Assam ASSEB HS Class 11-12 Economics cheat sheet

Scarcity: resources are limited relative to unlimited wants; scarcity forces choice, and choice creates the central problems of what, how, and for whom to produce.

Opportunity cost of a good is the value of the next best alternative forgone; it includes both explicit money costs and implicit costs, and excludes sunk costs.

Production possibility frontier (PPF): shows maximum combinations of two goods producible with given resources and full efficient use; it is concave to the origin because marginal opportunity cost rises (increasing MOC).

A point inside the PPF is attainable but inefficient; a point on the frontier is efficient; a point outside is unattainable with current resources and technology.

Rightward shift of the PPF follows growth of resources or improvement in technology; a rotation occurs when capability improves for only one good.

Microeconomics studies individual units (consumer, firm, market for one good); macroeconomics studies aggregates (national income, general price level, employment).

Positive economics is descriptive and testable ('what is'); normative economics involves value judgements ('what ought to be').

Central problems of an economy: allocation of resources, choice of production technique (labour- vs capital-intensive), and distribution of output; these are solved by market, planned, or mixed mechanisms.

Marginal analysis rule: an activity is expanded while marginal benefit exceeds marginal cost; equilibrium occurs where marginal benefit equals marginal cost.

Law of diminishing marginal utility: as consumption of a good increases, utility from each additional unit falls; total utility rises while MU is positive and is maximum when MU = 0.

Consumer's equilibrium (one good, utility approach): MU of the good in money terms equals its price, i.e., MUx/Px = MUm; with two goods, MUx/Px = MUy/Py and total expenditure equals income.

Indifference curve properties: downward sloping, convex to the origin (diminishing marginal rate of substitution), and higher curves represent higher satisfaction; curves never intersect.

Budget line equation: Px·X + Py·Y = M; slope = −Px/Py; a change in income shifts the line parallel, a change in one price rotates it.

Consumer's equilibrium (indifference approach): MRSxy = Px/Py, with the budget line tangent to the highest attainable indifference curve.

Law of demand: other things equal, quantity demanded falls as price rises; causes are income effect, substitution effect, and new buyers entering.

Movement along a demand curve is caused only by own-price change; a shift of the demand curve is caused by income, prices of related goods, tastes, or expectations.

Price elasticity of demand: Ed = (% change in quantity)/(% change in price) = (ΔQ/ΔP)×(P/Q); demand is elastic if Ed > 1, inelastic if Ed < 1, unitary if Ed = 1.

Total expenditure test: if price and total expenditure move in opposite directions, demand is elastic; same direction, inelastic; no change in expenditure, unitary elastic.

Production function: Q = f(L, K); short run has at least one fixed factor, long run has all factors variable.

Law of variable proportions: with one variable factor, marginal product first rises, then falls, then may become negative; the stage of negative MP is never rational to operate in.

Total product, average product, marginal product relations: AP = TP/L; MP = ΔTP/ΔL; MP cuts AP at AP's maximum; when MP > AP, AP rises.

Law of returns to scale: increasing, constant, and decreasing returns to scale apply when all inputs are scaled proportionally in the long run.

Costs: TC = TFC + TVC; AC = TC/Q; AVC = TVC/Q; AFC = TFC/Q; MC = ΔTC/ΔQ = ΔTVC/ΔQ.

MC is U-shaped and cuts both AVC and AC at their minimum points; AFC falls continuously as output rises and is a rectangular hyperbola.

Revenue: TR = P×Q; AR = TR/Q = price; MR = ΔTR/ΔQ; under perfect competition P = AR = MR (horizontal); under monopoly MR < AR.

Law of supply: price and quantity supplied move in the same direction; determinants of supply shift include input prices, technology, taxes/subsidies, and number of firms.

Price elasticity of supply Es = (ΔQ/ΔP)×(P/Q); supply through the origin has unitary elasticity; vertical supply is perfectly inelastic (Es = 0).

Perfect competition: many buyers and sellers, homogeneous product, free entry and exit, perfect information, and price-taking firms facing a horizontal demand curve.

Monopoly: single seller, no close substitutes, strong barriers to entry; the firm is a price maker and faces a downward-sloping demand curve.

