(i) Firms will supply less at lower prices and more at higher prices.
(ii) As price of the commodity increases, the amount supplied also increases.
(iii) So, supply curve has a positive slope from left to right.

(i) Land and labour are the primary factors.
(ii) Capital and organisation are the secondary factors.

(i) Form utility
(ii) Time utility
(iii) Place utility
(iv) Service utility
(v) Possession utility
(vi) Knowledge utility

Liquidity preference means the preference of the people to hold wealth in the form of liquid cash rather than in non-liquid assets like bonds, securities, gold, building.

(i) Nominal or money wages are the wages paid in terms of money.
(ii) Real wages are the wages paid in terms of goods & services.

The amount of money that a producer receives in exchange for the sale of goods is revenue.

Cost refers to cost of production i.e. the total expenses incurred in the production of a commodity. Cost depends on output, scale of production, prices of factors.

High national income, per capita, standard of living, level of technology, industrialization, consumption level, level of urbanisation. (any two)

(i) Indifference curve must have a negative slope.
(ii) Indifference curves are convex to the origin.
(iii) Indifference curve cannot intersect
(iv) Indifference curve do not touch the horizontal or vertical axis

Initiation: He considers the situation and availability of resources and plans the process of production.
Innovation: He introduces new methods in the production process.
Co-ordination: He uses a particular combination of the factors of production.
Control, direction & supervision: He directs the factors to get better results and supervises for the efficient functioning of all factors.
Risk taking, uncertainty bearing: Risk is insured, uncertainties cannot be insured.

Land is a primary factor of production.
1. It is a passive factor.
2. It is a free gift of nature.
3. It has no cost of production.
4. Its supply is inelastic.
5. It is permanent. 
6. It is immovable.
7. It is heterogeneous.
8. The fertility differs.
9. It has alternative uses.
10. It faces law of diminishing returns.

SI.No	Rent	Quasi Rent
1	Rent accrues to land	Quasi - Rent accrues to man made appliances
2	The supply of land is fixed forever.	The supply of man made appliances is fixed for a short period only.
3	It enters into price.	It does not enter into price.
4		It is temporary.

Transaction motive:
(i) The desire of the people to hold cash for the current transactions.
(ii) The amount kept for this motive depends on the income. M_t = f(y)
Precautionary motive:
(i) The desire of the people to hold cash to meet unexpected expenditure such as sickness, accidents.
(ii) The amount for this purpose depends on income. M_p = f(y)
Speculative motive:
(i) The desire of the people to hold cash in order to take advantage of the future changes in price of bonds and securities.
(ii) The amount for this purpose depends on the rate of interest. M_s = f(i)

Firm : A single production unit in an industry, producing a large or a small amount of the commodity. (eg) Hamam, Lux are 2 firms.
Industry : A group of firms producing the same product. (eg) soap industry.

S.No	Micro Economics	Macro Economics
1	Micro Economics is that branch of economics which deals with the economic decision-making of individual economic agents such as the producer, the consumer etc.	Macro Economics is that branch of economics which deals with aggregates and averages of the entire economy. E.g., aggregate output, national income, aggregate savings and investment, etc.
2	It takes into account small components of the whole economy.	It takes into consideration the economy of the country as a whole.
3	It deals with the process of price determination in case of individual products and factors of production.	It deals with general price-level in any economy
4	It is known as price theory	It is also known as the income theory.
5	It is concerned with the optimization goals of individual consumers and producers	It is concerned with the optimization of the growth process of the entire economy.

(i) Whether to produce more of food, or clothing or housing or luxury goods.
(ii) Whether to produce more agricultural or industrial goods and services.
(iii) Whether to use more resources in education and health or military services.
(iv) Whether to have more consumption goods or investment goods.
(v) Whether to spend more on basic education or higher education.

When AC is falling, MC remains below AC.
When AC becomes constant MC becomes equal to it.
When AC starts increasing MC is above the AC
MC always cuts AC at its minimum point from below.

