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Unit – 1
Economics {Code-PGQP44}
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M.A. (ECONOMICS)
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Content Table
An overview of the theory of Microeconomics
Introduction
The current global fast food marketplace is characterized by different players‟ competing for the attention
of consumers who are much diversified. The diversity in effect determines their behaviour and attitude
towards different products and services offered by fast food companies. The microeconomic theory of
consumer behaviour provides the framework for analyzing and understanding buyer behaviour (Schiffman
and Kanuk, 2000). Schiffman and Kanuk (1997) define consumer behaviour as “the behaviour that
consumers display in searching for purchasing, using, evaluating and disposing of products, services and
ideas.” Schiffman and Kanuk (1997) further elaborated on their definition by explaining that consumer
behaviour is therefore the study of how individuals make decisions to spend their available resources
(time, money, effort) on consumption-related items. Since consumers all over the world are dynamic
especially with regards to their taste and preferences of food, it is important for fast food firms to
understand the behaviour of consumers so as to develop strategies to respond to them effectively.
Consumer behaviour is a complex process involving the activities people engage in when seeking for,
choosing, buying, using, evaluating and disposing of products and services with the goal of satisfying needs,
wants and desires (Belch and Belch, 2004). A number of factors; both internal and external have been
found to influence consumer behaviour. These factors range from shortterm to long-term emotional
concerns (Hirschman, 1985; Hoch and Loewenstein, 1991).
Understanding the process of how a purchase decision is reached is fundamental as this forms the
foundation that can be used to analyze the impact of any given product in specific markets. Consumer
buying decisions are also essential for developing the marketing strategies of firms. This is because the
behaviour of consumers towards specific fast food products and services tends to affect the cost, profit
and revenue of the firm. The study of consumer behaviour is very important to marketers because it
enables them to understand why people buy, so that they can effectively develop strategies that will
predict consumer buying behaviour in the marketplace. The knowledge of consumer buying behaviour
Economic Model of Consumer Behaviour Page 2
Theory of Consumer Behaviour Page 3
Demand Page 10
Law of Variable Proportion Page 24
Price Discrimination Page 43
Oligopoly Page 49
Kinked Demand Curve Page 51
Models of Oligopoly Page 52
Criticism of Welfare Economics Page 69
Externality Page 71

M.A. (ECONOMICS)
enables marketers to know why consumers buy particular products, when, where, how they buy it, how
often they buy it, and also how they consume it as well as dispose it
2. The Economic Model of Consumer Behaviour The interdisciplinary approach of consumer behaviour
largely emphasizes on factors that influence the decision making process of consumers. According to
Hamansu (2008), „the main objective of the study of consumer behaviour is to provide marketers with the
knowledge and skills that are necessary to carry out detailed consumer analyses which could be used for
understanding markets and developing marketing strategies‟. Hence, the microeconomic theory of
consumer behaviour as developed by Alfred Marshall is significant. The theory is based on the assumption
that the individual is a rational buyer who has perfect information about the market, fully aware of his
desires and needs and able to determine the best way to satisfy them. The global fast food industry fits
into this market structure because it is monopolistic in nature.
Given certain conditions, consumers behave in a similar fashion and every buying decision is a logical
process with the ultimate goal of obtaining optimum value for the money they spend. Price is regarded as
the strongest motivation. The theory deals with the influence ofonly price and income on consumer
behaviour. According to the Marshallian economic model, individual buyers will spend their income on
goods that will offer the greatest satisfaction, depending on their taste and the relative prices of other
goods. This brings to bear the income and substitution effect of consumer behaviour.
In the Marshallian theory exists as a cardinal output the marshallian utility function. If a consumer can gain
utility U such that:
U = XY Where X and Y represent quantities of two fast food brands The consumer gets utility by having
both fast food brand X and fast food brand Y as compliments, in increasing quantities, and is happiest
when he or she has an infinite number of both X and Y (Colander, 2008). If the consumer is willing to
exchange one unit of money for λ units of utility, then, obviously, λ is the marginal utility of money. In
equilibrium, the marginal utility of money must be equal to the marginal utility of expenditure.
The consumer's decision problem can be presented as: z = u(x) - λp‟x,
Here, z represents the maximum satisfaction whiles x and p are the consumption and the price vectors
respectively, and λ is the marginal utility of money. The values of λ and p are known. This equation
represents Marshall‟s ideology of maximum net satisfaction
One of the key analyses of "consumer behaviour" is the interaction between price changes and consumer
demand. Fast food market all over the world is not a monopoly-controlled by one firm; there are other
firms‟ competing for a share of consumers income. Aside the internationally known fast food chain firms,
there are also local fast food joints found on the streets and corners of most busy cities in different
countries. The product fast food firms‟ offer can be seen as close substitutes which satisfy the same need.
In most cases, the contents of the products are the same except the branding that differentiates them.
From elementary economics, we learn that a reduction in the price of a fast food brand will result in a rise
in the quantity demanded of that brand, ceteris paribus. However, this rise in the quantity demanded is
due to the total price effect, which can be subdivided into two separate parts, the substitution effect
(where both goods are substitutes) as in the case of fast food brands and the income effect (the amount of
money the consumer wants to spend).
The substitution effect refers to the extra purchase of the fast food brand after the price falls, and it is
relatively cheaper than other substitutes in consumption. The income effect refers to the rise in real

