FYBCOM B. ECONOMICS Sem I Concepts Module I & II


Q. 1 a)    Define the Following                                            10 Marks
(Note: Give definition in one or two sentences only. Don’t give explanation. There is only one mark for each)
1)    Business Economics
ü Business Economics is also known as Managerial Economics
ü Business Economics referes to the integration of economic theory with business management practice.
ü Business Economics uses economic theory and quantitative methods to analyse the functioning of business enterprises
2)    Opportunity cost
Opportunity cost is also called as alternative cost or cost of forgone.
Opportunity cost refer to the next best alternative forgone or sacrificed.
3)    Marginalism
Marginal analysis implies the impact of a unit change in one variable on the other.
4)    Incrementalism
Incremental analysis refers to changes in total cost and total revenue resulting from change in the level of output, investment, price or form a particular decision.
5)    Variables
A variable is a magnitude of interest which can be defined and measured.
6)    Functions
Function shows the relationship between two or more variabls
Function explains the relationship between one variable with other variable.
D= f (P) Demand is function of price
S= f (P) Supply is function of Price
C= f (Y) Consumption is function of income
f shows functional relationship
7)    Equations
An equation specifies the relationship between the dependant and independent variables
Equations refers to a statement of equality of two expression
D=f (P)
Symbol  = shows equality of  two expressions Demand and Price
8)    Graphs
Graph is a digram showing how two or more sets of data or variables are related to one another
9)    Slopes
The slope refers to change in one variable due to change in other variable.
10)           Demand
Ø Demand is defined as the quantity of a commodity which a customer is willing to buy at a particular price in a particular market at a particular time.
Ø Demand means desire backed by ability to buy and willingness to pay for a commodity.
11)           Market Demand
Market demand refers to the sum of individual demands by all the consumer for a commodity
12)           Supply
Ø The supply of goods is the quantity offered, for sale in a given market at a given time at various prices
Ø Supply refers to the various quantities of a commodity which an individual producer or seller is able and willing to offer for sale at a particular price at a particular time

13)           Market Supply
Market supply refers to the total amount of commodity which all producers o sellers together are able and willing to offer for sale at a particular price during a given period of time.

14)           Equilibrium price
Equilibrium price is determined by the interaction of market demand and market supply
15)           Law of Demand
The law of demand states that other factors being constant, as price of a commodity rises the demand for the commodity will fall and vice versa
16)           Price elasticity of demand
Ø Responsiveness of quantity demanded of a commodity to a change in its price
Ø The price elasticity of demand is given by the percentage change in the quantity demanded of commodity divided by the percentage change in its price.
17)           Point elasticity
Point elasticity of demand measures elasticity of demand at a point
18)           Arc Elasticity
Arc refers to a part of a curve between two points.  Arc elasticity of demand measures elasticity of demand between two points
19)           Geometric elasticity
It is a ration of lower segment of demand curve below the point upon upper segment of the demand curve above the point
20)           Income elasticity of demand
Ø This measures the responsiveness of demand for a commodity to a change in consumer’s income
Ø The income elasticity of demand is given by the percentage change in the quantity demanded of the commodity divided by the percentage change in income, keeping constant all other variables.
21)           Cross elasticity of demand
Cross elasticity of demand measures the responsiveness of demand for a commodity X to a change in the price of Y


22)           Promotional elasticity of demand
Ø Promotional elasticity of demand measures the responsiveness of demand for a commodity to a change in promotional expenditure on the commodity
23)           Perfectly Inelastic Demand
When the demand for a commodity is not responsive to any change in price, demand is perfectly inelastic
24)           Perfectly Elastic Demand
When the demand for a commodity is infinitely responsive to any change in price, demand is perfectly elastic
25)           Relatively Inelastic Demand
Demand is relatively inelastic when the percentage change in quantity demanded is less than percentage change in price
26)           Relatively Elastic Demand
Demand is relatively elastic when the percentage change in quantity demanded is greater than percentage change in price
27)           Unitary/ unit elasticity of Demand
Demand is Unitary inelastic when the percentage change in quantity demanded equals the percentage change in price
28)           Total Revenue
Total revenue (TR) is the total sale proceeds obtained by a firm from the sale of a certain quantity of a commodity at a given price. TR = P X Q
29)           Average Revenue
Average revenue is the price or revenue per unit of output AR = TR / Q
30)           Marginal Revenue
Average revenue is the extra revenue received by the firm by selling one more unit of a commodity. MRn = TRn – TRn-1
31)           Demand forecasting
Demand forecasting is an estimation of demand for the production for a future period

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