Business Economics Important Question Answer For BCA 3rd Semester

Business Economics Important Question Answer For BCA 3rd Semester

Business Economics Important Question Answer For BCA 3rd Semester: 

(Section – A)

1, Differentiate Microeconomics and Macroeconomics.

Ans.

Microeconomics Macroeconomics
Studies Individual Income. Studies national income
Analyzes demand and supply of labor Deals with aggregate decision
Studies Individual Prices Studies overall prices level
Analyzes demand and supply of goods Analyzes aggregates demand and aggregate supply.

2, What are the factor of production?

Factors of Production – the technical term economists use for resources. All things used in producing goods and services are called resource.

  • Land: – Everything on the earth in its natural state / the earth’s natural resources.
  • Labour: – All the people who work in the economy.
  • Capital: – The money needed to start and operate a business.
  • Entrepreneurship: – The skills of the people willing to risk their time and money to run a business.
  • Infrastructure: – The physical development of a country.

3, Define monopoly.

  • There is only one producer or seller of goods and only one provider of services in the market.
  • New firms find extreme difficulty in entering the market. The existing monopolist is considered giant in its field or industry.
  • There are no available substitute goods or services so that it is considered unique.
  • It owns a patent or copyright.

4, What is the price mechanism?

Price Mechanism:- Price mechanism refers to the system where the forces of demand and supply determine the prices of commodities and the changes therein. It is the buyers and sellers who actually determine the price of a commodity.

5, What is the Trade Cycle?

Trade Cycle: – The wave-like movement of the fluctuations in general business activity, spread over a number of years, is called a trade cycle. These fluctuations result in changes in the level of National Income and employment, and create not only economic but also social and political problems.

6, What is the Fiscal Policy?

Fiscal Policy: – Fiscal policy refers to the use of government spending and tax policies to influence economic conditions, especially macroeconomic conditions, including aggregate demand for goods and services, employment, inflation, and economic growth.

7, What is the Monetary Policy?

Monetary Policy: – Monetary policy refers to the use of monetary instruments under the control of the central bank to regulate magnitudes such as interest rates, money supply and availability of credit with a view to achieving the ultimate objective of economic policy.

8, What is Outsourcing?

Outsoaring: – Outsourcing is a business practice in which a company hires a third-party to perform tasks, handle operations or provide services for the company.

9, What is Globalization?

Globalization: –­­ Globalisation is the process of rapid integration or interconnection of countries. MNCs are playing a major role in the Globalisation process.

  • More and more goods and services, investments and technology are moving between countries.
  • There is one more way in which the countries can be connected. This is through the movement of people between countries.

(Section – B)

1, Define the law of demand.

Prof. Samuelson: “Law of demand states that people will buy more at lower price and buy less at higher prices, others thing remaining the same.”

Ferguson: “According to the law of demand, the quantity demanded varies inversely with price”.

Characteristics:

  • Inverse relationship.
  • Price independent and demand dependent variable.
  • Income effect & substitution effect.

Assumptions:

  • No change in tastes and preference of the consumers.
  • Consumer’s income must remain the same.
  • The price of the related commodities should not change.
  • The commodity should be a normal commodity.

2, Define the law of supply.

Law of Supply states that other things being equal, the Higher the Price, the Greater the Quantity Supplied or the Lower the Price, the Smaller the Quantity Supplied.

There is a Direct Relationship between Price & Quantity Supplied: –

  • Quantity Supplied Rises as Price Rises, Other things Constant.
  • Quantity Supplied Falls as Price Falls, Other things Constant.

3, What are the economic methods?

An economic theory derives laws or generalizations through two methods:

(1) Deductive Method and

(2) Inductive Method.

Deductive Method:

  • Deductive means using knowledge about things that are generally true in order to think about and understand particular situations or problems.
  • In this method, reasoning people proceeds from general to particular or from universal to individuals.
  • Inferences are drawn from general cases to establish to particular case.

Inductive Method:

  • Inductive means using particular facts and examples to form general rules and principles.
  • In the inductive method, reasoning proceed from particular to the general or from individual to the universal,
  • A general case is made from the individual cases.

4, Explain the economic problems.

What to produce? Quantity and range of goods to produce Resources are limited, we must choose between different alternative collection of goods and services that may be produced.
How to produce? Techniques of production e.g labor intensive, capital intensive.
For whom to produce? It means that how the national product is distributed i.e. who should get how much
Are the resources economically used? No wastage of resources since they are limited.
Problem to full employment? Economy must endeavor to achieve full employment not only of labor but of all its resources.
Problem of growth? Economy must expand or develop to maintain conditions of stability.