M.A. (ECONOMICS)
income (purchasing power) now that the price of one commodity is lower within the bundle of
commodities purchased by the consumer. This extra real income can potentially be used to buy more of all
other commodities, including the fast food brand that has experienced a price fall (Mankiw, 2004).
Total price effect = substitution effect + income effect
Consumers face trade-offs in their purchase decisions, since their income is limited and choices are
numerous. In order to make choices, consumers must combine budget constraints (what they can afford),
and preferences (what they would like to consume)
(Colander, 2008). A budget constraint, means what a consumer can purchase is constrained by income. The
slope of the budget constraint measures the rate at which a consumer can trade off one brand of fast food
for another, and the relative prices of the two brands. Budget constraints are determined by both the
income of the consumers, and the relative prices (Colander, 2008).
If a consumer equally prefers two product bundles of fast food, say fast food X and Y, then the consumer is
indifferent between the two bundles. The consumer will get the same level of satisfaction (utility) from
either bundle. The indifference curve shows that all the fast food brands are equally preferred, or have the
same utility or same level of satisfaction. The slope of indifference curve is the rate at which a consumer is
willing to trade one fast food brand for another, which is also known as the marginal rate of substitution
(MRS).
3. The optimal choice of Consumers’ It is essential to combine what a consumer can obtain (budget
constraint) and the preferences (indifference curve). The optimum is the highest point on the indifference
curve that is still within the budget constraint. This will usually occur where the indifference curve is
tangent to budget constraint.
At the optimum point, MRS = relative prices of goods since MRS = slope of indifference curve, and relative
price = slope of budget constraint. The marginal rate of substitution is the rate at which consumers are
willing to trade-off, and is equal to rate at which they can trade. In Diagram we See Further
Theory of Consumer Behaviour
UTILITY
A consumer usually decides his demand for a commodity on the basis of utility (or satisfaction) that he
derives from it. What is utility? Utility of a commodity is its want-satisfying capacity. The more the need of
a commodity or the stronger the desire to have it, the greater is the utility derived from the commodity.
Utility is subjective. Different individuals can get different levels of utility from the same commodity. For
example, some one wholikes chocolates will get much higher utility from a chocolate than some one who is
not so fond of chocolates, Also, utility that one individual gets from the commodity can change with
change in place and time. For example, utility from the use of a room heater will depend upon whether the
individual is in Ladakh or Chennai (place) or whether it is summer or winter (time).

M.A. (ECONOMICS)
Cardinal Utility Analysis - Cardinal utility analysis assumes that level of utility can be expressed in
numbers. For example, we can measure the utility derived from a shirt and say,
this shirt gives me 50 units of utility. Before discussing further, it will be useful to have a look at two
important measures of utility.
Measures of Utility
Total Utility: Total utility of a fixed quantity of a commodity (TU) is the total satisfaction derived from
consuming the given amount of some commodity x. More of commodity x provides more satisfaction to
the consumer. TU depends on the quantity of the commodity consumed. Therefore, TUn refers to total
utility derived from consuming n units of a commodity x.
Marginal Utility: Marginal utility (MU) is the change in total utility due to consumption of one additional
unit of a commodity. For example, suppose 4 bananas give us 28 units of total utility and 5 bananas give us
30 units of total utility. Clearly, consumption of the 5th banana has caused total utility to increase by 2
units (30 units minus 28 units). Therefore, marginal utility of the 5th banana is 2 units.
MU5 = TU5 – TU4 = 30 – 28 = 2
In general, MUn = TUn – TUn-1, where subscript n refers to the n th unit of the commodity Total utility and
marginal utility can also be related in the following way.
TUn = MU1 + MU2 + … + MUn-1 + MUn This simply means that TU derived from consuming n units of
bananas is the sum total of marginal utility of first banana (MU1 ), marginal utility of second banana (MU2
), and so on, till the marginal utility of the n th unit.
Table No. 2.1 and Figure 2.1 show an imaginary example of the values of marginal and total utility derived
from consumption of various amounts of a commodity. Usually, it is seen that the marginal utility
diminishes with increase in consumption of the commodity. This happens because having obtained some
amount of the commodity, the desire of the consumer to have still more of it becomes weaker. The same
is also shown in the table and graph
.Table 2.1: Values of marginal and total utility derived from consumption of various amounts of a
commodity

