RBSE SS Economics common mistakes
RBSE SS Economics · Understand the traps and how to avoid them.
When asked to compute price elasticity of demand, the candidate divides the change in quantity by the change in price and reports that ratio as the answer, instead of using the percentage-change formula.
Elasticity is defined as a ratio of proportional changes, but the candidate treats it as a ratio of absolute changes, often because the numerical answer looks plausible and no unit check is performed.
What to do instead
Always write the formula first: Ed = (ΔQ/Q) × (P/ΔP), or the midpoint variant. Substitute values into the formula explicitly, state whether the result is greater than, equal to, or less than one, and label the good elastic, inelastic, or unitary before moving on.
The candidate labels a movement along a demand curve and a shift of the demand curve interchangeably, describing a price change as causing a shift in demand.
Both situations appear on the same diagram, and the candidate memorises 'price up, demand down' without distinguishing a change in quantity demanded from a change in demand itself.
What to do instead
Before drawing, ask what variable changed. If only the good's own price changed, draw a movement along the existing curve and label it change in quantity demanded. If income, prices of related goods, tastes, or expectations changed, draw a new curve and label it change in demand.
The candidate states the law of variable proportions without identifying which stage is economically relevant, claiming diminishing returns set in from the very first unit of the variable factor.
The three-stage pattern is memorised as a slogan, and the candidate confuses diminishing marginal product with negative marginal product, so the stage boundaries blur.
What to do instead
Build a small table of total, average, and marginal product for successive units. Mark where marginal product rises, where it falls but stays positive, and where it turns negative. State that the rational producer operates in the stage where marginal product is falling but still positive, and justify it by reference to the table.
When explaining equilibrium of a firm under perfect competition, the candidate equates profit maximisation with the point where price equals average cost rather than where marginal cost equals price and marginal cost is rising.
Average cost is the more familiar curve and the break-even condition is easier to remember, so the marginal condition and the second-order requirement are dropped.
What to do instead
Write the two conditions together: MR = MC and MC rising at the intersection. Under perfect competition substitute P for MR. Then show that P = AC identifies normal profit or break-even, not maximum profit, and illustrate with a numerical schedule where profit peaks at the MR = MC output.
The candidate computes national income by adding up all sales values in the economy, or mixes up GDP at market price with national income without adjusting for depreciation and net factor income from abroad.
The terms gross, net, domestic, national, market price, and factor cost are visually similar, and the candidate collapses them into a single idea of 'total income'.
What to do instead
Use a fixed bridge: GDP at market price, minus net indirect taxes gives GDP at factor cost, minus depreciation gives NDP at factor cost, plus net factor income from abroad gives national income. Write this chain at the top of every answer and state which aggregate the question asks for before computing.
The candidate treats the money multiplier as fixed at one, asserting that a deposit of a given amount creates exactly that much additional money supply.
The reserve ratio step is skipped because the candidate reasons that a deposit is simply redeposited in full, ignoring that banks retain a fraction as reserves.
What to do instead
State the formula: money multiplier equals one divided by the reserve ratio, or the credit multiplier equals one divided by the cash reserve ratio. Work a short numerical example with a stated reserve ratio, showing each round of lending, and note that the multiplier is a maximum that assumes no currency leakage.
The candidate computes the investment multiplier as the reciprocal of the marginal propensity to save but then applies it to an autonomous change in government spending and to a tax cut as if the two effects were identical.
Only one multiplier formula is memorised, and the distinction between the government expenditure multiplier and the tax multiplier is not connected to the fact that a tax cut first changes disposable income.
What to do instead
Derive both from the same equilibrium condition. Show that the government expenditure multiplier is one over one minus MPC, while the tax multiplier is minus MPC over one minus MPC, and explain in one sentence why the tax cut has a smaller absolute effect.
The candidate classifies a budget deficit as revenue deficit or fiscal deficit without checking whether borrowing is used for capital expenditure, and reports the fiscal deficit as if it measured only current spending gaps.
The three deficit concepts are memorised as a list, and the candidate does not link each definition to the specific receipts and expenditure items that enter it.
What to do instead
Write each definition as a subtraction of named aggregates: revenue deficit as revenue expenditure minus revenue receipts, fiscal deficit as total expenditure minus total receipts excluding borrowings, primary deficit as fiscal deficit minus interest payments. For each, state in one line what it signals about the government's position.
The candidate answers a question on exchange rate depreciation by saying the domestic currency becomes cheaper and therefore the country's exports become cheaper, without distinguishing depreciation under a flexible rate from devaluation under a fixed rate, and without tracing the effect on the current account.
The everyday meaning of 'depreciation' is transferred to the technical sense, and the fixed versus flexible regime distinction is treated as vocabulary rather than as a determinant of policy.
What to do instead
Define depreciation as a fall in the currency's value under a flexible rate and devaluation as the equivalent administered under a fixed rate. Then trace the chain explicitly: cheaper currency, lower foreign-currency price of exports, higher import prices, and the resulting effect on export and import volumes and on the current account balance.
The candidate describes the 1991 economic reforms as a single event of liberalisation and omits the stabilisation measures, or lists reforms without naming the specific policy instruments used in each sector.
The topic is studied as a narrative of crisis and recovery, and the candidate does not separate short-run stabilisation from long-run structural reform or attach concrete instruments to each.
What to do instead
Structure the answer in two blocks. Stabilisation: fiscal correction, monetary tightening, and exchange rate adjustment. Structural reform: industrial delicensing and dereservation, trade liberalisation with tariff reduction, financial sector reform including prudential norms, and tax reform. Name at least one instrument per heading and state the intended effect.