Economics : 2005 : CBSE : [ Delhi ]: Set I

a) The total quantity of goods that all producers want to sell at a given price during a particular time is called market supply.
b) Whenever the producer earns maximum profit it is known as producer's equilibrium.

c) Marginal physical product refers to change is total product due to an additional unit of factor of production used.

MP= TPn-TPn-1 

Gross Value added at FC =Sales + Closing Stock – Opening Stock –Purchase of intermediate products + Subsidy

= 500+20-30-300+40

Deflationary gap is excess of aggregate supply over aggregate demand of goods and services at the full employment level of income. It represents a situation of deficient demand. It causes a fall in price. 

Deflationary gap can be explained with a diagram:

In the above diagram, E is the equilibrium point but the current actual demand is less than full employment level of income.The shaded portion is the deflationary gap.

Formulae used:

Marginal Propensity to Consume = Change in Consumption/Change in Income

                                                   =  Consumption/  Income

Marginal Propensity to save = Change in Saving/Change in Income

                                             =  Saving/  Income

Following are the factors that cause a rightward shift :

•    Income of the consumer: A rise in the income of the consumer results in an increase in the demand for a commodity. As a result, demand curve may have a rightward shift.
•    A rise in the price of substitute goods: When the price of good rises, the demand for its substitute goods rises and as a result, the demand curve of the commodity shifts to the right which implies increase in demand.
•    Fall in the price of complementary good: When the price of a good falls, the demand for complementary good rises leading to a rightward shift of demand curve.

According to geometric method, price elasticity of supply is measured by extending the straight line supply curve towards the x-axis .If supply curve intersects the x-axis in its positive range, the price elasticity is equal to one (Es =1)

 Commodity A                       Commodity B           Commodity C

Commodity A has elasticity of supply less than one

Es <1

Commodity B has elasticity of supply equal to one

Es = 1

Commodity C has elasticity of supply more than one
Es>1

The relationship between marginal cost and average variable cost can be discussed as under:
1) Marginal cost is less than average variable cost when average cost falls due to increase in output.
2) Marginal cost is equal to average variable cost when average cost is minimum. In this situation marginal cost curve intersect average cost curve at its minimum point.
3)Marginal cost is more than average variable cost when average cost rises.

The following are the three main characteristics of perfect competition :
(i)       Large number of buyers and sellers: In a perfectly competitive market there are large number of buyers and sellers. Each buyer or seller purchase or sale only a insignificant portion of the total output. Buyers and sellers both do not have any type of union.
(ii)      Homogeneous Product: The goods which are sold in the market are completely identical in all respect.
(iii)     Free entry and exit of the firm: In this market there is no restriction for firm to enter and exit. Any firm can enter into the market and can leave the market any time without any restriction.

Revenue deficit in government budget refers to the excess of revenue expenditure over revenue receipts. In terms of formula,
Revenue Deficit = Revenue expenditure – Revenue receipts

The implications of revenue deficit are:

1) A part of revenue deficit is financed through borrowed funds from the capital account. This implies that the government investment is reduced to the extent of deficit on the revenue account. This effects economic growth of the economy.

2) Due to high revenue deficit government has to borrow from the market which reduces the resources available for private investment. This again lowers the rate of economic growth.

A) Domestic Product refers to the value of goods and services produced in a country during a year. The domestic product is a geographic product. The value of goods and services produced within the country or outside a country is called a National product. The national product is an economic concept So their distinction is on the basis of the territories in which the goods and services are produced. 
National Product: It is the gross money value of all final goods and services produced by the normal residents of a country during a year.It includes net factor income from abroad .Thus domestic product does not include net factor  income from abroad where national product includes net factor income from abroad. 

B) Intermediate Products: These are those products which are meant for further production or for resale in the same year Examples of intermediate products are raw material and fuel.

Final Products: These are those products which are used for final consumption or for final investment. Examples of final products are cloth, machinery, tractor etc.