1. Very short answers
- By Biraj Pyakurel

2. 1.Define micro economics in one sentence
Ans: Microeconomics is the study of individual microeconomic units
2.Micro economics is also known as price policy. Why?
Ans: because in microeconomics we study how the prices of goods and services are determined.
3.state the objectives of micro economics
Ans: The objectives are: to maximize the satisfaction, to maximize the level of output and profit maximization.
4.Why micro economics is also called slicing theory?
Ans: It studies total economy by slicing it. So it is called slicing theory.
5.Point out the main issues of Micro economics.
Ans: The main issues of micro economics are: 1) Price determination 2)what should be produce 3) How to produce 4)How to distribute.etc.

3. 6.What are the different types of Micro economics analysis Ans: The different types of Micro economics are Micro static b) Comparative Micro static c) Micro dynamic 7.Define complimentary goods Ans: Jointly demanded, which cannot satisfy without others’ help 8.What happens to the demand of inferior goods when the price of that commodity decreases? Ans: Demand decreases 9.Name any three determinants of demand other than price. Ans: a) Income of the consumer b) price of the related commodity c)taste of the consumer 10.What is the degree of responsiveness of demand for ice-cream with respect to change in the price of tyres? Ans: Responsiveness is zero (0) 11.What is the formula to derive cross elasticity of demand? Ans: Ec=

4. 13. What happens to demand of giffen goods when price rises?
12.What is the formula to derive price elasticity of demand by Arc method?
Ans : Ec=
13. What happens to demand of giffen goods when price rises?
Ans: the demand for giffen goods increases.
14.suppose characteristics of three persons A, B, C are given as follows:
A wants to buy a book but he has no money to pay for it.
B has sufficient money to buy the books but prefers to burrow books from the library.
C has money and is willing to spend his money on a book.
~ Who creates the demand for books?
Ans: C creates the demand for books.
15.Make a list of any five causes responsible for shift in supply curve
Ans: 1) clearance sale 2) Auction 3) Change in the price of raw materials 4) Change in technology 5) Expectation of the seller.
16. Which elasticity of supply is shown by the supply curve parallel to X-axis?
Ans: perfectly elastic

5. 17. Define stock and supply.
Ans: Supply is the commodity which is sent to the market at the prevailing price. Stock is the product which is not sent to the market at the prevailing price and is kept in godown.
18. complete the following sentences:
- Cross elasticity of demand between two substitutes is……….
- Cross elasticity of demand between two complements is………..
Ans: positive
negative
19. If the demand for goods ‘Y’ increases as the price of goods ‘X’ rises .How are the two goods related?
Ans: they are substitute goods
20. What happens to Marginal Cost after the point where it equals AVC?
Ans: the MC begins to increase after that point.

6. 21. What will happen to variable costs when the output increases?
Ans: It goes on increasing.
22. When Marginal Revenue is zero, which revenue becomes maximum?
Ans:The total revenue becomes maximum.
23. What happens to the supply of a commodity when the MC curve is increasing?
Ans: The supply of a commodity also increases.
24. All Giffen goods are inferior goods but all inferior goods are not Giffen goods. Explain in one sentence
Ans:Giffen goods are those for which the demand is positively affected by the changes in price but when the demand is negatively affected by the change in income it is inferior goods.

7. 25. What are the various components required for ‘demand’ in economics?
Ans:-the following components are required for demand in economics:
a)Desire to have any commodity
b)Ability to pay for the commodity.
c) Willingness to pay for the commodity
26. What will be the elasticity of demand if there is no change in the quantity demanded as a result of a given change its price?
Ans; The elasticity of demand is said to be perfectly inelastic or Zero elasticity of demand.
27. What do you mean by ‘Engel curve’?
Ans: Income demand curve is known as Engel curve. It shows the relationship between change in income and the change in consumer’s expenditure on a particular commodity.
28. What is supply schedule?
Ans: Supply schedule is the schedule which shows how much quantity is supplied at what price.

