JAIBP Economics Syllabus

Classify demand as elastic, inelastic, or unit-elastic using the PED value.

|PED| > 1 is elastic; |PED| < 1 is inelastic; |PED| = 1 is unit-elastic.

How does the relationship between price and total revenue differ for elastic versus inelastic demand?

With elastic demand, a price cut raises total revenue; with inelastic demand, a price increase raises total revenue (revenue moves opposite to price when elastic, same as price when inelastic).

Give the formula for income elasticity of demand and state its sign for normal and inferior goods.

Income elasticity = %ΔQuantity demanded / %ΔIncome; positive for normal goods, negative for inferior goods.

What is cross elasticity of demand, and what do positive and negative values indicate?

Cross elasticity = %ΔQuantity demanded of good X / %ΔPrice of good Y; positive indicates substitutes, negative indicates complements.

State the Law of Diminishing Marginal Utility.

As a consumer consumes more units of a good, the additional (marginal) utility from each successive unit declines, other things equal.

State the consumer equilibrium condition under the marginal utility (cardinal) approach for two goods.

Consumer maximizes utility where MUx / Px = MUy / Py (marginal utility per rupee is equal across goods) and the budget is fully spent.

What is an indifference curve, and why does it slope downward?

An indifference curve shows combinations of two goods giving equal satisfaction; it slopes downward because more of one good must be offset by less of the other to keep utility constant.

Define the Marginal Rate of Substitution (MRS).

MRS is the rate at which a consumer will give up one good for an additional unit of another while remaining on the same indifference curve; it equals the slope of the indifference curve and diminishes along it.

State the consumer's equilibrium condition under the indifference-curve (ordinal) approach.

Consumer equilibrium is where the budget line is tangent to the highest attainable indifference curve, i.e., MRSxy = Px / Py.

Distinguish the short run from the long run in production theory.

In the short run at least one factor of production is fixed; in the long run all factors are variable.

State the Law of Diminishing Returns (variable proportions).

As more units of a variable input are added to fixed inputs, beyond a point the marginal product of the variable input eventually declines.

Write the formulas for Average Product (AP) and Marginal Product (MP) of labour.

AP = Total Product / Quantity of labour; MP = change in Total Product / change in quantity of labour (ΔTP/ΔL).

Distinguish fixed costs from variable costs.

Fixed costs do not change with output (e.g., rent); variable costs change directly with the level of output (e.g., raw materials).

Give the formulas for Average Total Cost (ATC), Average Variable Cost (AVC), and Marginal Cost (MC).

ATC = Total Cost / Quantity; AVC = Total Variable Cost / Quantity; MC = ΔTotal Cost / ΔQuantity.

Why is the short-run average cost curve U-shaped?

Initially average cost falls due to increasing returns and spreading of fixed costs, then rises due to diminishing returns to the variable factor.

What is the relationship between the Marginal Cost curve and the ATC/AVC curves?

The MC curve cuts both the ATC and AVC curves at their minimum points; when MC is below average cost it pulls it down, when above it pulls it up.

What are economies of scale?

Long-run reductions in average cost as a firm increases its scale of output (e.g., through specialization, bulk buying, and better technology); diseconomies of scale are rising average costs at large scale.

State the four key features of a perfectly competitive market.

Many buyers and sellers, a homogeneous (identical) product, free entry and exit, and perfect information; firms are price takers.

State the profit-maximizing output rule for any firm.

A firm maximizes profit by producing where Marginal Revenue equals Marginal Cost (MR = MC), with MC rising through that point.

In perfect competition, what is the relationship between price, marginal revenue, and average revenue?

Price = Marginal Revenue = Average Revenue, because the firm faces a perfectly elastic (horizontal) demand curve at the market price.

Define a monopoly and state its main features.

A monopoly is a market with a single seller of a product with no close substitutes and high barriers to entry; the monopolist is a price maker.

Why is a monopolist's marginal revenue less than price?

Because the monopolist faces a downward-sloping demand curve and must lower the price on all units sold to sell an additional unit, so MR falls below price (AR).

List the key features of monopolistic competition.

Many firms, differentiated products, relatively free entry and exit, and some price-setting power; each firm faces a downward-sloping demand curve.

Why do monopolistically competitive firms earn only normal profit in the long run?

Because free entry and exit eliminate economic profits; new firms enter when profits exist until each firm earns just normal profit (price = average cost).

Define an oligopoly and state its defining feature.

An oligopoly is a market dominated by a few large firms whose key feature is mutual interdependence — each firm's decisions depend on rivals' expected reactions.

What does the kinked demand curve model explain in oligopoly?

It explains price rigidity: rivals match price cuts but not price rises, making demand more elastic above the prevailing price and less elastic below it, so firms avoid changing price.

Define National Income (GNP) and the three approaches to measuring it.

National income is the total money value of all final goods and services produced by a nation in a year; it is measured by the product (value-added), income, and expenditure approaches, which yield equal totals.

Write the expenditure-method formula for GDP.

GDP = C + I + G + (X − M), where C is consumption, I is investment, G is government spending, and (X − M) is net exports.

Distinguish GDP from GNP, and nominal from real GDP.

GDP measures output produced within a country's borders; GNP measures output by a nation's residents regardless of location (GNP = GDP + net factor income from abroad). Nominal GDP is valued at current prices; real GDP is valued at constant (base-year) prices to remove inflation.

In the Keynesian model, what determines equilibrium national income, and state the condition.

Equilibrium national income is determined where aggregate demand equals aggregate output (or planned saving equals planned investment, S = I); income adjusts until these are equal.

Give the formulas for the spending multiplier (k) in terms of MPC and MPS.

Multiplier k = 1 / (1 − MPC) = 1 / MPS, where MPC is the marginal propensity to consume and MPS is the marginal propensity to save (MPC + MPS = 1).

Define inflation and distinguish demand-pull from cost-push inflation.

Inflation is a sustained rise in the general price level. Demand-pull inflation arises when aggregate demand exceeds aggregate supply; cost-push inflation arises when rising input costs (wages, raw materials) push up prices.

What is the unemployment rate formula, and name the main types of unemployment?

Unemployment rate = (Number of unemployed / Labour force) × 100. Main types: frictional, structural, cyclical, and seasonal unemployment.

What does the short-run Phillips Curve show about inflation and unemployment?

It shows a short-run inverse (trade-off) relationship: lower unemployment is associated with higher inflation and vice versa.