FUNDAMENTALS OF ECONOMICS (AECO – 141)

1. The science dealing with human wants, desires means of satisfying the wants and scarcity of
resources is Economics.
2. The term “Economics” is derived from Greek word namely Oikonomics means Management
of household.

3. Father of political economy and economics is Adam Smith.

4. Marshall shifted the focus from wealth to Welfare.

5. The scarcity definition was given by Lionel Robbins.

6. The human wants referred by Ends.

7. The time, money and resources are referred by Scarce.

8. Modern definition of economics was given by Paul. A. Sameulson.

9. Father of modern economics is John Maynard Keynes.

10. Subject matter of economics mainly involves in Production and Consumption.

11. The division of economics deals with nature of wants, classification of wants, LDMU, LEMU
etc is Consumption.

12. The goods exchanged for goods are called Barter System.

13. Practical application of scientific principles for achieving scientific ends is called Art.

14. Positive economics is also called Descriptive Economics.

15. Normative economics is also called Policy or Regulative Economics.

16. The study of economics into different branches is given by Prof. Ragnar Frisch.

17. The term “Macro” is derived from Greek word Makros meaning Large.

18. The macro economics deals with functioning of economy as a whole given by Shapiro.

19. The economics deal with subject of pricing mechanism is Micro economics.

20. The slicing method is mainly seen in Micro economics.

21. The outcomes of marginal analysis in micro economics are LDMU, LEMU and Consumer’s
surplus.

22. The deductive method is called priori method by Mill and Francis Bacon and described it as
descending process.

23. The method of intellectual experiment is Deductive method.

1St Year, 1st Semester AECO 141 Page: 1 of 24

24. The process of reasoning from the circular to general or from individual to universal is called
Inductive method.

25. Inductive method is also known as Realistic or Empirical method.

26. The inductive method described as ascending process by Francis Bacon.

27. The term “Classical economics” was coined by Karl Marx.

28. First modern school of economic thought is Classical economics.

29. The term “Neoclassical economics” is originally introduced by Thorstein Veblen.

30. Circular flow of economic activity involves in concepts of Wants, efforts, satisfaction.

31. In India, the prices of fertilizers are increasing and other inflationary rise in prices determines
economics as Positive science.

32. Want satisfying capacity of a good is Utility.

33. The body of systemized knowledge relating to what is, what was, what will be is mainly related
as Positive economics.

34. Macro economics deals with Inflation, deflation and poverty.

35. Economical laws are Hypothetical, Universal and Relative.

36. Circular flow of money is mainly based on Keynes economic theory.

37. Anything that satisfies the human wants is called Good.

38. Goods which are not scarce come under Economic goods.

39. The both value in use and value in exchange are possessed by Economic goods.

40. The goods that give satisfaction directly to the consumer or individual are called Consumption
goods.

41. The goods which can be measured and quantified are known as Tangible goods.

42. The goods used for producing the consumer goods are called as Capital goods.

43. The goods which are incapable of being touched are called as Intangible goods.

44. The goods satisfying most urgent wants are called Necessities.

45. The goods meant for super flows consumption are called Luxuries.

46. The goods which are intangible, perishable and inseparable are called Services.

47. The concept “Utility” was given by Stanley Jevons.

48. The value of commodity expressed in terms of money is called Price.

1St Year, 1st Semester AECO 141 Page: 2 of 24
49. Anything that has value is called Wealth.

50. The social wealth is also termed as Communal or Collective wealth.

51. The wealth is a means of end where as welfare is the end.

52. According to Seligman, Income is the flow of satisfaction from economic goods.

53. Money is expressed in terms of goods and services are called Real income.

54. Debts owned by individual or government to others are called Negative wealth.

55. A good to be considered as wealth, it should possess Utility.

56. The concept of utility in economics was proposed by Jevon.

57. The utility analysis is also called as non classical utility analysis/ cardinal utility analysis/
marginal utility analysis/ Marshall utility analysis.

58. The additional utility gained by the consumer is called Marginal utility.

59. Aggregate sum of psychological satisfaction or benefits gained by consuming a given good or
service at a given point of time is called Total utility [TU ].

60. The average utility is given by Total utility/ No. Of units of quantity consumed.

61. The dissatisfaction to the consumer by consumption of a commodity is called Negative utility.

62. Utility derived from the first unit, if commodity is called Initial utility.

63. The consumption of a unit of commodity gives no addition to the total utility is called Zero
utility.

64. The ordinary consumption behaviour of the consumer is Law of Diminishing Marginal
Returns (LDMU).

65. The Law of Diminishing Marginal Returns was proposed by H.H. Gossen .

66. The Law of Diminishing Marginal Returns was popularized by Alfred Marshall.

67. The Law of Diminishing Marginal Returns is also called as Gossens first law

68. The Law of Diminishing Marginal Returns forms the basis of Law of demand.

69. The status of marginal utility when consumer gets maximum satisfaction is Zero.

70. When marginal utility is zero, total utility will be Maximum.

71. When marginal utility is negative total utility will be Declining.

72. The law of equimarginal utility (LEMU) was proposed by H.H.Gossen .
73. The law of equimarginal utility (LEMU) also termed as Gossens second law.