8. 29. A person spends all his income on two goods, X and Y. If a Rs
29. A person spends all his income on two goods, X and Y. If a Rs. 5 rise in price of goods X does not change the demand for good Y, what is the elasticity of good X?
Ans: Zero cross elasticity of demand
30. When AC < AR what will be there profit or loss?
Ans: There will be profit
31. Who enjoys abnormal profit in both short and long period?
Ans: Monopolist enjoys abnormal profit both in short and long run.
32. What is the nature of total fixed cost curve?
Ans: The nature of Total fixed cost curve will be straight line parallel to x - axis
33. Do fixed cost curve effects marginal cost?
Ans: Fixed costs are not changed when there is change in output. Therefore fixed cost does not affect marginal cost.
34. What is revenue?
Ans: revenue is the earning of a firm by selling his product.
35. What is cost?
Ans: Cost is the sum of money which is spent to produce certain level of output.

9. 36. What are implicit costs?
Ans; Implicit cost refers to the cost of self-owned and self-supplied resources.
37. Give three examples of implicit costs.
Ans: examples of implicit costs are; remuneration of owner working as manager, interest on capital supplied by the owner, and rent of the owner’s land and buildings etc.
38. What are explicit costs?
Ans: Explicit costs refer to the actual money expenditure of a business enterprise (a firm) in purchasing or hiring the services of factor inputs.
39. Give three examples of explicit costs
Ans: examples of explicit costs are: wages and salaries paid to employees, interest paid on loan, electricity and power charges etc.
40. What is opportunity cost?
Ans: The opportunity cost of a firm is the costs forgone alternatives.

10. 41. Distinguish between fixed and variable costs.
Ans: Fixed costs are those which do not vary when output is increased or decreased. Variable costs on the other hand, are those costs which vary with the change in output.
42. What is the nature of total fixed cost curve?
Ans: The nature of total fixed cost curve will be a straight line parallel to X-axis.
43. What is the nature of total variable cost curve?
Ans: The nature of total variable cost curve will be upward sloping from left to right.
44. As the variable input (labour) is increased by one unit, total output falls. What would you say about marginal productivity of labour?
Ans :When total output falls by increasing one unit of the variable input (Labour ), it shows that Marginal productivity of labour is negative.
45. What will be the effect on Total Variable Costs when output is increased?
Ans:Total Variable cost increases when output increases.

11. 46. Define break-even point.
Ans: Break-even point is the level of production and sales at which total revenue equal total cost.
47. What kind of profit is included in the cost of production?
Ans: Nominal profit.
48. Define Average variable cost.
Ans: AVC is the Total Variable cost divided by total output.
i.e AVC=TVC/q
49. MR = MC =AC = AR = P .Mention the market in which this situation will be there.
Ans: This situation will be in long run perfect competition market.
50. What is the equilibrium point in every market?
Ans: In every market the equilibrium point is MR = MC
51. What will be the MR if price elasticity is greater than one?
Ans: In this case MR will be positive.

12. 52. What will be the MR if price elasticity is less than one?
Ans: In this case MR will be negative.
53. What will be the MR if price elasticity is equal to one?
Ans: In this case MR will be zero.
54. By which formula do you calculate AR or price if you know MR and elasticity of demand?
Ans: we will calculate AR or price with the help of this formula: - AR or Price =MR (e/e-1)
55. By which formula do you calculate MR if you know AR or price and elasticity of demand?
Ans: we will calculate MR with the help of this formula:-MR =AR or Price (e-1/e)
56. Define income elasticity of demand.
Ans: Income elasticity of demand is the degree of responsiveness of demand to the change in the income of a consumer while other things remaining the same.
57. Define marginal product of variable input.
Ans: Marginal product is the addition to total product caused by producing one more unit of output.

13. 58. What do you mean by price discrimination?
Ans: The art of selling the same product at different price to different consumer is known as price discrimination.
59. Point out the main features of perfect competition.
Ans: The main features of perfect competition are:
Large number of buyers and sellers
Homogeneous product
Free entry and exit in to industry.
Perfect knowledge regarding the price in the market
Perfect mobility of factors of production
60. Point out the main components of TFC.
Ans: The main components of TFC are: the rent of land and factory premises, government fees, insurance charges, interest on machinery and capital investment, obsolescence of machinery, and salary of permanent staff etc.
61. Point out the main components of variable cost.
Ans: The main components of variable costs are: raw materials used in production, labour employed, and power consumed in production.

