NTS NAT-ICOM Economics Syllabus

What is Marginal Utility (MU)?

The additional utility derived from consuming one more unit of a commodity. MU = change in TU / change in quantity (ΔTU/ΔQ).

State the Law of Diminishing Marginal Utility.

As a consumer consumes more units of a commodity, the marginal utility derived from each successive unit goes on decreasing.

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

Total Utility is maximum when Marginal Utility is zero; beyond this, MU becomes negative and TU starts to fall.

Under the cardinal (Marshallian) approach, what is the condition for consumer equilibrium for a single commodity?

Consumer equilibrium occurs where Marginal Utility = Price (MU = P).

State the Law of Equi-Marginal Utility.

A consumer maximizes satisfaction by allocating income so that the marginal utility per unit of money spent is equal across all goods: MUx/Px = MUy/Py = ... = MU of money.

What is an Indifference Curve?

A curve showing all combinations of two goods that give a consumer the same level of satisfaction (utility).

What are the main properties of an Indifference Curve?

It slopes downward from left to right, is convex to the origin, two indifference curves never intersect, and a higher curve represents higher satisfaction.

Why is an Indifference Curve convex to the origin?

Because of the diminishing Marginal Rate of Substitution (MRS) — the rate at which one good is substituted for another decreases along the curve.

What is the Marginal Rate of Substitution (MRS)?

The rate at which a consumer is willing to give up one good to obtain an additional unit of another good while staying on the same indifference curve. MRSxy = MUx/MUy.

What is an Indifference Map?

A collection (set) of indifference curves, where a higher curve represents a higher level of satisfaction.

What is the Budget Line (Price Line)?

A line showing all combinations of two goods a consumer can buy with a given income at given prices.

Under the indifference curve (ordinal) approach, what is the condition for consumer equilibrium?

Equilibrium occurs where the budget line is tangent to the highest attainable indifference curve, i.e., where MRSxy = Px/Py (slope of IC = slope of budget line).

State the Law of Demand.

Other things being equal, as the price of a commodity falls, its quantity demanded rises, and as the price rises, quantity demanded falls (inverse relationship).

What is the shape and slope of a typical demand curve?

The demand curve slopes downward from left to right, showing the inverse relationship between price and quantity demanded.

What are the main exceptions to the Law of Demand?

Giffen goods, Veblen/prestige goods, expectations of future price changes, and goods of ostentation/necessity.

What is the difference between a change in quantity demanded and a change in demand?

A change in quantity demanded is movement along the demand curve due to a price change; a change in demand is a shift of the whole curve due to non-price factors (income, tastes, etc.).

What is a Giffen good?

An inferior good for which demand increases when its price rises (and decreases when price falls), violating the Law of Demand.

State the Law of Supply.

Other things being equal, as the price of a commodity rises, its quantity supplied rises, and as price falls, quantity supplied falls (direct/positive relationship).

What is the shape and slope of a typical supply curve?

The supply curve slopes upward from left to right, showing the direct relationship between price and quantity supplied.

What is the difference between a change in quantity supplied and a change in supply?

Change in quantity supplied is movement along the supply curve due to price change; change in supply is a shift of the curve due to non-price factors (input costs, technology, etc.).

What is Price Elasticity of Demand?

A measure of the responsiveness of quantity demanded to a change in price. Ed = (% change in quantity demanded) / (% change in price).

What is the formula for Price Elasticity of Demand using the percentage method?

Ed = (ΔQ/Q) ÷ (ΔP/P), or equivalently (ΔQ/ΔP) × (P/Q).

What does perfectly elastic demand (Ed = ∞) look like?

A horizontal demand curve — quantity demanded changes infinitely at a single price.

What does perfectly inelastic demand (Ed = 0) look like?

A vertical demand curve — quantity demanded does not change at all when price changes.

What is unitary elastic demand?

When Ed = 1, meaning the percentage change in quantity demanded equals the percentage change in price; shown by a rectangular hyperbola.

List the main types of elasticity of demand.

Price elasticity, Income elasticity, and Cross elasticity of demand.

What is Market Equilibrium?

The point where the quantity demanded equals the quantity supplied, determining the equilibrium price and equilibrium quantity (where demand and supply curves intersect).

What happens in a market when price is above the equilibrium price?

There is a surplus (excess supply), which pushes the price down toward equilibrium.

What happens in a market when price is below the equilibrium price?

There is a shortage (excess demand), which pushes the price up toward equilibrium.

What are the four Factors of Production?

Land, Labour, Capital, and Entrepreneur (Organization). Their rewards are Rent, Wages, Interest, and Profit respectively.