CHSE Odisha Business Economics flashcards
CHSE Odisha Business Economics · Build recall with a focused review session.
32 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Opportunity cost
- The value of the next best alternative forgone when a choice is made. It is measured in real terms and underlies the downward slope of the production possibility frontier.
- Production possibility frontier
- A curve showing maximum combinations of two goods an economy can produce with given resources and technology. It is concave because marginal opportunity cost rises along it.
- Ceteris paribus
- A Latin phrase meaning all other things being held constant. It allows economists to isolate the effect of one variable, such as price on quantity demanded, in a functional relationship.
- Law of demand
- Other things equal, quantity demanded of a good rises when its price falls and falls when price rises. This gives the familiar downward-sloping demand curve.
- Giffen good
- An inferior good whose demand rises when its price rises, because the income effect outweighs the substitution effect. It is a rare exception to the law of demand.
- Market equilibrium
- The price at which quantity demanded equals quantity supplied. Above it a surplus appears and price falls; below it a shortage appears and price rises.
- Price ceiling
- A maximum price fixed by government below equilibrium. It creates excess demand, queues, rationing, and black markets because suppliers reduce quantity offered.
- Price elasticity of demand
- Percentage change in quantity demanded divided by percentage change in price. Demand is elastic if the value exceeds one and inelastic if below one.
- Income elasticity of demand
- Percentage change in quantity demanded divided by percentage change in income. Positive above one indicates a luxury, between zero and one a necessity, negative an inferior good.
- Cross elasticity of demand
- Percentage change in quantity demanded of one good divided by percentage change in price of another. Positive values indicate substitutes, negative values complements.
- Law of diminishing marginal utility
- As consumption of a good increases, the utility from each additional unit declines, other things equal. Total utility peaks where marginal utility becomes zero.
- Equi-marginal utility
- A consumer maximises satisfaction by allocating income so that marginal utility per rupee is equal across goods, giving MUx/Px = MUy/Py at equilibrium.
- Indifference curve
- A curve showing combinations of two goods giving equal satisfaction. It slopes downward, is convex to the origin, and higher curves represent higher utility.
- Budget line
- A line showing combinations of two goods a consumer can buy with given income and prices. Its slope equals the negative ratio of the two prices.
- Law of variable proportions
- In the short run, adding more units of a variable input to fixed inputs raises marginal product at first, then lowers it, and eventually makes it negative.
- Marginal cost
- The addition to total cost from producing one more unit of output. It cuts average cost and average variable cost at their minimum points.
- Economies of scale
- Cost advantages from increasing output in the long run, such as specialisation and bulk buying. They explain the falling portion of the long-run average cost curve.
- Perfect competition
- A market with many small firms, a homogeneous product, free entry and exit, and perfect information. Each firm is a price taker facing a horizontal demand curve.
- Monopoly equilibrium
- A single seller maximises profit where marginal revenue equals marginal cost. Price exceeds marginal cost and the firm earns supernormal profit in the long run.
- Price discrimination
- Charging different prices to different buyers for the same product. It requires market separation, differing elasticities, and no possibility of resale.
- Kinked demand curve
- An oligopoly model where rivals match price cuts but ignore price rises, making demand elastic above the current price and inelastic below it, so prices stay rigid.
- National income
- Net national product at factor cost. It is the sum of factor incomes earned by normal residents of a country in an accounting year.
- Value added method
- A method of measuring national income by summing value added, that is output minus intermediate consumption, at each stage of production to avoid double counting.
- GDP deflator
- Nominal GDP divided by real GDP, multiplied by one hundred. It measures the change in the general price level of all goods included in GDP.
- Money multiplier
- The ratio of total money supply to the monetary base, equal to one divided by the reserve ratio in the simplest model. It limits credit creation by banks.
- Cash reserve ratio
- The proportion of net demand and time liabilities that banks must hold as cash reserves with the central bank. Raising it reduces credit creation.
- Demand-pull inflation
- Inflation caused by aggregate demand growing faster than aggregate supply at full employment. It is often described as too much money chasing too few goods.
- Fiscal deficit
- Total government expenditure minus total receipts excluding borrowings. It measures the government's borrowing requirement in a financial year.
- Direct tax
- A tax whose burden cannot be shifted to another person, such as income tax. It is levied on income or wealth and is usually progressive.
- Revenue deficit
- Revenue expenditure minus revenue receipts. It shows the extent to which current spending exceeds current income and must be financed by borrowing.
- Comparative advantage
- The ability of a country to produce a good at lower opportunity cost than another country. It is the basis of mutually beneficial international trade.
- Balance of payments
- A systematic record of all economic transactions between residents of a country and the rest of the world, comprising current and capital accounts.