1St Year, 1st Semester AECO 141 Page: 3 of 24

74. LEMU is also called as law of substitution/ law of maximum satisfaction/ law of consumers
demand/ law of indifference.

75. To apply LEMU principles, the commodity should remain Constant.

76. The point where marginal utility is derived in terms of money is equal to price of commodity is
called Consumers equilibrium

77. The desire or want to have a good or service is called as Demand.

78. The desire which is backed up by willingness and ability to pay by the consumer to have a
commodity is Demand

79. The concept of price demand is well experienced through the Law of demand

80. The concept of law of demand was proposed by Alfred Marshall.

81. The income, demand and the relationship for normal goods is Positive.

82. The income demand curve will have negative relationship for Inferior goods.

83. The special type of goods having income demand relationship as negative and price demand
relationship as positive are called as Giffen goods.

84. The change in the purchase of commodities is not due to change in the price of that commodity
but due to change in the price of the another commodity is called Cross demand

85. The goods that can be used in the place of another commodity are called Substitutes.

86. The goods which are required together to complete the consumption process constitute
Complements.

87. The functional relationship between the quantity demanded of a commodity and factors
influencing it constitutes is Demand function.

88. When more quantity of the commodity is demanded due to fall in price, other factors remaining
constant is called Elasticity of demand.

89. When less quantity of a commodity is demanded due to raise in the prices by keeping other
factors constant is called Contraction of demand

90. To study the influence of one or more factors along with the principle factor for the same
commodity then there will be Shift in the demand curve

91. The more quantity of commodity is demanded at same price due to other factors than price of
commodity is called Increase in demand.

92. The less quantity of commodity is demanded at same price due to other factors except the price
of the same commodity is called Decrease in demand
93. The demand for two or more commodities simultaneously is called Joint demand.

1St Year, 1st Semester AECO 141 Page: 4 of 24

 94. If one commodity is demanded that can put to several other alternative uses then that
commodity is said to have Composite demand

95. The demand is for the ultimate product is called Direct demand.

96. The demand for factors of production from which the commodity/ product is derived is called
Derived demand.

97. The responsiveness of the quantity demand to change in price is measured by Elasticity of
demand

98. The price elasticity of demand is represented by EP.

99. Price elasticity of demand is calculated as EP = % change in quantity demanded of

Commodity / % change in Price of the commodity.

100. If the demand for the commodity is price elastic: EP = Greater than one

101. For commodity having the demand as unit elastic: EP = One.

102. If demand for the commodity is price inelastic: EP = Less than one

103. The monopolist uses price elasticity of demand for fixing the price of the commodity.

104. In case of percentage method of measuring EP is measured by using Coefficient.

105. The point or geometric method of measuring EP was suggested by Alfred Marshall

106. The method to measure EP when the changes in quantity and prices are very large is Arc/
Proportional method.

107. If there is urgency in having the commodity the demand will be More inelastic.

108. The concept of consumers surplus was first stated in the crude form by Jules dupit
109. The concept of consumer’s surplus was popularized by Alfred Marshall.
110. The consumer’s surplus renamed as Buyers surplus by Prof. Boulding.
111. Excess of price which a consumer would be willing to pay rather than to go without a thing
over that which he actually does pay is called as Consumer’s surplus.
112. The consumer’s surplus concept was derived from Law of diminishing marginal utility.
113. The difference between what the consumer is willing to pay and what he actually pays is called
Consumer’s surplus.
114. The concept of Consumer’s surplus involves in the application of concept like Marshallian
utility analysis and Demand analysis of commodity.
115. 3 propositions relating to the family expenditure is given by economist Ernst Engle.
116. If income on family increase then the expenditure on the Luxury goods increases.
117. The Indifference Curve Analysis (IDC) concept was originally proposed by Vilfredo Pareto.
118. According to IDC utility is not quantifiable but comparable.
119. The IDC approach is also termed as modern approach of Consumer’s behaviour.

