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1 AND MACRO ECONOMICS
(Total Marks : 07) (Marks with Option : 10)
MEMORY CHART
1 BRANCHES OF MODERN ECONOMICS
2 MICRO ECONOMICS
Definitions
Rent
Demand Analysis Wages Efficiency in Production
Supply Analysis Interest Efficiency in Consumption
Profit Overall Economic Efficiency
(1)
2 Reliable Series
6 MACRO ECONOMICS
Definitions
Theory of Theory of
Consumption Investment
Function Function
Theory of
Business Cycles
(1) Study of Aggregates
8
(2) Income Theory
(3) General Equilibrium Analysis
FEATURES OF (4) Interdependence
MACRO ECONOMICS (5) Lumping Method
(6) Growth Models
(7) General Price Level
(8) Policy-oriented
Q.1. Define Micro Economics. What are the features of Micro Economics?
Q.2. Define Macro Economics. What are the features of Macro Economics?
Q.3. Distinguish between Micro Economics and Macro Economics.
◄● ● ● ● ● ● ●►
2 UTILITY ANALYSIS
MEMORY CHART
1 UTILITY Utility is a power or capacity of a commodity or service to satisfy a human want.
E.g. Water, pen, doctor service, lawyer service, etc.
2 FEATURES OF UTILITY
(1) It is a relative concept. E.g. Woollen clothes → in winter.
(2) It is a subjective concept. E.g. Walking stick to an old man.
(3) It is ethically neutral concept. E.g. Knife, gun, rope.
(4) It differs from usefulness. E.g. Liquor, drugs.
(5) It differs from pleasure. E.g. Medicines, injections.
(6) It differs from satisfaction. E.g. Washing powder, soap.
(7) It cannot be measured.
(8) It is multipurpose. E.g. Electricity, wood, steel.
(9) It depends on intensity of want. E.g. Food for hungry person.
(10) It forms the basis of demand.
3 TYPES OF UTILITY
4 CONCEPT OF UTILITY
(3)
4 Reliable Series
5 RELATIONSHIP BETWEEN TOTAL UTILITY AND MARGINAL UTILITY
(a) Total Utility increases Marginal Utility decreases.
(b) Total Utility becomes constant Marginal Utility becomes zero.
(c) Total Utility declines Marginal Utility becomes negative
Y Point of satiety
Units of x Total utility Marginal Utility TU curve
32
1 10 12 S
4 28 4 20
5 30 2 16
6 30 0 12
7 28 –2
8
4 MU curve
X
0 1 2 3 4 5 6 7
– 4 Units of Commodity x Disutility
3 6 6
4 4
4
5 2
6 0 2
7 – 2
X
0 1 2 3 4 5 6 7
– 2 Units of Commodity x MU
(Disutility)
Economics (Std. XII) 5
9 EXCEPTIONS TO THE LAW OF DIMINISHING MARGINAL UTILITY
(1) Hobbies (2) Miser (3) Addictions (4) Power (5) Money
Relation Conclusion
MU x > Price x — Intra Marginal Units → Consumer willing to buy
MU x = Price x — Marginal Unit → Consumer’s Equilibrium
MU x < Price x — Extra Marginal Units → Consumer not willing to buy
The following schedule explains relationship between Marginal Utility and Price :
MU MU in terms of Market Price Comparison
No. of
units money unit between MU and
units
of x 1 unit = ` 10 1 unit = ` 10 price
1 10 100 (10 × ` 10) ` 50 100 MU > ` 50
2 8 80 (8 × ` 10) ` 50 80 MU > ` 50
3 7 70 (7 × ` 10) ` 50 70 MU > ` 50
4 5 50 (5 × ` 10) ` 50 50 MU = ` 50
5 3 30 (3 × ` 10) ` 50 30 MU < ` 50
6 1 10 (1 × ` 10) ` 50 10 MU < ` 50
Q.1. State and explain the law of diminishing marginal utility with exceptions.
[ Note : All laws have to be explained with the help of schedule, graph and assumptions.]
Q.2. Explain the relationship between Total Utility and Marginal Utility.
Q.3. Explain the relationship between Marginal Utility and Price.
◄● ● ● ● ● ● ●►
3(A) DEMAND ANALYSIS
MEMORY CHART
1 DEMAND UTILITY
2 DEFINITION OF DEMAND According to Benham, “the demand for anything at a given price
is the amount of it, which will be bought per unit of time at that
price.”
3 FEATURES OF DEMAND
(1) It is a relative concept. (2) It is expressed with reference to time and price.
