Economics : 2009 : CBSE : [ All India ] : Set I

Aggregate supply is the money value of total final goods and services available in an economy to meet the aggregate demand in a particular year.

Taxes are not capital receipts because they neither lead to creation of  liability nor to reduction in assets.

Excess demand refers to a situation when aggregate demand is in excess of aggregate supply corresponding to full employment level. This leads to inflation in an economy or excess Demand, i.e., AD > AS.

All commercial banks are required to keep a part of their total deposits with the Central Bank in cash form. This is known as Cash Reserve Ratio. This rate of CRR can be changed by Central bank from time to time to control inflation or deflation.

Involuntary unemployment refers to the situation where people are able to work and are willing to work at the prevailing wage rate in the market but do not find job.

Opportunity cost refers to the cost of next best alternative foregone. For example a farmer has grown Rice in his farm but if he would not have grown Rice then he would have grown Wheat. Hence Wheat is his opportunity cost.

Goods, which are of inferior quality are called inferior goods. These goods have negative income effect for example low quality of rice or wheat.

Marginal cost is the addition to the total cost by producing an additional unit of a commodity.

Fall in the cost of factors of Production: When the cost of factors of production decreases, the producer can use more factor inputs. As a result the supply of goods will increase and the supply curve will shift to the right.

Average total cost is greater than average variable cost, because average total cost is a combination of both average fixed cost and average variable cost. ATC = AFC + AVC (AFC is never zero)