1St Year, 1st Semester AECO 141 Page: 5 of 24

120. Main concepts involved in IDC technique are IDC and Price line.
121. For showing various combinations of two commodities which yield same level of satisfaction
to the consumer IDC curve is used.
122. IDC curve is also called Iso utility curve.
123. The slope of IDC analysis is convex to origin and negatively sloped.
124. The slope of IDC indicates Diminishing MRS of commodities.
125. IDC for perfect substitutes is a straight line.
126. In case of perfect complements IDC is Right angled.
127. If the position of IDC from the origin is farther away then the level of satisfaction is high.
128. A geometrical expression of no. of indifference schedules on same graph is Indifference map.
129. The two IDC’s do not intersect with each other but remain Tangent.
130. The slope of price line indicates Price ratio of two commodities.
131. The point where the price line touches the highest attainable IDC in an indifference map is said
to be at consumer equilibrium.
132. The price line should be tangent to the IDC analysis.
133. A graphical representation of supply schedule is Supply curve.

134. The quantity of supply of commodity in the entire market is Market supply.

135. The extension of supply and contraction of supply determines the concept of Movement along
the supply curve.

136. More quantity of commodity is supplied due to raise in its price is called Extension of supply.

137. Less quantity of commodity is supplied due to fall in the price it is called as Contraction of
supply

138. The increase in supply and decrease in supply determines the concept of Shift in supply curve.

139. The changes in quantity supplied are represented by movement along the same supply curve.

140. The changes in supply are represented by shifts in the supply curve.

141. When factors other than price of the commodity cause the increase in commodity supplied at
same price represents Increase in supply.

142. The less quantity of commodity is supplied at same price due to factors other than the same
commodity is called Decrease in supply.

143. The causal factor for the contraction of supply is decrease in price of the same commodity

144. The causal factor for movement along the same supply curve is change in price of the same
commodity

145. The degree of responsiveness of supply of a commodity to change in its price is Elasticity of
supply.

146. The measure of responsiveness degree of supplied quantity of commodity to change in its price

1St Year, 1st Semester AECO 141 Page: 6 of 24

 is Price elasticity of supply.
147. Formula for price elasticity of supply is ES = % change in quantity supplied of a
Commodity/ % change in price of Commodity

148. Formula for calculating slope of the supply curve is Δ P/ Δ Q.

149. The supply of perishable commodities is Inelastic.

150. The supply for commodities with long period of market is Highly elastic.

151. The two or more commodities have a common source of supply refers to Joint supply.

152. The two or more commodities are supplied to meet the same purpose or need is said to be
Composite supply.

153. The price which is influenced by both the market forces like demand and supply is called
Equilibrium price.

154. The equilibrium price is also called Market clearing price.

155. The price is at the intersection of the demand curve and supply curve is Equilibrium.

156. The methods to measure the price elasticity of supply are Midpoint method and Geometric
method.

157. The method to measure accurate measurement of elasticity of supply is Midpoint method.

158. The farmer is willing to take more risk in production programme then the supply will be highly
Elastic.

159. If the business experiences diminishing returns then the supply is said to be Inelastic.

160. The commodities which have composite supply are substitutes for each other.

161. The relationship between the resources and resource services employed by the farmer is
Production function

162. The technical and mathematical relationship between the resources employed and output
realized in the production programme at a given level of technology is Production function .

163. The concept of law of diminishing returns falls under short run production function.

164. The physical output from the farm expressed in Total physical product.

165. The ratio between total output and a variable output employed in production programme is
Average physical product.

166. The additional output produced due to additional usage of inputs is called Marginal physical
product.

167. The expression of total output in terms of money is called Total value product.

1St Year, 1st Semester AECO 141 Page: 7 of 24

168. The additional cost incurred in producing an additional unit of output is Marginal cost.
169. The additional returns or revenue derived from using an additional unit of input in production
programme is Marginal value product.

170. In each additional unit of variable input when applied to a fixed level of other in puts it will add
same amount of additional output it is called Law of constant returns.

171. In law of constant returns, marginal physical product is equal to Average physical product.

172. The money expenditure incurred by the farmer for production programme is called Cost.
173. The farmer has to purchase external resources by using Explicit costs.
174. Costs are self owned and self employed resources refer to Implicit costs.
175. The functional relationship between cost and output is given by Cost function.
176. In short run production function to continue the business, the gross returns should be greater
than Short run total costs.
177. The cost incurred by the farmer in the production programme irrespective of the level of output
is Total fixed cost.
178. The total cost is equal to total fixed cost then the production is Zero.
179. The fixed costs are also called Long run costs.
180. When the output is zero the variable cost is Zero.
181. The slope of short run total variable costs is Inverted S shaped.
182. The production cost is also called Short run total cost.
183. The total fixed cost per unit of output is Average fixed cost.
184. The curve of average fixed cost represents Rectangular hyperbola.
185. The ratio between short run total costs to the output is Short run average total cost.
186. The slope of average short run total cost is given as U shaped curve.
187. The additional income incurred by the farmer in producing an additional unit of output in short
run production function is Short run marginal cost.
188. The place of interaction of buyers and sellers for transaction of commodities is Market.