5, Explain the economic definition given by different authors.

Ans.

1, Wealth Definition. Adam Smith

2, Welfare Definition. Alfred Marshall

3, Scarcity Definition. Lionel Robbins

4, Growth Definition. Paul Samuelson

Wealth Definition.

Adam Smith

Economics is concerned with wealth.
Welfare Definition.

Alfred Marshall

Economics is the study of mankind in the ordinary business of life.

“Economics is one side a study of wealth; and on the other side more important side a part of study of man.”

He made economics is a science of human welfare

Scarcity Definition.

Lionel Robbins

“Economic is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses.”
Growth Definition.

Paul Samuelson

Economics is the study of how people and society end up choosing with or without money to employ scarce productive resources that could have alternative uses to produce various commodities and distribute them for consumption, now or in the future among various persons and groups in society.

6, What is the WTO? And give the objectives.

Ans.

WTO: – World Trade Organisation, was established in 1995 as the heir organisation to the GATT (General Agreement on Trade and Tariff). GATT was founded in 1948 with 23 nations as the global (international) trade organisation to serve all multilateral trade agreements by giving fair chances to all nations in the international exchange for trading prospects. WTO is required to build a rule-based trading government in which countries cannot place unreasonable constraints on trade.

Give the objectives

1, To raise the standard of living in member countries.

2, Development of a multilateral trading system.

3, To reduce Tariff and Non-Tariff barrier.

4, To eliminate discriminatory treatment in international trade relationships.

5, To make coordination between trade policies, environmental policies and sustainable development

7, What is the national income? How to measure national income.

Ans.

National Income: National income means the value of goods and services produced by a country during a financial year. Thus, it is the net result of all economic activities of any country during a period of one year and is valued in terms of money.

National Income is the total amount of income accruing to a country from economic activities in a fixed period of time (i.e., One Year).

Methods of Measuring National Income in India

There are three methods to calculate national income: 1.Product Method 2. Income Method 3. Expenditure Method Let’s discuss these methods one by one in following subsections.

Product Method In this method two approaches-final product approach and value added approach are adopted.

Final Product Approach

It is expressed in terms of GDP. According to final product approach, sum total of market value of all final goods and services produced by all productive units in the domestic economy in an accounting year is estimated by multiplying the gross product with market prices. Being gross it includes depreciation, being at market price, it includes net indirect taxes and being domestic, it includes production by all production units within domestic territory of a country. It includes value of only final goods and services.

Value Added Approach Notes

This method measures contribution of each producing enterprise to production in the  domestic territory of a country in an accounting year. According to this method net value added at factor cost by all the producing units during an accounting year within the domestic territory is summed up. This gives us value of net domestic product at factor cost or domestic income

Income Method

Income Method measures national income from the side of payments made to the primary factors of production for their productive services in an accounting year. Thus according to income method, national income is calculated by summing up of factor incomes of all the normal residents of a country earned within and outside the country during a period of one year. The income generated is nothing but the net value added at factor cost by factors of production, which is distributed in the form of money income amongst them.

Expenditure Method

GDP can be measured by taking into account all final expenditures in the economy. There are three distinct types of expenditures as they are committed by households, firms and Government respectively. These expenditures are classified into following types:

  1. Private consumption expenditure (C)
  2. Government expenditure (Government purchases of goods and services) (E)
  3. Investment expenditure (I)
  4. Net exports (X-M) Thus, GDP = C + I + G + (X – M)

8, What is the Inflation? Give the main reason for inflation.

Ans.

Inflation: -Inflation is an economic indicator that indicates the rate of rising prices of goods and services in the economy. Ultimately it shows the decrease in the buying power of the rupee. It is measured as a percentage.

This percentage indicates the increase or decrease from the previous period. Inflation can be a cause of concern as the value of money keeps decreasing as inflation rises.

Reasons/Causes of Inflation

  • Increase in Public Spending
  • Increased Velocity of Circulation
  • Exports
  • Trade Unions
  • Tax Reduction
  • Imposition of Indirect Taxes

9, What is unemployment? Give the reason for unemployment.

Unemployment: – Unemployment is a term referring to individuals who are employable and actively seeking a job but are unable to find a job. Included in this group are those people in the workforce who are working but do not have an appropriate job. Usually measured by the unemployment rate, which is dividing the number of unemployed people by the total number of people in the workforce, unemployment serves as one of the indicators of a country’s economic status.

Reasons/Causes of Unemployment

  • High Population Growth
  • Absence of employment opportunities
  • Seasonal Employment
  • Joint Family System
  • Increasing turnout of student from Indian universities
  • Slow Developing of Industries
  • Insufficient Rate of Economic Progress

(Section – C)

1, Explain the concept of elasticity of demand and its types. And give the application of its.

