CHSE Odisha Elective Economics common mistakes
CHSE Odisha Elective Economics · Understand the traps and how to avoid them.
When computing price elasticity of demand with the percentage method, the candidate divides the change in quantity by the original quantity but then divides it by the change in price itself rather than by the percentage change in price, producing an elasticity expressed in rupees or units instead of a pure number.
The candidate memorises the formula as 'change in Q over change in P' and drops the base values (original Q and original P) that convert each change into a percentage. Because the two percentage changes are computed in separate steps, the missing division is easy to overlook, and the resulting answer looks plausible because it is a small decimal.
What to do instead
Always write the formula in full before substituting: Ed = (ΔQ/Q) × (P/ΔP), and explicitly label each of the four values (original Q, new Q, original P, new P) in the margin. After computing, check that the answer is a unit-free number and that a 10% fall in price with a 20% rise in quantity gives exactly 2. If the answer carries a unit, the base was omitted.
The candidate classifies a good as inferior or as a Giffen good purely from the sign of the income effect, without checking the direction of the substitution effect, and so labels every negative income effect as Giffen.
Textbook summaries often compress the two conditions into one line, and candidates remember 'negative income effect = inferior'. The Giffen case additionally requires the income effect to be strong enough to outweigh the substitution effect, which is a separate condition candidates rarely state.
What to do instead
Use a two-step decision rule written out in the candidate's own words: (1) sign of income effect gives normal (positive) versus inferior (negative); (2) only if the income effect is negative and larger in magnitude than the substitution effect does the demand curve slope upward and the good qualify as Giffen. Practise with a table of three goods (normal, inferior non-Giffen, Giffen) showing the sign of each effect and the resulting slope.
In questions on returns to a factor, the candidate confuses diminishing marginal product with negative marginal product and states that total product falls as soon as marginal product begins to decline.
The words 'diminishing' and 'decreasing' are read as 'falling total', and the candidate does not hold clearly in mind that total product rises while marginal product is positive, peaks where marginal product is zero, and falls only when marginal product turns negative.
What to do instead
Draw the three-stage table (increasing returns, diminishing returns, negative returns) with columns for units of the variable factor, total product, marginal product and average product, and mark the exact rows where total product is maximum (MP = 0) and where total product starts falling (MP < 0). In the exam, before answering, sketch the TP and MP curves side by side and read the answer off the sketch.
The candidate treats accounting cost and economic cost as interchangeable, and in a numerical question on a firm's profit omits implicit costs (owner's own labour, own capital, own premises) so that normal profit is reported as part of profit.
School-level ledger problems deal only with explicit payments, so the habit of summing paid-out costs carries over. Implicit costs leave no invoice, so they are invisible unless the candidate deliberately searches for them in the question stem.
What to do instead
Adopt a fixed checklist applied to every cost question: list explicit costs first, then scan the stem for ownership words ('owner works himself', 'uses his own building', 'invested his own savings') and convert each into an implicit cost. Compute accounting profit as revenue minus explicit cost and economic profit as revenue minus explicit minus implicit cost, and state both before concluding.
In a perfectly competitive market diagram, the candidate draws the demand curve as downward sloping for the individual firm, or writes that a competitive firm is a price maker and can sell more only by lowering price.
The candidate transfers the market-level diagram, which is downward sloping, directly onto the firm-level diagram without distinguishing the two panels. Because most demand-and-supply practice uses market curves, the horizontal firm demand line is not rehearsed enough to become automatic.
What to do instead
Always draw the two panels together: on the left the industry with downward-sloping demand and upward-sloping supply fixing the price, on the right the single firm taking that price as a horizontal line at AR = MR = P. Add a one-line written justification each time: the firm's output is too small a share of the market to affect price.
When asked to explain why a monopolist cannot fix both price and quantity, or to locate equilibrium, the candidate writes 'the monopolist charges the highest possible price' instead of applying the marginal revenue equals marginal cost condition and reading price off the demand curve.
The phrase 'price maker' is memorised as 'charge whatever it likes', and the two-step logic (MR = MC gives quantity, then the demand curve gives price) is not practised as a sequence, so the candidate collapses it into a single statement about high prices.
What to do instead
Write the equilibrium as an explicit two-step sentence every time: output is where MR = MC, and price is the height of the AR curve at that output. Reinforce with the contrast that a monopolist can choose price or quantity but not both, because the demand curve links them, and note that the chosen point lies on the elastic part of the demand curve.
When computing national income by the value-added or income method, the candidate adds transfer payments, sale of second-hand goods, or intermediate consumption to the total, and double counts the value of output.
Every rupee received by a household looks like income, so pensions, scholarships and gifts are counted as factor income. Similarly, the full sale value of a good is added at each stage rather than only the value added, because the candidate does not separate intermediate from final goods.
What to do instead
Before computing, write a rejection list in the margin: transfer payments, second-hand sales, intermediate goods, financial transactions, and illegal receipts are excluded. For value added, compute output minus intermediate consumption for each stage and check that the sum of value added equals the final value of the good. For the income method, include only rent, wages, interest and profit plus mixed income.
The candidate treats the money multiplier as fixed and states that a central bank's open market purchase of bonds increases the money supply by exactly the amount purchased, ignoring the reserve ratio and the resulting credit creation.
The initial injection is the visible number in the question, and the geometric series of secondary deposits is abstract. Candidates also forget that the multiplier is the reciprocal of the reserve ratio, so they cannot compute the total even when they remember that credit creation occurs.
What to do instead
For every such question, compute the total in two lines: total deposit creation = initial deposit × (1/reserve ratio), and money multiplier = 1/CRR (with the qualification that currency leakage and excess reserves reduce it). Practise a table showing round-by-round deposits until they approach the limit, so the geometric sum is seen rather than asserted.
In income determination questions, the candidate confuses the investment multiplier with the propensity to consume, writing the multiplier as MPC or as 1/MPC, and so reports a multiplier below one or an implausibly large one.
The two symbols sit next to each other in the same chapter and both involve the marginal propensity to consume, so they are recalled as one expression. The candidate does not test the result against the logical bound that the multiplier must exceed one whenever MPC is positive.
What to do instead
Write the definitions side by side before substituting: multiplier k = 1/(1 − MPC) = 1/MPS, and MPC + MPS = 1. Sanity-check every answer: if MPC = 0.8 the multiplier must be 5, and it must rise as MPC rises. Also verify the change in income equals k times the change in autonomous investment.
The candidate describes a government budget deficit as automatically harmful and treats all borrowing as inflationary, without distinguishing revenue deficit, fiscal deficit and primary deficit or separating capital expenditure from revenue expenditure.
Public discussion of deficits is uniformly negative, and the three deficit measures are taught as formulas without the interpretation that revenue deficit signals dissaving while fiscal deficit may finance capital assets. Candidates therefore answer evaluative questions with a blanket judgement.
What to do instead
Build a one-page comparison of the three deficits with their formulas and their economic meaning, and classify every expenditure item in the question as revenue or capital before commenting. In evaluative answers, state the composition of the deficit (how much finances capital formation) before judging it, and mention crowding out as a conditional, not automatic, consequence.