UPMSP Intermediate Economics - Code 136 common mistakes
UPMSP Intermediate Economics - Code 136 · Understand the traps and how to avoid them.
Writing that a change in price of the good shifts its demand curve instead of causing a movement along it, and likewise treating income or taste changes as movements along the curve.
Candidates memorise 'increase in demand' and 'decrease in demand' without separating the two diagrams. The textbook distinction between movement along a curve (own-price change) and shift of the curve (other determinants) is tested in nearly every paper, and the Hindi/English phrasing overlaps, so the confusion goes unnoticed during practice.
What to do instead
Before drawing, ask one question: 'Is the change in the price of this good itself?' If yes, move a point along the existing curve and label it extension/contraction. If no, draw a second curve and label it increase/decrease. Practise ten mixed scenarios (price of tea falls, income rises for an inferior good, price of coffee rises) and write the determinant name beside each answer.
Defining elasticity of demand as 'change in demand divided by change in price' and then reporting a percentage answer with the wrong sign or magnitude.
Students collapse the formula into a simple ratio and omit the percentage/proportional step and the base (original) quantity and price. They also forget that price elasticity is conventionally negative and that the numerical value is reported as an absolute value.
What to do instead
Always write the full formula first: Ed = (percentage change in quantity demanded) / (percentage change in price), with percentage change measured from the original value. Work two numericals - one percentage method, one total outlay method - and verify that a 10% price rise causing a 20% quantity fall gives Ed = 2. State clearly that the minus sign is dropped.
Stating that total revenue is maximum where marginal revenue is maximum, or that a firm maximises profit where MR is highest rather than where MR equals MC.
The words 'maximum' and 'marginal' get attached to the wrong variable. Candidates also mix the revenue curves of perfect competition (horizontal MR) with those of monopoly (downward-sloping MR below AR), so the equilibrium condition is applied to the wrong diagram.
What to do instead
Memorise one rule and apply it to both market forms: profit is maximum where MR = MC and MC is rising. Add the shutdown condition (price must cover minimum AVC in the short run). Draw the MR = MC diagram for perfect competition and for monopoly side by side, marking the equilibrium output on the quantity axis each time.
Labelling a monopoly as a price taker with a horizontal demand curve, or claiming a monopolistically competitive firm faces a perfectly elastic demand curve.
The four market forms are learned as a list of features rather than as differences in the slope and elasticity of the firm's demand curve. Since the syllabus presents them together, students swap the distinguishing feature - number of sellers and product differentiation - between forms.
What to do instead
Build a four-row comparison table with columns for number of sellers, product, entry barriers, demand curve slope, and price control. Under each form write one concrete Indian example. Test yourself by covering the demand-curve column and redrawing the slope from memory.
Treating transfer payments such as old-age pensions, scholarships and unemployment allowance as part of national income, and including the sale of second-hand goods or financial assets in GDP.
These are real rupee flows that look like income to a household, so the 'income = factor earning' logic is not applied. The exclusion rules (transfer payments, intermediate goods, second-hand sales, non-market services) are learned as a list without the underlying reason.
What to do instead
Apply the test 'is a factor service being provided in return?' If nothing is produced this year in exchange, exclude it. Sort a mixed list of twenty items into included/excluded and write the reason next to each. Specifically note that pensions are transfers but wages paid to government employees are factor income.
Mixing up the credit-creation multiplier: saying that if the cash reserve ratio is 20% the multiplier is 0.2, or calculating total deposits as initial deposit multiplied by the reserve ratio.
The formula is remembered as 'CRR into deposit' rather than as the reciprocal relationship. Students also confuse CRR with the repo rate and with the statutory liquidity ratio, all of which appear in the same chapter on money and banking.
What to do instead
Write the multiplier as 1/CRR and check the logic: a lower reserve ratio must create more credit, so the multiplier must rise. Do three numericals with CRR of 10%, 20% and 25% and confirm the answers are 10, 5 and 4. Separately define CRR, SLR, repo and reverse repo in one line each.
Explaining the investment multiplier as 'income rises by the same amount as the new investment' without using the marginal propensity to consume, or giving the formula as 1/(1+MPC).
The multiplier is often memorised as a name rather than a ratio. The sign in the denominator is easily flipped, and the link to the consumption function is not practised numerically, so the error survives until the exam.
What to do instead
Derive it once by hand: k = 1/(1 − MPC) = 1/MPS. Then compute k for MPC = 0.5, 0.75 and 0.8 and check that higher MPC gives a larger multiplier. Solve one full numerical where an initial investment of 100 crore with MPC 0.8 must give a total income change of 500 crore.
Classifying every government receipt as revenue receipt, so that borrowing and disinvestment proceeds are counted as revenue, and treating fiscal deficit as identical to revenue deficit.
The three deficit concepts (revenue, fiscal, primary) are defined in similar language and differ only by what is subtracted. Candidates learn the definitions in one reading and never compare them, so the categories collapse into one another.
What to do instead
Write the three identities as equations: Revenue deficit = revenue expenditure − revenue receipts; Fiscal deficit = total expenditure − total receipts other than borrowing; Primary deficit = fiscal deficit − interest payments. Then classify ten receipts and expenditures into capital and revenue, marking borrowing and disinvestment as capital receipts.
Recording an import of machinery in the current account, or stating that a rise in the exchange rate (say from 80 to 85 rupees per dollar) means the rupee has appreciated.
The current account versus capital account split is confused because both record foreign exchange flows. The exchange-rate direction is reversed because the quotation is in rupees per dollar, so a higher number looks like a 'rise' for the rupee when it is actually a depreciation.
What to do instead
Use the rule 'goods, services and unilateral transfers go to the current account; assets and liabilities go to the capital account'. For exchange rates, always write the units (rupees per dollar) and ask whether imports become cheaper or dearer; if imports are dearer, the rupee has depreciated. Do five direction questions with explicit units.
Describing the 1991 reforms only as 'liberalisation, privatisation, globalisation' without naming the specific policy measures, and dating the Green Revolution or the planning era incorrectly.
Essay-type answers on Indian economic development invite slogan-style recall, and students reproduce the three headings without the concrete instruments (delicensing, rupee devaluation, New Industrial Policy, reduction in import tariffs). Dates and Five Year Plan periods are also learned loosely.
What to do instead
Attach at least two concrete measures to each of LPG and one date to each landmark (1991 crisis and reforms, 1950–90 planning era, Green Revolution in the late 1960s). Prepare a one-page timeline with year, event and one-line significance, and rehearse a 60-word answer for each reform heading using named measures rather than adjectives.