1. What is price elasticity of demand?

= Price elasticity of demand is the measure as change in quantity demanded due to the
change in price of the same commodity.
Ep= percentage change in quality demanded/percentage change in price

2. State four determinants of price elasticity of demand.

= The four determinants of price elasticity of demand are:
 Price level
 Income level
 Time period
 Availability of substitutes.

3. Mention four factor that cause the shift in supply curve.

= They are:
 Natural condition
 Change in factor price
 No. of sellers
 Technology

4. What are complementary goods?

= Those goods which are consumed together to satisfy a particular wants are called
complementary goods.

5. State four fundamental principles of economics.

= They are:
 Scarcity
 Supply and demand
 Cost and benefit
 Incentives

6. What is normative economics?

= Normative economics is that which studies things as they should be. It is related to the
criteria of what ought to be or what should be done.

7. What do you mean by scarcity in economics?

= Scarcity is economic always refers to the limited supply of productive resources in
relation to the demand.

8. Point out any four causes of monopoly.

= They are:
  Control over raw material
 Patent right
 Economics of scale
 Heavy investment

9. Why does average fixed cost (AFC) fall continuously with every additional production?
= Average fixed cost is obtained dividing total fixed cost by total output. Since the total
cost remains constant average fixed cost decreases continuously with rise in production.
AFC= TFC/Q

10. State “Law of Equi-marginal Utility.”

= The law states that a consumer should spend his limited income on different
commodities in such a way that the last rupee spend on each commodity yield him
equal marginal utility in order to get maximum satisfaction.

11. What is an Indifferent curve?

= An indifference curve is the focus of all combination of two goods which yields the
same level of satisfaction to the consumers.

12. What is a monopsony market?

= Monopsony market is the market structure in which there is only one buyer of the
product. It is the opposite of monopoly.

13. Define the meaning of “Price Discrimination.”

= Price discrimination is the action of selling the same product at different price to
different buyers in order to maximize sale and profits.

14. State the nature of AR curve under perfect competition market.

= Under perfect competition market AR curve are parallel to X-axis. It is because price
under perfect competition market remains constant.

15. Define marginal cost.

= Marginal cost is defined as the addition in total cost as a result of increase in output by
a unit.

16. What is a budget line?

= Budget line is the locus of all combination of two goods which can be purchased with
the given money income of the consumer.

17. What is an economic rent?

 =Economic rent is an amount of money earned that exceeds that which is economically
and socially necessary.
Economic rent refers to the amount that is paid to the owner of a factor of production in
excess of the cost that is to be necessarily incurred on utilizing such factors in the
production process.

18. State four features of perfect competition market.

= They are:
 Large number of buyer or seller
 Homogenous products
 Freedom of entry and exit
 Same price

19. Give four factors that cause brain drain.

= They are:
 Political instability
 Poor quality of life
 Limited access to health care
 Shortage of economic opportunity

20. What is a cost function?

= A cost function is a formula used to predict the cost that will be experienced at a
certain activity level.

21. State equilibrium condition of a firm that aims for maximizing profits.
= MC = MR
Slope q MC > Slope q MR

22. What do you understand by increasing returns to scale?

= Increasing return to scale refers to situation where output changes by a larger
proportion than inputs.

23. Define an isoquant.

=Isoquant is defined as the locus of all combinations of two inputs which yield the same
level of output.

24. Interpret the meaning of the price elasticity of given good an -0.6.
=

25. Give the feature of an oligopoly.

 = They are:
 A few seller
 Price rigidity
 Inter dependence between firms
 Close competition among the few firms.

26. Monopolistic market.

= A monopolistic market is a theoretical condition that describes a market where only
one company may offer products and services to the public.