CSS Economics Economics Paper I: Microeconomics and Macroeconomics Syllabus

Economics Paper I: Microeconomics and Macroeconomics syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for Economics Paper I: Microeconomics and Macroeconomics in CSS Economics, not a summary of it.

1. 1

   Microeconomics: Consumer Behaviour

   3 topics

   • Theory of Consumer Choice
   • Demand Theory
   • Revealed Preference and Modern Approaches
2. 2

   Market Demand, Supply and Elasticity

   4 topics

   • Determination of Market Demand and Supply
   • Elasticity of Demand
   • Elasticity of Supply
   • Partial versus General Equilibrium Analysis
3. 3

   Theory of the Firm and Production

   3 topics

   • Production Function
   • Theory of Costs
   • Producer's Equilibrium and Profit Maximization
4. 4

   Market Structures and Pricing

   4 topics

   • Perfect Competition
   • Monopoly
   • Monopolistic Competition
   • Oligopoly and Game Theory Basics
5. 5

   Theory of Distribution and Factor Pricing

   3 topics

   • Marginal Productivity Theory of Distribution
   • Pricing of Factors of Production
   • Functional and Personal Distribution of Income
6. 6

   Basic Macroeconomic Concepts

   3 topics

   • Scope and Method of Macroeconomics
   • Circular Flow of Income
   • Stocks versus Flows and Key Aggregates
7. 7

   National Income Accounting

   3 topics

   • Concepts of National Income
   • Methods of Measuring National Income
   • Difficulties in Measurement and Green Accounting
8. 8

   Consumption, Investment and Income Determination

   6 topics

   • Consumption Function
   • Investment Function and Marginal Efficiency of Capital
   • The Multiplier
   • The Accelerator and Multiplier-Accelerator Interaction
   • Components of Aggregate Demand
   • Determination of Equilibrium Income and Output
9. 9

   Employment, Inflation and Schools of Thought

   4 topics

   • Labour Demand and Supply
   • Unemployment
   • Classical, Keynesian and Monetarist Views
   • Inflation

Economics Paper I: Microeconomics and Macroeconomics flashcards for CSS Economics

24 of 59 cards from the Economics Paper I: Microeconomics and Macroeconomics deck — real questions with worked answers.

1. What does the Theory of Consumer Choice seek to explain?

   It explains how a rational consumer allocates limited income among competing goods to maximize satisfaction (utility), given prices and the budget constraint.

2. Define utility in economics.

   Utility is the satisfaction or want-satisfying power a consumer derives from consuming a good or service. It is the basis for the demand for that good.

3. Distinguish between the cardinal and ordinal approaches to utility.

   The cardinal approach assumes utility is measurable in absolute numbers (utils), as in Marshall's analysis. The ordinal approach (Hicks-Allen) assumes utility can only be ranked or ordered, not numerically measured.

4. Define Total Utility (TU) and Marginal Utility (MU).

   Total Utility is the aggregate satisfaction from consuming a given quantity of a good. Marginal Utility is the change in total utility from consuming one more unit: $MU_n = TU_n - TU_{n-1}$, or $MU = \frac{\Delta TU}{\Delta Q}$.

5. State the Law of Diminishing Marginal Utility.

   As a consumer consumes successive units of a good, the marginal utility derived from each additional unit declines, other things remaining constant.

6. What is the relationship between Total Utility and Marginal Utility at the point of saturation?

   Total Utility is maximum when Marginal Utility is zero ($MU = 0$). Beyond this point MU becomes negative and TU begins to fall.

7. State the condition for consumer equilibrium for a single good in the cardinal approach.

   A consumer is in equilibrium where the marginal utility of the good equals its price (in utility terms): $MU_x = P_x$, or more generally $\frac{MU_x}{P_x}$ equals the marginal utility of money.

8. State the Law of Equi-Marginal Utility (Law of Maximum Satisfaction).

   A consumer maximizes total utility by allocating income so that the marginal utility per unit of money spent is equal across all goods: $$\frac{MU_x}{P_x} = \frac{MU_y}{P_y} = \cdots = MU_m$$

9. In the cardinal approach, what does $MU_m$ (marginal utility of money) represent and why is it assumed constant?

   $MU_m$ is the satisfaction from the last unit of money (rupee) spent. It is assumed constant so that money can serve as a stable measuring rod of utility.

10. What is an Indifference Curve?

    A locus of points representing different combinations of two goods that yield the consumer the same level of total satisfaction, so that the consumer is indifferent among them.

11. List the four main properties of indifference curves.

    (1) They slope downward from left to right (negative slope); (2) they are convex to the origin; (3) higher indifference curves represent higher satisfaction; (4) two indifference curves can never intersect.

12. Define the Marginal Rate of Substitution (MRS).

    The MRS of $X$ for $Y$ is the amount of $Y$ a consumer is willing to give up to gain one more unit of $X$ while staying on the same indifference curve: $$MRS_{xy} = -\frac{\Delta Y}{\Delta X} = \frac{MU_x}{MU_y}$$

13. Why are indifference curves convex to the origin?

    Because of the diminishing marginal rate of substitution: as the consumer acquires more of $X$ and less of $Y$, the amount of $Y$ they will sacrifice for an extra unit of $X$ falls.

14. Why can two indifference curves never intersect?

    Intersection would imply that a single combination yields two different levels of satisfaction simultaneously, which contradicts the assumption of consistent (transitive) preferences.

15. What is an Indifference Map?

    A set (family) of indifference curves on the same diagram, where each successive curve farther from the origin represents a higher level of satisfaction.

16. What is the Budget Line (Price Line / Budget Constraint)?

    A line showing all combinations of two goods that a consumer can buy by spending the entire money income at given prices: $$M = P_x X + P_y Y$$

17. What is the slope of the budget line and what does it represent?

    The slope is $-\frac{P_x}{P_y}$, the ratio of the prices of the two goods. It represents the market rate at which one good can be exchanged for the other.

18. How does a fall in the price of good $X$ affect the budget line?

    The budget line pivots outward along the $X$-axis (the $X$-intercept $\frac{M}{P_x}$ increases) while the $Y$-intercept stays fixed, making the line flatter.

19. How does a change in money income (with prices constant) affect the budget line?

    The budget line shifts parallel: outward (right) if income rises and inward (left) if income falls, with the slope $-\frac{P_x}{P_y}$ unchanged.

20. State the condition for consumer equilibrium in the indifference curve (ordinal) approach.

    Equilibrium occurs where the budget line is tangent to the highest attainable indifference curve, so that the slope of the IC equals the slope of the budget line: $$MRS_{xy} = \frac{MU_x}{MU_y} = \frac{P_x}{P_y}$$

21. What is the second-order (stability) condition for consumer equilibrium in indifference analysis?

    At the equilibrium point the indifference curve must be convex to the origin (diminishing MRS); the budget line must be tangent to, not cut, the indifference curve.

22. Define the Income Effect of a price change.

    The change in the quantity demanded of a good resulting solely from the change in the consumer's real income (purchasing power) caused by the price change, holding relative prices constant.

23. Define the Substitution Effect of a price change.

    The change in quantity demanded that results purely from the change in relative prices, with real income held constant, causing the consumer to substitute toward the now-cheaper good.

24. How does the Price Effect relate to the income and substitution effects?

    The total price effect is the sum of the substitution effect and the income effect: $$\text{Price Effect} = \text{Substitution Effect} + \text{Income Effect}$$

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