Monopolistic competition: many firms, product differentiation, free entry and exit, and downward-sloping but elastic demand for each firm.

Oligopoly: few large firms, interdependence in decision-making, price rigidity; kinked demand curve explains sticky prices.

Equilibrium of a firm: MR = MC and MC must be rising at the intersection; if P < AVC, the firm shuts down in the short run.

Normal profit occurs where P = AC (AR = AC); supernormal profit where AR > AC; loss where AR < AC.

Under perfect competition, long-run equilibrium requires P = MR = MC = minimum AC, so firms earn only normal profit.

Monopoly equilibrium always lies where MR = MC and P > MR, so price exceeds marginal cost; deadweight loss arises relative to competitive output.

Price ceiling set below equilibrium creates excess demand and shortage; price floor set above equilibrium creates excess supply and surplus.

GDP at market price = value of all final goods and services produced within domestic territory in a year; intermediate goods are excluded to avoid double counting.

Value added method: GDP_MP = sum of value added by all sectors + net indirect taxes; value added = value of output − intermediate consumption.

Income method: NDP_FC = compensation of employees + operating surplus + mixed income + consumption of fixed capital; GDP = NDP_FC + depreciation + net indirect taxes.

Expenditure method: GDP_MP = C + I + G + (X − M), where I includes gross domestic capital formation.

GNP = GDP + net factor income from abroad (NFIA); NNP = GNP − depreciation; NNP at factor cost = National Income.

Personal income = private income − corporate tax − undistributed profits; disposable income = personal income − direct taxes − non-tax payments.

Real vs nominal GDP: real GDP is valued at constant (base year) prices; GDP deflator = (nominal GDP / real GDP) × 100.

Double counting is avoided by counting only final goods or by summing value added; transfer payments and second-hand sales are excluded from national income.

Nominal GDP can rise without any rise in output because of price inflation; real GDP isolates quantity change.

Functions of money: medium of exchange, unit of account, store of value, standard of deferred payment; money solves the double coincidence of wants problem.

Money supply measures: M1 = currency with public + demand deposits + other deposits with RBI; M2 = M1 + savings deposits with post office; M3 = M1 + net time deposits; M4 = M3 + total post office deposits.

High-powered money (M0) = currency held by public + cash reserves of banks; money multiplier = 1/reserve ratio.

Credit creation: total deposits = initial deposit × 1/reserve ratio; banks create credit by keeping only a fraction of deposits as reserves.

Central bank functions: currency issue, banker to government, banker to banks, lender of last resort, custodian of foreign exchange, and credit control.

Quantitative tools: repo rate, reverse repo, bank rate, cash reserve ratio (CRR), statutory liquidity ratio (SLR), and open market operations.

Qualitative tools: margin requirements, moral suasion, selective credit control, and direct action.

Repo rate is the rate at which RBI lends short-term funds to banks against securities; a rise in repo rate is contractionary.

Expansionary policy lowers repo, CRR, and SLR to raise money supply; contractionary policy raises them to control inflation.

Aggregate demand (AD) = C + I + G + (X − M); equilibrium income occurs where AD equals aggregate supply (Y).

Consumption function: C = a + bY, where a is autonomous consumption and b is marginal propensity to consume (MPC), 0 < b < 1.

MPC = ΔC/ΔY; APC = C/Y; MPS = 1 − MPC; APS = 1 − APC.

Investment multiplier k = 1/(1 − MPC) = 1/MPS; a higher MPC gives a larger multiplier effect on income.

Saving and investment approach: equilibrium where planned saving equals planned investment (S = I).

Deflationary gap is the shortfall of AD below full-employment AD; inflationary gap is the excess of AD over full-employment level.

Government budget: revenue receipts + capital receipts = revenue expenditure + capital expenditure + fiscal deficit.

Revenue deficit = revenue expenditure − revenue receipts; fiscal deficit = total expenditure − total receipts excluding borrowings.

Primary deficit = fiscal deficit − interest payments; it measures current borrowing need excluding past debt servicing.