14. 62. Give the second order condition of consumer’s equilibrium of indifference curve analysis.
Ans; The second order condition of consumer’s equilibrium of indifference curve analysis is that the price line must be tangent with convex indifference curve.
63. Why Total Product of a firm increases so long as Marginal Product is positive?
Ans: It is because of the increasing return to a factor.
64. Point out the features of monopolistic Competition.
Ans:The main features of monopolistic Competition are:
Large number of buyers and sellers
Differentiated product
Free entry and exit
Non price competition
Selling costs etc.
65. Give two examples of Price discrimination practiced in Nepal
Ans: The examples of Price discrimination practiced in Nepal are Cinema tickets and electricity bill for household and factory.

15. 66. List the four properties of indifference curve.
Ans: The properties of indifference curve are :
Indifference curve slopes downwards
Indifference curve are convex to the origin
Indifference curve can not intersect each other
Higher the Indifference curve higher will be the satisfaction
67. Give any two examples of second degree price discrimination.
Ans: The examples of second degree Price discrimination is aero plane ticket and cinema ticket.
68. What is marginal Product when Total product is constant?
Ans: Marginal Product will be zero.
69. What is the cross elasticity of demand of pens with respect to change in the price of motor cars?
Ans: The cross elasticity of demand of pens with respect to change in the price of motor cars will be zero because they are non related goods.
70. If 10% increase in price of coconut oil increases the total revenue of the seller by 2%,what is the price elasticity of demand for coconut oil?
Ans: The elasticity of demand is less than unit.

16. 70. List three properties of isoquants.
Ans: Three properties of isoquants are a) slopes downwards b) It is convex to the origin c) It can not intersect each other.
71. What is the shape of marginal revenue curve in monopoly market?
Ans: The marginal revenue curve in monopoly market will be downward sloping and less than average Revenue.
72. Shutting down means the firm’s loss in the entire fixed cost. Do you agree?
Ans:No he will not shutdown when there is loss in fixed cost. He will shutdown when there loss in average variable cost.
73. List out the determinants of demand for dairy milk in Kathmandu.
Ans: The determinants of demand for dairy milk in Kathmandu are:1) price 2)price of their competitor’s product 3)consumer preference to the dairy milk 4) advertisement expenses of other firms etc.
74. Calculate income elasticity of demand if 4% change in income brings 2% change in quantity demand
Ans: We have,
Ey = (% Change in quantity demand) / (% Change in income)
= ( 2 / 4 ) = 0.5 So, income elasticity of demand is less than unit.

17. 74. Name the three stages of law of variable proportion.
Ans: Stage of increasing return, stage of diminishing return and stage of negative return are the three stages of law of variable proportion.
75. What will happen to AP and MP when total output increases at constant rate?
Ans: Average product and Marginal product also increases at constant rate.
76. What will happen to variable costs when the output increases?
Ans: Variable cost increases when the output increases.
77. At which point does the LMC curve intersect LAC curve?
Ans: the LMC curve intersects LAC curve at its minimum point.

18. 78. A firm under perfect competition is a price taker? Why?
Ans: A firm under perfect competition is a price taker because it cannot fix the price he has to accept the price which is prevailing in the market.
79. What is the main objective of a business firm?
Ans: the main objective of a business firm is to earn maximum profit
80. What is profit?
Ans Profit is the difference between Revenue and cost.
81. What is the formula to calculate price elasticity of demand with the help of Arc method?
Ans: Ep=
82. Why LAC is called envelop curve ?
Ans :Lac curve envelops or supports all SAC curves. So it is called envelop curve.
83. Why LAC is called planning curve ?
Ans : LAC is also called planning curve because a producer plans to produce certain level of output by employing the plant, which gives him least cost in the long run.

