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ECONOMICS FINAL TERM

Chapter 07
Question 01: What is price elasticity of demand? Explain with graph.
Answer:
Two demand curves are shown with different slopes representing two different
products A and B. The demand curve for product A is steep and the demand curve for
product B is flatter. At a price of 10 demand for both products is 100 units. However,
when the price falls to 8 demand increases by different amounts for each product.
Demand for product A only increases slightly to 110 units. But for product B demand
increases a lot more to 150 units. Demand for product B is more responsive to the price
change. This relationship that exists between the responsiveness of demand to a change
in price is called price elasticity of demand.

Question 02: What is price inelastic and price of demand? Explain with figure.
Answer:
In Figure 7.1, for product A, the price change resulted in
an insignificant change in demand. This means the change in
demand was not as big as the change in price. Price fell by
20% but demand only increased by 10% (from 100 units to 110
units). When this happens economists say that the good has
inelastic demand or that demand is price inelastic, a minority
of goods have inelastic demand. Petrol is one, used in the
above example.
In Figure 7.1, for product B, the price change resulted in
a significant change in demand. This means the change in
demand was greater than the change in price. Price fell by
20% (from f 10 to 8) while demand increased by 50% (from
100 units to 150 units). When this happens economists say
that the good has elastic demand or that demand is price elastic. Goods with elastic
demand are more responsive to price changes.)

Question 03: Write the formula of price elasticity of demand.

Percentage changequantity demanded
Answer: price elasticity of demand=
Percentage change price

Question 04: Write some factors effecting price elasticity of demand.

Answer:
i. The availability of substitutes:
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Goods that have lots of close substitutes will tend to have elastic demand.
This is because consumers can switch easily from one product to another. On
the other hand, if there are few or no real substitutes for a product, demand
will be inelastic.
ii. Degree of necessity:
Goods considered essential by consumers will have inelastic demand. If a
product is habit forming it may become a necessity and therefore it will have
inelastic demand.
iii. Proportion of income spent on a product:
If consumers spend a large proportion of their income on a product, demand
will be more elastic. On the other hand, demand for products that cost very
little in relation to income e.g. postage stamps or pencils are more price
inelastic.
iv. Time period:
In short run, goods have inelastic demand. This is because it can often take
time for consumers to find substitutes when price rises for example. In long
term, demand ir more elastic because consumers can search for alternatives
and are more prepared to switch.

Chapter 12
Question 01: What is public sector and private sector?
Answer:
Government organizations that provide goods and services in the economy is called
public sectors. Ex Education, Health Etc.
The provision of goods and services by businesses that are owned by individuals or
groups of individuals are is called private sectors. Ex Bank, Own Business Etc.
Question 02: How many type of economy is there? Name them.
Answer:
There are three types of economy:
i. A market of free enterprise economy.
ii. A command or planned economy
iii. A mixed economy
Question 03: difference between merit goods and public goods.
Answer:
Merit goods which are under provided by the private sector.
And Public goods that are not likely to be provided by the private sector.
Question 04: What is efficiency? Write the feature of efficiency.
Answer: Efficiency is minimizing costs and the use of resources.
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Since resources are scarce it is important not to waste them. The features of
efficiency are:
i. Producing goods at the lowest cost possible.
ii. Minimizing the quantity of resources that are needed to produce goods.
iii. Only producing those goods that are needed by people.

Chapter 17
Question 01: What is meant by primary, secondary and tertiary sectors? Write their
features.
Answer:
PRIMARY SECTOR:
Primary sector production involves extracting raw materials from the earth. The
range of production activities in this sector includes the following:

Mining and quarrying where raw materials such as coal, iron ore, copper, gravel,
diamonds, tin, salt are dug out of the ground.
Fishing, which involves catching fish techniques such as netting, trapping, angling
and trawling.
Forestry, which involves a range of farming activities.

