Micro Economics class 12 -revision special term 2015-16 -1 marks question

 CLASS XII  ECONOMICS             

                                                   ONE MARK QUESTIONS

ONE MARK QUESTIONS FROM CBSE - BOARD EXAMS FROM 2005-2012.

Q 1. Give two reasons for the problem of choice.

Ans.  1. Resources are scare 2. Resources have alternative uses.  Q 2. Give meaning of opportunity cost.   

Ans. Opportunity cost refers to value of a factor in its next best (or second best) alternative use.

Q 3. What does problem' for whom to produce'?  Ans. Problem of for whom to produce is related choose  the consumer of goods and services to be produce.

Q 4. Define marginal rate of transformation.  Ans. When some resources are remove from production of 'Y' and employed to produce 'X' good, it the ratio of      lost of output of 'Y' and gain of output of 'X'.

Q 5. Define Opportunity cost.    Ans. Opportunity cost refers to value of a factor in its next best (or second best) alternative use.

Q 6.  Define Micro economics.    

 Ans.  When economic problems are studied considering small economic units like an individual consumer, or an  individual producer.

Q 7. Define Macro economics.    

 Ans. Macro economics refers to the study of economic problems related to the  economy as whole.

Q 8. Give two examples of Micro and Macro economics.

ANS.  Macro examples: -1. Theory of consumer behaviour.2. Theory of producer behavior. 3. Theory of price.

Q 9. Define an economy.   

Ans. Economy is a system spread over a particular area that reveal the nature and level of economic activities  in that area. It show that how people of that area earned.

Q 10. Why is the study of consumer equilibrium a subject matter of Micro economics?   Ans.  Because it is consumer is a single unit, so it studied under micro economics.Q 11. Give one reason for rightward shift of production possibility curve.      

Ans. Growth of resources.

 Q 12. Define utility.    

Ans. Utility is a want satisfying  power of a commodity.

 Q 13. Give meaning of  equilibrium.       Ans. Equilibrium is that situation where there is no need to change.

Q 14. Define a budget line.     

 Ans. It is line showing different possible combination of good -1 and good -2, which a consumer can buy, given his budget and the prices of Good -1 and Good -2.

Q 15. Define an indifference curve.       Ans. An indifference curve is a diagrammatic presentation of an indifference      set. It shows a combination of two goods which a consumer is indifferent.

Q 16. Define an indifference map.      Ans.  It refers to a set of indifference curves corresponding to different income level to the consumer.

Q 17. Where the equilibrium will struck in case of one commodity?      

Ans. Equilibrium will struck when MUx / Px = MUm.Q 

18. When total utility start decline, what will be MU?      

Ans. MU become negative.

Q 19. Why the budget line is negative?      

Ans. The slope of budget line shows the rate at which market price allow the consumer to substitute good -1 for good 2.Q 20. What is feasible or attainable combination?      

Ans. A consumer can afford to buy combination that fall along his budget or inside it, it is called feasible or attainable combination.

Q 21. Define marginal utility.     

 Ans. It refers to additional utility on account of the consumption of an additional unit of a commodity.

Q 22. Define demand by a consumer.  Ans. Demand for commodity refers to the desire to buy a commodity backed with sufficient purchasing          power and willingness to spend. 

Q 23. When is a good called a 'normal good' ?        Ans. When demand of a good is increased with the increase in income of the consumer.

Q 24. what is a demand schedule.     

 Ans. A demand schedule is a table showing the relationship between different quantities of a commodity to be purchased at different prices of that commodity.

Q 25. When is a good called inferior good ? 

Ans. A good can be inferior when income of the consumer increases  and demand for the goods decreases.Q 26. Define individual demand schedule.     

Ans. It is that table showing different quantities of a commodity that one particular buyer in the market              is ready to buy at different possible prices of the commodity at a point of time.

Q 27. What is meant by inferior good in economics ? 

Ans. These are the goods the demand for which decrease as         income of buyer rises.

Q 28. what is meant by Giffen good in economics ? Ans. Giffen good is that inferior good whose income effect is negative but price effect is positive.

Q 29. What cause an upward movement along a demand curve ?   

  Ans.  Favorable change in taste and preferences, increase in income, increase in price of substitute goods.

Q 30.  Give one reason for a shift in demand curve. 

 Ans. Increase in price of substitute goods.

Q 31. What is market demand.     

Ans. Market demand is the demand of all the consumers of a commodity at given price.

Q 32. When is demand said to be price-elastic ?   

 Ans. When change in demand is more than change in price.

Q 33. When is the demand for a good said to be perfectly inelastic ?      

Ans. When the price of a commodity changes but there is no change in quantity demanded.