Ans.

Elasticity of Demand: – Demand extends or contracts respectively with a fall or rise in price. This quality of demand by virtue of which it changes (increases or decreases) when price changes (decreases or increases) is called Elasticity of Demand.

There three types of elasticity of demand which are given below:

Price Elasticity of Demand

The concept of price elasticity of demand is commonly used in economic literature. Price elasticity of demand is the degree of responsiveness of quantity demanded of a good to a change in its price. Precisely, it is defined as:

“The ratio of proportionate change in the quantity demanded of a good caused by a given proportionate change in price”.

Income Elasticity of Demand

Income is an important variable affecting the demand for a good. When there is a change in the level of income of a consumer, there is a change in the quantity demanded of a good, other factors remaining the same. The degree of change or responsiveness of quantity demanded of a good to a change in the income of a consumer is called income elasticity of demand. Income elasticity of demand can be defined as:

“The ratio of percentage change in the quantity of a good purchased, per unit of time to a percentage change in the income of a consumer”

Cross Elasticity of demand

The concept of cross elasticity of demand is used for measuring the responsiveness of quantity demanded of a good to changes in the price of related goods. Cross elasticity of demand is defined as:

“The percentage change in the demand of one good as a result of the percentage change in the price of another good”.

2, Write a short note demand and supply equilibrium.

Ans.

In terms of economics, the forces of supply and demand determine our everyday lives as they set the prices of the goods and services we purchase daily. These illustrations and examples will help you understand how the prices of products are determined via market equilibrium.

Supply and Demand Equilibrium

Even though the concepts of supply and demand are introduced separately, it’s the combination of these forces that determine how much of a good or service is produced and consumed in an economy and at what price. These steady-state levels are referred to as the equilibrium price and quantity in a market.

In the supply and demand model, the equilibrium price and quantity in a market is located at the intersection of the market supply and market demand curves. Note that the equilibrium price is generally referred to as P* and the market quantity is generally referred to as Q.

Figure (demand and supply equilibrium –img.png) –ignored

3, What are the economies and diseconomies of scale?

Ans.

Economies of scale and diseconomies of scale

Economies of scale

Economies of scale may be defined as the cost advantages that can be achieved by an organization by the expansion of their production in the long run. Therefore, the advantages of large scale expansion are known as Economies of Scale. The lower average cost per unit achieves the advantage in cost.

Economies of scale refers to the situation in which increasing the scale of production reduces the unit cost of production.

Generally, the larger the scale of production, the lower the average cost of production

Types of Economies of Scale

The Economies of Scale may be divided into two categories

1) Internal Economies

2) External Economies.

Internal Economies: Internal Economies are the real economies that arise from the expansion of the organisation. These economies are the result of the growth of the organisation itself.

External Economies: External Economics are the economies that originate from factors outside the organisation. These economies result in the increase in the main organisation by the increase in the quality of factors outside the organisation like better transportation, better labour, infrastructure, etc. Due to the betterment of these external factors, the cost of production per unit of an item in the organisation decreases.

Reasons of Economies of scale

  • Businesses buy in bulk for needed supplies
  • Efficient production
  • Cutting wasteful spending
  • Reduced marketing campaigns
  • Risk is diversified
  • Capital goods and investments are cheaper
  • Transportation and storage is cheaper

Diseconomies of scale

A firm or an industry enjoys economies only up to a certain limit. having reached this limit, these Economies turn into diseconomies. When the scale of production enlarges beyond a particular limit it leads the diseconomies.

Types of Diseconomies of Scale

Internal Diseconomies of Scale: Internal Diseconomies of Scale are the Diseconomies resulting from the internal difficulties within the organisation. The Internal Diseconomies are the factors that raise the cost of production of an organisation like lack of supervision, lack of management and technical difficulties.

External Diseconomies of Scale: External Diseconomies of Scale are the external factors that result in the increase in the production per unit of a product within an organisation. The external factors that act as a restrain to expansion may include the cost of production per unit, scarcity of raw materials, and low availability of skilled labours.

4, Define perfect competition. Explain the features of perfect competition. How to price determination under perfect competition.

Ans.

Perfect Competition: Perfect Market is a market situation which consists of a very large number of buyers and sellers offering a homogeneous product. Under such condition, no firm can affect the market price. Price is determined through the market demand and supply of the particular product, since no single buyer or seller has any control over the price.