(i) According to Gandhi, "Real India was to be found in villages and not in towns or cities".
(ii) Gandhi suggested the development of self sufficient, self dependent villages.

Introduction:
(i) The law of demand explains the direction of change in demand due to change in price.
(ii) Elasticity of demand explains the rate of change in quantity demanded due to a given change in price.
Definition:
Elasticity of demand describes the degree of responsiveness of the quantity demand for a commodity to a change in its price - Stonier and Hague.
Types:

There are four methods of measuring price elasticity of demand.
Percentage Method:
It is known as ratio method.
\(\mathrm{e_p}=\frac{\Delta \mathrm{Q}}{\Delta \mathrm{P}} \times \frac{\mathrm{P}}{\mathrm{Q}} \text { or } \frac{\% \Delta \mathrm{Q}}{\% \Delta \mathrm{P}} \text { where } \frac{\% \Delta \mathrm{Q}}{\% \Delta \mathrm{P}}=\frac{\text { Percentage change in demand }}{\text { Percentage change in price }}\)
Total Outlay Method:
Marshall suggested that this is the simplest way to decide whether demand is elastic or inelastic.
Total Revenue (Outlay) = Price x Quantity sold

Point (or) Geometrical Method:
The point elasticity in a straight line or linear demand curve is the ratio of the segments of the line to the right and to the left of the particular point.
\(Point\ elasticity=\frac{Lower\ segment\ of\ the\ demand\ curve\ below\ the\ given\ point}{Upper\ segment\ of\ the\ demand\ curve\ above\ the\ given\ point}\)

Introduction:
(i) The law of demand was first stated by Augustin Cournot.
(ii) It was refined by Alfred Marshall.
Definition:
Marshall - "The quantity demanded increases with a fall in price and diminishes with a rise in price".
Samuelson - "People will buy more at lower price and buy less at higher prices, other things remaining the same".
Assumptions:-
(i) The income of the consumer remains constant.
(ii) The taste, habit and preference of the consumer remain the same.
(iii) Price of other related goods is constant.
(iv) No substitute for the commodity.
(v) The demand for that commodity is continuous
(vi) No change in the quality of the commodity.
If there is a change in one of these above assumptions the law will not operate.
Demand schedule
Price Quantity demanded 5 1 4 2 3 3 2 4 1 5 Demand curve

Explanation:
(i) X axis represents quantity demanded
(ii) Y axis represents the price.
(iii) DD is the demand curve.
It slopes downward from left to right - when price falls, demand expands and vice versa.
Market demand:
The market demand curve shows the addition of the demand curve of the buyers A, B and C at the same price.

Like the individual demand curve, the market demand curve is at a price, at a place and at a time. It has a negative slope.
Determinants of demand:
1. Change in taste and fashion
2. Change in weather
3. Change in expectations
4. Change in savings
5. Taxation and subsidy
6. State of trade activity
7. Advertisement
8. Change in income
9. Change in population
Exceptions:
Giffen Paradox (inferior good)
(i) When the price of an inferior good falls, the poor will buy less. (eg.) ragi.
Veblen or Demonstration effect
(i) Rich people buy some goods because it gives social prestige (eg.) diamond.
Ignorance
(i) Some consumers think that the product is superior if the price is high. So they buy more at a higher price.
Speculative effect
(i) When the price increases they buy more of it because of the expectation that the price will increase still further. (eg.) stock market.
Fear of shortage:
(i) During emergency or war, people expect shortage of a commodity and so buy more.
Conclusion: Thus the law of demand explains the inverse relationship between price and quantity demanded.

