Unit-1

1. What is micro-economics?
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Microeconomics is the branch of economics that studies individual units of the

economy, such as consumers, firms, and markets. It focuses on how these entities make
decisions regarding the allocation of resources and the interactions between them.

2. What is demand?

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Demand refers to the quantity of a good or service that consumers are willing
and able to purchase at various price levels during a given period. It reflects the
relationship between price and the quantity demanded, typically showing that as the
price decreases, demand increases, and vice versa.

3. What is supply?
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Supply refers to the quantity of a good or service that producers are willing and
able to offer for sale at various price levels during a given period. It reflects the
relationship between price and the quantity supplied, where generally, as the price
increases, the quantity supplied also increases.

4. What are the determinants of demand?

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The determinants of demand are factors that influence the quantity of a good or
service that consumers are willing to purchase. These include:

i. Price of the commodity – As the price of a good increases, demand typically

decreases, and vice versa.
 ii. Income of the consumer – Higher consumer income generally increases demand
for goods, especially normal goods, while lower income decreases demand.

iii. Price of related goods – The demand for a good can be affected by the prices
of substitutes (goods that can replace it) and complements (goods used together
with it).

5. What is the Elasticity of demand?

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Elasticity of demand measures how responsive the quantity demanded of a good

or service is to changes in its price. It indicates whether consumers significantly change
their purchasing behavior when the price fluctuates. If demand is elastic, a small change
in price leads to a large change in quantity demanded; if demand is inelastic, quantity
demanded changes little with price variations.

6. What is the price Elasticity of demand?

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Price elasticity of demand measures the responsiveness of the quantity demanded

of a good or service to changes in its price. It is calculated as the percentage change in
quantity demanded divided by the percentage change in price. A higher elasticity
indicates that consumers are more sensitive to price changes, while a lower elasticity
suggests that demand is relatively unresponsive to price variations.

7. What is the degree of Elasticity of demand?

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The degree of elasticity of demand measures how sensitive the quantity

demanded of a good is to changes in its price. There are five main degrees of price
elasticity of demand:

1. Perfectly Elastic Demand(: This occurs when a tiny change in price leads to an
infinite change in quantity demanded. The demand curve is a horizontal line. In
reality, this is rare.
 2. Perfectly Inelastic Demand: Here, the quantity demanded remains constant
regardless of price changes. The demand curve is a vertical line. Essential goods
like life-saving medications often exhibit this behavior.
3. Relatively Elastic Demand: When the percentage change in quantity demanded is
greater than the percentage change in price. For example, luxury goods often
have relatively elastic demand.
4. Relatively Inelastic Demand: The percentage change in quantity demanded is less
than the percentage change in price. Necessities like basic food items typically
show this pattern.
5. Unitary Elastic Demand: The percentage change in quantity demanded is exactly
equal to the percentage change in price. This means total revenue remains
constant when the price changes.

8. Write the factors determining Elasticity of demand?

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Several factors determine the elasticity of demand for a product or service. Here are
the key ones:

1. Availability of Substitutes: If there are close substitutes available for a product,

the demand for that product is more elastic. Consumers can easily switch to a
substitute if the price rises.
2. Nature of the Good: Necessities tend to have inelastic demand because consumers
will buy them regardless of price changes. Luxuries, on the other hand, have
more elastic demand as consumers can forego them if prices rise.
3. Proportion of Income Spent on the Good: Goods that take up a large portion of
a consumer’s income tend to have more elastic demand. A significant price
increase will greatly affect the consumer’s budget, leading to a larger change in
quantity demanded.
4. Time Period: Demand elasticity can vary over time. In the short term, demand is
often more inelastic because consumers need time to adjust their behavior. Over
the long term, demand becomes more elastic as consumers find alternatives or
change their habits.
5. Addictiveness or Habitual Consumption: Products that are addictive or habitually
consumed, like tobacco or coffee, tend to have inelastic demand. Consumers will
continue to buy them even if prices rise.
 6. Definition of the Market: The elasticity of demand can depend on how broadly or
narrowly a market is defined. For example, the demand for food (a broad
category) is generally inelastic, but the demand for a specific type of food (like
organic apples) can be more elastic.
7. Postponement of Consumption: If the consumption of a good can be postponed,
its demand is more elastic. For instance, consumers can delay buying new cars if
prices rise, making the demand for cars more elastic.
8. Brand Loyalty: Strong brand loyalty can make demand more inelastic. Consumers
loyal to a brand are less likely to switch even if prices increase.

9. What is cross-elasticity of demand?

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Cross-elasticity of demand (also known as cross-price elasticity of demand) measures

how the quantity demanded of one good responds to a change in the price of another good. This
concept helps to understand the relationship between two goods, whether they are substitutes,
complements, or unrelated.

𝐏𝐞𝐫𝐜𝐞𝐧𝐭𝐚𝐠𝐞 𝐂𝐡𝐚𝐧𝐠𝐞 𝐢𝐧 𝐐𝐮𝐚𝐧𝐭𝐢𝐭𝐲 𝐃𝐞𝐦𝐚𝐧𝐝𝐞𝐝 𝐨𝐟 𝐆𝐨𝐨𝐝 𝐗

𝐄𝐱𝐲 =
𝐏𝐞𝐫𝐜𝐞𝐧𝐭𝐚𝐠𝐞 𝐂𝐡𝐚𝐧𝐠𝐞 𝐢𝐧 𝐏𝐫𝐢𝐜𝐞 𝐨𝐟 𝐆𝐨𝐨𝐝 𝐘

10. What is price-elasticity of demand?

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Price elasticity of demand (PED) measures how sensitive the quantity demanded of a
good or service is to a change in its price. Essentially, it shows how much the demand for a
product will increase or decrease when its price changes.

