NTS NAT-IGS Economics Syllabus

Give the formula for Price Elasticity of Demand.

Ed = (% change in quantity demanded) / (% change in price).

What does Elasticity of Demand = 1 (unitary elastic) mean?

Percentage change in quantity demanded equals percentage change in price.

What is perfectly elastic demand and its elasticity value?

Demand where a tiny price change causes infinite change in quantity; Ed = infinity (horizontal demand curve).

What is perfectly inelastic demand and its elasticity value?

Demand that does not change at all with price; Ed = 0 (vertical demand curve).

Name the methods of measuring price elasticity of demand.

Percentage (proportionate) method, Total outlay/expenditure method, Point method, and Arc method.

Define Utility in economics.

The want-satisfying power of a commodity; the satisfaction a consumer derives from consuming a good or service.

State the Law of Diminishing Marginal Utility.

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

What is the relationship between Total Utility and Marginal Utility when TU is maximum?

When Total Utility is maximum, Marginal Utility is zero.

State the Law of Equi-Marginal Utility (Law of Substitution).

A consumer maximizes satisfaction when the marginal utility per rupee spent is equal across all goods (MUx/Px = MUy/Py).

What is Marginal Utility?

The addition to total utility from consuming one additional unit of a commodity (MU = change in TU / change in quantity).

What is Market Equilibrium?

The situation where quantity demanded equals quantity supplied, determining the equilibrium price and quantity.

What happens to price when there is a surplus (excess supply) in the market?

Price falls until equilibrium is restored.

What happens to price when there is a shortage (excess demand) in the market?

Price rises until equilibrium is restored.

How does the equilibrium price change if demand increases while supply is constant?

Equilibrium price rises and equilibrium quantity rises.

Name the four Factors of Production.

Land, Labour, Capital, and Organization (Entrepreneur).

What is the reward (factor payment) for each factor of production?

Land - Rent; Labour - Wages; Capital - Interest; Entrepreneur - Profit.

Define Capital as a factor of production.

The man-made/produced means of production (such as machines, tools, buildings) used to produce further goods.

What is the role of an Entrepreneur?

To organize the other factors of production, take risks, and make business decisions.

State the Law of Increasing Returns (decreasing costs).

As more units of a variable factor are applied, total output increases at an increasing rate, so marginal product rises.

State the Law of Diminishing Returns.

As more units of a variable factor are added to fixed factors, beyond a point the marginal product of the variable factor declines.

State the Law of Constant Returns.

When additional units of a variable factor add the same amount to total output, marginal product remains constant.

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

Stage 1: Increasing Returns; Stage 2: Diminishing Returns; Stage 3: Negative Returns.

Define Fixed Cost.

Cost that does not vary with the level of output (e.g., rent, salaries); it must be paid even at zero output.

Define Variable Cost.

Cost that changes directly with the level of output (e.g., raw materials, wages of casual labour).

Give the formula for Average Cost (AC).

AC = Total Cost / Quantity of output (TC/Q).

Define Marginal Cost.

The addition to total cost from producing one more unit of output (MC = change in TC / change in Q).

What is Total Revenue and its formula?

Total Revenue is the total income from sales; TR = Price x Quantity sold.

Define Marginal Revenue.

The addition to total revenue from selling one more unit of output (MR = change in TR / change in Q).

List the key features of Perfect Competition.

Large number of buyers and sellers, homogeneous products, free entry and exit, perfect knowledge, and price-taking firms (single price).

In Perfect Competition, what is the relationship between Price, AR, and MR?

Price = Average Revenue = Marginal Revenue (the demand curve is horizontal/perfectly elastic).

Define Monopoly and list its main features.

A market with a single seller of a product having no close substitutes; features include one seller, no close substitutes, barriers to entry, and the firm is a price-maker.