Fiscal deficit is financed by borrowing, which raises public debt; deficit financing can be inflationary if it expands money supply.

Balance of payments records all economic transactions between residents and the rest of the world in a year; it always balances in accounting terms.

Current account covers goods, services, income, and transfers; capital account covers foreign investment, loans, and reserve changes.

Balance of trade = exports of goods − imports of goods; it is only one component of the current account.

Current account deficit occurs when current receipts fall short of current payments; it must be financed by capital inflows or reserve drawdown.

Nominal exchange rate is the price of one currency in terms of another; real exchange rate adjusts for relative price levels.

Depreciation (flexible rate) or devaluation (fixed rate) makes exports cheaper and imports dearer, improving trade balance subject to the J-curve.

Appreciation or revaluation makes exports dearer and imports cheaper, tending to worsen the trade balance.

Purchasing power parity holds that exchange rates adjust so identical baskets cost the same across countries in the long run.

Managed float: market determines the rate but the central bank intervenes to smooth excessive volatility.

Planning in India: Five Year Plans from 1951–52; the First Plan focused on agriculture, the Second on heavy industry (Mahalanobis model).

1991 economic reforms: liberalisation, privatisation, and globalisation (LPG) following a balance of payments crisis; rupee devaluation and industrial delicensing.

Green Revolution raised wheat and rice output through HYV seeds, irrigation, and fertilisers, mainly in Punjab, Haryana, and western UP.

Sectoral composition: agriculture's share in GDP has fallen sharply while services now contribute the largest share; agriculture still employs a large share of workers.

Poverty estimation historically used the calorie-based poverty line; the Tendulkar committee shifted to a mixed reference period and broader basket.

Human Development Index combines life expectancy, education (mean and expected years of schooling), and per capita income (GNI).

Disinvestment is sale of part of government equity in public sector undertakings; it raises non-debt capital receipts.

Current issues: inflation targeting by RBI, fiscal consolidation, employment generation, financial inclusion, and climate transition.

Demographic dividend refers to a rising share of working-age population; reaping it requires education, skills, and job creation.

Primary data are collected first-hand by the investigator; secondary data are already collected and used by someone else.

Collection methods: direct personal interview, indirect oral interview, information from correspondents, mailed questionnaires, and schedules.

Census covers every unit of the population; sampling covers a selected part; a good sample must be representative and free from bias.

Sampling methods: simple random (lottery or random numbers), systematic, stratified, and multistage; non-random methods include quota and judgement sampling.

Classification groups data by attributes (qualitative) or variables (quantitative); frequency distribution shows values with their frequencies.

Exclusive series: upper limit of one class equals lower limit of the next; inclusive series has gaps and needs adjustment before analysis.

Class mark (mid-value) = (lower limit + upper limit)/2; class width = upper limit − lower limit.

Presentation: tabulation, bar diagrams, pie charts, histograms, frequency polygons, and ogives (cumulative frequency curves).

A histogram is used for continuous frequency distributions; a frequency polygon joins mid-points of class intervals.

Arithmetic mean = ΣX/N (unweighted) or ΣfX/Σf (weighted); it is affected by every observation and by extreme values.

Median is the middle value of ordered data; for grouped data, median = L + [(N/2 − cf)/f] × h.

Mode is the most frequent value; for grouped data, mode = L + [(f1 − f0)/(2f1 − f0 − f2)] × h.

Empirical relation for moderately skewed distributions: Mode = 3 Median − 2 Mean.

Range = maximum − minimum; coefficient of range = (L − S)/(L + S).

Mean deviation = Σ|X − A|/N, where A is usually mean, median, or mode; coefficient = MD/A.

Standard deviation σ = √(Σ(X − X̄)²/N); variance is σ²; coefficient of variation = (σ/Mean) × 100, used to compare variability.

Quartile deviation = (Q3 − Q1)/2; coefficient = (Q3 − Q1)/(Q3 + Q1).

Karl Pearson's coefficient of correlation r = Σxy/(Nσxσy), lying between −1 and +1; r = 0 means no linear correlation.

Spearman's rank correlation ρ = 1 − [6ΣD²/(N(N² − 1))], where D is the difference of ranks.