4 DEMAND SCHEDULE
(6)
Economics (Std. XII) 7
Y D Y
D
60 10
Demand Curve Market
50
8 Demand Curve
40
Price (in `)
Price (in `)
6
30
4
20
10 2
D D
X X
0 1 2 3 4 5 6 0 20 40 60 80 100
Quantity Demanded (in kgs.) Quantity Demanded (in kgs.)
5 (1) Law of
(5) New Consumers Diminishing
REASONS FOR DOWNWARD Marginal Utility
SLOPPING DEMAND CURVE
(4) Multipurpose Uses (2) Income Effect
6 TYPES OF DEMAND
8 LAW OF DEMAND
Definitions
● Dx = f P(x)
Prof. Alfred Marshall (‘Principles of Economics’, 1890)
● “ Other things being equal, higher the price of a commodity, ● Inverse relationship
smaller is the quantity demanded and lower the price of a between price and
commodity, larger is the quantity demanded.” quantity demanded.
8 Reliable Series
(1) No change in income of consumer
9
(2) No change in size of population
(3) No change in price of substitute goods
ASSUMPTIONS TO (4) No change in price of complementary goods
LAW OF DEMAND
(5) No change in tastes, habits, preference of consumer
(6) No expectations about future changes in prices
(7) No change in taxation policy.
Price (in `)
30
40 2
20
30 3
10
D
20 4
X
10 5 0 1 2 3 4 5
Quantity Demanded (in kgs.)
Conclusion :
(i) As price decreases Demand increases.
(ii) As price increases Demand decreases.
(ii) Demand curve ● Slopes downwards
● From left to right
● Shows inverse relation between price and demand
● Indicates negative slope
11 Habitual goods
Price illusion
● Exceptional demand curve slopes upwards from left to right showing positive slope indicating
that as price increases, demand decreases and vice a - versa
Economics (Std. XII) 9
12 VARIATION IN DEMAND
Price (in `)
P Expansion of
demand a
P
b D
P1
D
X X
0 Q Q1 0 Q2 Q
Quantity Demanded in kgs Quantity Demanded in kgs
● Downward movement on same demand ● Upward movement on same demand
curve. curve.
13 CHANGE IN DEMAND
increase decrease
Price ( ` )
a b
Price ( ` )
P c a
P
D1
D D1 D
X X
0 Q Q1 0 Q2 Q
Quantity Demanded (kgs) Quantity Demanded (kgs)
● DD - curve shifts to right of original ● DD - curve shifts to left of original
DD - curve. DD - curve.
◄● ● ● ● ● ● ●►
3(B) ELASTICITY OF DEMAND
MEMORY CHART
1 ELASTICITY OF DEMAND (Ed)
(10)
Economics (Std. XII) 11
(B) Perfectly Inelastic Demand (Ed = 0) : Y Perfectly
● Change in price brings no effect on quantity demanded. inelastic
D
demand
● E.g. 20% fall or rise in price will have no effect on quantity P1
demanded.
20 %
Price
● Slope of curve : Vertical straight line parallel to ‘ Y ’ - axis. P Ed = 0
20 %
P2
D
X
O Q
Quantity Demanded
(C) Unitary Elastic Demand (Ed = 1) : Y Unitary elastic demand
● Change in price brings proportionate change in quantity
D
demanded.
● E.g. 50% fall in price of a commodity leads to 50% rise in P
quantity demanded. 50 % Ed = 1
Price
● Slope of curve : Rectangular hyperbola.
P1
D
50 %
X
0 Q Q1
Quantity Demanded
(D) Relatively Elastic Demand (Ed >1) : Y Relatively elastic demand
● Change in price brings more than proportionate change in
quantity demanded. D
P
● E.g. 25 % fall in price of commodity leads to 50% rise in
Ed > 1
quantity demanded.
Price
25 %
● Slope of curve : Flatter slope.
P1
D
50 %
X
0 Q Q1
Quantity Demanded
(E) Relatively Inelastic Demand (Ed < 1) : Y Relatively inelastic demand
● Change in price brings less than proportionate change in D
quantity demanded. P Ed < 1
● E.g. 50% fall in price leads to 25% rise in quantity
Price
50 %
demanded.
● Slope of curve : Steeper slope. P1
25 % D
X
0 Q Q1
Quantity Demanded
●
Elasticity of Demand is ● Total Expenditure refers ● Elasticity of Demand is
measured by dividing the to the product of price and measured by dividing upper
percentage change in demand quantity demanded. segment of demand curve by
by the percentage change in the lower segment of demand
price. curve.