Introduction:
In his book "The general theory of employment, interest and money" in 1936, Keynes propounded the liquidity preference theory of Interest.
Theory:
Interest is the reward for parting with liquidity for a specified period of time.
Meaning:
Liquidity preference means the preference of people to hold wealth in the form of liquid cash and not in non-liquid assets like bonds, securities, bills of exchange, land, building, gold.
Motives:
Transaction motive:
It relates to the desire of the people to hold cash for the current transaction. M_t = f(y)
Precautionary motive:
It relates the desire of the people to hold cash to meet unexpected expenditures such as sickness, accidents, fire. M_P = f(y)
Both these motives depend on the income level.
Speculative motive:
It relates to the desire of people to hold cash in order to take advantage of market movements regarding the future changes in the price of bonds
There is inverse relation between liquidity preference and interest rate. M_s = f(i)
Determination of interest rate:

(i) The rate of interest is determined by the demand for and the supply of money.
(ii) The demand for money is liquidity preference for speculative motive.
(iii) The supply of money is determined by the policies of the government and the central bank.
(iv) The supply of money consists of coins, currency notes and bank deposits.
Equilibrium:
(i) In the short run supply of money is constant.
(ii) LP is liquidity preference curve M₂ M₂ is supply curve of money.
(iii) Both curves interest at E, which is the equilibrium point.
(iv) If LP increases from LP to L₁P₁ & money supply being constant, the interest rate increases from OI to OI₁. (fig a)
(v) Suppose LP is constant (fig b).
(vi) If supply of money is OM₂, the interest is OI₂ & if the supply of money is reduced from OM₂ to OM₃, the interest would increase from OI₂ to OI₃. If money supply increases, interest rate decreases.
Criticism:
(i) This theory does not explain the existence of different interest rates prevailing in the market at the same time.
(ii) It explains interest rate in the short-run.
Conclusion:
The Keynesian liquidity preference theory is an improvement over other theories.

Introduction:
The classical theory of rent is called Ricardian Theory of rent.
Definition:
(i) According to David Ricardo "Rent is that portion of the produce of the earth which is paid to the landlord for the use of the original and indestructible powers of the soil".
Assumptions:
(i) Land differs in fertility and has original & indestructible powers.
(ii) Rent depends on fertility and location of land.
(iii) There is perfect competition and is applicable in long run.
(iv) Land is used for cultivation only and there is marginal land or no-rent land.
(v) Most fertile lands are cultivated first.
Illustration:
1. Assume a group of people go to a newly discovered island and settle down there.
2. They will first cultivate the most fertile land 'A'.
3. Since land is abundant & idle they need not pay rent.
4. Given labour and capital yield per acre on 'A' grade land is 40 bags of paddy.
5. Suppose another group of people settle down in the same island. The demand for agricultural produce increases.
6. Because of the law of diminishing returns A grade land alone cannot produce all the food needed.
7. So less fertile land B is cultivated.
8. For the same amount of labour and capital only 30 bags of paddy are produced.
9. The surplus of 10 bags per acre on 'A' grade land is the economic rent of 'A' grade land.
10. If yet another group of people goes and settles down in the same island, the least fertile 'C' grade land will be cultivated.
11. For the same amount of labour and capital the yield per acre is 20 bags of paddy.
12. The surplus of 20 bags for 'A' grade land and 10 bags for 'B' grade land is their economic rent.
13. The cost of production of 'C' grade land is just equal to the price of its produce and so there is no rent.
14. 'C' grade land is 'no rent land' or 'marginal land'.
15. Land which yields rent is intra marginal land.
16. Rent is the differential advantage of the superior land over the marginal land.
Grades of Lands Production Rent  A 40 40-20=20 B 30 30-20=10 C 20 20-20=0
Diagram Explanation:
X axis- grades of land.
Y axis-yield per acre.
OA, AB, BC are grade A, B, C lands.
(i) The use of equal amount of labour and capital on each of them gives yield 40, 30 & 20.
(ii) The economic rent yielded by A & B grade land is the shaded area.
(iii) They are intra marginal lands.
(iv) 'C' grade land is no rent land.
Criticism:
(i) The order of cultivation from most fertile to least is historically wrong.
(ii) In reality rent enters into price.
Conclusion:
(i) Thus Ricardo explains how rent arises on land.

