Economics : 2012 : CBSE : [Delhi] : Set I
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Q1
Give meaning of an Economy.
Marks:1View AnswerAnswer:
An economy is the business of one place to another. Economy can be defined as "Activities related to the production and distribution of goods and services in a particular geographic region.”
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Q2
What is Market Demand?
Marks:1View AnswerAnswer:
Market Demand is simply the horizontal summation of all the individuals’ demand of the consumers in an economy.
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Q3
What is the behavior of average fixed cost as output increases?
Marks:1View AnswerAnswer:
As output increases, average fixed cost falls.
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Q4
What is the behavior of average revenue in a market in which a firm can sell more only by lowering its price?
Marks:1View AnswerAnswer:
Average Revenue curve slopes downwards in a market in which firm can sell more only by lowering the price.
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Q5
What is price taker firm?
Marks:1View AnswerAnswer:
Price taker firm is a firm which has no control over the existing market price and cannot influence it. A firm in a perfect competitive market is regarded as a price taker firm.
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Q6
What is opportunity cost? Explain with the help of a numerical example.
Marks:3View AnswerAnswer:
Opportunity cost is the cost of next best activity. In monetary terms, opportunity cost of a decision is based on what must be given up (the next best alternative) as a result of the decision. Any decision that a involves a choice between two or more options has an opportunity cost.
Consider the case of an MBA student who has three job opportunities. One to work with Raymond’s at a package of Rs 5, 00,000 per anumn and another option is to work with Hyundai at a package of Rs 6, 00,000 per anumn and third to work with TCS at a package of Rs 4, 50,000 per anumn. The student chooses to work with Hyundai at a package of Rs 6, 00,000 per anumn. -
Q7
Given price of a good, how does a consumer decide as to how much of that good to buy?
Marks:3View AnswerAnswer:
If a consumer has to decide on which good to buy at a given price, the consumer should compare Marginal utility (MU) of that good with its price (P). The consumer will be at equilibrium when the Marginal utility of the good will be equal to the price of the good.
i.e. MUx = Px
If MUx > Px , which means price is less than Marginal utility derived from that good, them the consumer will buy more of that particular good.
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Q8
Draw Average Variable Cost, Average Total Cost and Marginal Cost Curves in a single diagram.
Marks:3View AnswerAnswer:
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Q9
An individual is both the owner and the manager of a shop taken on rent. Identify implicit cost and explicit cost from this information. Explain.
Marks:3View AnswerAnswer:
The implicit cost will consist of
a.Imputed rent of the shop
b.Imputed value of his own services
The explicit cost includes the interest to be paid on the money borrowed.
Implicit cost (borrowed cost) refers to the cost of the factor that a fixer neither hires or purchase. It is not actually paid by the producers but includes in the cost of production. It is a difference between the economic profit and the accounting profit. On the other hand, explicit costs are those costs which are borne directly by the firm and paid to the factors of production. -
Q10
Explain the implication of large number of buyers in a perfectly competitive market.
Marks:3View AnswerAnswer:
There are large number of buyers and sellers in a perfectly competitive market. The numbers of sellers is so large that no individual firm has any control over the price of the commodity. Due to large number of sellers in the market, there exists a perfect and free competition. A firm acts as a price taker while the price is determined by the’ invisible hands of the market’. That is, interaction of demand and supply determines the price of the commodity. Therefore, in a perfectly competitive market, a firm is a price taker and not a price maker.