M.A. (ECONOMICS)
Notice that MU3 is less than MU2 . You may also notice that total utility increases but at a diminishing rate:
The rate of change in total utility due to change in quantity of commodity consumed is a measure of
marginal utility. This marginal utility diminishes with increase in
consumption of the commodity from 12 to 6, 6 to 4 and so on. This follows from the law of diminishing
marginal utility.
Law of Diminishing Marginal Utility states that marginal utility from consuming each additional unit of a
commodity declines as its consumption increases, while keeping consumption of other commodities
constant. MU becomes zero at a level when TU remains
constant. In the example, TU does not change at 5th unit of consumption and therefore MU5 = 0.
Thereafter, TU starts falling and MU becomes negative.
Derivation of Demand Curve in the Case of a Single Commodity (Law of Diminishing Marginal Utility)
Cardinal utility analysis can be used to derive demand curve for a commodity. What is demand and what is
demand curve? The quantity of a commodity that a consumer is willing to buy and is able to afford, given
prices of goods and income of the consumer, is called demand for that commodity. Demand for a
commodity x, apart from the price of x itself, depends on factors such as prices of other commodities
income of the consumer and tastes and preferences of the consumers. Demand curve is a graphic
presentation of various quantities of a commodity that a consumer is willing to buy at different prices of
the same commodity, while holding constant prices of other related commodities and income of the
consumer. Figure 2.2 presents hypothetical demand curve of an individual for commodity x at its different
prices. Quantity is measured along the horizontal axis and price is measured along the vertical axis. The
downward sloping demand curve shows that at lower prices, the individual is willing to buy more of
commodity x; at higher prices, she is willing to buy less of commodity x. Therefore, there is a negative
relationship between price of a commodity and quantity demanded which is referred to as the Law of
Demand. An explaination for a downward sloping demand curve rests on the notion of diminishing
marginal utility. The law of diminishing marginal utility states that each successive unit of a commodity
provides lower marginal utility.

M.A. (ECONOMICS)
Therefore the individual will not be willing to pay as much for each additional unit and this results in a
downward sloping demand curve. At a price of Rs. 40 per unit x, individual’s demand for x was 5 units.
The 6th unit of commodity x will be worth less than the 5th unit. The individual will be willing to buy the
6th unit only when the price drops below Rs. 40 per unit. Hence, the law of diminishing marginal utility
explains why demand curves have a negative slope.
Ordinal Utility Analysis Cardinal utility analysis is simple to understand, but suffers from a major drawback
in the form of quantification of utility in numbers. In real life, we never express utility in the form of
numbers. At the most, we can rank various alternative combinations in terms of having more or less utility.
In other words, the consumer does not measure utility in numbers, though she often ranks various
consumption bundles. This forms the starting point of this topic – Ordinal Utility Analysis. A consumer’s
preferences over the
set of available bundles can often be represented diagrammatically. We have already seen that the
bundles available to the consumer can be plotted as points in a twodimensional diagram. The points
representing bundles which give the consumer equal utility can generally be joined to obtain a curve like
the one in Figure 2.3. The consumer is said to be indifferent on the different bundles because each point of
the bundles give the consumer equal utility. Such a curve joining all points representing bundles among
which the consumer is indifferent is called an indifference curve. All the points such as A, B, C and D lying
on an indifference curve provide the consumer with the same level of satisfaction. It is clear that when a
consumer gets one more banana, he has to forego some mangoes, so that her total utility level remains
the same and she remains on the same indifference curve. Therefore, indifference curve slopes downward.
The amount of mangoes that the consumer has to forego, in order to get an additional banana, her total
utility level being the same, is called marginal rate of substitution (MRS). In other words, MRS is simply the
rate at which the consumer will substitute bananas for mangoes, so that her total utility remains constant.
So, MRS =| ∆ Y ∆X | / 3
.
One can notice that, in the table 2.2, as we increase the quantity of bananas, the quantity of mangoes
sacrificed for each additional banana declines. In other words, MRS diminishes with increase in the number
of bananas. As the numberof bananas with the consumer increases, the MU derived from each additional
banana falls. Similarly, with the fall in quantity of mangoes, the marginal utility derived from mangoes
increases. So, with increase in the number of bananas, the consumer will feel the inclination to sacrifice
small and smaller amounts of mangoes. This tendency for the MRS to fall with increase in quantity of
bananas is known as Law of Diminishing Marginal Rate of Substitution

Unit –2
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Macro Economics Unit -2
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Content Table
Income and Output Determination Page 4
Aggregate Demand and Aggregate Supply Page 6
Demand and Supply of Money Page 24
RBI Page 37
The Life-Cycle Hypothesis Page 63
Balance of Payment Page 81
Theories of Exchange Rate Determination Page 85
The Harrod-Domar Economic Growth Model Page 93
National Income Accounting
What is national accounting?
National income accounting refers to the set of methods and principles that are used by the government for
measuring production and income, or in other words economic activity of a country in a given time period.
The various measures of determining national income are GDP (Gross Domestic Product), GNP (Gross
National Product), and NNP (Net National Product) along with other measures such as personal income
and disposable income.
The importance of national income accounting is that it is helpful in facilitating techniques and procedures
for measurement of output and income at the aggregate level. It is a process of preparing national income
accounts that is based on the principles of double entry system of business accounting.
National income accounting helps in summarising the economic performance of a country by measuring
the national income aggregates for the year.
The government policies are framed on the basis of the data obtained from national income accounting.
What is the national income accounting equation?
National income accounting equation is an equation that shows the relationship between income and
expense of an economy and other categories. It is represented by the following equation:
Y = C + I + G + (X – M)
Where
Y = National income
C = Personal consumption expenditure
I = Private investment
G = Government spending
X = Net exports
M = Imports
The most important metrics that are determined by national income accounting are GDP, GNP, NNP,
disposable income, and personal income. Let us know more about these concepts briefly in the following
lines.

