1st semester BCom economics Important 2-mark questions [PDF] Calicut university

Important 2 mark questions

1. What is Managerial Economics?

Economics is the study of the production, distribution, and

consumption of goods and services. Managerial economics

involves the use of economic theories and principles to make

decisions regarding the allocation of scarce resources.

2. Define Economics.

 Adam Smith's Definition

•  Wealth/Classical Definition
• Year - 1776
•  Book- "An Enquiry into the Nature and Causes of Wealth of Nations”
•  Definition – According to Adam Smith “Economics as the study of the nature and causes of wealth of nations”.

3. Macro Economics and Micro Economics

Microeconomics and macroeconomics are related but separate

approaches to studying the economy. Microeconomics is concerned with

the actions of individuals and businesses, while macroeconomics is

focused on the actions that governments and countries take to influence

broader economies.

4. Equi-marginal principle

This principle is also known as the principle of maximum satisfaction. In

this way, this principle provides a base for maximum exploitation of all

the inputs of a firm so as to maximise the profitability.

5. Define decision making.

Decision making means deciding what to do and what not to do.

According to James Stoner, "Decision making is the process of identifying

and selecting a course of action to solve a specific problem".

6. Meaning of Forward Planning

Forward planning simply refers to formulation of future business plans.

It means establishing plans for the future to carry out the decisions

taken. In short, forward planning means planning for the future.

7. What is demand?

In ordinary language demand means thus a desire which is backed by

willingness to pay and ability to pay is called demand in economics.

8. Law of Demand

When the price of a commodity falls the quantity demanded

increases and when its price increases its quantity demanded

decreases. Thus there is an inverse relationship between the price of

a commodity and its quantity demanded. In economics, this

relationship is known as the Law of Demand.

9. Meaning of Utility

Utility is generally defined as the capacity or power of a commodity to

satisfy a want.

10.Total utility

It is the sum of the utilities obtained from consuming all the units of a

commodity.

11.Marginal utility

Marginal utility is the utility of an additional unit. It refers to the utility

derived from the last unit of a commodity consumed.

12.Cardinal utility theory

The cardinal utility theory states that utility is measurable just as height,

weight, length, temperature etc. According to cardinal utility theory

utility is measurable cardinally or quantitatively. It means utility can be

measured in cardinal numbers like 1, 2, 3 and so on.

13.Law of Diminishing Marginal Utility

Gossen was the first economist to present the law of diminishing

marginal utility. Law of Diminishing Marginal Utility states that as a

consumer consumes more and more units of a commodity, each

successive unit gives him lesser and lesser satisfaction. In other words,

as more and more units of a commodity are consumed, the total utility

from the commodity increases at a diminishing rate and may become

negative

14.Ordinal Utility Approach (Indifference Curve Analysis or Technique)

According to Indifference Curve Analysis, utility cannot be measured in

cardinal numbers Consumers can only say whether a good or a

combination of goods give him or her greater less, or equal satisfaction.

Consumers can simply rank the goods or combinations of goods in the

order of preferences. If all combinations of two or more goods give the

same level of satisfaction, the consumer will give equal preference to all

such combinations.

15.Consumers equilibrium

When the indifference map and budget line are combined together, we

can find out the consumers equilibrium.

16.Elasticity of demand

Elasticity means the expansion and contraction of an object as force is

applied and released.

Elasticity of demand is the ration of the percentage change in demand to

the percentage change in price

17.Supply

Supply means the quantity of a commodity a firm or a producer is

willing to supply at a given price during a given period of time.

18.Law of Supply

The law of supply is known as 'the second law of market. A high price

encourages suppliers to produce and sell more of the good. Accordingly,

the law of supply states that at higher prices higher quantity will be

supplied and at lower prices lesser quantity will be supplied.

 Es= Percentage change in quantity supplied

        _______________________________

        Percentage change in price

19.Price Mechanism

Price mechanism refers to the process of price determination by the

interaction of free market forces of demand and supply Demand and supply

of a commodity determine its equilibrium price.

20.Components of Price Mechanism

There are three components of price mechanism.

o principle of demand

o principle of supply

o Equilibrium price.

The principle of demand states that there is an inverse relation between

price and demand. This means when the price increases, demand decreases

and vice versa.

The principle of supply states that there is a direct relation between price

and supply. This means when the price increases supply also increases and

when the price decreases supply also decreases.

Equilibrium price is the price at which demand and supply of a commodity

are equal

21.Meaning of market

In economics, market is defined as "an arrangement by which buyers and

sellers of a commodity interact to determine its price and quantity" Thus,

market is a group of buyers and sellers and the institution or arrangement

by which they come together to trade

22.The firm reaches its equilibrium position when the following two

conditions are satisfied

1. The firm reaches the equilibrium position when it produces that level of

output at which Marginal Cost (MC) is equal to Marginal Revenue (MR).