12 Reliable Series
(A) (B) (C)
Ratio or Percentage Method Total Expenditure Method Point Method
●
Also known as Arithmetic ● Also known as Total Outlay ● Also known as Geometric
Method. Method. Mean.
●
Formula : Formula :
● ● Formula :
Lower segment of Demand
Δ Qx Px Total Expenditure
Ed = × curve below a given point
Δ Px Qx = Price × Quantity demanded Ed = Upper segment of Demand
curve below a given point
Price (in `)
B Ed > 1
→ Ed = 1
C Ed = 1
Total Outlay decreases
→ Ed < 1 D Ed < 1
Ed = 0
X
0 E
Quantity Demanded
6 To Government
Public Utilities
Q.1. Define elasticity of demand. Explain the types of price elasticity of demand.
Q.2. Explain the importance of elasticity of demand.
Q.3. Explain the Total Outlay Method of measuring elasticity of demand.
Q.4. Explain the Point Geometric Method of measuring elasticity of demand.
◄● ● ● ● ● ● ●►
4 SUPPLY ANALYSIS
MEMORY CHART
1 TOTAL OUTPUT It is the sum total of the quantity of the commodity produced at a given period
of time in the economy.
2 STOCK ● It is the total quantity of commodity available for sale with a seller at a particular
point of time.
● Stock is a source of supply. ● Stock exceeds supply or equals to supply.
3 SUPPLY It is a relative term
It is a flow concept.
i.e. related to time and price
Meaning : Definition :
● It means the various quantities of a ● Supply refers to the relation between market
commodity offered for sale by producers prices and the amount of goods that producers
during a given period of time at a given are willing to supply — Paul Samuelson
price.
(13)
14 Reliable Series
Individual Supply Curve Market Supply Curve
It is a graphical presentation of Individual
● It is a graphical presentation of Market
●
‘SS’ Schedule. ‘SS’ Schedule.
Y Y
SS – Individual Supply Curve S S
50 50 SS – Market Supply Curve
40 40
Price (in `)
Price (in `)
30 30
20 20
S
10 10
S
X X
0 100 200 300 400 500 0 300 600 900 1200 1500 1800
Quantity Supplied (in kgs.) Quantity Supplied (in kgs.)
Conclusion : Conclusion :
● Individual ‘SS’ curve slopes upwards ● It is Market ‘SS’ curve slopes upwards
from left to right, indicating a direct from left to right indicating a direct
relationship between price and quantity relationship between price and market
supplied. supply.
● It has a positive slope. ● It has a positive slope.
5 DETERMINANTS OF SUPPLY
(Reduced Syllabus for 2020 - 21)
6 LAW OF SUPPLY
Definition
Prof. Alfred Marshall (Principle of Economics – 1890)
● “Other things being constant, higher the price of a commodity, more is the quantity
supplied and lower the price of a commodity less is the quantity supplied”
8 SUPPLY SCHEDULE AND SUPPLY CURVE
Price (in `)
30
20 200
20
30 300
S
10
40 400
X
50 500 0 100 200 300 400 500
Quantity Supplied (in kgs.)
● Conclusion :
(i) As price increases Supply increases.
(ii) As price decreases Supply decreases.
(ii) Supply curve ● Slopes upward
● from left to right
● Shows direct relationship between price and supply
● Indicates positive slope.
9 Agricultural goods
Supply of Labour Urgent need for cash
EXCEPTIONS TO
Rare goods THE LAW OF SUPPLY Perishable goods
10 VARIATION IN SUPPLY
P1
Price
S S
X X
0 Q Q1 0 Q2 Q
Quantity Supplied Quantity Supplied
● Upward movement on same supply curve. ● Downward movement on same suppply
curve.
16 Reliable Series
CHANGES IN SUPPLY
11
● It is due to change in other factors, price of commodity remaining constant.
2 Types
Price (`)
P b c
Price
P a
S S1
S2
S
Q Q1 X X
0 0 Q2 Q
Quantity Supplied Quantity Supplied
● Supply curve shifts to the right of original ● Supply curve shifts to the left of original
supply curve. supply curve.
12 CONCEPTS OF COSTS
(A) Total Cost (TC) (B) Average Cost (AC) (C) Marginal Cost (MC)
● It is the total expenditure ● It refers to the cost of ● It is the net addition made
incurred by a firm on the factors of production per unit. to total cost by producing
production of goods and services. one more unit of output.
TC
● TC = TFC + TVC ● AC = TQ ● MCn = T Cn – T Cn-1
● TVC : Expenses incurred on variable factors i.e. raw materials, labour, power, fuel, etc.