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Gross Domestic Product (GDP)
The most important metric that is determined by national income accounting is GDP or the gross domestic
product. GDP is defined as the total monetary or the market value of all the final goods and services that
are produced within the geographical boundaries of a country.
GDP works as a scorecard that reflects the economic health of a country. It is calculated on an annual
basis. GDP helps in estimating the growth rate of a country. GDP can be calculated using the three
methods, which are expenditures method, production method, and income method.
The other indicators of national income are derived from GDP.
GDP can be calculated by the following two methods:
1. Expenditure approach
2. Income approach
Calculation of GDP by expenditure approach is,
GDP = C + I + G + (X – M)
Where
GDP = Gross domestic product
X = Net exports
M = Imports
Income approach calculation
GDP = Private consumption + Gross investment + Government investment + Government spending +
(Exports – Imports)
Gross National Product (GNP)
Gross national product or GNP is a measure of the total value of all the finished goods and services that is
produced by the citizens of a country irrespective of their geographic location. It calculates only the final
or finished goods.
It signifies how much the citizens of a country are contributing to the economy. It does not include income
earned by foreign nationals within the country.
GNP is calculated using the following formulae:
GNP = C + I + G + X + Z
Where
C = Consumption
I = Investment
G = Government
X = Net exports

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Z = Net factor income from abroad
Net National Product (NNP)
Net national product or NNP is the total value of all goods and services that are produced in a country
during a given period of time minus the depreciation. It is represented as follows:
NNP = GNP – Depreciation
Methods of National Income Accounting
There are three methods of measuring national income. They are as follows:
1. Product method: In this method, a country’s national income can be calculated by adding the output
of all the firms in the economy to determine the nation’s output.
2. Income method: This method is used to calculate incomes generated by production. It includes
income from employment, rent obtained for buildings, patents, and copyrights, return on capital
from the private sector and public sector, depreciation, etc.
3. Expenditure method: In this method, the national income is calculated by adding all the
expenditures that are done for purchasing the national output.
Functions of National Income Accounting
The basic functions of national income accounting are as follows:
1. To determine the economic status of a country.
2. To provide a basis of evaluation and reviewing of policies that are under implementation.
Uses of National Income Accounting
Uses of national income accounting are as follows:
1. It reflects the economic performance of an economy and shows its strengths and weaknesses.
2. It helps to determine the structural changes that are appearing in the economy.
3. It helps in comparing nations based on national income.
4. It shows the contribution of each sector towards the growth of the economy.
Income and Output Determination
Keynesian Model of Income and Output Determination
British economist John Maynard Keynes revolutionized the economic sector in the 1930s when he
presented his arguments against the classical economists and stated that the economy is led by demand
rather than supply
The theory of income and output determination was first introduced by Keynes, which was later
improvised by the American economist, Paul A. Samuelson. The theory states that equilibrium level for
national income is determined when aggregate demand is equal to aggregate supply.
Aggregate demand refers to the total demand made for the goods and services produced domestically by
the households, firms, government, and foreigners. Aggregate supply is the total quantity of goods and
services supplied at a given price level.

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Equilibrium and Disequilibrium
In the Keynesian model of income and output determination, market equilibrium is a state I which
aggregate expenditure and aggregate income/output are equal. A Keynesian equilibrium is maintained until
an external force disrupts the pattern of expenditure or output.
The two major composition of equilibrium are aggregate production/output and aggregate expenditure. The
total or aggregate production is measured by gross domestic product or GDP. Aggregate expenditure is the
expenditure on final goods and services that are carried out by different macroeconomic sectors including
household, firms, government, and foreigners. The four aggregate expenditures are consumption
expenditure (C), investment expenditure (I), government expenditure (G), and net exports (X – M).
Symbolically, aggregate expenditure is expressed as
AE= C + I + G + X – M
Keynesian disequilibrium is when aggregate expenditure is not equal to aggregate production. In other
words, it is the state where either macroeconomic sectors viz. household, firms, government, and foreign
sector, do not purchase the quantities that have been produced, or the state when producers or business
firms are unable to meet the demands or sell the goods they have produced.
The two conditions that arise as a result of disequilibrium are
Case 1: Y > AE
When output is in excess of planned aggregate expenditure, output exceeds purchases, and inventories
accumulate. If more inventories accumulate than what was expected, it means that actual investment (I) is
greater than planned investment (IP
).
So, firms reduce their output in order to decrease the accumulation of inventory any further. Thus, if Y >
AE or AE < Y,
 Firms reduce their level of production.
 Inventory starts accumulating since consumers are buying less than what is being produced
by the firms.
Case 2: Y < AE
In the Keynesian economic system, when aggregate output/income is less than the planned expenditure,
purchases made by households and other sectors exceed production made by firms. Inventories decline,
and if inventories are less than the expected amount, it means that actual investment (I) is less than planned
investment (IP
).
In order to reach the desired level of inventories, firms invest more and expand their output. Thus, when
AE > Y,
 Firms increase their level of production
 Inventories decline since consumer purchases are greater than actual production made by the
firms.