Introduction:
In the long run there is no difference between fixed factor and variable factor.
Meaning:
The laws of returns to scale explain the relationship between output and the scale of inputs in the long run when all the inputs are increased in the same proportion.
Assumptions:
1. All the factors of production are variable except organisation.
2. There is no change in technology.
3. There is perfect competition.
4. Output is measured in physical quantities.
Increasing returns to scale:
If all inputs are increased by 1 %, output increases by more than 1 %.
Constant returns to scale:
lf all inputs are increased by 1%, output increases exactly by 1 %.
Diminishing returns to scale:
If all inputs are increased by 1 %, output increases by less than 1 %.
Explanation:
a) The movement from point a to b shows increasing returns to scale. When 2 units labour and capital are used the output has increased from IQ₁ to IQ₃.
b) The movement from b to c shows constant returns. When 4 units of labour and capital are used (i.e. double) the output also has doubled from IQ₃ to IQ₆.
c) The movement from c to d shows decreasing returns. The doubling of the factors from 4 units to 8 units has produced less increase in output i.e. from IQ₆ to only IQ₈
Stages input Output returns to Scale a to b 100% ↑ 200% ↑ increasing b to c 100% ↑ 100% ↑ Constant c to d 100% ↑ 33.33% ↑ decreasing

Iso and quant are derived from the Greek language, meaning 'equal' and 'quantity'.
Definition:
Isoquant curve is a locus of points representing various combinations of two inputs capital and labour yielding the same output. It is also called equal product curve or product indifference curve.
Properties:
1. The isoquant curve has negative slope:
(i) Capital is being substituted by labour.
(ii) Isoquant has negative slope because of diminishing MRTS.
(iii) Constant MRTS (straight line) and increasing MRTS (concave) are also possible.
(iv) It depends on the nature of isoquant curve

2. Isoquant curve is convex to origin:
The capital substituted per unit of labour goes on decreasing so the isoquant is convex to the origin.

3. Isoquant curves cannot intersect each other:
Point A lies on IQ₁ and IQ₂, Point C lies on IQ₂, showing higher output Point B
lies on IQ₁, showing lower output. C = A, B = A But C > B.


4. Upper isoquant curve represents a higher level of output:
Higher IQ₂ shows higher output 200 units. Lower IQ₁ shows lower output 100 units. IQ₂ means the use of more sectors than IQ₁. Arrow shows increase in output with a right and upward shift of an isoquant curve.

5. Isoquant curve does not touch either x axis or y axis:
In IQ₂ only capital is used and in IQ₁ only labour is used.

Conclusion:
These are the properties of isoquant curves.

The Problem of Choice:
(i) The problem of choice arises because of limited resources and unlimited wants, may relate to the allocation of resources between the goods for higher income group and the lower income group and the goods for defense and the civilians.
(ii) Since PPC is the locus of the combination of the goods the problem of choice will not arises when we choose any point on PPC.
The notion of scarcity:
(i) Every economy has scarce resources which can produce only limited amount of output even with the help of best technology.
(ii) PPC reflects the constraints imposed by the element of economic scarcity.
The solution of central problems:
(i) The solution of problem of what to produce involves the decision regarding the choice of location on the PPC.
(ii) Any point inside PPC indicates that the economy is using inefficient methods of production and inefficient combination of resources.
Conclusion:
(i) Thus the basic problems of the economy are solved with the help of PPC.

