Contents About the authors I-5 Preface to second edition I-7 Chapter-heads I-9 Syllabus : Choice Based Credit System (CBCS) I-19 1 EXPLORING ECONOMICS 1.1 Why study economics? 1 1.2 Meaning of economics 2 1.3 Definition of economics 2 1.4 Ten principles of economics 4 1.5 Scope of economics 6 1.6 Economic problem : scarcity and choice 12 1.7 Central problems of an economy 13 1.8 Production possibility frontier 14 1.9 Circular flow of income 20 1.10 Economic systems 23 1.11 Working with graphs 31 CHAPTER IN BRIEF 31 REVIEW QUESTIONS 35 Annex 1.1 : Working with graphs 37 I-11
Contents I-12 2 DEMAND, SUPPLY AND MARKET EQUILIBRIUM I. Demand Analysis 2.1 Demand and want 45 2.2 Demand and quantity demanded 45 2.3 Demand function 46 2.4 Determinants of demand 47 2.5 Law of demand 52 2.6 Why demand curve slopes downward 54 2.7 Linear and non-linear demand curve 55 2.8 Market demand 57 2.9 Changes in demand 59 2.10 Exceptions to the law of demand 62 II. Supply Analysis 2.11 What is supply? 67 2.12 Supply and quantity supplied 67 2.13 Supply function 68 2.14 Law of supply 69 2.15 Market supply schedule 71 2.16 Changes in supply 73 2.17 Factors determining supply 75 III. Market Equilibrium 2.18 Market equilibrium 80 CHAPTER IN BRIEF 88 FORMULAS TO REMEMBER 91 REVIEW QUESTIONS 92 Annex 2.1 : Classification of Goods on the basis of Income 95 3 ELASTICITY OF DEMAND AND SUPPLY I. Price elasticity of demand 3.1 Introduction 99 3.2 Meaning 101
I-13 Contents 3.3 Sign of the elasticity estimate 102 3.4 Problems in the concept of elasticity of demand 103 3.5 Slope and price elasticity of demand 104 3.6 Types of elasticity of demand 104 3.7 Factors affecting price elasticity of demand 107 3.8 Measuring price elasticity of demand 109 3.9 Relationship between Revenue and price elasticity of demand 126 II. Elasticity of supply 3.10 Introduction 128 3.11 Meaning 128 3.12 Types of elasticity of supply 130 III. Applications of elasticity of demand and supply 3.13 Factors affecting elasticity of supply 132 3.14 Enigma of sufficiency 134 3.15 other applications 139 CHAPTER IN BRIEF 140 FORMULAS TO REMEMBER 143 REVIEW QUESTIONS 144 4 INCOME AND CROSS ELASTICITY OF DEMAND I. Income elasticity of demand 4.1 Introduction to income elasticity 147 4.2 Concept of income elasticity of demand 148 4.3 Types of income elasticity of demand 151 4.4 Importance of income elasticity of demand 153 II. cross elasticity of demand 4.5 Introduction to cross elasticity 154 4.6 Concept of cross elasticity 154 4.7 Types of cross elasticity of demand 156
Contents I-14 4.8 Importance of cross elasticity of demand 157 CHAPTER IN BRIEF 158 FORMULAS TO REMEMBER 159 REVIEW QUESTIONS 160 5 MARKET EQUILIBRIUM AND GOVERNMENT INTERVENTION 5.1 Re-visiting market mechanism 162 5.2 Understanding government intervention 162 5.3 Price ceiling and its application 163 5.4 Price flooring and its application 168 5.5 Impact of tax on economy 172 CHAPTER IN BRIEF 179 REVIEW QUESTIONS 180 6 SURPLUSES, MARKET EFFICIENCY AND COST OF TAXATION 6.1 Introduction 182 6.2 Meaning of consumer surplus 183 6.3 Measuring consumer surplus 183 6.4 Meaning of producer surplus 191 6.5 Measuring producer surplus 191 6.6 Market efficiency 200 6.7 Market failure 204 6.8 Costs of taxation 204 CHAPTER IN BRIEF 213 FORMULAS TO REMEMBER 215 REVIEW QUESTIONS 215 7 ORDINAL APPROACH TO THE CONSUMER BEHAVIOUR 7.1 Basis of Indifference curve approach 217