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Aggregate Demand and Aggregate Supply
Key points
 Aggregate supply is the total quantity of output firms will produce and sell—in other words, the
real GDP.
 The upward-sloping aggregate supply curve—also known as the short run aggregate supply
curve—shows the positive relationship between price level and real GDP in the short run.
 The aggregate supply curve slopes up because when the price level for outputs increases while the
price level of inputs remains fixed, the opportunity for additional profits encourages more
production.
 Potential GDP, or full-employment GDP, is the maximum quantity that an economy can produce
given full employment of its existing levels of labor, physical capital, technology, and institutions.
 Aggregate demand is the amount of total spending on domestic goods and services in an
economy.
 The downward-sloping aggregate demand curve shows the relationship between the price level
for outputs and the quantity of total spending in the economy.
Aggregate Demand
Key Points
 To put it simply, AD is the sum of all demand in an economy. It is often called the
effective demand or aggregate expenditure (AE), and is the demand of all gross domestic
product (GDP).
 In summary, the calculation of aggregate demand can be represented as follows: AD =
Consumption + Investment + Government spending + Net export (exports – imports).
 Many societies have increasingly adopted debt and credit as an integral part of their
economic system. This has justified the incorporation of debt (also called the credit
impulse) into the larger framework of aggregate demand.
 There is some loss of accuracy in combining such a diverse array of economic inputs
when calculating aggregate demand.
Key Terms
 expenditure: The act of incurring a cost or pay out.
 aggregate demand: In macroeconomics, aggregate demand (AD) is the total demand for
final goods and services in the economy at a given time and price level.

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Aggregate demand (AD) is defined as the total demand for final goods and services in a given
economy at a specific time. Unlike other illustrations of demand, it is inclusive of all amounts of the
product or service purchased at any possible price level. Simply put, AD is the sum of all demand in an
economy. It is often called the effective demand or aggregate expenditure (AE), and is the demand of
all gross domestic product (GDP).
Demand Sources
Consumption (C): This is the simplest and largest component of aggregate demand (usually 40-60%
of all demand), and is often what is intuitively thought of as demand. Consumption is just the amount
of consumer spending executed in an economy. Taxes play a role in this exchange as well (i.e. sales
tax).
Investment (I): Investment is a relatively large portion of demand as well, and is referred to as Gross
Domestic Fixed Capital Formation. This is the money spent by firms on capital investment (new
machinery, factories, stocks, etc.). Investment equates to about 10% of GDP in most economies.
Government Spending (G): This is referred to as General Government Final Consumption, and is the
expenditure by the government. This can include welfare, social services, education, military, etc.
Fiscal policy is the way in which governments can alter this spending to drive economic change.
Net Export (NX): This can be put simply as the sale of goods to foreign countries subtracted by the
purchase of goods from other countries (X-M). Trade surpluses and deficits can occur based on
whether or not exports orimports are higher.
In summary, the calculation of aggregate demand can be represented as follows: AD = C + I + G + (X-
M). The full sum of all demand in an economy takes into account each of these factors in a quantitative
way.
This curve is illustrated in the figure.
Aggregate Demand and Supply: This graph demonstrates the basic relationship between aggregate
demand and aggregate supply. The aggregate demand curve is derived via the consumption,
investment, government spending, and net export.
The Role of Debt

