PSEB SS Economics common mistakes
PSEB SS Economics · Understand the traps and how to avoid them.
Treating a movement along the demand curve and a shift of the demand curve as the same thing, so that a fall in the good's own price is written up as a 'decrease in demand'.
The textbook definition of demand is 'quantity demanded at a given price', and candidates memorise 'price up, demand down' as a slogan, which blurs the distinction between the price variable and the other determinants (income, tastes, prices of related goods).
What to do instead
Before answering, list the determinants of demand and ask which one changed. If only own price changed, say 'extension/contraction of demand' and move along the curve; if any other determinant changed, say 'increase/decrease in demand' and shift the curve. Practise by classifying ten one-line scenarios into the two categories.
Calculating elasticity of demand and getting the sign or the base wrong, for example reporting Ed = +2 for a normal good, or using the new price/quantity as the denominator in the percentage-change formula.
Candidates plug numbers into a remembered formula without deciding on the sign convention, and they forget that percentage change uses the original (initial) value as the base; the minus sign in the demand formula is also dropped under time pressure.
What to do instead
Write the formula first: Ed = (percentage change in quantity demanded)/(percentage change in price), with the percentage change measured from the original value, and state that the negative sign is conventionally ignored for price elasticity. Do three numericals where price rises and three where it falls, and check that the absolute value is the same in both directions.
Confusing the law of variable proportions with returns to scale, or drawing total product, average product and marginal product curves that do not obey their required relationship (for example MP cutting AP at AP's maximum).
Both ideas involve 'increasing, diminishing, negative' phases, so candidates merge them; the curve relationships are memorised as pictures rather than derived from the definition of marginal as the addition to total.
What to do instead
Anchor on definitions: variable proportions change one factor with others fixed (short run); returns to scale change all factors (long run). For the curves, always derive MP as the change in TP and AP as TP/L, then verify three checkpoints: MP = AP at AP's maximum, MP = 0 at TP's maximum, and MP negative when TP falls. Redraw the three curves from a TP table rather than from memory.
Mixing up fixed, variable, average and marginal cost, and stating that a firm shuts down when price falls below average total cost rather than below average variable cost.
The shorthand 'shut down when making a loss' is remembered, but the loss-minimising rule depends only on whether revenue covers variable cost; fixed cost is sunk in the short run and candidates do not see why it should be ignored.
What to do instead
Build a table with TFC, TVC, TC, AFC, AVC, ATC and MC for output 0 to 5 and compute each column. Then reason explicitly: if price is between AVC and ATC the firm covers all variable cost and part of fixed cost, so it keeps producing in the short run; below minimum AVC it shuts down. State the shutdown point as minimum AVC every time.
Describing a monopoly or monopolistic competition with the features of perfect competition, for example claiming a monopolist is a price taker, or that firms under monopolistic competition face a perfectly elastic demand curve.
The four market forms are learnt as parallel lists and the distinguishing variable (degree of control over price, product differentiation, entry barriers, number of sellers) is not used as an organising principle, so features get swapped between forms.
What to do instead
Make a one-page matrix with rows for number of sellers, product, entry, price control, demand curve slope and AR-MR relationship, and fill it from first principles. Then for each form write one sentence on why its demand curve has that slope (a price taker faces the market price; a differentiated product gives a downward-sloping curve). Test yourself by covering the matrix and reconstructing it.
Computing national income by adding up all sales or all incomes without excluding transfer payments, intermediate goods and second-hand sales, and confusing domestic product with national income.
The expenditure and income methods look like simple addition, so candidates sum whatever figures are given; the exclusion rules (double counting, transfer incomes, financial assets) are treated as footnotes rather than as the logic of the method.
What to do instead
Before adding anything, label each item as final or intermediate, factor income or transfer, and produced this year or not. Then apply the standard bridge: GDP at market price, minus net indirect taxes to reach factor cost, plus net factor income from abroad to reach national income. Do five numericals where one or two items must be excluded and write the reason for each exclusion.
Treating the money multiplier as the reciprocal of the reserve ratio regardless of the situation, or asserting that the central bank directly sets the money supply and the interest rate simultaneously without noting the conflict.
The formula 1/R is memorised in isolation, and candidates do not distinguish the currency drain, excess reserves or the difference between the bank rate, repo rate and CRR as instruments; policy instruments are listed but not linked to the balance-sheet mechanism.
What to do instead
Derive the multiplier once from a balance sheet: a deposit of 100 with a 10 per cent reserve ratio creates 90 of new lending, which returns as a deposit, and the series sums to 100/R. Then write, for each instrument (CRR, repo, open market operations, margin requirements), which side of a bank's balance sheet it changes and in which direction the money supply moves. Keep the multiplier answer as a maximum, noting leakages.
Classifying budget items wrongly, for example putting subsidies or interest payments on the wrong side, or calling a revenue deficit a fiscal deficit.
Revenue and capital are confused with receipt and expenditure, and the three deficit definitions are memorised as formulas without understanding what each is meant to capture.
What to do instead
Sort items by two questions: does it create or reduce a liability/asset (capital versus revenue), and is it a receipt or a payment? Then learn the deficits as questions being answered: revenue deficit asks whether current income covers current spending; fiscal deficit asks total borrowing need; primary deficit asks borrowing need excluding past interest. Recompute all three from one set of figures and check that fiscal deficit equals revenue deficit plus capital expenditure minus non-debt capital receipts.
Treating a rise in the exchange rate as an appreciation in every context, or assuming a depreciation always improves the trade balance.
The exchange rate is quoted in two ways (domestic currency per unit of foreign currency, and the reverse), and candidates do not fix which convention the question uses; the J-curve and Marshall-Lerner condition are also skipped, so the automatic-improvement assumption goes unchallenged.
What to do instead
At the top of every exchange-rate answer, write the quotation convention explicitly, then translate: more rupees per dollar is a depreciation of the rupee. For the trade balance, state that depreciation helps only if export and import demand are sufficiently elastic (Marshall-Lerner) and that the improvement may be delayed (J-curve). Answer one question in both conventions to prove the translation works.
Writing Indian development answers as a list of schemes and dates with no causal argument, or attributing every outcome to the 1991 reforms without distinguishing pre- and post-reform policy regimes.
Development questions reward recall in candidates' minds, so planning time is spent memorising years and names; the exam actually asks for assessment, and the five-year plans, green revolution, liberalisation and poverty estimates each need a mechanism and an evaluation.
What to do instead
For each topic, prepare a three-part skeleton: policy or event, mechanism (what it changed in incentives, output or distribution), and evidence or limitation. For example, the green revolution raised wheat output in irrigated areas but widened regional inequality. Practise writing 60-word evaluations that contain one mechanism and one limitation, and keep a short timeline only as a memory aid, not as the answer.