Wealth	Welfare	Scarcity	Growth
Adam Smith classical era.	Alfred Marshall-  neo classical era.	Lionel Robbins new age.	Paul Samuelson modern age.
An Inquiry into nature and causes of Wealth of Nations (1776).	Principles of Economics - (1890)	An Essay on the nature and Significance of Economic Science (1932).	Economics studies how men and society choose with or without the use of money, to employ scarce productive resources which could have alternative uses, to produce various commodities over time and distribute them for consumption now and in the future among various people and groups of society.
Economics is the science of wealth.	Economics is a study of mankind in the ordinary business of life, it examines that part of individual and social action which is most closely connected with the attainment and with the use of material requisites of well being. It studies wealth and man.	Economics is a science which studies human behaviour as a relationship between ends and scarce means which have alternative uses.	Economics deals with how the society uses the limited resources for alternative uses.
Deals with only the goods which are scarce and have money value	wealth and welfare of man is important.	Human behaviour  regarding choice is important.	It covers production, distribution and consumption.
Deals with consumption, production, exchange, distribution of wealth.	Only material welfare is considered, differentiates between material and immaterial things.	Economic problem arises  because of scarcity of resources.	Economics is a social science.
	By introducing welfare,  economics  becomes inexact.	Ethical aspects are not  considered so Economics is exact
	Welfare definition makes Economics classificatory.	Economics is a positive science.
		Economics is a science of individual behaviour.
		Both material and immaterial activities are considered.

Introduction:
Few firms selling homogeneous or differentiated product is oligopoly. (eg) car, cigarette.
(i) Few large firms: Very few big firms own the major control of the whole market by producing major portion of the market demand.
(ii) Interdependence among firms: The price & quality decisions of a particular firm are dependent on the price & quality decisions of the rival firms.
(iii) Group behaviour: The firms realise the importance of mutual co-operation.
(iv) Advertisement cost: The oligopolist raises sales by advertising or improving the quality of the product.
(v) Nature of Product: Products may be differentiated or homogeneous.
(vi) Price rigidity: Prices are difficult to be changed. The oligopolistic firms do not change their prices due to the fear of rival's reaction.

Large number of buyers and sellers:
(i) Since there are large number of buyers and sellers each individual buyer or seller buys or sells a very very small quantity of the product found in the market.
(ii) So he has no power to fix the price of the product.
(iii) He is only a price taker.
Homogenous product & uniform price:
(i) All the units of the product are perfectly substitutable - they are of the same size, shape, colour, quality.
(ii) So a uniform price prevails in the market.
Free entry and exit:
(i) In the short run, the very efficient producer can produce the product at a very low cost & earn super normal profit.
(ii) This attracts new firms to enter.
(iii) When there are more firms, supply increases, so price falls.
(iv) Inefficient producer faces loss & so quits the market.
Absence of transport cost:
The prevalence of the uniform price is also due to the absence of the transport cost.
Perfect knowledge of the market:
(i) All buyers and sellers have a thorough knowledge of the quality of the product, prevailing price.
No government intervention:
(i) No government regulation on supply of raw materials & in price determination.

Q	Price Rs	TR	AR	MR
1	5	5	5	5
2	5	10	5	5
3	5	15	5	5
4	5	20	5	5
5	5	25	5	5
6	5	30	5	5

\(A R=\frac{T R}{Q}\)

\( M R=T R_{n}-T R_{n-1}\)

Constant AR & MR (fixed price)
When price remains constant, MR is also constant and AR / MR curves coincide.
Declining AR and MR
When a firm sells large quantities at lower prices both AR & MR will fall but the fall in MR will be steeper than the fall in AR.

Q	AR	TR	MR
1	10	10	10
2	9	18	8
3	8	24	6
4	7	28	4
5	6	30	2
6	5	30	0
7	4	28	-2

(i) MR is lower than AR.
(ii) Both AR and MR slope downwards.
(iii) MR divides the distance between AR curve and axis into 2 equal parts.
(iv) The decline in AR need not be a straight line or linear.
(v) If the prices are declining with the increase in quantity sold, the AR can be nonlinear, taking a shape of concave or convex to the origin.

