Question 1

Explain Gross Domestic Product (GDP).

Accepted Answer

Gross Domestic Product (GDP) is the total market value of all final goods and services produced within a country's borders in a specific time period.

Question 2

Draw circular flow of economic activities.

Accepted Answer

The circular flow of economic activities shows how money, goods, and services move between households and firms.

Question 3

Draw graph to show: a) Perfectly Inelastic Demand b) Perfectly elastic demand

Accepted Answer

Perfectly inelastic demand is represented by a vertical line (Ed=0), while perfectly elastic demand is a horizontal line (Ed=infinity).

Question 4

What is Giffen Paradox?

Accepted Answer

Giffen Paradox refers to Giffen goods, which are inferior goods where demand increases as the price increases, violating the Law of Demand.

Question 5

Give mathematical form of Cobb - Douglas production function.

Accepted Answer

The Cobb-Douglas production function is mathematically expressed as $Q = A \cdot L^a \cdot K^b$, where Q is output, L is labor, and K is capital.

Question 6

Define Explicit and implicit costs with example.

Accepted Answer

Explicit costs involve direct monetary payments (e.g., rent), while implicit costs are the opportunity costs of using resources owned by the firm (e.g., owner's labor).

Question 7

Draw a chart to show different market structures.

Accepted Answer

Market structures range from Perfect Competition (many sellers, homogeneous products) to Monopoly (single seller, unique product).

Question 8

List four important features of Monopoly market.

Accepted Answer

A monopoly is characterized by a single seller, no close substitutes for its product, high barriers to entry, and price-making power.

Question 9

What is golden rule of accounting for real accounts?

Accepted Answer

The golden rule for real accounts is: Debit what comes in, Credit what goes out.

Question 10

Define payback period.

Accepted Answer

The payback period is the time required for an investment to generate enough cash flow to recover its initial cost.

Question 11

Define National Income. Explain steps involved in the estimation of national …

Accepted Answer

Estimation by the income method involves summing all factor payments: Wages + Rent + Interest + Profit.

Question 12

Explain economies and diseconomies of scale with examples.

Accepted Answer

Economies of scale are cost advantages that arise with increased production, while diseconomies of scale occur when production becomes too large and costs per unit increase.

Question 13

How will you calculate cash flows from operating activities by direct and ind…

Accepted Answer

Cash flows from operating activities can be calculated using the Direct Method (listing all cash receipts/payments) or the Indirect Method (adjusting net income for non-cash items).

Question 14

Explain ‘freedom of entry and exit to firms in industry’ feature of monopolis…

Accepted Answer

Freedom of entry and exit ensures that firms can join the industry when there are supernormal profits and leave when there are losses, leading to normal profits in the long run.

Question 15

Explain income elasticity with help of suitable graph.

Accepted Answer

Income elasticity of demand measures the responsiveness of quantity demanded to a change in consumer income.

Question 16

Explain following ratios: (Formula is must) a) Liquidity Ratio b) Solvency Ratio

Accepted Answer

Liquidity ratios measure short-term debt-paying ability, while solvency ratios measure long-term financial stability.

Question 17

“Economics is an art.” Elaborate this statement by explaining meaning, nature…

Accepted Answer

Economics is considered an art because it applies theoretical knowledge (Science) to solve real-world problems and achieve desired social or business objectives.

Question 18

“A competitive firm is not a price maker, but adjustor.” Explain this stateme…

Accepted Answer

In perfect competition, a firm is a 'price taker' (adjustor) because it is too small to influence the market price determined by industry demand and supply.

Managerial Economics and Financial Accounting