CHSE Odisha Elective Economics flashcards

37 cards. Read the term and the definition here. The deck at the top of this page is optional.

Scarcity

The situation where resources are limited relative to unlimited human wants, forcing individuals and societies to make choices about allocation and use.

Opportunity cost

The value of the next best alternative forgone when a choice is made; measured on the PPF as the amount of one good sacrificed for another.

Production possibility frontier

A curve showing all maximum output combinations of two goods an economy can produce with given resources and technology; concave because marginal opportunity cost rises.

Normative economics

The branch of economics dealing with what ought to be; it involves value judgements and cannot be tested by facts alone.

Law of diminishing marginal utility

As a consumer takes more units of a good continuously, the satisfaction from each additional unit falls, though total utility keeps rising while marginal utility is positive.

Price elasticity of demand

The percentage change in quantity demanded divided by the percentage change in price; demand is elastic when this value exceeds one.

Indifference curve

A curve showing combinations of two goods giving the consumer equal satisfaction; it slopes downward and is convex to the origin.

Income effect

The change in quantity demanded caused by a change in the consumer's real income when the price of a good changes, prices of other goods remaining constant.

Law of variable proportions

In the short run, as more units of a variable input are added to fixed inputs, marginal product first rises, then falls, and finally becomes negative.

Marginal rate of technical substitution

The rate at which one input can be substituted for another while keeping output constant; equals the ratio of marginal products of the inputs.

Returns to scale

The change in output when all inputs are increased in the same proportion; returns may be increasing, constant or decreasing in the long run.

Average product

Total product divided by the number of units of the variable input employed; marginal product cuts it at its maximum point.

Marginal cost

The addition to total cost from producing one more unit of output; it cuts both average variable cost and average cost at their minimum points.

Fixed cost

Cost that does not vary with the level of output and is incurred even at zero output, such as rent on a factory; it exists only in the short run.

Elasticity of supply

The percentage change in quantity supplied divided by the percentage change in price; it is zero when supply is perfectly inelastic.

Total revenue

Price of the product multiplied by the quantity sold; its change per additional unit sold gives marginal revenue.

Perfect competition

A market with many buyers and sellers, a homogeneous product, free entry and exit and perfect knowledge, so each firm is a price taker.

Monopoly

A market with a single seller of a product having no close substitutes and strong barriers to entry, making the firm a price maker.

Monopolistic competition

A market with many sellers of differentiated products, free entry and exit, and heavy reliance on advertising and selling costs.

Shut-down point

The output level at which price equals minimum average variable cost; below this price a competitive firm stops production in the short run.

Gross domestic product

The money value of all final goods and services produced within a country's domestic territory during a year, excluding intermediate goods.

Net factor income from abroad

Factor income earned by residents from abroad minus factor income earned by non-residents within the country; added to GDP to get GNP.

GDP deflator

The ratio of nominal GDP to real GDP multiplied by one hundred; it measures the average price level of all domestically produced goods.

Value added method

A method of measuring national income by summing the value of output minus intermediate consumption across all producing sectors of the economy.

Money multiplier

The ratio of total money supply to high-powered money; in its simple form it equals one divided by the reserve ratio.

Cash reserve ratio

The share of a bank's net demand and time liabilities that must be kept as cash reserves with the central bank; raising it contracts credit.

Repo rate

The rate at which the central bank lends short-term funds to commercial banks against securities; an increase in it makes credit costlier.

Credit creation

The process by which commercial banks expand deposits by lending out a fraction of deposits received, limited by the reserve ratio.

Investment multiplier

The ratio of a change in equilibrium income to the change in investment that caused it; equals one divided by the marginal propensity to save.

Marginal propensity to consume

The fraction of an additional unit of income spent on consumption; it lies between zero and one and determines the size of the multiplier.

Deflationary gap

The shortfall of aggregate demand below the level needed for full employment, causing unemployment and downward pressure on prices.

Fiscal deficit

Total government expenditure minus total receipts excluding borrowings; it measures the total borrowing requirement of the government in a year.

Revenue deficit

Revenue expenditure minus revenue receipts; it shows that the government is borrowing to meet consumption spending rather than creating assets.

Balance of trade

The difference between a country's exports of goods and imports of goods; a part of the current account of the balance of payments.

Currency depreciation

A fall in the external value of a currency under a flexible rate system, making exports cheaper abroad and imports dearer at home.

Liberalisation

The 1991 reform policy that reduced licensing, opened sectors to private and foreign investment, and relied more on market forces.

Sustainable development

Development that meets the needs of the present generation without compromising the ability of future generations to meet their own needs.