13 COST OF REVENUE
(A) Total Revenue (TR) (B) Average Revenue (AR) (C) Marginal Revenue (MR)
● It is the total sales proceeds ● It refers to the revenue per ● It refers to net addition made
of a firm by selling a unit of output sold. to total revenue by selling an
commodity at a given price. extra unit of a commodity.
TR
● TR = Price × Quantity ● AR = TQ ● MRn = T Rn – T Rn-1
◄● ● ● ● ● ● ●►
5 FORMS OF MARKET
MEMORY CHART
1 ● A place where ● An arrangement through
goods are sold which buyers and sellers come
and purchased. in contact with each other
MARKET directly or indirectly and
exchange of goods and services
Definition takes place among them.
● “ Economists understand the term market, not any particular market place in which
things are bought and sold, but the whole of any region in which buyers and sellers
are in such a close contact with one another that the prices of the same goods tend to
equality easily and quickly.” — Augustin Cournot
2 CLASSIFICATION OF MARKET
3 PERFECT COMPETITION
5 ● Derived from Greek word ‘ Mono ’ which ● One seller controlling the entire Market
means ‘ single ’ and ‘ Poly ’ which means Supply for a product which has no close
‘ seller ’. substitute.
MONOPOLY
6 ● Derived from Greek ● A market where there are a few firms (sellers) in
word ‘ Oligo ’ which the market producing either a homogeneous product
means ‘ few ’ and or a differentiated product.
‘ Poly ’ means ‘ seller ’. ● E.g. mobile service providers, cement companies etc.
OLIGOPOLY
(1) Few firms or sellers
(2) Interdependence
(3) Advertising
Features of Oligopoly (4) Entry barriers
(5) Lack of uniformity
(6) Uncertainty
Economics (Std. XII) 19
7 MONOPOLISTIC COMPETITION
◄● ● ● ● ● ● ●►
6 INDEX NUMBERS
MEMORY CHART
1 ● Statistical Tools in ● Device to measure changes in an
Economics. economic variable over a period of time.
INDEX NUMBERS
Definitions
FEATURES OF
INDEX NUMBERS
(7) Computed from single
or group of variables (5) Called as ‘barometer of
economic activity
(20)
Economics (Std. XII) 21
(1) Helps in framing policies
4
(2) Helps in studying trends and tendencies
(3) Helps in forecasting future economic activity
SIGNIFICANCE OF (4) Helps in measurement of inflation
INDEX NUMBERS
(5) Helps in presenting financial data in real terms
(6) Helps in determining depreciation cost
(7) Helps the government to adjust National Income
(7) Formula
Price Index Quantity Index Value Index Laspeyre’s Price Paasche’s Price
Number Number Number Index Number Index Number
◄● ● ● ● ● ● ●►
7 NATIONAL INCOME
MEMORY CHART
1 Central Statistical Subject matter of
Organisation (CSO) Macro - Economics
NATIONAL
INCOME
National Income Measure of all
Committee (NIC) (1949) economic activities
Indicator of economic welfare of
the people in a country
(1) Total income of the nation is (2) National Income is the flow of goods and services
called national income. produced in an economy during a year.
(1) National Income Committee (2) Prof. A.C. Pigou (3) Prof. Irving Fisher
Appointed by
● ● “National dividend is ● “National dividend or
Government of India. that part of objective income consists solely
● In August, 1949 income of the community of services as received
● Chairman including ofcourse by ultimate consumers,
income derived from whether from their
Prof. P. C. Mahalanobis
abroad which can be material or from their
● Members measured in money.” human environments.”
Prof. D. R. Gadgil
Dr. V. K. R. V. Rao
● Definition :
“A national estimate measures the
volume of commodities and services
turned out during a given period
counted without duplication.”
5 CIRCULAR FLOW OF NATIONAL INCOME
Consumption Expenditure on
Goods and Services
Households Firms
◄● ● ● ● ● ● ●►
8 PUBLIC FINANCE IN INDIA
MEMORY CHART
1 FUNCTIONS OF GOVERNMENT
● ‘ Public ’ means ‘Government’ and ‘ Finance ’ means ‘ Income and Expenditure of government at
central, state and local levels.’