SECONDARY SECTOR:
The secondary sector of the economy involves converting raw materials into
finished or semi-finished goods. Secondary sector activities include metal working and
smelting, automobile production, textile production, chemical and engineering,
aerospace manufacturing, energy utilities, engineering, food processing, construction
and shipbuilding.
TERTIARY SECTOR:
The tertiary sector involves the provision of services. There is a wide variety of
service, as shown in the following examples.

Professional services such as legal advice and medical care.

Transport such as train, bus and air services.
Household services such as gardening and house maintenance.
Leisure services such as swimming pools and libraries.
Financial services such as banking, insurance.

Question 02: What is de-industrialization? Write the main cause of de-industrialization?

Answer:
De-industrialization is the decline in manufacturing.
The main cause of De-industrialization is:

There may be changes in consumer demand, people may prefer to spend more of
their income on services than manufacturing goods.
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Recently there has been some fierce competition in the production of manufactured
goods from developing countries such as India, China and Brazil.
As countries become more developed the public sector tends to grow rapidly. Since
the public sector mainly provides services, this adds to the growth of the tertiary
sector.
Advances in technology mean that employment in manufacturing falls because
machine replace people.

Chapter 19
Question 01: Explain using a graph what do you mean by economics and diseconomies of
scale.
Answer:
Big firms can usually produce goods more
cheaply than small firms. The size of a firm has an
important effect on the average costs of
production. To start with, as a firm increases its
size, average costs start to fall. This is due to
economics of scale. Then the business is
producing 20 units of output, average costs is $25.
If it doubles in size and produces 40 units, average
costs fall to $15. The firm could carry on
expanding and lower its average costs until it is
large enough to produce 70 units. At this level of
output average costs are minimized at $10 per
unit.

Question 02: What is deflation? Difference between CPI and RPI?

Answer:
Deflation is the term used to describe a fall in average prices. However, deflation
may also be used to describe a slowdown in the economy a period where aggregate
demand is falling.
The main difference between the CPI and the RPI, is that the RPI includes houses
prices and council tax. The RPI tends to be higher than the CPI.
Question 03: Write some factors of inflation?
Answer:
The factor of inflation is given below:
i) Demand pull inflation.
ii) Cost push inflation
iii) Money supply inflation
Question 04: What is demand-pull inflation? Write the cause of it.
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Answer:
Keynesian argue that inflation can be caused by too much demand in demand-pull
inflation. They are
i) Rising consumer spending fueled by tax or low interest rates.
ii) Sharp increase in government spending.
iii) Rising demand.

Chapter 38
Question 01: What do you mean by fiscal policy?
Answer:
The decisions about government spending, taxation and borrowing planned for the
future are the governments fiscal policy.
Question 02: What is budget, budget deficit and budget surplus?
Answer:
Budget: the governments spending and revenue plans for the next year.
Budget deficit: the amount by which government revenue.
Budget surplus: the amount by which government revenue exceeds government
spending.
Question 03: What is meant by PSNCR?
Answer:
The government plan to spend more than it receives in tax revenue. This result in a
budget deficit and means that the government must borrow money to fund the deficit. The
amount borrowed is called the Public Sector Net Cash Requirement.
Question 04: Why Government impose taxation?
Answer: Government impose taxation for:
i) To pay for public sector services.
ii) To discourage certain activities. For ex in the UK, taxes are imposed on tobacco
to discourage smoking because it is dangerous.
iii) Taxes can be used to help to control aggregate demand in the economy.

Chapter 39
Question 01: What is developing countries? Write 5 features of developing countries.
Answer:
Developing country means less economically developed countries in the world.
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5 features of developing countries are:
Low GDP per capita most developing countries have low GDP per capita.
Low life expectancy people in developing countries are not expected to live as long as
those in developed countries
High population most developing countries have high developing growth.
Low literacy levels due to lack of education in developing countries, a small portion of
population can read and write.
Poor health one of the reasons while life