Tamil Nadu HSE First Year Economics flashcards

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

Scarcity definition of economics

Robbins' definition: economics is the science which studies human behaviour as a relationship between unlimited ends and scarce means that have alternative uses. It makes economics a positive science of choice.

Opportunity cost

The value of the next best alternative forgone when a resource is used for one purpose rather than another. It underlies the downward slope and concavity of the production possibility curve.

Production possibility curve

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

Law of diminishing marginal utility

As a consumer takes successive units of a commodity in a given period, the utility gained from each additional unit becomes smaller. Total utility rises until marginal utility becomes zero.

Consumer equilibrium under indifference curves

A consumer is in equilibrium where the budget line is tangent to the highest attainable indifference curve, so that the marginal rate of substitution equals the price ratio Px/Py.

Price elasticity of demand

The percentage change in quantity demanded divided by the percentage change in price. Demand is elastic if the value exceeds one, inelastic if below one, and unitary if equal to one.

Giffen good

An inferior good for which the income effect of a price rise is so strong that it outweighs the substitution effect, so quantity demanded rises when price rises, violating the law of demand.

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, and eventually becomes negative, giving three stages of production.

Relationship of MC and AC

Marginal cost and average cost are linked: average cost falls while marginal cost is below it, rises while marginal cost is above it, and is at its minimum where the two are equal.

Returns to scale

The change in output when all inputs are increased in the same proportion in the long run. Output may rise more than proportionately (increasing), equally (constant) or less than proportionately (decreasing).

Producer's equilibrium condition

A firm is in equilibrium at the output where marginal revenue equals marginal cost and marginal cost is rising. Under perfect competition this becomes price equal to marginal cost.

Kinked demand curve

An oligopoly model in which the demand curve is more elastic above the ruling price and less elastic below it, because rivals ignore price increases but match price cuts, making prices rigid.

Monopolistic competition

A market form with many sellers, free entry and exit, and differentiated products. Each firm has a downward-sloping demand curve and competes through advertising and product variation rather than price alone.

Price discrimination

Charging different prices to different buyers for the same product, or different prices for different units. It requires separate markets and prevention of resale between them.

Marginal revenue product

The addition to total revenue from employing one more unit of a factor, equal to marginal product multiplied by marginal revenue. Under perfect product-market competition it equals value of marginal product.

Quasi-rent

A temporary surplus earned by a factor whose supply is fixed in the short run, such as a machine. It disappears in the long run when supply can adjust to the higher return.

Transfer earnings

The minimum payment required to keep a factor in its present occupation. Economic rent is the excess of actual earnings over transfer earnings.

Gross domestic product

The money value of all final goods and services produced within a country's domestic territory during a year, measured at market prices without deducting depreciation.

National income

Net national product at factor cost: gross national product at market prices minus depreciation and net indirect taxes. It is the sum of all factor incomes earned by normal residents.

Value added method

A method of measuring national income by summing the value added at each stage of production, that is, the value of output minus intermediate consumption, thereby avoiding double counting.

GDP deflator

An index of the general price level obtained by dividing nominal GDP by real GDP and multiplying by one hundred. It converts nominal national income into real income.

Money multiplier

The ratio of total money supply to the monetary base, showing how much deposits the banking system creates from each unit of reserves. It equals one divided by the reserve ratio.

Repo rate

The rate at which the Reserve Bank of India lends short-term funds to commercial banks against government securities. Raising it reduces liquidity and credit in the economy.

Fiscal deficit

Total government expenditure minus total receipts excluding borrowings. It shows the total borrowing requirement of the government in a financial year.

Direct tax

A tax whose burden cannot be shifted to another person, such as income tax or corporate tax. Its incidence falls on the same person who pays it, and it is usually progressive.

NITI Aayog

The National Institution for Transforming India, set up on 1 January 2015 to replace the Planning Commission. It is a policy think tank that advises on development strategy without allocating funds.

Disguised unemployment

A situation, common in Indian agriculture, where more workers are engaged than are needed, so that removing some of them would not reduce total output.

Tamil Nadu industrial profile

Tamil Nadu is among India's most industrialised states, with automobile and auto-component units around Chennai, textiles in Coimbatore, leather in Chennai and fireworks in Sivakasi.

Median for grouped data

The middle value of an ordered distribution, found as L plus the product of the cumulative-frequency gap divided by the median-class frequency and the class width.

Standard deviation

The positive square root of the variance, expressed in the same units as the data. It is the most widely used absolute measure of dispersion around the arithmetic mean.

Coefficient of variation

The standard deviation divided by the arithmetic mean, multiplied by one hundred. Being unit-free, it compares the variability of two or more distributions with different means.

Spearman's rank correlation

A measure of correlation between rankings, computed as one minus six times the sum of squared rank differences divided by the product of N and N squared minus one.

Fisher's ideal index

The geometric mean of the Laspeyres and Paasche index numbers. It uses both base-year and current-year quantities and is considered ideal because it satisfies the time-reversal and factor-reversal tests.