𝐏𝐞𝐫𝐜𝐞𝐧𝐭𝐚𝐠𝐞 𝐂𝐡𝐚𝐧𝐠𝐞 𝐢𝐧 𝐐𝐮𝐚𝐧𝐭𝐢𝐭𝐲 𝐃𝐞𝐦𝐚𝐧𝐝𝐞𝐝

𝐏𝐄𝐃 =
𝐏𝐞𝐫𝐜𝐞𝐧𝐭𝐚𝐠𝐞 𝐂𝐡𝐚𝐧𝐠𝐞 𝐢𝐧 𝐏𝐫𝐢𝐜𝐞

11. What is income-elasticity of demand?

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 Income elasticity of demand (YED) measures how the quantity demanded of a good
responds to changes in consumer income. It’s calculated using the formula:

Unit-2
1. What is Utility?
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Utility refers to the satisfaction or benefit that a consumer derives from

consuming a good or service. It helps explain how consumers make choices based on their
preferences and the perceived value of different products.

2. What is Cardinal utility?

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Cardinal utility is a concept in economics and utility theory that assigns a specific
numerical value to the satisfaction (utility) a consumer derives from consuming goods or
services. This means that utility can be measured quantitatively and compared in terms
of magnitude. In cardinal utility theory, the difference in utility between two outcomes
is meaningful. For example, if one bundle of goods gives a utility of 50 and another
gives a utility of 100, we can infer that the second bundle is twice as satisfying as the
first.

3. What is Ordinal utility?

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Ordinal utility is a concept in economics that focuses on the ranking of consumer
preferences without assigning specific numerical values to them. Unlike cardinal utility,
which attempts to quantify satisfaction in units called 'utils', ordinal utility examines
how consumers order their preferences qualitatively. This approach acknowledges that
while individuals can determine their order of preference for different goods or services,
measuring the exact level of satisfaction are not feasible.

4. What is Total Utility?

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Total utility refers to the overall satisfaction or pleasure a consumer derives

from consuming a certain quantity of goods or services. It is the sum of the utility
gained from each unit consumed.

For example, if you consume two units of a product and gain 25 units of utility from
the first unit and 30 units from the second, your total utility would be 55 units.

5. What is marginal utility?

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Marginal utility is the additional satisfaction or benefit a consumer gains from

consuming one more unit of a good or service. It helps explain consumer choices and the
law of diminishing marginal utility, which states that the first units of consumption
provide more satisfaction than subsequent units.

6. What is marginal rate of substitution (MRS)?

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The marginal rate of substitution (MRS) is an economic concept that measures

the rate at which a consumer is willing to exchange one good for another while
maintaining the same level of satisfaction or utility. Essentially, it shows how much of
one good a consumer is willing to give up to obtain an additional unit of another good
without changing their overall happiness.

The MRS between two goods (X) and (Y) can be calculated using the formula:

where (MUx) and (MUy) are the marginal utilities of goods (X) and (Y), respectively
 Unit-3
1. What is Isoquant?
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An isoquant is a curve used in microeconomics to represent all the combinations

of two inputs, such as labor and capital, that produce a specific level of output.

2. What are the Properties of Isoquant?

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Isoquants have several important properties that help in understanding the

production process and the relationship between inputs and outputs. Here are the key
properties:

1. Downward Sloping: Isoquants slope downwards from left to right. This indicates
that if the quantity of one input decreases, the quantity of the other input
must increase to maintain the same level of output.
2. Convex to the Origin: Isoquants are typically convex to the origin. This convexity
reflects the principle of diminishing marginal rate of technical substitution
(MRTS), meaning as you substitute one input for another, the rate at which
you can substitute decreases.
3. Non-Intersecting: Isoquants cannot intersect each other. If they did, it would
imply that the same combination of inputs could produce two different levels of
output, which is not possible.
4. Higher Isoquants Represent Higher Output Levels: Isoquants that are further
from the origin represent higher levels of output. This is because they indicate
combinations of inputs that produce more output.
5. Smooth and Continuous: Isoquants are usually smooth and continuous, reflecting
the idea that inputs can be substituted in infinitely small increments.
6. No Thickness: Isoquants are thin lines, not thick bands. This property ensures
that each combination of inputs corresponds to a unique level of output.
 Unit-4
1. What is the Features of perfect competition?
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Perfect competition is a theoretical market structure characterized by several

distinct features. Here are the key features:

1. Many Buyers and Sellers: There are a large number of buyers and sellers in the
market. No single buyer or seller can influence the market price, making each
participant a price taker.
2. Homogeneous Products: The products offered by different sellers are identical or
homogeneous. This means consumers have no preference for one seller over
another based on the product itself.
3. Free Entry and Exit: Firms can freely enter or exit the market without any
barriers. This ensures that firms can respond to changes in market conditions,
leading to normal profits in the long run.
4. Perfect Information: All buyers and sellers have complete and perfect information
about the product, prices, and market conditions. This transparency ensures that
no participant can gain an advantage through misinformation.
5. Perfect Mobility of Factors of Production: Resources such as labor and capital can
move freely between different uses and locations. This mobility ensures that
resources are allocated efficiently.
6. Price Takers: Since no single firm can influence the market price, all firms accept
the market price as given. The demand curve for an individual firm’s product is
perfectly elastic.
7. No Transportation Costs: In a perfectly competitive market, transportation costs
are either zero or the same for all firms, ensuring that prices remain uniform
across the market.

These features create an idealized market scenario where resources are allocated
efficiently, and prices reflect the true cost of production. However, perfect competition
is rare in the real world, but it serves as a useful benchmark to compare other market
structures.