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Elasticity of demand - A revision

Factors influencing Price Elasticity of Demand (PEd)

In regard to price elasticity of demand we have seen the definition, calculation and also the degrees of price elasticity. I understand you might be wondering when so much is said about price elasticity there must be certain factors that affect it. After going through the list of factors you will quickly recollect that this list is somewhat similar to the list of determinants of demand. But the difference is that those factors affected demand and these ones are responsible for affecting price elasticity of demand. 

Type of product: The first factor that influences the PEd is the nature or the type of the product. All our economic concepts and discussions begin as well as end with the products or commodities. The nature or the characteristic of the product affects the PEd. Today we are surrounded with innumerable goods and services and this has resulted into grouping of the commodities into essentials, comforts and luxuries. The essential commodities tend to be inelastic in nature simply because those are bare minimum necessities. Comfort goods are those goods which are formed generally by habits. In this case also the PEd is relatively inelastic because consumers are so used to them. But luxurious commodities have elastic demand because as their price rises they can be ignored at least for the time being.

Share in Income: Earnings lead to expenditure. Consumers spend different proportions of their incomes on different products. Suppose we have two products namely A and B and a consumer John. Now John spends 1% of his income on product A and 10% on product B. Here the elasticity for product A will be inelastic in nature because only a tiny proportion of John’s income is spent on A. But the demand for B will be relatively elastic one because it is taking a larger chunk of his income.

Multiple uses of the products: There are certain products that have more than one use. In this case the consumers rank the uses in terms of their importance and reduce the same accordingly when the prices of that product goes up. It means that products with many uses have relatively elastic demand.

Habitual products:  When certain products are used due to habits, then the elasticity in such cases tends to be relatively inelastic. People who are habituated to smoking are unlikely to give it up and thus they may have relatively inelastic demand.

Time factor: The requirement of the products may differ in the short run and in the long run. In the short run the demand is inelastic as against elastic in the long run. When the consumers have time to respond then over a period of time they may shift from one product to other. The popularity of diesel cars is the result of the rise in petrol prices and gradual shifting of consumers from petrol to diesel.

Substitutes: Substitutes also impact the elasticity. The more the number of substitutes a particular product has, higher will be its price elasticity. We have seen the examples of substitutes like paneer and tofu, butter and margarine, tea and coffee. The demand for the mentioned products will be relatively elastic in nature. In contrast to this, salt will have completely inelastic demand due to absence of any substitutes.

Complementary products: Complementary goods are those goods which are dependent in nature. Thus the demand for fuel will depend upon the automobiles demand. The demand for batteries of mobile phones will be related to the demand for mobiles and so on.

Urgency and postponement: When the need for any product is urgent, then the demand tends to be inelastic. A good example is that of the life saving medicines. We cannot postpone the purchases of medicines and thus their demand will be inelastic. But for certain classes of goods like gadgets and automobiles we can postpone our buying decisions according to their price swings. Their demand will be elastic in nature.

Income groups: Just as products are divided into different groups, we also have low income groups, middle income groups and high income groups. The products that are demanded by high income groups are inelastic in nature because there is not much botheration about the price changes. But in case of low income groups the products demanded by them has elastic demand because of the non affordability factor.

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A tabular representation of relation between Price Elasticity of Demand and Total Revenue

Let us take a quick look at the following table which sums up the relation between Price Elasticity of Demand and Total Revenue

     

Price Elasticity of Demand (PEd)	PEd Coefficient	Price changes	Impact on Total revenue	Cause of Impact
Unitary Elastic Demand	PEd = 1	Increase in price	Total revenue is unchanged	% change in quantity demanded is same as % change in price
		Decrease in price	Total revenue is unchanged
Elastic Demand	PEd > 1	Increase in price	Total revenue will fall	Here the % change in quantity demanded is more than the % change in price
		Decrease in price	Total revenue will rise
Inelastic Demand	PEd < 1	Increase in price	Total revenue will   rise	Here the % change in quantity demanded is less than the % change in price
		Decrease in price	Total revenue will fall

Tabular summation of the types of Price Elasticity of demand

Though we have seen in detail as well as in diagrams the degrees of price elasticity of demand let us quickly sum it up in a table:

Type of Elasticity	Unitary Elasticity	Completely   Elastic	Completely Inelastic	Relatively Inelastic	Relatively Elastic
Elasticity Coefficient	PEd= 1	PEd=∞	PEd=0	PEd<1	PEd>1
What does it    stand for	% change in quantity demanded is equal to % change in price	There is unlimited demand at a specific price and even a smallest change in price changes quantity infinitely	Price change does not affect the quantity demanded	Here the % change in quantity demanded is less than % change in price	Here % change in quantity demanded is more than % change in price