Easy Questions
1. What is microeconomics?
Answer: It studies how people and businesses make economic decisions.
Example: A shopkeeper deciding the price of a shirt.
2. What is opportunity cost?
Answer: What we give up when we choose something else.
Example: If you study instead of watching a movie, the movie is your opportunity cost.
3. What is the law of demand?
Answer: When price increases, people usually buy less. When price decreases, they usually buy more.
Example: If pizza becomes cheaper, more people may buy it.
4. What is the law of supply?
Answer: When price increases, sellers usually want to sell more.
Example: If mango prices increase, sellers may bring more mangoes to market.
5. Who is an entrepreneur?
Answer: A person who starts and runs a business.
Example: A person who opens a coffee shop.
Medium Questions
6. What is the difference between absolute and comparative advantage?
Answer:
Absolute advantage means producing more using the same resources.
Comparative advantage means producing something at a lower opportunity cost.
Example: Two bakeries make cakes and cookies. Each bakery should focus more on the product it can make at a lower opportunity cost.
7. What is market equilibrium?
Answer: It is the point where demand equals supply.
Example: Customers want 100 burgers, and sellers offer 100 burgers at ₹100 each.
8. What is price elasticity of demand?
Answer: It shows how much buying changes when the price changes.
Example: If a small price increase makes many customers stop buying a soft drink, demand is elastic.
9. What are externalities?
Answer: Effects of a business activity on other people.
Example: A factory creates smoke that affects people living nearby.
10. What are the four types of goods?
Answer:
Private good: Used by one person, like a sandwich.
Common resource: Shared and difficult to restrict access to, like fish in open-access waters.
Club good: Available to paying members, like Netflix.
Public good: Available for everyone to benefit from, like national defence.
Hard Questions
11. What happens when demand increases but supply decreases?
Answer: Price increases, but the change in quantity is uncertain.
Example: More people want umbrellas, but fewer umbrellas are available. Prices may rise.
12. How does elasticity help a business?
Answer: It helps a business decide whether to increase or decrease prices.
Example: If customers stop buying after a price increase, the business may need to reconsider its pricing.
13. What is deadweight loss?
Answer: It is the loss of benefits when some useful buying and selling does not happen.
Example: A high tax makes some customers stop buying a product, so some beneficial sales are lost.
14. What is tax incidence?
Answer: It explains who actually bears the burden of a tax, buyers or sellers.
Example: If petrol tax increases and petrol becomes more expensive, customers bear part of the burden.
15. How can the government reduce negative externalities?
Answer: Through taxes, rules and penalties that reduce harmful activities.
Example: The government taxes pollution to encourage factories to reduce smoke.