Unit –3
CUET-PG
 Theory+ MCQs

2Statistical Methods in Economics
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Content Table
Mean Page 4
Median Page 6
Central Tendency Page 11
Quartile Deviation Page 23
Average Deviation Page 27
Correlation Coefficient Page 34
Pearson Correlation Page 38
Sampling Distribution Page 48
Statistical Methods in Economics –
Introduction In general sense the word Statistics means facts and figures of a particular phenomenon—
Under reference in numerical numbers. In the traditional period the scope of Statistics was very much
limited to the collection of facts and figures pertaining to the age-wise and sets-wise distribution of
population, wealth etc. But now-a-days we can say that Statistics constitutes an integral part of every
scientific and economic inquiry: Social and economic studies without Statistics are useless. Statistics thus
play a vital role and as Tippet has rightly remarked, “It affects everybody and touches life at many
points.”
Definition of Statistics - It has been observed that the word ‘Statistics’ comes from Latin word ‘Status’
which means Political State. It has also been believed that the word Statistics comes from Italian word
‘Stato’. This word was used in the fifteenth century for the ‘State’ in actual practice these words were
used for Political State or Stateman’s art. Now-a-days Statisticians use statistics both in singular and
plural sense. In the singular sense the term Statistics is associated with “A body of methods for making
decisions when there is uncertainty arising from incompleteness or the instability of the information
available for making such decisions.” In its plural sense Statistics refers to numerical Statements of facts
such as per capita income, population etc. Thus, some authorities have defined Statistics as Statical data
(Plural sense) whereas other as Statistical method .
According to H. Secrist—”By Statistics we mean aggregate of facts affected to a marked extent by
multiplicity of causes, numerically expressed, enumerated or estimated according to a reasonable
standards of accuracy, collected in a systematic manner for a predetermined purpose and placed in
relation to each other.”
In the words of L. R. Connor—”Statistics are measurements, enumeration or estimater of natural or
social phenomena systematically arranged so as to exhibit their interrelations.” According to Yule &
Kendall—”By Statistics we mean quantitative data affected to a marked extent by multiplicity of causes.”
In the opinion of A. L. Bowley—”Statistics are numerical statement of facts in any department of enquiry
placed in relation to each other.” According to Webster—”Classified facts, representing the condition of
the people in a State, specially those facts which can be stated in numbers or in tables of numbers or in
any tabular or classified arrangement.”
Importance and Scope of Statistics Scope of Statistics
The scope of statistics are concerned with the new dimensions in the definition of statistics. In other
words we can say—Are statistics a science or an art or both ?
Science is concerned with the systematised body of knowledge. It shows the relationship between cause
and effects. So far as art is concerned, it refers to the skill of collecting and handling of data to draw
logical inference and arrive at certain results. Statistics may be used as a science and as an art. In this
regard the following definitions may be given:

As per Netter and Wanerman—”Statistics methods are mathematical techniques used to facilitate the
interpretation of numerical data secured from groups of individuals.”
In the words of Paden and Lindquist—”Statistical methods are mathematical techniques used to
facilitate the interpretation of numerical data secured from groups of individuals.”
According to Kaney and Keeping—”Statistics has usually meant the science and art concerned with the
collection, presentation and analysis of quantitative data so that intelligent judgement may be made
upon them.”
According to Anderson and Bancraft—”Statistics is the science and art of the development and
application of the most effective method of collecting, tabulating and interpreting quantitative data in
such a manner that the fallibility of conclusions and estimates may be assessed by means of inductive
reasoning based on mathematics of probability.”
Limitations of Statistics
Though statistics is an important instrument of quantitative method and research in social sciences,
physical science and life sciences, it suffers from a number of limitations. The following are the main
limitations of statistics:
(1) Absence of uniformity: In any statistical inquiry the data obtained are heterogeneous in nature.
Statistical methods alone cannot bring in perfect uniformity. Generally results obtained need not be
uniform and hence will serve no purpose.
(2) Statistics does not study individuals: Statistics deals only with aggregate of facts. Hence, single figures,
however important they might be, cannot be taken up within the purview of statistics. For example, the
marks obtained by X student of a class are not the subject-matter of statistics but the average marks has
statistical relevance.
(3) Statistical results speak about only average: Prof. A. L. Bowley has rightly remarked that Statistics is a
science of average. It implies that statistical results are true only on average. For example, if we say that
per capita income in India is Rs. 12,000 per annum, it does not mean that the per capita income of the
members of the Birla’s family and the income of the poor fellows who sleep in the slum area are equal.
Therefore, averages give only contradicting results.
(4) Statistics can be misused: Statistics is misused very often in the sense that a corrupt man can always
prove all that he wants to do by using false statistics. In the words of W. I. King, “One of the shortcomings
of statistics is that they do not, bear on their face the label of their quality.”
(5) Laws are not stable: The statistical laws are obtained on the basis of information available at one
stage need not be true at another stage. The basic data changes and hence the basic laws governing
them also change. Moreover, what is applicable to India need not be true in Japan.
(6) Statistics cannot be applied to qualitative statistics: The Statistic studies cannot be applied to
qualitative attributes like good, bad, beautiful etc. For a whole sum coverage, the statistical tools must be
applicable for quantitative and qualitative data
Mean, Mode, Median,
Mean, median, and mode are the three measures of central tendency in statistics. We identify the central
position of any data set while describing a set of data. This is known as the measure of central tendency.
We come across data every day. We find them in newspapers, articles, in our bank statements, mobile
and electricity bills. The list is endless; they are present all around us. Now the question arises if we can
figure out some important features of the data by considering only certain representatives of the data.
This is possible by using measures of central tendency or averages, namely mean, median, and mode.
Let us understand mean, median, and mode in detail in the following sections using solved examples.
Mean, Median and Mode in Statistics

