shown by
an upward movement on the same
demand curve

x. Increase in demand and Decrease in demand

Ans:
Increase in Demand
1.When more quantity is demanded
than before at the same price, it is
called as increase in demand.
2.Increase in demand takes place due
to favourable changes in factors other to unfavourable changes in factors
than price like fashion, income,
taxation policy, advertisement etc
3.An increase in demand is indicated
by a shift in demand curve to right.
Decrease in Demand
1. When less quantities demanded
then before at the same price it is
called as decrease in demand
2. Decrease in demand takes place due
other than price like fashion income
taxation policy advertisements etc.
3. A decrease in demand is indicated
by a shift in demand curve to left.

xi. Price elasticity of demand and Income elasticity of demand

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

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 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

Ans:
Perfectly Elastic Demand
1.When slight or zero change in the
price brings about infinite change in
the quantity demanded it is called
perfectly elastic demand.
2.The value of Ed=∞
3.The demand curve is a horizontal
straight line parallel to x-axis
4.It is only a theoretical possibility and 4.Salt, water and medicines are
hence, there is no Practical example.
Perfectly Inelastic Demand
1. Renting in the price of the commodity has
no effect on the quantity demanded of that
commodity it is called as perfectly inelastic
demand
2.The value of Ed=0
3.The demand curve is a vertical straight line
parallel to y-axis
commodities having perfectly Inelastic
Demand.

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xiii. Stock and Supply
Ans:
Stock
1.Stock is a total quantity of goods
available for sale with the seller at a
particular point of time
2.Stock is outcome of production
3.Stock can be increased if production
is increased
4.Stock is generally more than Supply
5.Stock is a static concept and is not
expressed in a relation to price and
time
Supply
1. Supply refers to the quantity of
goods that the seller is able and willing
to offer for sale at particular price
during a certain period of time
2. Supply is the derived out of stock
3. Supply can be increased if stock is
increased
4. Supply can be less than or equal to
stock. However it cannot exceed stock
5. Supply is a flow concept and is
always expressed in a relation to time
and price

xiv. Expansion of supply and Contraction of supply

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

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

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 then price. The price of the
commodity remains the same.
3.Increase in Supply is shown by a shift
in supply curve from left to right.
xvi. Total cost and Total revenue
Ans:
Total Cost
1.Total cost is the total amount
incurred by a firm on the factors of
production.
2.It is total expenditure of the firm
3.Total Cost(TC) = Total Fixed Cost
(TFC) + Total Variable Cost(TVC)
xvii. Short period and Long period
Ans:
Short Period
1.Short period refers to a period of
Less than 1 year.
2.During a short period, firms can only
make adjustments in input like labour
to increase the Supply of goods and
services marginally.
3.The factors of production and costs
are more likely to be fixed.
xviii. Perfect Competition and Monopoly
Ans:
Perfect Competition
1.Perfect competition is a market
structure where there are large
number of sellers selling
homogeneous goods to large number
of buyers at uniform price without any
government intervention.
2 There are large number of sellers.
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then price. The price of the
commodity remains the same
3. Decrease in supply curve is shown
by a shift in supply curve from right to
left.
Total Revenue
1.Total Revenue is the total sales
proceeds of a firm by selling a
commodity at a given price.
2.It is the total income of the firm.
3.Total Revenue (TR) = Price ×
Quantity
Long Period
1.Long period refers to a period of
upto five years.
2.During a long period, firms are able
to make adjustments in inputs like
land, labour & capital to increase the
supply of goods and services
substantially.
3.All factors of production and costs
are variable.
Monopoly
1.Monopoly refers to the form of a
market where Supply of the
commodity is under the control of a
single seller or producer, i.e.
monopolist.
2.There is only one seller.
 3.The Products are sold homogeneous.
4.There is free entry and exit.
5.The price of product is fixed by the
market forces of demand and supply.
The sellers and buyers are price takers.
3.The product has no close substitute
4.There are entry and exit barrier
5.The price of product is fixed by the
seller. He is a price maker and the
buyers are the Price takers.

xix. Monopoly and Monopolistic competition

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

xx. Simple index number and Weighted index number

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

xxi. Price index number and Quantity index number

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:

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xxii. Gross Domestic Product and Net Domestic Product
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

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

xxiv. Revenue expenditure and Capital expenditure

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

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xxv. Direct tax and Indirect tax
Ans:
Direct Tax
1.Direct tax refers to the tax paid on
the basis of income and property of
taxpayer.
2.The burden is borne by the person
on whom it is levied. It is impossible to
shift it.
3.The impact and incidence of tax falls
on the same person.
4.Personal income Tax, wealth tax etc.
xxvi. Internal debt and External debt
Ans:
Internal Debt
1.When the government borrows from
its citizens, banks, central bank,
Financial institutions, business houses
etc. within as internal debt.
2.It is voluntary or compulsory in
nature.
3.It involves use if domestic currency.
4.It is less complex for management.
xxvii. Money market and Capital market
Ans:
Money Market
1.Money market is a market where in
lending and borrowing of short term
fund take place.
2.It is a market for near money that is
short term instrument such as trade
bills government securities promissory
notes etc
3.Reserve Bank of India, Commercial
banks, co-operative banks, DFI’s, DFHI,
indigenous bankers, money lenders,
etc are all part of Indian money
market.
4.The problems faced by money
market include simultaneous presence
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increase productive capacity of the
nation.
Indirect Tax
1.Indirect tax is levied on goods or
services. It is laid at the time of
production or sale & purchase of
Commodity/service.
2.The burden can be shifted by the
taxpayer(i.e. producers) to other
person/s.
3.The impact and incidence of tax falls
on different persons.
4.Goods and Services Tax (GST) (in
India has replaced almost all indirect
taxes), custom duty.
External Debt
1.When the government borrows from
foreign governments, foreign banks or
institutions, international
organisations, it is known as external
debt.
2.It is voluntary in nature.
3.It involves use of foreign currency.
4.It is more complex for management.
Capital Market
1.Capital market is a market for long-
term funds (both Equity and Debt)
raised within and outside the country.
2.It is a market for long-term
instruments like bonds, debentures,
Equity shares, mutual funds.
3.Government securities market,
Industrial securities markets, Stock
exchange, DFIs and financial
intermediaries are all part of the
Indian Capital Market.
4.The problems faced by capital
market include Financial scams,
 of organised and unorganized sector,
lack of uniformity in the rates of
interest, shortage of funds, seasonal
fluctuations, lack of Financial
inclusions and delays in technological
upgradation.
insider trading and price manipulation,
inadequate debt instruments, decline
in the volume of trade and lack of
informational efficiency.

xxviii. Demand deposits and Time deposits

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

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

xxx. Internal trade and Foreign trade

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

xxxi. Balance of payment and Balance of Trade

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Ans:
Balance of Payment
1.It is a systematic record of all
international economic transactions of
a country during given period, usually
a year.
2.It is defined as “a summary
statement of all the transactions
between the residents of one country
and rest if the world”.
3.It includes the value of exchange of
goods and services among citizens,
businessman, firms, government etc.
4.Balance of payment is broader
Concept than balance of trade.
Balance of Trade
1.It refers to the difference between
the value of a country’s exports and
imports for given period.
2.It is defined as the “Relation over a
period between the values of her
exports and imports of physical goods”
3.It includes the value of imports and
exports of visible goods and invisible
goods.
4.Balance of trade is a part of balance
of payments.

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