I II III IV V
Public Public Public Debt Fiscal Financial
Expenditure Revenue Policy Administration
Internal External
(A) Tax (B) Non - Tax
(1) Public expenditure Revenue expenditure
Direct Indirect (2) Public revenue and debit policy for
(3) Public debt overall growth
(1) Proportionate Goods and
(2) Progressive Services
(3) Regressive Tax (GST) (1) Fees
(2) Prices of public good and service
(3) Special Assessment
(A) Revenue expenditure (4) Fines and penalties
(B) Capital expenditure (5) Gifts, grants and donations
(C) Developmental expenditure (6) Special levy
(D) Non- Developmental expenditure (7) Borrowings
(25)
26 Reliable Series
5 PUBLIC EXPENDITURE
● Expenditure incurred by the public authority (Central, State and Local Bodies) for protection of their
citizens, for satisfying their collective needs and for promoting their economic and social welfare.
8 PUBLIC REVENUE
Meaning : Sources :
Aggregate collection of income with the
● (A) Tax Revenue
government through various sources. (B) Non - Tax Revenue
9 TAXES
Definitions
TYPES OF TAXES
10 NON-TAX REVENUE
Meaning :
● Revenue received by the government administration through other sources than tax
is called as non-tax revenue.
Borrowings Fees
Special levies
SOURCES Prices of Public goods
Gifts, Grants and and Services
Donations
11 PUBLIC DEBT
Meaning
TYPES OF DEBT
12 FISCAL POLICY
● It is the financial policy implemented by the government through which it adjusts its spending
levels and tax rates.
13 FINANCIAL ADMINISTRATION
● A smooth and efficient implementation of revenue, expenditure and debt policy of the
Government, is referred to as financial administration.
● It includes preparation and implementation of the Government budgets.
Divided into 2
TYPES OF BUDGET
(Reduced Syllabus for 2020 - 21)
Q.1. Explain the various reasons for the growth of public expense.
Q.2. Explain the main components of budget.
Q.3. Explain the sources of tax and non - tax revenue.
◄● ● ● ● ● ● ●►
MONEY MARKET AND CAPITAL MARKET
9 IN INDIA
(Total Marks : 07) (Marks with Option : 10)
MEMORY CHART
1 (1) Financial Institutions (2) Financial Markets
INDIAN FINANCIAL
SYSTEM
(4) Financial Services (3) Financial Instruments
2 ● It refers to a market where sale and purchase of financial assets like bonds,
stocks, derivatives, government securities, foreign currency, etc. is undertaken.
3 MONEY MARKET
Meaning
● It is a market for lending and borrowing of short term funds.
● It is a market for ‘near money’.
(4) It started its operations on (3) The RBI Act of 1934 provides
1st April, 1935 as a private the basis of the functions of
shareholders’ bank. the bank
(29)
30 Reliable Series
5 DEFINITIONS OF RBI (CENTRAL BANK)
10 (1) It came into existence with the enactment of the
Co - operative Credit Societies Act of 1904.
(2) Helps in the development of industry, agriculture and other key sectors.
(1) Set up in 1988 as (2) Formed on the (3) Jointly owned by the RBI,
a money market recommendations of public sector banks and
institution. the Vaghul Committee. financial institutions.
13 UNORGANISED SECTOR
Comprises of Activities
Largely confined to
the rural areas.
Merchant Banks Mutual Funds Leasing Companies Venture Capital Companies Others
Economics (Std. XII) 33
19 (5) Bring operational efficiency. (1) Mobilises long term savings
ROLE OF
(4) Brings integration among (2) Provides equity capital
CAPITAL MARKET
real and financial sector,
equity and debt instruments,
IN INDIA
government and private (3) Quick valuation of equity and
sector, etc. debt.
◄● ● ● ● ● ● ●►
10 FOREIGN TRADE OF INDIA
MEMORY CHART
1 INTERNAL Buying and selling of goods and services within the boundaries of a nation are referred
TRADE to as ‘ Internal Trade ’ or ‘ Domestic Trade ’ or ‘ Home Trade ’.
2 FOREIGN TRADE
Meaning Definition :
● Trade between the different countries ● Wasserman and Hultman :
of the world is called ‘ Foreign Trade ’ “International Trade consists of
or ‘ International Trade ’ or ‘ External transaction between residents of
Trade ’. different countries”.
(34)
Economics (Std. XII) 35
(1) Increase in share of Gross National Income
4
(2) Increase in volume and value of trade
Meaning
● It is the value of exchange of goods and services among the
citizens, businessmen, firms and government, etc.
Bentham Samuelson
● “ Balance of trade of a country is the ● “ If export value is greater than the
relation over a period between the import value it is called as trade
values of her exports and imports of surplus and if import value is greater
physical goods.” than export value, then it is called as
trade deficit. ”
Meaning
● Balance of trade includes the value of imports and exports
of visible goods and invisible goods.
◄● ● ● ● ● ● ●►