189. The potential buyers and sellers of the product with complete knowledge about prices of
commodities and homogeneous transactions is called Perfect competition.

190. The number of buyers and sellers in perfect competition is Infinite.

191. Free entry and exit of firms is possible in Perfect competition.

192. A form of imperfect competition in which single firm produces the product with no other
substitutes in the market is Monopoly.

193. The elasticity of competition in monopoly is Zero.

194. The word “oligopoly” is derived from Greek word means Few.

195. The whole market structure is controlled by few firms is called Oligopoly.

196. The simplest form of oligopoly is Duopoly.

1St Year, 1st Semester AECO 141 Page: 8 of 24

197. The number of firms in duopoly is Two.
198. The high selling cost is unique feature of Oligopolistic competition.

199. The markets with large no. of buyers and sellers who trade over a range of prices rather than a
single market price is called Monopolistic competition.

200. The founding father for studying the concepts of monopolistic competition is Edward
Hastings Chamberlin.

201. The author of “Theory of monopolistic competition” is Edward Hastings Chamberlin.

202. The essence of monopolistic competition is Product differentiation.

203. The elasticity of competition in monopolistic competition is Very high.

204. The condition in which there is only one buyer is Monopsony.

205. The conditions in which there are two buyers are called Duopsony.

206. The condition in which few buyers are there in the market is called Oligopsony.

207. The element that plays an important role in determining the equilibrium price of commodity
according to Alfred Marshall is Time
208. An important role in determining the price of highly perishable commodities by Demand.

209. The factors and factor services involve in the production of products are called Factors of
production.
210. Capital is the produced means of production.

211. Man made instrument of production is called Capital.

212. Who defined capital as crystallized labour in his famous book” Das Capital” is Karl Marx

213. The reward for the managerial services offered by the entrepreneur is called Profit.

214. The reward for the land is Rent.

215. The reward for labour is Wages.

216. The reward for the capital is Interest.

217. The demand for the factors is mainly Indirect demand.

218. Total contractual payment made by the tenant to the owner for use of owners property for
certain fixed period of time is Contract rent.
219. The part of contractual payment made by tenant to owner is called Economic rent.
220. The Ricardian theory of rent was proposed by David Ricardo.
221. According to Ricardo rent is Differential surplus.

1St Year, 1st Semester AECO 141 Page: 9 of 24

222. The true surplus left over after meeting the expenses of cultivation is Economic rent.

223. The proportion of earth is paid to land lord for the use of original and in destructive powers of
soil is Rent.
224. The contract rent is higher than Economic rent.
225. The contract rent is a Gross rent and economic rent is Pure rent.
226. Any extension of mind or body under gone partly or wholly with a view to earn some good
other than the pleasure derived directly from the work is Labour.

227. The remuneration paid to the labour is Wages.

228. The wages paid to the labour in accordance with the number of hours of work is Time wages.

229. The wages paid to the labour in accordance with the quantity of the output turned out is Price
wages

230. The wages are paid to the labour in terms of liquid money is Cash wages.

231. The remuneration paid for capital borrowed and invested in production programme is called
Interest.

232. The interest is a reward for parting with liquidity for a specified period said by J. M. Keynes

233. The total payment made by the borrower to lender for capital borrowed by him is Gross
interest.
234. The payment made by the borrower to the lender exclusively for the use of capital is Net
interest.
235. Net interest is also called Pure interest.

236. A part of gross interest paid for use of capital is Net interest.

237. The residual payment that left to the producer’s income after meeting all other payments is
Profit.

238. The compensation received by the entrepreneur for performing managerial functions is Profit.

239. The differences between total sales proceeds obtained and total expenses incurred in production
programme are Profit.
240. The Net profits refer to Economic profit/ pure business profit.

241. The malthusian theory of population was given by Thomas Robert Malthus.
242. The book “An essay on principle of population” was written by Thomas Robert Malthus.
243. The voluntary actions of people to avoid contributing to the population decrease are Preventive
checks.
244. The positive checks would result in Malthusian catastrophe/ Malthusian crisis.

1St Year, 1st Semester AECO 141 Page: 10 of 24

245. The “Irish famine of potato” is a classical example of Malthusian catastrophe.
246. Malthusian trap is also called Iron law of population.
247. Anything that is generally acceptable as a means of exchange is called Money.
248. The value of the future payment is regulated by Money.
249. The quantity of money demanded is equal to the quantity of money supplied then market for
money is said to be in Equilibrium.

250. The money is used in the markets at the earliest period of human civilization is Commodity
money.

251. The exchange of goods for the goods is known as Barter exchange.

252. The main form of money throughout the major portion of the recorded history is Metallic
money.

253. The latest type of money is Paper money.

254. The growth rate of the agriculture in India during 2018-19 was estimated at 2.9%.

255. The economic study of the requisition and use of capital in agriculture is Agricultural finance.

256. The word credit is derived from the Latin word “credo” means I believe/ to trust.

257. The Latin word credere means to repose confidence in.

258. According to Prof. Roger “the bank which deals with the money and money’s worth with a
view to earning profit is known as Commercial bank.

