CMA Foundation Fundamentals of Economics and Management Syllabus

Give the formula for price elasticity of supply (Es).

Es = (Percentage change in quantity supplied) / (Percentage change in price) = (ΔQ/Q) ÷ (ΔP/P).

State the Law of Variable Proportions (Law of Returns to a Factor).

As more units of a variable factor are applied to a fixed factor, total product first increases at an increasing rate, then at a diminishing rate, and finally declines.

What are the three stages of the Law of Variable Proportions?

Stage I: Increasing returns (TP rises at increasing rate); Stage II: Diminishing returns (TP rises at diminishing rate, MP positive but falling); Stage III: Negative returns (TP falls, MP negative). A rational producer operates in Stage II.

Distinguish between the Law of Variable Proportions and Returns to Scale.

Law of Variable Proportions is a short-run concept with some factors fixed; Returns to Scale is a long-run concept where all factors are varied in the same proportion.

What are the three types of Returns to Scale?

Increasing returns to scale (output rises more than proportionately), Constant returns to scale (output rises proportionately), and Decreasing returns to scale (output rises less than proportionately).

Differentiate between Fixed Cost and Variable Cost.

Fixed costs do not vary with output (e.g., rent, salaries) and exist even at zero output; variable costs change directly with output (e.g., raw materials, wages).

Give the formulas for Average Cost (AC) and Marginal Cost (MC).

AC = Total Cost / Quantity (TC/Q); MC = change in Total Cost from one more unit = ΔTC/ΔQ = TC(n) − TC(n−1).

Define Total Revenue, Average Revenue, and Marginal Revenue.

TR = Price × Quantity; AR = TR/Q (equals price); MR = ΔTR/ΔQ, the addition to total revenue from selling one more unit.

What are the defining features of Perfect Competition?

Very large number of buyers and sellers, homogeneous product, free entry and exit, perfect knowledge, and a single ruling price — the firm is a price-taker and faces a horizontal (perfectly elastic) demand curve where AR=MR=Price.

What are the main features of a Monopoly market?

Single seller, no close substitutes, strong barriers to entry, the firm is a price-maker, and the AR (demand) curve slopes downward with MR lying below AR.

What are the key features of Monopolistic Competition?

Large number of sellers, product differentiation, free entry and exit, selling/advertising costs, and a downward-sloping but highly elastic demand curve.

What are the main features of an Oligopoly?

A few large sellers, interdependence in decision-making, barriers to entry, importance of non-price competition and advertising, and price rigidity (often shown by a kinked demand curve).

What is the equilibrium condition for a firm under any market form?

A firm is in equilibrium (profit-maximizing) where Marginal Cost = Marginal Revenue (MC = MR) and MC cuts MR from below.

Define National Income.

The total money value of all final goods and services produced by the residents of a country during a year (a flow concept).

Differentiate GDP from GNP.

GDP measures output produced within a country's domestic territory; GNP = GDP + Net Factor Income from Abroad (income earned by residents from abroad minus income paid to foreigners).

Give the relationship between GNP and NNP, and between Market Price and Factor Cost.

NNP = GNP − Depreciation; NNP at Factor Cost (National Income) = NNP at Market Price − Indirect Taxes + Subsidies.

What are the three methods of measuring National Income?

(1) Product/Value-Added method, (2) Income method, and (3) Expenditure method.

What does the Circular Flow of Income depict?

The continuous flow of goods/services and money payments between households (factor owners) and firms (producers); income flows to households as rent, wages, interest, profit and back to firms as consumption expenditure.

In the expenditure method, what is the formula for GDP?

GDP = C + I + G + (X − M), i.e., Consumption + Investment + Government expenditure + Net Exports.

What are the phases of a business/trade cycle?

Expansion (boom/prosperity), Peak, Contraction (recession/depression), and Trough (recovery starts) — recurring fluctuations in economic activity.

What are the main causes of business cycles?

Fluctuations in investment, changes in money supply and credit, over/under consumption, psychological expectations, innovations, and external shocks (Keynesian view stresses changes in aggregate demand).

What is management? Give a common definition.

Management is the process of planning, organizing, staffing, directing, and controlling the efforts of organizational members and using resources to achieve stated goals efficiently and effectively (getting things done through others).

What are the functions of management as given by Henri Fayol/POSDCORB tradition?

Planning, Organizing, Staffing, Directing (Commanding/Leading), Coordinating, and Controlling.

What is planning and what are the steps in the planning process?

Planning is deciding in advance what to do, how, and when. Steps: setting objectives, developing premises, identifying alternatives, evaluating alternatives, selecting the best, implementing, and follow-up/review.

What are the steps in the rational decision-making process?

Identify the problem, gather information, develop alternatives, evaluate alternatives, select the best alternative, implement the decision, and review/follow up on results.

What is delegation of authority and what are its three elements?

Delegation is the downward transfer of authority from a superior to a subordinate. Its elements are: assignment of responsibility (duty), grant of authority, and creation of accountability.

Differentiate delegation from decentralization.

Delegation is the transfer of authority from one manager to a subordinate (a one-to-one relationship); decentralization is the systematic, organization-wide dispersal of decision-making authority to lower levels and is broader in scope.

Name the common types of organizational structure.

Line organization, Line and Staff organization, Functional organization, Divisional structure, and Matrix organization.

What are the steps in the controlling process?

(1) Setting performance standards, (2) Measuring actual performance, (3) Comparing actual with standards, (4) Analyzing deviations, and (5) Taking corrective action.

What are the main barriers to effective communication?

Semantic/language barriers, psychological/emotional barriers, organizational barriers, personal barriers, and physical/mechanical barriers (noise).

Summarize Maslow's Hierarchy of Needs theory of motivation.

Human needs arise in a hierarchy and motivate in order: Physiological → Safety/Security → Social/Belonging → Esteem → Self-actualization; a satisfied need no longer motivates.

What are the leadership styles in Likert/Lewin classifications and McGregor's theories?

Lewin's styles: Autocratic, Democratic (participative), and Laissez-faire (free-rein). McGregor's Theory X (assumes workers dislike work, need control) and Theory Y (assumes workers are self-motivated and seek responsibility).