19. 84. What determines the price under perfect competition
84. What determines the price under perfect competition? Ans: Demand and supply determine the price under perfect competition. 85. What will be the shape of AR curve under perfect competition? Ans: The AR curve will be a horizontal straight line. 86. How is price affected by increase in demand under perfect competition? Ans: The price will rise when there is increase in demand. 87. What do you mean by short run? Ans: Short run is that period where some factors have to be kept as fixed factors. The production can be changed only by varying variable factors. 88. What do you mean by long run? Ans: Long run is that period where all the factors can be changed. There will be no distinction between variable factor and fixed factors.

20. 89. What do mean by equilibrium of the firm
89. What do mean by equilibrium of the firm? Ans: Equilibrium of the firm is that point where the firm neither wants to increase nor wants to decrease its production. At this point, he will be having maximum profit. 90. When will the firm be in equilibrium? Ans: The firm will be in equilibrium at the point where MC=MR and MC curve cuts MR from below. 91. What is revenue? How is AR different from MR? Ans: Revenue refers to the money receipt of the producer from the sale of his output . AR is the revenue for unit of output while MR is the additional revenue when one unit of output is sold. and MR=TRn - TRn-1

21. 92. If MR is given, how can you calculate TR
92. If MR is given, how can you calculate TR? Ans: TR is the sum of MR corresponding to each unit of output. TR=MR1 + MR2 + … + MRn 93. Show how AR=Price Ans: We know, AR=TR / q and TR=Pxq ooo AR=Pxq/q = P Hence, firm’s average revenue means price of the product corresponding to a given level of output. 94. What is the shape of AR and MR curve under perfect competition? Ans: Under perfect competition, AR and MR curves will be parallel to X-axis. They will coincide with each other. 95. What is the shape of AR and MR curves under monopoly and monopolistic competition? Ans: AR and MR curve under monopoly and monopolistic competition will be downward sloping.

22. 96. What do you mean by production cost
96. What do you mean by production cost? Ans: Production cost refers to the cost of producing a commodity. These are incurred in terms of cost of raw materials or cost of factors of production. 97. What is selling cost? Ans: Selling cost refers to the cost of increasing the demand for a commodity. These are incurred in terms of advertisements or publicity expenses. 98. What is fixed cost? Ans: Fixed cost refers to the cost incurred on fixed factors of production like plant and machinery. These do not vary with output and remains constant even when output is zero. 99. What is variable cost? Ans: Variable cost refers to the cost incurred on variable factors of production. These costs increase when output increases and decreases when output decreases and will be zero when output is zero

23. 100. When does the distinction between variable cost and fixed cost exists? Ans: The distinction between variable and fixed costs exists only in the short period. But in long period, all the factors are treated as variable factors, accordingly, all costs are treated as variable costs Explain the relation between TC and MC. Ans: TC increases at an increasing rate when MC is increasing. TC increases at a constant rate when MC is constant. TC increases at diminishing rate when MC is decreasing 102. Show the relation between AC and MC. Ans: If AC is falling, AC>MC If AC is constant, AC=MC If AC is rising, AC<MC

24. 103. What do you mean by indifference curve
103. What do you mean by indifference curve? Ans: An indifference curve is a locus of points in commodity bundles among which the consumer is indifference . Each point on an indifference curve yields the same total utility as any other point on that same indifference curve What do you mean by budget line? Ans: The budget line is the set of commodity bundles that can be purchased of the entire money income is spend. Its slope is the negative of the price ratio What do you mean by price consumption curve ? Ans: The price consumption curve is a locus of points in the commodity space showing the equilibrium commodity bundles resulting from variation in the price ratio, money income remaining constant.

25. Therefore, AR or Price = 10 106. What is Income Consumption Curve?
Ans: The Income Consumption Curve is a locus of points in the commodity space showing the equilibrium commodity bundles associated with different levels of money income for constant money price
107. What is substitution effect?
Ans: The substitution effect is the change in quantity demanded resulting from a change in relative price after compensating the consumer for the change in real income.
108. If MC of a monopoly firm is Rs.5 and elasticity of its demand equals -2, what would be the price?
Ans: We know, at equilibrium, MC=MR
We have, AR=MR ( e / e-1 )
or, AR=5 ( 2 / 2-1 )
Therefore, AR or Price = 10

26. 108. What is income effect? Ans: The income effect of a change in the price of a commodity is the change in quantity demanded resulting exclusively from a change in real income, all other prices and money income held constant What is Engel curve? Ans: An Engel curve is a function relating the equilibrium quantity purchased of a commodity to the level of money income. 110.What is normal or superior goods? Ans: A normal or superior good is one for which the quantity demanded varies directly with real income.

