High School

1. What is scarcity?

2. What is opportunity cost?

3. Point out any four features of a socialist economy.

4. Define monopoly.

5. Define marginal revenue.

6. What is variable cost?

7. Define cost.

8. What is a firm?

9. What is contract rent?

10. What is a commercial bank?

11. Define the money market.

12. What is the capital market? Explain.

13. Explain the types of banks.

14. What is government finance? Explain.

15. Explain the criticisms of the Ricardian Theory of Rent.

16. What are the differences between perfect and monopoly competition?

17. Calculate the profit of the firm when \( p = \text{Rs.}, Q=10 \) units, and \( AC = \text{Rs.} 25 \).

18. Derive \( MR \) and \( MC \) functions from the \( TR \) and \( TC \) functions given below:

\[ TR = 10 - 4Q^2 \]

\[ TC = 50 + 6Q^2 \]

19. Calculate the total fixed cost and total variable cost from the total cost function:

\[ TC = 10 + 8Q - Q^2 + 2Q^3 \]

20. The short-run total cost is \( 20 + 3Q - 0.02Q^2 + 0.01Q^3 \). If \( Q = 5 \) units, find:

(a) TFC

(b) AVC

(c) AFC

(d) MC

21. Define market. What are the different market structures?

22. Economics is the science of choice. Discuss.

Answer :


  1. Scarcity refers to the basic economic problem that arises because people have unlimited wants but resources are limited. Due to scarcity, people must make choices about how to allocate resources efficiently.


  2. Opportunity Cost is the cost of the next best alternative foregone when making a decision. It represents the benefits you could have received if you chose the next best option.


  3. Features of a Socialist Economy:


    • Public Ownership: Most resources and means of production are owned by the state.

    • Central Planning: Economic activities are planned by a central authority; there is limited role for market forces.

    • Equal Distribution of Wealth: The aim is to reduce disparities in wealth and ensure equitable distribution.

    • Social Welfare as a Priority: Provision of goods and services to meet citizens' needs, focusing on social welfare over profit.



  4. Monopoly is a market structure where a single seller controls the entire supply of a good or service, leading to limited competition and higher prices for consumers.


  5. Marginal Revenue is the additional revenue that a firm earns from selling one more unit of a good or service.


  6. Variable Cost is the cost that changes with the level of output produced, such as wages or raw materials.


  7. Cost is the monetary value incurred by a firm to produce goods or services, including fixed and variable costs.


  8. A Firm is a business organization that sells goods or services in exchange for revenue, undertaking production activities.


  9. Contract Rent refers to the actual amount of rent agreed upon between a landlord and tenant in a rental agreement.


  10. Commercial Bank is a financial institution that accepts deposits, offers checking account services, makes business, personal and mortgage loans, and offers basic financial products.


  11. Money Market is a segment of the financial market where financial instruments with high liquidity and short terms to maturity are traded.


  12. Capital Market is a market for buying and selling equity and debt instruments, facilitating the transfer of capital among investors and businesses.


  13. Types of Banks:




  • Commercial Banks: Offer deposits and loans to individuals and businesses.

  • Investment Banks: Specialize in large and complex financial transactions.

  • Central Banks: Manage currency, money supply, and interest rates.

  • Retail Banks: Provide services directly to consumers.



  1. Government Finance refers to the fiscal policies and operations by governmental institutions—including tax collection, expenditures, and debt management— to influence the economy.


  2. Criticisms of the Ricardian Theory of Rent:




  • Static Nature: Assumes no change in technology over time.

  • Based on Land Fertility Difference: Critics argue productivity can also be increased with investments, not only from natural fertility.

  • Focus on Agricultural Land: Relies heavily on agricultural context and does not extend well to industrial use.



  1. Differences Between Perfect and Monopoly Competition:



  • Number of Sellers: Perfect competition has many, monopoly has one.

  • Price Control: In perfect competition, firms are price takers, while monopolists set prices.

  • Entry Barriers: Perfect competition has free entry, monopoly has high barriers.



  1. Profit Calculation for p = Rs. Q = 10 units, and AC = Rs.25:



  • Let P = selling price per unit, then Profit = Total Revenue - Total Cost.

  • Profit = P * Q - (AC * Q)

  • This requires the value of P to calculate profit.



  1. Derive MR and MC from TR = 10 - 4Q² and TC = 50 + 6Q²:



  • Marginal Revenue (MR): MR = [tex]\frac{d(TR)}{dQ} = \frac{d(10 - 4Q²)}{dQ} = -8Q[/tex]

  • Marginal Cost (MC): MC = [tex]\frac{d(TC)}{dQ} = \frac{d(50 + 6Q²)}{dQ} = 12Q[/tex]



  1. Calculate TFC and TVC from TC = 10 + 8Q - Q² + 2Q³:



  • Total Fixed Cost (TFC): Constant term, TFC = 10

  • Total Variable Cost (TVC): TVC depends on Q, i.e., 8Q - Q² + 2Q³



  1. With the cost function 20 + 3Q - 0.02Q² + 0.01Q³ and Q = 5 units:



  • (a) TFC = 20

  • (b) AVC = (TVC)/Q = (3Q - 0.02Q² + 0.01Q³)/Q

  • (c) AFC = TFC/Q = 20/5 = 4

  • **(d) MC = [tex]\frac{d(3Q - 0.02Q² + 0.01Q³)}{dQ}[/tex]



  1. Market is a setup where buyers and sellers interact to trade goods and services.



  • Market Structures:

    • Perfect Competition: Many sellers sell identical products.

    • Monopolistic Competition: Many sellers sell similar, but not identical, products.

    • Oligopoly: Few sellers that may collude to set prices.

    • Monopoly: Single seller controls market.





  1. Economics as the Science of Choice:
    Economics studies how individuals and societies use limited resources to satisfy unlimited wants, essentially managing the choices that lead to the optimization of resource use. It analyzes trade-offs and opportunity costs to determine the most efficient paths for individuals and society.

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