259. The bank governs the banking system and money market is called Central bank.

260. The minimum lending rate fixed by RBI at which it rediscounts first class bills of exchange by
commercial banks refers to Bank rate.

261. The sale and purchase of commodities openly by the RBI is called Open market operations.

262. The measure of cash reserve ratio was suggested by J.M.Keynes.

263. The % of capital/cash held at RBI by all the commercial banks refers to Cash reserve ratio.

264. The amount that the commercial banks have to maintain in the form of cash/gold/securities in
the bank is Statutory liquidity ratio.

265. The rate at which the RBI lends short term money to the banks against securities is Repo rate.

266. The rate at which the banks park their short term excess liquidity with RBI is Reverse repo
rate.
267. The various means of production under the private ownership of individuals but people have
right to use their own property is Capitalistic Economy.

268. The Government does interfere in the fixation of prices of commodities and all economic

1St Year, 1st Semester AECO 141 Page: 11 of 24

 activities are centred upon its decisions is Socialistic economy.

269. The consumer is considered as king under Capitalism.

270. There is no scope for consumer’s sovereignty as the approach is totally supply driven from
state under Communist economy.

271. Completely decentralized economy is seen in Capitalistic economy.

272. Completely centralized economy is seen in Communist economy.

273. The basic consuming unit of economy is Household.

274. The basic producing unit in the economy is Firm/ productive enterprise.

275. Circular flow of money is known as Wheel of wealth.

276. The aggregate factor income constitutes National wealth.

277. Total market value of all final goods and services produced from current production in a
country in a year is Gross national product(GNP).

278. The main objective of value added approach is to avoid double counting of goods and
services.

279. The gross national product at factor cost includes GNP at factor cost － indirect taxes ＋
subsidies.

280. Total market value of all goods and services currently produced within the domestic territory of
a country from its own resources in a year is Gross domestic product.

281. GDP is calculated as GNP － net income from abroad.

282. NNP is obtained by deducing depreciation from GNP.

283. The income earned by all factors of production in production of goods and services in a country
in current year is NNP at factor cost.

284. The total income earned or received by all the individuals in a country before direct taxes in a
year is Personal income.

285. Actual income that can be spent by the consumer for the consumption purposes is Disposable
income.

286. The national income adjusted to base year / general price level in the economy is Real income.

287. Base year index = 100 / current year index.

288. The average income earned by the people in a country in a year constitutes the Per capita
income.

289. Real per capita income = National income of a particular year / Population of that year in a

1St Year, 1st Semester AECO 141 Page: 12 of 24

 country.
290. The compulsory payment whether paid willingly or unwillingly by the individual to the
government without expecting any benefit is Tax.

291. Tax imposed on individuals who actually pays is Direct tax.

292. Direct tax is also called Personal tax.

293. Indirect taxes are also called Commodity taxes.

294. Cannons of taxation was given by Adam Smith.

295. The Equal impact of taxation policies on different sections of society constitutes Cannon of
equality.

296. The taxes imposed on commodities based on quantity of purchase are Specific tax.

297. The taxes imposed when value was added for the commodity is Advalorem tax.

298. The tax imposed on the commodity at every stage of marketing constitutes value is Added tax.

299. Property claimed by the government of the deceased without successors is Escheat.

300. The funds provided by the apex organizations to its sub-ordinate organizations are Grants.

301. The funds granted by foreign countries to its member countries at the times of drought and
floods are Gifts.

302. The penalties imposed on persons when they break the laws are Fines.

303. The too much money chasing few commodities is termed as Inflation.

304. Inflation is measured statistically increase of % increase in price index.

305. The decline in prices often caused by reduction in supply of money / credit leads to Deflation.

306. The slowing in the rate of price inflation is called Disinfection.

307. The slow economic growth and relatively high unemployment accompanied by inflation causes
Stagflation.

308. The monetary policy designed to expand countries output and to check the effects of deflation
is Reflation.

309. The rate of change of price level measured by consumer price index is Rate of inflation.

310. The inflation due to raise in money wages and input prices is called Cost push inflation.

311. Inflation due to greater than aggregate supply causing grater aggregate demand is called
Demand pull inflation.

1St Year, 1st Semester AECO 141 Page: 13 of 24

312. A kind of sectional inflation in which prices of certain goods will rise in economy either due to
their shortage or due to inelasticity of supply is called Sporadic inflation.
313. The price of every commodity throughout the economy rise is called Comprehensive
inflation.

