Maharashtra HSC Economics flashcards

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 arises because resources are scarce and have alternative uses, so every decision has a hidden cost.

Production possibility frontier

A curve showing maximum combinations of two goods an economy can produce with given resources and technology. Points on the curve are efficient, inside points show unemployment, outside points are unattainable.

Law of diminishing marginal utility

As a consumer consumes more units of a good in a given period, the additional satisfaction from each extra unit falls, while total utility rises at a decreasing rate until it peaks.

Equi-marginal utility

A consumer maximises satisfaction by allocating income so that the marginal utility per rupee spent is equal across all goods: MUx/Px = MUy/Py. If unequal, reallocating raises total utility.

Indifference curve

A curve showing combinations of two goods that give the consumer equal satisfaction. It slopes downward, is convex to the origin, and curves further out represent higher satisfaction levels.

Price elasticity of demand

The percentage change in quantity demanded divided by the percentage change in price. Values above one are elastic, below one inelastic, and exactly one unitary elastic.

Law of variable proportions

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

Marginal cost

The addition to total cost from producing one more unit: MC = ΔTC/ΔQ. MC cuts average variable cost and average cost at their minimum points.

Perfect competition

A market with many sellers, a homogeneous product, free entry and exit, and perfect knowledge. The firm is a price taker facing a horizontal demand curve, so P = AR = MR.

Monopoly equilibrium

A single seller facing the whole market demand curve sets output where MR = MC and MC is rising, then charges the price on the demand curve, earning abnormal profit even in the long run.

National income

The money value of all final goods and services produced in an economy in a year, measured as NNP at factor cost. It excludes intermediate goods and transfer payments to avoid double counting.

GNP and GDP

GDP is output produced within domestic territory; GNP adds net factor income from abroad. GNP = GDP + net factor income from abroad, and NNP = GNP − depreciation.

Credit creation

Commercial banks create deposits by lending out a fraction of deposits received. Total deposit expansion equals the initial deposit multiplied by one divided by the reserve ratio.

Repo rate

The rate at which the central bank lends short-term funds to commercial banks against government securities. Raising it reduces liquidity and is used to control inflation.

Comparative advantage

A country has comparative advantage in a good when it produces it at a lower opportunity cost than another country. Trade benefits both countries even if one is absolutely less efficient.

Balance of payments

A systematic record of all economic transactions between residents and non-residents in a year, comprising the current account, capital account and changes in reserves.

Human Development Index

A composite index published by UNDP combining life expectancy, education and per capita income into a value between 0 and 1, used to compare development levels.

Multidimensional Poverty Index

A measure of poverty counting overlapping deprivations in health, education and living standards rather than income alone, showing both the incidence and intensity of poverty.

Fiscal deficit

Total government expenditure minus total receipts excluding borrowings. It shows the government's borrowing requirement and is a key indicator of fiscal health.

Direct tax

A tax levied on income or wealth whose burden cannot be shifted to another person, such as income tax or corporation tax. It is usually progressive.

Demand-pull inflation

Inflation caused by aggregate demand rising faster than aggregate supply, often due to increased government spending, credit expansion or export demand, pulling prices upward.

Consumer price index

A measure of the average change in retail prices of a fixed basket of consumer goods and services over time, used to estimate inflation and the cost of living.

Investment multiplier

The ratio of change in national income to the initial change in investment: k = 1/(1 − MPC) = 1/MPS. A higher marginal propensity to consume gives a larger multiplier.

Marginal propensity to consume

The fraction of an additional unit of income spent on consumption: MPC = ΔC/ΔY. It lies between 0 and 1, and MPC plus MPS equals one.

GST

A destination-based indirect tax on value added, levied on the final consumption of goods and services, with input tax credit to remove cascading and a council to set rates.

Tariff

A tax imposed on imported goods. It raises the domestic price, protects domestic producers and generates revenue, but reduces consumer surplus and may invite retaliation.

Gini coefficient

A measure of income inequality derived from the Lorenz curve, ranging from 0 for perfect equality to 1 for perfect inequality. Higher values indicate greater inequality.

Disguised unemployment

A situation where more workers are employed than are needed, so removing some does not reduce output. It is common in Indian agriculture and reflects low productivity.

Demographic dividend

The economic growth potential arising when a large share of the population is of working age relative to dependents, provided sufficient jobs and skills exist.

Sustainable development

Development that meets present needs without compromising the ability of future generations to meet theirs, balancing growth with resource conservation and pollution control.

Monetary policy

The central bank's management of money supply, credit and interest rates to achieve price stability and support growth, using repo rate, CRR, SLR and open market operations.

Current account deficit

The excess of imports of goods and services plus net transfers over exports. It must be financed by capital inflows or by drawing down foreign exchange reserves.