2. At the equilibrium level of output the MC curve must cut MR curve from

below, i.e., MC curve should have positive slope.

23.Marshall conceived four time periods, namely, very short period

(market period), short period, long period and very long period or

secular period.

Market period: This may be a day or very few days. This period is so

short that the supply will be limited to the existing stock. Since the

supply is more or less fixed, demand alone determines the price. Most

of the perishable goods like milk, fish, egg, fruits etc. come under this

category.

24.Shutdown Point

The shutdown point is the level of output at which a firm minimizes its

losses by temporarily shutting down production in the short run.

The firm will stop production and quit the industry.

The shutdown point occurs where total revenue equals variable costs;

below this point, continuing production would only increase losses.

25.Monopoly

Thus monopoly is a market situation in which there is only one seller or

producer of a product for which there is no close substitute. He controls

the whole supply of a particular product.

26.price discrimination

The monopolist is the only producer in the market. He has a control over

the supply of the product. By virtue of his monopoly power, he is able to

charge different prices from different customers for the same product. This

is known as price discrimination.

27.Kinked demand curve

Under independent pricing, the demand curve will be kinked one. Kink

means "segmented'. The demand curve will be segmented at the

prevailing price level. The kinked demand curve has two segments. The

kink denotes the prevailing price level which the oligopolistic will have a

tendency to remain permanently. To explain price rigidity under

oligopoly

28.Price leadership

It occurs when one firm in a market (the leader) sets its price level or

price change, and the other firms in the market (the followers) adopt the

same or similar price level or price change.

29.Meaning of Oligopoly

Oligopoly is a market situation in which there are only few sellers

producing homogeneous or differentiated products. It is a competition

among the few because only a few big firms will be producing and

competing in the market.

30.What is duopoly?

A duopoly is a type of oligopoly where two firms have dominant or

exclusive control over a market,

Bcom Additional 2 mark Questions

1. Indifference Schedule

It is a schedule showing different combinations of two or more

commodities which yield the same level of satisfaction. Tabular

representation of satisfaction level of combination.

2. Indifference curve

If the combinations of the indifference schedules are

represented on a diagram, we shall get a line known as

indifference curve.

3. Budget line or price line

A budget line shows how much of the income of consumer is

allocated for each of the two commodities (say X and Y). In

simple words, it shows the quantity of two goods bought at their

fixed prices with the available income.

4. Income consumption curve

Thus, the curve that indicates the nature of change in income

and the direction of change in quantity of commodities

purchased or demanded is known as Income Consumption Curve

the ICC shows the relationship between income and

consumption. That is, it shows the effect of change in income on

consumption. ICC is also called income offer curve or income

expansion path

5. Consumer's Surplus

Thus we get extra or surplus satisfaction over and above the

price we pay. This is called Consumer's Surplus.

Consumer's surplus = what we are prepared to pay - What we

actually pay Or Total utility-Total amount spent

6. What is Direction of foreign trade

Direction of foreign trade means the countries to which India

exports its goods and services and the countries from which it

imports. Thus, direction of foreign trade consists of destination of

our exports and sources of our imports

7. What is Export House?

An export house is a registered exporter who fulfils the prescribed

criteria. It is entitled to certain facilities and incentives. Established

exporters are recognised as export houses of different grades.

8. What is special economic zone (SEZ)?

It is an area in which the business and trade laws are different from

the rest of the country. SEZs are located within a country's national

borders.

9. What is Exchange Rate?

Currencies are traded in the foreign exchange market at an

exchange rate. Exchange rate is the price of one currency in terms

of the other. It is the price paid in the home currency for a unit of

foreign currency.

10. What is Export processing zones (EPZs)

They are industrial estates that are fenced in for producing

manufactured goods for export. Provide for custom free and tax

freed export-oriented manufacturing, investment incentives and,

cheap utilities, lower wages and better infrastructure

11. What is Managed Floating Exchange rate?

Managed floating exchange rate lies in between of the two

extremes of fixed and floating exchange rate. Under such a system,

the exchange rate is allowed to move freely and determined by the

forces of the market (demand and supply). But when a difficult

situation arises, the Central Bank of a country can intervene to

stabilise the exchange rate.

12. . What is Adjustable peg system?

Under this system exchange rates are pegged or fixed for a period

of time. However, if a deficit or surplus of BOP becomes substantial,

the exchange rate is devalued or revalued

13. What is Crawling peg system?

In this system, a country keeps on adjusting its exchange rate to

new demand and supply conditions. The system requires that

instead of devaluing currency at the time of crisis, a country should

follow regular checks at the exchange rate

14. What is Capital Account Convertibility of The Rupee?

Capital account convertibility implies the right to transact in

financial assets with foreign countries without restrictions. When

there is completely free capital account convertibility, an Indian can

dispose of his assets in India and take the money out of the country

without hindrance.