314. The rise in prices is very slow is called Creeping inflation.

315. The rise in prices is moderate and annual inflation rate is a single digit it is called Walking/
trotting inflation.

316. The price rises rapidly at rate of 10% to 20% per annum is called Running inflation.

317. The price rise is up to 20% to 100% per annum is called hyper Inflation/ Galloping.

318. The cost of the fixed basket of products and services at consumer level is measured by
Consumer price index.

319. The price representative basket of wholesale goods is given by wholesale price index [ WPI ] /
producers price index [PPI].

320. The index of prices of all final goods and services with GDP is GDP inflator.

Match the following

Scientist Book
Adam Smith ( b ) a. General theory of employment Interest and
money
Alfred Marshall ( c ) b. Wealth of nations.
Lionel Robbins ( d ) c. Principles of economics
John Maynard Keynes ( a ) d. An essay on nature and Significance of
economics.
Economist Definition
Alfred Marshall ( c ) a. Wealth
John Maynard Keynes ( d ) b. Scarcity
Lionel Robbins ( b ) c. Welfare
Adam Smith ( a ) d. Employment stability

Economist Contribution
Alfred Marshall ( c ) a. Father of modern economy
Prof. Ragnar Frisc h ( d ) b. Macro and micro economics
John Maynard Keynes ( a ) c. Father of economy
Francis Bacon ( b ) d. Prescriptive economics

Methods Related process

1St Year, 1st Semester AECO 141 Page: 14 of 24

 Deductive method ( c ) a. Top - down approach.
Inductive method ( d ) b. Bottom - up approach.
Macro economics ( a ) c. Descending process.
Micro economics ( b ) d. Ascending process.

A B
Individual wealth ( c ) a. Museums
Social wealth ( a ) b. Forests
National wealth ( e ) c. Patent rights
Cosmopolitan wealth ( b ) d. Crop damage due to rodents
Negative wealth ( d ) e. Good climate

A B
Tangible goods ( b ) a. Good will of business
Intangible goods ( e ) b. Fertilizer bag
External, non material ( a ) c. Ability
Internal, non material ( c ) d. Conduct certificate
External, non material,non transferable ( d ) e. Doctors service

A B
Form utility ( d ) a. Transportation function
Place utility ( a ) b. Storage function
Time utility ( b ) c. Buying and selling function
Possession utility ( c ) d. Processing function

A B
External, material, transferable ( a ) a. Table
External, non material, transferable ( b ) b. Copy rights
External, material, non transferable ( c ) c. Conduct certificate
External, non material, non transferable ( d ) d. Friendship
Internal, non material, non transferable ( e ) e. Skill

A B
Normal goods ( c ) a. Income demand relationship is negative
Inferior goods ( a ) b. Positive
Cross demand for substitutes ( b ) c. Income demand is direct relationship or positive
Cross demand for ( d ) d. Negative.
complements
A B
Perfect inelastic ( d ) EP > 1

1St Year, 1st Semester AECO 141 Page: 15 of 24

 More than unit elastic demand ( a ) EP = infinite
Unitary elastic demand ( c ) EP = 1
Less than unitary elastic demand ( e ) EP = 0
Perfect elastic demand ( b ) EP < 1

A B
Perfect elastic/infinite elastic supply ( a ) a. ES = infinite
Perfect inelastic/infinite inelastic ( b ) b. ES = 0
supply
More elastic supply/ more than unitary ( e ) c. c. ES = 1
Elastic supply
Unitary elastic supply ( c ) d. ES = less than 1
Less elastic supply/less than unitary ( d ) e. ES = greater than 1

A B
Monopoly ( f ) a. Two firms, homogeneous product
Perfect duopoly ( a ) b. Few firms, homogenous product.
Imperfect duopoly ( g ) c. Many firms, heterogeneous product.
Perfect oligopoly ( b ) d. Many firms, heterogeneous product
Imperfect oligopoly ( e) e. Few firms, heterogeneous product.
Monopolistic competition ( c ) f. One firm, heterogeneous product.
Perfect competition ( d ) g. Two firms, heterogeneous product.

A B
Progressive taxation ( b ) a. Rate of tax remains same irrespective of
level of income
Proportional taxation ( a ) b. Rate of tax increases with increases in
income of the individual.
Regressive taxation ( d ) c. Rate of tax increases with increasing in
income only up to certain level and remain
constant.
Degressive taxation ( c ) d. Rate of tax decreases with the increase in
income

A B

1St Year, 1st Semester AECO 141 Page: 16 of 24

 Principle of maximum ( c ) a. Public expenditure should not involve
social Benefits wastage of resources.
Principle of economy ( a ) b. Government should keep the budget
Well balanced.
Principle of sanction ( d ) c. Public expenditure should offer Maximum
benefits to society.
Principle of balanced ( b ) d. Public expenditure meant for Execution
budget should be sanctioned by A competent
authority.