27. 111. What is inferior goods? Ans: An inferior good is one for which the quantity demanded varies inversely with real income What is an Iso-quant? Ans: An Iso-quant is a curve in inputs showing all possible combination of inputs physically capable of producing a given level of output. The iso-quant curve is also known as equal production curve or production indifference curve What do you mean by MRTS? Ans: MRTS is a rate at which units of two inputs are substituted to each other to maintain same level of output’

28. 114. List out main assumptions of cardinal utility.
Ans - Marginal utility of money is constant, existence of law of diminishing marginal utility, utility can be measured in quantity.
115. What are the two conditions of consumer’s equilibrium of IC approach,
Ans - Slope of IC=Slope of Price line and IC should convex to the origin at the tangency point.
116. Define marginal utility.
Ans - The utility obtained by consuming one additional unit of a commodity.

29. 115. What do you mean by MRSxy in IC analysis.
Ans - The amount of good Y that a consumer is willing to sacrifice to gain one additional unit of good Y.
116. Define PCC.
Ans - It is the locus of different equilibrium points at various level of prices.
117. Define ICC.
Ans - It is the locus of different equilibrium points at various level of income.
118. Why does IC curve slope downward?
Ans - Due to the existence of diminishing MRS

30. 119. How does IC map show consumer’s preference.
Ans - Since higher and lower IC represent higher and lower level of satisfaction respectively in IC map.
120. Define Engel curve(Income demand curve)
Ans - It is the graphical presentation of the relationship between equilibrium quantity purchased and income of the consumer.
121. Define Inferior good.
Ans - The good whose demand decreases with the increase in income is known as inferior good.

31. 120. Define Positive income effect.
Ans - The income effect related with normal good is known as positive income effect.
121. What will be the shape of PCC in a case of substitute good?
Ans - It will be downward sloping.( upward sloping in a complement good.
122. Do you agree that indifference curve never intersect each other?
Ans - Yes, if it is intersected, the single IC represents two different level of satisfaction which is against from assumption of IC.

32. 123. Why higher IC is more preferred?
Ans - Since higher IC contains more quantities of at least one commodity.
124.Is it possible to attain consumer’s equilibrium at MRS= 4/1 and price ratio=2/1. justify
Ans - No, since slope of IC and price line(primary condition) are not satisfied.
125. Why does a consumer choose a combination of two goods where MRS equals the commodity price ratio.
Ans - because it is the only combination which is desirable as well as attainable.

33. 126.Suppose at point A on IC for goods X and Y, Gyanendra has 10 units of X and 20
units of Y, When he moves to a point B, the combination changes to 12 units of X good
and 19 unit of good Y. What is the MRS between points A and B?
Ans - MRS is 2:1
127. What are the similarities between cardinal and Ordinal Approach.
Ans - Both approach assume that- consumer must be rational, use introspective method and use similar proportionality technique.

34. 128. Define Substitution effect.
Ans - It is the change in the quantity demanded of a commodity resulting from a change in its price, relative to the prices of other commodities.
129. At which time food price subsidy will be more appropriate than cash subsidy?
Ans - When the economy is running from inflation and there is a food surplus in the economy.
130. Why direct tax will be more desirable than indirect tax for the welfare of the people?
Ans - because Direct tax will reduce the individual’s welfare less than that by the indirect tax

35. 131. Define transfer earning.
Ans - The minimum payment that induce a factor to remain present use.
Transfer earning = Actual earning-economic rent.
132. What do you mean by economic rent?
Ans - The payment which is made for the use of land only is called economic rent.
133. Define Contract rent.
Ans - The rent paid by tenant to landlord for the use of land along with other factor is called Contract rent or gross rent.
134. Give the value of economic rent when factor supply is perfectly elastic.
Ans - Economic rent is zero.
(In a case of perfectly inelastic factor supply, transfer earning is zero.)

