Unit 1

*Market economy –Advantages &Disadvantages

*command economy –Advantages &Disadvantages
*Mixed economy –Advantages &Disadvantages
*Problems of transition to market and mixed economy
*PPC –opportunity cost /scearcity/choice /movement along same curve &
allocation of resources –same diagram

PPC –increase in use of unused resources /decrease in unemployment

*PPC –increase in quality and quantity of resources –shift right wards

*PPC –decrease in quality and quantity of resources –shift left wards
*Improvement in resouces in favour of one good

*Public good –Non excludable&nonrivalry – should be provided by

government –example –street light
Private good –excludable and riv
Merit good and demerit good under private good
1. Merit good –create positive externalities -
2. Demerit good-create negative externalities –cigarette
Lack of information is the main reason for under consumption and over
consumption
UNIT 2
* Factors effect demand & supply
*price elasticity of demand –measures how much change in quantity demand due
to change in price ,formula
* elastic demand -% change in price leads to more % change in qd
* inelastic demand--% change in price leads to less % change in qd
*Factors affect PED
*PED AND REVENUE –For elastic goods firms should decrease price
 For inelastic good reduce price
*Uses of PED
*XED --% change in QD of good X /% change in price
Substitute good –XED positive
Complimentary good –XED negative
*Uses of XED
*YED –Income elasticity of demand –
Normal good YED –POSITIVE
NORMAL NECESSITIES positive ,but less than 1
Inferior good –negative YED
*Uses of YED
*PRICE ELASTICITY OF SUPPLY
TYPES /FACTORS –
MEASURES TO MAKE THE PRODUCTS MORE ELASTICIN SUPPLY –
Good Technology ,more resources ,storage ,training for workers
TO GET MAXIMUM REVENUE
PRODUCERS WANT TO MAKE THE
*Equilibrium and disequilibrium
PRODUCT MORE INELATIC IN DEMAND
* Consumer surplus
AND ELASTIC IN SUPPLY
* Consumer surplus will fall if tax is high ,depends on PED
*Producer surplus
*Price mechanism –functions –rationing, signaling &incentive function .
to explain price mechanism can give equilibrium diagram
UNIT 3
*Market failure ,causes
* to Solve market failure or to improve allocation of resources
1. maximum price diagram & explanation ,advantages & disadvantages
2. Minimum price
3. Subsidies
4. Indirect taxes
5. Transfer payment
6. Direct provision
7. Laws and regulation
*Buffer stock –Advantages & disadvantages
*Reasons for inequality and benefits and disadvantages
*impact of removal or reduction of subsidies

*Impact of removal of tax