Mean, median, and mode are the measures of central tendency, used to study the various characteristics
of a given set of data. A measure of central tendency describes a set of data by identifying the central
position in the data set as a single value. We can think of it as a tendency of data to cluster around a
middle value. In statistics, the three most common measures of central tendencies are Mean, Median,
and Mode. Choosing the best measure of central tendency depends on the type of data we have.
Let’s begin by understanding the meaning of each of these terms.
Mean
The arithmetic mean of a given data is the sum of all observations divided by the number of
observations. For example, a cricketer's scores in five ODI matches are as follows: 12, 34, 45, 50, 24.
To find his average score in a match, we calculate the arithmetic mean of data using the mean formula:
Mean = Sum of all observations/Number of observations
Mean = (12 + 34 + 45 + 50 + 24)/5
Mean = 165/5 = 33
Mean is denoted by x̄ (pronounced as x bar).
Types of Data
Data can be present in raw form or tabular form. Let's find the mean in both cases.
Raw Data
Let x1x1, x2x2, x3x3 ……xnxn be n observations.
We can find the arithmetic mean using the mean formula.
Mean, x̄ = x1+x2+...xnnx1+x2+...xnn
Example: If the heights of 5 people are 142 cm, 150 cm, 149 cm, 156 cm, and 153 cm.
Find the mean height.
Mean height, x̄ = (142 + 150 + 149 + 156 + 153)/5
= 750/5
= 150
Mean, x̄ =150 cm
Thus, the mean height is 150 cm.
Frequency Distribution (Tabular) Form
When the data is present in tabular form, we use the following formula:
Mean, x̄ = x1f1+x2f2+....xnfn f+f2+.....fnx1f1+x2f2+....xnfn f+f2+.....fn
Consider the following example.
Example 1: Find the mean of the following distribution:
x 4 6 9 10 15
f 5 10 10 7 8
Solution:
Calculation table for arithmetic mean:
xii fii xiifii

4 5 20
6 10 60
9 10 90
10 7 70
15 8 120
∑fi=40∑fi=40 ∑xifi=360∑xifi=360
Mean, x̄ = ∑xifi∑fi∑xifi∑fi
= 360/40
= 9
Thus, Mean = 9
Example 2: Here is an example where the data is in the form of class intervals. The following table
indicates the data on the number of patients visiting a hospital in a month. Find the average number of
patients visiting the hospital in a day.
Number of patients Number of days visiting hospital
0-10 2
10-20 6
20-30 9
30-40 7
40-50 4
50-60 2
Solution:
In this case, we find the classmark (also called as mid-point of a class) for each class.
Note: Class mark = (lower limit + upper limit)/2
Let x1x1, x2x2, x3x3 ……xnxn be the class marks of the respective classes.
Hence, we get the following table:

Class mark (xi) frequency (fi) xifi
5 2 10
15 6 90
25 9 225
35 7 245
45 4 180
55 2 110
Total ∑fi=30∑fi=30 ∑fixi=860∑fixi=860
Mean, x̄ = ∑xifi∑fi∑xifi∑fi
= 860/30
= 28.67
x̄ = 28.67
Challenging Question:
Let the mean of x1x1, x2x2, x3x3 ……xnxn be A, then what is the mean of:
 (x1x1 + k) ,(x2x2 + k), (x3x3 + k), ……(xnxn + k)
 (x1x1 - k) ,(x2x2 - k), (x3x3 - k), ……(xnxn - k)
 kx1x1, kx2x2, kx3x3 ……kxnxn
Median
The value of the middlemost observation, obtained after arranging the data in ascending order, is called
the median of the data.
For example, consider the data: 4, 4, 6, 3, 2. Let's arrange this data in ascending order: 2, 3, 4, 4, 6. There
are 5 observations. Thus, median = middle value i.e. 4. We can see here: 2, 3, 4, 4 , 6 (Thus, 4 is the
median)

Case 1: Ungrouped Data
 Step 1: Arrange the data in ascending or descending order.
 Step 2: Let the total number of observations be n.
To find the median, we need to consider if n is even or odd. If n is odd, then use the formula:
Median = (n + 1)/2th
observation
Example 1: Let's consider the data: 56, 67, 54, 34, 78, 43, 23. What is the median?
Solution:
Arranging in ascending order, we get: 23, 34, 43, 54, 56, 67, 78. Here, n (no.of observations) = 7
So, (7 + 1)/2 = 4
∴ Median = 4th
observation
Median = 54
If n is even, then use the formula:
Median = [(n/2)th
obs.+ ((n/2) + 1)th
obs.]/2
Example 2: Let's consider the data: 50, 67, 24, 34, 78, 43. What is the median?
Solution:
Arranging in ascending order, we get: 24, 34, 43, 50, 67, 78.
Here, n (no.of observations) = 6
6/2 = 3
Using the median formula,
Median = (3rd
obs. + 4th
obs.)/2
= (43 + 50)/2
Median = 46.5
Case 2: Grouped Data
When the data is continuous and in the form of a frequency distribution, the median is found as shown
below:
Step 1: Find the median class.