Perfect Competition cannot be found in the real world. For such to exist, the following conditions must be observed and required:

Features of Perfect Competition

  • There are very many small firms
  • All producers of a good sell the same product
  • There are no barriers to enter the market
  • All consumers and producers have ‘perfect information’
  • Firms sell all they produce, but they cannot set a price
  • A large number of sellers
  • Selling a homogenous product
  • No artificial restrictions placed upon price or quantity
  • Easy entry and exit
  • All buyers and sellers have perfect knowledge of market conditions and of any changes that occur in the market
  • Firms are “price takers”

Determine price under perfect competition

When demine price under perfect competition, we will also use the equilibrium method. Equilibrium is the process where demand and supply are Intersect at single point it’s called Equilibrium.

5, What do you mean by the law of return to scale?

Ans.

Meaning:

In the long run all factors of production are variable. No factor is fixed. Accordingly, the scale of production can be changed by changing the quantity of all factors of production

Definition:

“The term returns to scale refers to the changes in output as all factors change by the same proportion.

Returns to scale relates to the behaviour of total output as all inputs are varied and is a long run concept”

Returns to scale are of the following three types:

1, Increasing Returns to scale.

2, Constant Returns to Scale

3, Diminishing Returns to Scale

1, Increasing Returns to scale.

Increasing returns to scale indicates a greater percentage increase in output than the percentage increase in input.it means when the output increase in a greater proportion than the increase in all input, it is called increasing return to scale.

If all inputs increase by 100% than the output increase by more than 100%

2, Constant Returns to Scale

When proportionate increase in total output is equal to the proportionate increase in inputs, it is constant return to scale.

If all the inputs are increased by 100% then the output also increased by 100%.

3, Diminishing Returns to Scale

When proportionate increase in total output is less than proportionate increase in inputs, it is diminishing return to scale, If all the inputs are increased by 100%, than the output increase by less than 100%

6, What is the market? Explain the market structure.

Ans.

Market:

Basically, when we hear the word market, we think of a place where goods are being bought and sold.

In economics, market is a place where buyers and sellers are exchanging goods and services with the following considerations such as:

  • Types of goods and services being traded
  • The number and size of buyers and sellers in the market

The degree to which information can flow freely

Market Structure

Types of market structure

  • Perfect or pure market
  • Imperfect Market (Monopoly, Monopolistic, Oligopoly)

Perfect Competition

  • Big number of small companies.
  • All companies manufacturing the standard products.
  • Companies are free to enter and leave the market.
  • Information is available for all the companies.
  • Stock markets, food markets etc.

Monopoly Competition

  • Big number of small companies.
  • Differentiated goods.
  • No boundaries to enter the market.
  • There are some limitations.
  • The market of cosmetics, perfumes, shoes, clothes.

Oligopoly

  • Small number of companies, existence of big firms.
  • Standard of differentiated goods.
  • Companies have issues to enter market.
  • Limitations of information.
  • Car manufacturing, Tabaco industry etc.

Monopoly

  • One company
  • Unique product without substitution.
  • Solid boundaries to enter the market.
  • Limitations of information.
  • Entergy companies, water stations, phone companies.

7, Explain –

    • Monopoly
    • Monopolistic
    • Oligopoly

Ans.

Monopoly: – Monopoly comes from a Greek word ‘monos’ which means ‘one’ and ‘polein’ means to ‘sell’.

There is only one seller of goods or services.

Features of Monopoly

  • There is only one producer or seller of goods and only one provider of services in the market.
  • New firms find extreme difficulty in entering the market. The existing monopolist is considered giant in its field or industry.
  • There are no available substitute goods or services so that it is considered unique.
  • It controls the total supply of raw materials in the industry and has no control over price.
  • It owns a patent or copyright.
  • Its operations are under economies of scale.

Monopolistic: – Market situation in which there are many sellers producing highly differentiated products. Monopolistic competition is also perfect competition plus product differentiation. 

Features of Monopolistic completion:

  1. A large number of buyers and sellers in a given market act independently.
  2. There is a limited control of price because of product differentiation.
  3. Sellers offer differentiated products or similar but not identical products.
  4. New firms can enter the market easily. However, there is a greater competition in the sense that new firms have to offer better features of their products.
  5. Economic rivalry centres not only upon price but also upon product variation and product promotion.

Oligopoly: –  Oligopoly comes from the Greek word “oligo” which means ‘few’ and “polein” means ‘to sell’. small number of sellers, each aware of the action of others

All decisions depend on how the firms behave in relation to each other

Characteristics of Oligopoly

  1. There are a small number of firms in the market selling differentiated or identical products.
  2. The firm has control over price because of the small number of firms providing the entire supply of a certain product.
  3. There is an extreme difficulty for new competitors to enter the market.

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