36. 135. What are the propositions of modern theory of rent.
Ans - Rent is determined by demand for factor and supply of factor and derived from all factors of production.
136. Define Quasi rent.
Ans - It is the surplus earned by man-made factors other than land.
137. What are the propositions of marginal productivity theory of wages?
Ans-An economy operates in full employment in long run.
Operation of law of diminishing marginal returns of labor.
138. Define marginal cost of labor.
Ans - The wage paid to each additional unit of labor.
139. What do you mean by VMPL?
Ans - It is the product between MPL and Price.

37. 140. At which point the equilibrium level of wage rate is determined?
Ans - When VMPL = MCL
141. Why VMPL slopes downward?
Ans - Due to the operation of diminishing return of labor.
142. What are the sources of lonable fund?
Ans -Saving, Bank money, Disinvestment and Dishoarding.
143. State any two propositions of Keynesian theory of interest.
Ans -Interest is determined by demand for money and supply of money and interest is purely a monetary phenomenon,
144. State the various motive of demand for money.
Ans - Transaction motive, precautionary motive and speculative motive.

38. 145. What is interest, according to Keynes?
Ans - It is the reward for parting with liquidity for a specified period of time,
146. How the speculative motive vary with rate of interest?
Ans - It is inversely related with rate of interest.
147. What is the relationship between MC and price under monopoly?
Ans- Mc will be always less than price under monopoly
148. why Micro economics is also called price theory/
Ans- because it explains about the pricing of the product and factors of production.

39. 149. what are the motives of demand for money according to keyns?
Ans- The motives of demand for money according to keyns are Transaction motive, precautionary motive and speculative motive.
150. write any four causes for raising oligopoly.
Ans- The causes for raising oligopoly are huge capital investment, control over certain raw materials, absolute cost advantage to the present firms and patent right.
151.what are the uses of micro economics?
Ans- The uses of micro economics are to understand the functioning of the economy, optimum allocation of resources, business decision making and prediction for future events.

40. 152. State the condition for wage determination according to marginal productivity theory of wages.
Ans- The condition for wage determination according to marginal productivity theory of wages is Wage=MPL
153.Write any four features of long run average cost curve.
Ans- The four features of long run average cost curve are (a) it will be U shaped (b) it is flatter than SAC (c) it is less pronounced than SAC (d) it envelopes all the SAC curves.
154.what is the percentage change in price, if the price elasticity is 0.5 and the percentage change in quantity demand is 4?
Ans- We have, Ep= % change in demand/% change in price
0.5= 4/%change in price
% Change in price = 4 x0.5 = 2

41. 155. A consumer buys 50 units of goods at Rs. 4 per unit
155.A consumer buys 50 units of goods at Rs. 4 per unit. When its price falls by 25 percent its demand rises to100 units. Find out the price elasticity of demand.
Solution:
P=4
Fall in price==1 New price (p1)=4 - 3=3
Change in Price =P1-P =3-4 =-1
Initial Quantity (Q ) =50,New Quantity Q1 =100 Change in Quantity
Q =100 – 50 =50
Elasticity of demand = == 4
Answer : Elasticity of demand =4(Greater than unit)

44. The price elasticity of demand for good X is known to be twice that of good Y. price of X falls by 5 percent while that of good Y rises by 5 percent. What is the percentage change in quantities of X and Y?
Solution:
If Ey=1 for commodity Y
Ex =2 for commodity X
5% rise in price of Y should mean 5% increase in quantity of Y and 5% fall in price of X should mean 10% increase in quantity of X
Answer : percentage change in quantity of X will be twice the percentage change in quantity Y.

45. Ans: we have the formula to calculate income elasticity as: Ey=
. Calculate income elasticity of demand if 4% change in income brings 2% change in quantity demanded?
Ans: we have the formula to calculate income elasticity as:
Ey=
So, Ey=
So, income elasticity of demand is less than unit