Very Short Questions Spring 2015

The answers to the Very Short Questions Spring 2015 are given below:

1. Why is scarcity a central problem of economics?

ANS- A scarcity is a situation in which unlimited wants exceed the limited resources available to fulfil those wants. Since resources are limited with respect to our wants we have to make choices. The idea of scarcity is central to economics because is the study of choices people make to attain their goals.

2. Differentiate between positive and normative economics.

ANS-

BASIS FOR COMPARISON	POSITIVE ECONOMICS	NORMATIVE ECONOMICS
Meaning	A branch of economics based on data and facts is positive economics.	A branch of economics based on values, opinions and judgement is normative economics.
Nature	Descriptive	Prescriptive

3. Define the market demand schedule and curve.

ANS- In a market, there is not one consumer but many con­sumers of a commodity. The market demand of a commod­ity is depicted on a demand schedule and a demand curve. They show the sum total of various quantities demanded by all the individuals at various prices.

4. State the relationship between AC and MC.

ANS- On the other hand, if the marginal cost (MC) is below the average cost (AC); average cost falls, that is, the marginal cost pulls the average cost downwards. When marginal cost (MC) stands equal to the average cost (AC), the average cost remains the same, that is, the marginal cost pulls the average cost horizontally.

5. What are Giffen goods?

ANS- A Giffen good is a product that people consume more of as the price rises and vice versa—violating the basic law of demand in microeconomics.

6. Define price discrimination?

ANS- Price discrimination is a microeconomic pricing strategy where identical or largely similar goods or services are sold at different prices by the same provider in different markets.

7. When does the firm get higher profit according to the TR-TC approach?

ANS- The producer’s equilibrium has two conditions: 1. The difference between TR and TC is maximum 2. Even if one more unit of output is produced, then the profit falls. In other words, the marginal cost becomes higher than the marginal revenue if one more unit is produced.

8. What are the factors causing oligopoly?

ANS- Cause of Oligopoly. The main reasons which give rise to oligopoly are as follows:

• Economies of Scale: If the productive capacity of few firms is large and are able to capture a greater percentage of the total available demand for the product in the market, there will then be a small number of firms in an industry.
• Barriers to entry: In many oligopolies, the new firms cannot enter the industry as the big firms have ownership of patents or control over the essential raw material used in the production of an output.

9. State the law of variable proportion.

ANS- “The law of variable proportion states that if the inputs of one resource is increased by equal increment per unit of time while the inputs of other resources are held constant, total output will increase, but beyond some point the resulting output increases will become smaller and smaller.”

10. What is a bilateral monopoly?

ANS- A bilateral monopoly is a market structure consisting of both a monopoly (a single seller) and a monopsony (a single buyer).

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