A B
Cannon of equality ( b ) a. Tax payment should be convenient for
all the individuals.
Cannon of certainty ( d ) b. Taxes are imposed on the individuals
based upon their ability to pay for it.
Cannon of convenience ( a ) c. Low cost of collection of taxes by the
government from tax payers
Cannon of economy ( c ) d. Individual must be aware of what he is
going to pay.

A B
Canon of fiscal adequacy ( d ) Tax revenue generated should reduce the
economic inequalities.
Cannon of elasticity ( f ) Remove derived from taxes should
be utilized for community welfare
Cannon of simplicity ( e ) Few taxes should be imposed on different
commodities.
Cannon of diversity ( c ) Amount of taxes should be adequate to meet
government expenditure.
Cannon of achievement of ( b) Tax system should be more flexible
Social and economic
objectives
Cannon of neutrality ( a ) Tax system should yield more revenue

OBJECTIVE TYPE QUESTIONS:

1. For LDMU to be universally applied it should possess [3]

1St Year, 1st Semester AECO 141 Page: 17 of 24

 A. Consumer should be rational in selecting commodity that gives him maximum
satisfaction

B. Utility is not measurable and it is not quantified

C. This law assumes that a particular want is satiable

D. Marginal utility of money gradually decreases.

1. A, B, C, D 2. A, B, D 3. A, C only 4. B, D only
2. For applicability of LEMU the following limitations are present [4]
A. Effect of fashions and customs
B. Cardinal measurement of realistic
C. MU of money is constant
D. Non availability of commodities

1. A,B,C,D 2. A,B 3. A,C 4. A,D

3. In case of movement along the demand curve: [b]

A. There is shift in the demand curve and consumer moves up and down along the same
demand curve
B. There is no shift in the demand curve and consumer moves up and down along the same
demand curve
C. There is no shift in the demand curve and consumer moves only upward along the
demand curve
D. There is shift in the demand curve and consumer moves side wards.

4. In case extension of demand: [c]

A. Quantity demanded of a commodity changes due to change in price of commodity and

other factors also.
B. Quantity demanded for a commodity changes due to changes in the demand of
commodity and other factors remain constant
C. Quantity demanded for a commodity changes due to change in the price of the
commodity and other factors remains constant.
D. Quantity demanded for a commodity changes due to change in demand of commodity
along with the other affecting factors.

5. The consumers surplus is important mainly to explain ; [3]

A. Comparison between the economic welfare or conjectural advantages

1St Year, 1st Semester AECO 141 Page: 18 of 24

 B. To determine monopoly price
C. To explain the elasticity of demand
D. Measure difference between value in exchange and value in use

1. A,B,C 2. A, C only 3. A, B, C, D 4. C,D only

6. Difficulties in measuring the consumers surplus are ; [1]

A. It is a senseless concept
B. Purely hypothetical
C. Commodities have high prestige value
D. No applicable to necessities of life

1. A, B, C ,D 2.A, D only 3. B, C only 4. A,C,D only

7. The conditions to be fulfilled to arrive at the consumers equilibrium is [D]

A. Price line should be tangent to IDC.
B. Slope of price line should be equal to the slope of IDC.
C. IDC should be convex to origin.
D. All the above

8. When the marginal physical product is zero; [A]

A. Short run maximum cost is maximum.
B. Short run maximum cost is constant
C. Short run maximum cost is minimum.
D. Short run maximum cost primarily increases and gradually decreases.

9. Fixed factors among the short run production function constitute; [C]
A. Labour
B. Seed
C. Land
D. Fertilizer

10. In case of short run total variable cost; [B]

A. Cost varies with the level of input.
B. Cost varies with the level of output.
C. Cost does not varies with the level of output
D. Cost does not varies with both level of output and level of input

11. The short run average variable cost is given by the formula [D]

A. SRAVC = SRTV C / Y. B. SRAVC = Px / APP.

C.SRAVC = SRATC - AFC. D. all the above

12. When the output is zero, variable cost is; [A]

A. Zero B. unity C. infinity D. negative

13. In case of short run production function; [ B]

1St Year, 1st Semester AECO 141 Page: 19 of 24

 A. all the factors are fixed.
B. only few factors are fixed and others are variable.
C. all the factors are variable.
D. may or may not be fixed.

12. Important functions of money [1]

A. Medium of exchange.
B. Measure of value and store of value
C. Standard or differed payment
D. Transfer of value.

1. A, B, C, D 2. A, B, C 3. A, C 4. B, D.

13. In the communist economic system [C]

A. Public sector is absent and only private sector prevails

B. Public sector is major and private sector is minor.
C. Private sector is absent and only public sector prevails.
D. Both public and private sectors are in equal proportions.

