Giving examples, explain the meaning of cost in economics.  fr

Subject

Economics

Class

CBSE Class 12

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Sample Papers

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 Multiple Choice QuestionsShort Answer Type

1.

What is a market economy? 

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2.

When a firm is called 'price-taker'? 

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3.

Define budget set

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4.

What is meant by 'increase' in supply? 

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5.

Define supply. 

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6.

8 units of a good are demanded at a price of Rs. 7 per unit. Price elasticity of demand is (-)1. How many units will be demanded if the price rises to Rs. 8 per unit? Use expenditure approach of price elasticity of demand to answer this question. 

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7.

Giving examples, explain the meaning of cost in economics. 


In economics, cost means those payments which must be received by resource owners in order to ensure that they will continue to supply the resources for production.
The economic costs are based on a common principle which is called opportunity cost. It is the opportunity loss of not being able to produce some other product.
Economic cost includes explicit costs, implicit costs and normal profits. Example, wages to labourer, rent to land lord, profit to entrepreneur, interest to capital etc.
Explicit cost: Explicit costs are opportunity costs that involve direct monetary payment by producers. The explicit opportunity cost of the factors of production not already owned by a producer is the price that the producer has to pay for them.
Implicit cost: Implicit costs (also called implied, imputed or notional costs) are the opportunity costs not reflected in cash outflow but implied by the failure of the firm to allocate its existing (owned) resources, or factors of production to the best alternative use.

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8.

Draw average revenue and marginal revenue curves in a single diagram of a firm which can sell more units of a good only by lowering the price of that good. Explain. 

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9.

Explain the implication of 'freedom of entry and exit to the firms' under perfect competition. 

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10.

Explain the implication of 'perfect knowledge about market' under perfect competition.

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