\(\text { TC }=10+Q^{3}  \)
\(A C=\frac{10}{Q}+\frac{Q^{3}}{Q}=\frac{10}{Q}+Q^{2}=\frac{10}{5}+5^{2}=2+25=27  \)
\(\text {AVC }=\frac{Q^{3}}{Q}=Q^{2}=5^{2}=25  \)
\(\text {TFC }=10  \)
\(\text {AFC }=\frac{10}{\mathrm{Q}}=\frac{10}{5}=2 \)
\(Ans; \mathrm{AC}=27 ; \quad \mathrm{AVC}=25 ; \quad \mathrm{TFC}=10 ; \quad \mathrm{AFC}=2.\)

Introduction:
(i) Gandhian economics is based on ethical foundations.
(ii) He wrote, "Economics that hurts the moral well-being of an individual or a nation is immoral and so sinful".
Village republics:
(i) To Gandhi, India lives in villages.
(ii) He was interested in developing the villages as self-sufficient units.
(iii) He opposed extensive use of machinery, urbanization and industrialization.
On machinery:
(i) Gandhi described machinery as 'Great sin'.
(ii) It is an evil and would finally end.
Industrialism:
(i) Gandhi considered industrialism as a curse on mankind and would exploit the nation.
Decentralization:
(i) He favoured production in the people's homes at a large number of places on a small scale.
Village Sarvodaya:
(i) He suggested the development of self-sufficient, self-dependent villages.
Bread labour:
(i) Gandhi realised the dignity of human labour. He believed that man should eat his bread by the sweat of his brow. Bread labour or body labour meant manual labour.
Doctrine of trusteeship:
(i) Trusteeship provides a means of transforming the present capitalist order of society into an egalitarian one.
(ii) But India today has casino and crony capitalism.
On the food problem:
(i) Gandhi was against food controls.
(ii) Such controls created artificial scarcity. Today, India tops in the world with large production of fruits, vegetables, milk, egg, meat etc.
On Population:
(i) Gandhi opposed population control through contraceptives.
(ii) He favoured birth control through Brahmacharya or self-control.
(iii) This is the remedy to over population.
On prohibition:
(i) Gandhi advocated total prohibition, regarded use of liquor as a disease.
(ii) But today many states depend on revenue from liquor sales.
Conclusion: If Gandhi's ideas are followed, India will soon become a developed nation.

Introduction:
Indian economy is the seventh largest economy of the world. Its features are:
Mixed economy:
(i) In India private and public sectors co-exist.
(ii) Some fundamental and heavy industries are under public sector.
(iii) Due to liberalization private sector's importance has increased.
Agriculture:
(i) 60 % of Indians depend on agriculture for their livelihood.
(ii) 17 % of GDP is got from agricultural sector.
(iii) Green revolution and inventions in biotechnology have made agriculture self sufficient.
(iv) The export of fruits, vegetables, spices, tobacco, animal skin, vegetable oils also add to foreign exchange earning.
An emerging market:
(i) India has emerged as a vibrant economy sustaining stable GDP growth rate even when there was global downtrend.
(ii) This has attracted foreign capital through FDI and FII.
(iii) India is in the 7^th position in terms of nominal GDP and 3^rd in terms of purchasing power parity.
(iv) India is one among the G20 countries.
Fast growing economy:
(i) With a growth rate of 7.1% in GDP India is the world's fastest growing economy in 2016-17 next to China.
Fast growing service sector:
(i) There has been growth in technical sectors like Information Technology, BPO.
(ii) These emerging services have helped the country to go global.
Large domestic consumption:
(i) The standard of living has improved a lot. There is rapid increase in domestic consumption.
Rapid growth of urban areas:
(i) There has been a rapid growth of urban areas in India after Independence. Improved connectivity in transport and communication, education and health have speeded up urbanization.
Stable macroeconomy:
(i) India is one of the most stable economies of the world.
(ii) The current year's economic survey represents the Indian economy to be a "heaven of macroeconomic stability, resilience and optimism".
Demographic dividend:
(i) The human capital is young.
(ii) They are young, skilled and trained enough to maximize growth.
(iii) This has invited foreign investments and outsourcing opportunities.