I-15 Contents 7.2 Concept of indifference curve 218 7.3 Marginal rate of substitution 220 7.4 Assumptions of indifference curve 221 7.5 Indifference map 222 7.6 Properties of indifference curve 223 7.7 Exceptional shapes of indifference curve 228 7.8 Budget line 230 7.9 Consumer s equilibrium 238 CHAPTER IN BRIEF 244 FORMULAS TO REMEMBER 245 REVIEW QUESTIONS 246 8 APPLICATIONS OF INDIFFERENCE CURVES 8.1 Introduction 249 8.2 Effect of change in price 250 8.3 Derivation of demand curve 252 8.4 Effect of change in income 254 8.5 Substitution effect 257 8.6 Decomposition of price effect 258 8.7 Applications of indifference curve analysis 265 CHAPTER IN BRIEF 273 FORMULAS TO REMEMBER 274 REVIEW QUESTIONS 275 9 THEORY OF PRODUCTION 9.1 Introduction 277 9.2 Production function 278 9.3 Short run production concepts 280 9.4 Law of variable proportions 281 9.5 Producer s behaviour in long run 282
Contents I-16 9.6 Economies and diseconomies of scale 284 CHAPTER IN BRIEF 292 REVIEW QUESTIONS 293 10 THEORY OF COST I. Short run 10.1 Introduction 295 10.2 Alternative cost concepts 296 10.3 Cost function 299 10.4 Total fixed cost (TFC) 300 10.5 Total variable cost (TVC) 301 10.6 Total cost (TC) 302 10.7 Average fixed cost (AFC) 303 10.8 Average variable cost 305 10.9 Average cost (AC) 307 10.10 Marginal cost 309 10.11 Relationship between different cost curves 312 II. long run 10.12 Long run total cost curve 315 10.13 Long run average cost curve 317 10.14 Long run marginal cost curve 320 10.15 Relationship between production and cost curves 322 CHAPTER IN BRIEF 323 FORMULAS TO REMEMBER 326 REVIEW QUESTIONS 327 11 THEORY OF PERFECT COMPETITION 11.1 Introduction 331 11.2 Definition and characteristics of perfect competition 332
I-17 Contents 11.3 perfect and pure competition 334 11.4 Revenue curves under perfect competition 335 11.5 Equilibrium under perfect competition 337 11.6 Conditions of equilibrium 337 11.7 Short run equilibrium of a firm: TR-TC method 339 11.8 Short run equilibrium of a firm: MR-MC method 340 11.9 Short run equilibrium of industry 345 11.10 supply curve of industry 347 11.11 Supply curve of Industry and time horizon 349 11.12 Completely inelastic supply: A very short period 349 11.13 short run equilibrium of industry and firm 350 11.14 Long run equilibrium of industry and firm 351 11.15 Long run supply curve and firm s equilibrium 353 11.16 price determination in long run 358 CHAPTER IN BRIEF 359 FORMULAS TO REMEMBER 361 REVIEW QUESTIONS 361 12 MONOPOLY 12.1 Defining monopoly 364 12.2 Characteristics of monopoly 365 12.3 Pure, simple and discriminatory monopoly 365 12.4 Entry barriers under monopoly 366 12.5 Revenue curves under monopoly 368 12.6 Production and price decisions under monopoly 372 12.7 Shifts in demand curve and absence of the supply curve 377 12.8 Monopoly power and its measurement 378 12.9 Monopoly vs. perfect competition 380 12.10 Social costs of monopoly power 383 12.11 Price discrimination 385
Contents I-18 12.12 Public policy under monopoly 390 CHAPTER IN BRIEF 392 FORMULAS TO REMEMBER 394 REVIEW QUESTIONS 394 13 FACTORS OF PRODUCTION 13.1 Introduction 397 13.2 Measures of factor productivity 398 13.3 Modern theory of distribution 400 13.4 Factor demand curve : labour 400 13.5 Factor supply 403 13.6 Determination of factor price 407 13.7 Supply of land 408 13.8 Supply of capital 410 13.9 Equilibrium 410 CHAPTER IN BRIEF 411 FORMULAS TO REMEMBER 412 REVIEW QUESTIONS 412 Delhi University Paper 2015 415 Delhi University Paper 2016 417