15. Meaning of Intellectual Property

Intellectual property is the creation of the mind which has both

moral and commercial values. Examples of intellectual property

include an author's copyright on a book or article, logo etc.

16. Trademarks: 

A trademark is a distinctive sign which allows

consumers to easily identify the particular goods or services

that a company provides. It can be words, symbols, names,

devices or a combination of these.

17. Conglomerate FDI: 

In this type of FDI, a firm undertakes

unrelated business activities in a foreign country.

18. Foreign Portfolio Investment (FPI) or Foreign Indirect

Investment

If the investor only subscribes to the shares, bonds, debentures or

other securities abroad, it is called foreign portfolio investment. The

investment is made to earn a return in the form of interest or

dividend. The investor has no control over the investment.

19. Foreign Institutional Investment (FII)

Foreign Institutional Investment (FII) is inherently short term

investment linked to the financial markets. FIls are in the form

of portfolio investment both in the primary and secondary

capital markets. Flls can invest only upto 24% in a company.

Further investments would need special approval from the

company's board.

20. Meaning and Definition of MNCS

MNCs are companies which operate business in more than one

countries. MNCs are large business enterprises which extend

their business operations beyond the boundaries of the country

in which they were originally established.

21. Balance of trade: 

Simply speaking balance of trade means

the difference between value of exports and imports. Balance

of payments is favourable if exports exceed imports and un[1]favourable if imports exceeds export.

22. Meaning of Unemployment

Unemployment refers to a situation when people actively search

for jobs but are unable to find work. It is a situation in the labour

market where the supply of labour is greater than its demand.

a. Structural unemployment is when workers experience

unemployment for a long period of time as a result of

structural changes in an economy and its labor force.

b. Disguised unemployment exists when part of the labor

force is either left without work or is working in a

redundant manner such that worker productivity is

essentially zero.

23. Meaning of Poverty Line

Poverty line is the minimum level of income deemed adequate

for survival or work efficiency of a household on the basis of

biological consideration in a particular country.

BPL –Below poverty line

1. Absolute poverty: It is a condition where household income

is below a necessary level to maintain basic living

standards(food,shelter,cloths )

2. Relative poverty: When a house hold income is lower than

the median income in a particular country mainly in

developed countries is called relative poverty.

24. What is Deflation?

Deflation is the opposite of inflation. It is a situation where

prices are falling. This results in increase in purchasing power of

money.

25. What is Stagflation?

This is a phenomenon characterized by unemployment, lack of

growth, and inflation. It is a condition in an economy where it

experiences high unemployment, lack of growth and rapid

inflation simultaneously.

26. What is Parallel economy?

In the Indian economy, there is a dual existence of two

economies. One economy is called the legitimate economy.

There is complete record of the transactions undertaken in

such legitimate economies.

The other economy is called parallel economy. The

transactions of the economy that are not revealed in any

accounting books is called the parallel economy. It is also called

black economy because "black money" forms the basis of such

economy.

27. What is Black money?

Parallel economy is based on the unaccounted money of

the people. This unaccounted money is known as black

money. Black money is nothing but money generated in

transactions which are hidden from government in order

to avoid tax.

28. What is Demonetization?

Demonetization is the act of stripping a currency unit of its

status as legal tender. It occurs whenever there is a change in

national currency. The current form or forms of money is pulled

from circulation and retired, often to be replaced with new

notes or coins. 8th November 2016 is probably the most

remembered demonetisation date in India. Prime Minister

Narendra Modi had declared in a television broadcast that Rs.

500 and Rs. 1,000 notes would cease to be legal tender.

29. WTO and its objectives

The World Trade Organization (WTO) deals with the global

rules of trade between nations.

a. Its main function is to ensure that trade flows as

smoothly, predictably and freely as possible.

b. The overall objective of the WTO is to help its members

use trade as a means to raise living standards, create jobs

and improves people's lives.

30. What is opening up of Indian economy?

The economic liberalization in India refers to the series of policy

changes aimed at opening up the country's economy to the

world, with the objective of making it more market-oriented

and consumption-driven.

31. What are public goods?

These are goods that do not become more scarce when people

use them. National defense, clean air, and public education are

all examples of public goods.

32. Negative externalities

It occur when a transaction has a cost that neither the buyer

nor the seller are forced to pay. For example, a factory may

release air pollution into the environment, incurring large social

costs that neither the factory owners nor the consumers

purchasing their product pay.