Important Questions and Answers: Introduction to Economics

INTRODUCTION TO ECONOMICS

1.  What is elasticity of Demand?

Elasticity of demand may be defined as the degree of responsiveness of quantity demanded to a Change in price.

2.          Define the term `cost’?

Cost may be defined as a total of all expenses incurred, whether paid of outstanding in the manufacture and sale of a product.

3.          What is opportunity cost?

             Opportunity cost may be defined as the potential benefit that is given up as you        seek   an alternative course of action. In other words, the expected return or benefit for          gone in rejecting one course of action for another.

4.          What do you mean by marginal cost?

             The institute of cost & works Accountants of India defined marginal cost as, “the        amount at  any  given  volume  of  output  by  which  aggregate  cost  are  changed,  if  the           volume  of output is increased or decreased by one unit.

5.          Explain marginal costing?

             Marginal  costing  is  defined  by  the  ICWA  as,  “the  ascertainment  by        differentiating between fixed costs, of marginal costs and of the effect on profit of changes    in volume or type of output”.

6.          What is meant by marginal revenue?

             The revenue that can be obtained from selling one more unit of product is called marginal revenue.

7.          Give a short note on sunk cost?

             A cost which was incurred or sunk in the past and is not relevant to the particular decision making is a sunk cost or sunk loss. It may be variable or fixed or both.

8.          List out the elements of cost?

             The elements of cost are:

          V  Materials

          Labor cost

          Expenses

9.          Define the term costing?

Institute of costs and Management Accountants, (I.C.M.A) London has defines costing as the ascertainment of costs. “it refers to the techniques and process of ascertaining costs and studies the principles and rules concerning the determination of costs of products and services” .

10. What is Break-even point?

The Break-even point is, therefore, the volume of output at which neither a profit is made nor a loss is incurred. It is a point where the total sales are equal to total cost.

11. Define P/V ratio.

Profit-Volume ratio expressed as a percentage indicates the relative profitability of different products