14. The role of government is crucial in case of--------economy [ C]

A. Socialist and communist B. communist and capitalistic

C. Socialistic and mixed. D. mixed and capitalistic.

15. Example of socialistic economy [B]

A. U.K. B. Australia C. Cuba D. India

16. Example of communistic type of economy [C]

A. Japan B. Great Britain C. Russia D. Pakistan

17. Mixed economy is seen in case of [ D]

A. India B. Pakistan C. None of the two D. Both

18. In case of direct tax: [A]

A. It is imposed upon the income of individual.

B. Tax payer and tax bearer are different.
C. Burden can be shifted.
D. Impact and incidence lie on different points.

19. In case of indirect tax; [A]

A. It is imposed upon the income of individual.
B. Tax payer and bearer are different.

1St Year, 1st Semester AECO 141 Page: 20 of 24

 C. Impact and incidence lie on different points.
D. Also called commodity taxes.

Incorrect among them is -------------

20. With regard to the public finance; [ C]

A. It deals at the macro level because it is representing for the entire nation/ state.

B. Welfare of people is the main concern.

C. Individual has power to create the money.

D. Deals with both material and non material goods.

Incorrect among them is ---------------------

21. With regard to the private finance; [B]

A. Creation of wealth is the main creation.

B. Deals with both material and non material goods.
C. Returns should be at least in proportion to the expenditure made by the individual.
D. Intermediate returns are more important for the

individual. Find out the incorrect statement ------------------------

22. Features of tax; [D]

A. Compulsory payment by individual.
B. Money is paid by public.
C. Absence of quid pro quo.
D. D. All the above.

23. Example for the capitalistic economy [A]

A. USA B. Canada C. Cuba. D. Pakistan

24. Measures to control inflation; [D]

A. Credit control. B. Demonstrating of country.

C. Issue of new currency. D. All the above

FORMULAE

1St Year, 1st Semester AECO 141 Page: 21 of 24

Rate of inflation = Price level of ( tth )year -price level of ( t-1th ) year / price
level of (t－1th) year x 100
Consumer price index = Cost of the bundle in the given period / cost of bundle in base
year x 100
GDP deflator = Nominal gdp / real gdp x 100.
GNP = Gdp ＋ net income from abroad.
GNP at factor cost = Gnp at market prices － indirect taxes ＋ subsidies.
NNP = Gnp － depreciation.
Real income = Nnp at current year x base year index / current year index.
Per capita income = National income of current year / population in current year.
Economic profit = Total returns － total expenditure.
Price elasticity of supply = % Change in quantity supplied of commodity / % change of
(es) price of commodity.

Price elasticity of demand = % Change in quantity demanded of commodity / % change in

(ep) price of commodity.
Average physical product = Total output / variable input ( y / x)
Marginal physical = Change in output / change in input (δy / δx.)
product
Total value product = Total physical product x price of the commodity (tpp x py)
Average value product = Average physical product x price of output (app x py)
Marginal revenue = Change in total revenue / change in output ( δ tr / δ y)
Marginal cost = Change in total cost / change in output ( δ tv / δ y)
Marginal input cost = Change in total cost / change in input (δ tc / δ x)
Marginal value product = Change in total returns / change in input (δ tr / δ x)

Short run total cost = Total fixed cost ＋ short run total variable cost
Average fixed cost = Total direct cost / output. = tfc / y.
Short run average = Short run total variable cost / output
variable cost
Short run average total = Short run total cost / output = srtc / y.
cost
Short run marginal cost = Change in short run total cost / change in output (δ srtc / δ y)

EXPANSIONS

1St Year, 1st Semester AECO 141 Page: 22 of 24

 1. TFC : Total fixed cost

1St Year, 1st Semester AECO 141 Page: 23 of 24

 2. SRTVC : Short run total variable cost.
3. SRTC : short run total cost.
4. AFC : Average fixed cost.
5. SRAVC : Short run average variable cost
6. SRATC : Short run average total cost
7. SRMC : Short run marginal cost
8. IDC : Indifference curve
9. TPP : Total physical product
10. MPP : Marginal physical product
11. APP : Average physical product
12. TVP : Total value product.
13. AVP : Average value product.
14. MR : Marginal revenue
15. MC : Marginal cost.
16. MIC : Marginal input cost.
17. MVP : Marginal value product.
18. LDR : Law of diminishing returns.
19. LVP : Law of variable proportions.
20. GDP : Gross domestic product.
21. GNP : Gross national product.
22. NNP : Net national product.
23. PCI : Per capita income.
24. VAT : Value added tax.
25. CPI : Consumer price index.
26. WPI : Wholesale price index.
27. PPI : Producer price index.
28. MEC : Marginal efficiency of capital.

1St Year, 1st Semester AECO 141 Page: 24 of 24