Unit –4
CUET-PG
 Theory+ MCQs

2 Mathematical Methods in Economics
Content Table
Axiomatic set theory Page 5
The Neumann-Bernays-Gödel axioms Page 8
Vectors & Vectors Operations Page 9
Parallelogram law of addition Page 16
Vector Space Page 24
Functions of one and several real variable Page 26
Single Variable Optimization Page 30
Techniques of Integration Page 39
Trigonometric Integrals Page 45
Difference equation Page 51
Differential equations Page 59
linear programming Page 72
Probability Page 77
Set theory
branch of mathematics that deals with the properties of well-defined collections of objects, which
may or may not be of a mathematical nature, such as numbers or functions. The theory is less
valuable in direct application to ordinary experience than as a basis for precise and adaptable
terminology for the definition of complex and sophisticated mathematical concepts.
Between the years 1874 and 1897, the German mathematician and logician Georg Cantor created a
theory of abstract sets of entities and made it into a mathematical discipline. This theory grew out
of his investigations of some concrete problems regarding certain types of infinite sets of real
numbers. A set, wrote Cantor, is a collection of definite, distinguishable objects of perception or
thought conceived as a whole. The objects are called elements or members of the set.
The theory had the revolutionary aspect of treating infinite sets as mathematical objects that are
on an equal footing with those that can be constructed in a finite number of steps. Since antiquity,
a majority of mathematicians had carefully avoided the introduction into their arguments of the
actual infinite (i.e., of sets containing an infinity of objects conceived as existing simultaneously, at
least in thought). Since this attitude persisted until almost the end of the 19th century, Cantor’s
work was the subject of much criticism to the effect that it dealt with fictions—indeed, that it
encroached on the domain of philosophers and violated the principles of religion. Once
applications to analysis began to be found, however, attitudes began to change, and by the 1890s
Cantor’s ideas and results were gaining acceptance. By 1900, set theory was recognized as a
distinct branch of mathematics. At just that time, however, several contradictions in so-called
naive set theory were discovered. In order to eliminate such problems, an axiomatic basis was
developed for the theory of sets analogous to that developed for elementary geometry. The degree
of success that has been achieved in this development, as well as the present stature of set theory,
has been well expressed in the Nicolas BourbakiÉléments de mathématique (begun 1939;
“Elements of Mathematics”): “Nowadays it is known to be possible, logically speaking, to derive
practically the whole of known mathematics from a single source, The Theory of Sets.”
Introduction to naive set theory
Fundamental set concepts

In naive set theory, a set is a collection of objects (called members or elements) that is regarded as
being a single object. To indicate that an object x is a member of a set A one writes x ∊ A,
while x ∉ A indicates that x is not a member of A. A set may be defined by a membership rule
(formula) or by listing its members within braces. For example, the set given by the rule “prime
numbers less than 10” can also be given by {2, 3, 5, 7}. In principle, any finite set can be defined by
an explicit list of its members, but specifying infinite sets requires a rule or pattern to indicate
membership; for example, the ellipsis in {0, 1, 2, 3, 4, 5, 6, 7, …} indicates that the list of natural
numbers ℕ goes on forever. The empty (or void, or null) set, symbolized by {} or Ø, contains no
elements at all. Nonetheless, it has the status of being a set.
A set A is called a subset of a set B (symbolized by A ⊆ B) if all the members of A are also members
of B. For example, any set is a subset of itself, and Ø is a subset of any set. If both A ⊆ B and B ⊆ A,
then A and B have exactly the same members. Part of the set concept is that in this case A = B; that
is, A and B are the same set.
Operations on sets
The symbol ∪ is employed to denote the union of two sets. Thus, the set A ∪ B—read “A union B”
or “the union of A and B”—is defined as the set that consists of all elements belonging to either
set A or set B (or both). For example, suppose that Committee A, consisting of the 5 members
Jones, Blanshard, Nelson, Smith, and Hixon, meets with Committee B, consisting of the 5
members Blanshard, Morton, Hixon, Young, and Peters. Clearly, the union of
Committees A and B must then consist of 8 members rather than 10—namely, Jones, Blanshard,
Nelson, Smith, Morton, Hixon, Young, and Peters.
The intersection operation is denoted by the symbol ∩. The set A ∩ B—read “A intersection B” or
“the intersection of A and B”—is defined as the set composed of all elements that belong to
both A and B. Thus, the intersection of the two committees in the foregoing example is the set
consisting of Blanshard and Hixon
If E denotes the set of all positive even numbers and O denotes the set of all positive odd numbers,
then their union yields the entire set of positive integers, and their intersection is the empty set.
Any two sets whose intersection is the empty set are said to be disjoint.
When the admissible elements are restricted to some fixed class of objects U, U is called the
universal set (or universe). Then for any subset A of U, the complement of A (symbolized by A′ or
U − A) is defined as the set of all elements in the universe U that are not in A. For example, if the
universe consists of the 26 letters of the alphabet, the complement of the set of vowels is the set of
consonants.
The Cartesian product of two sets A and B, denoted by A × B, is defined as the set consisting of all
ordered pairs (a, b) for which a ∊ A and b ∊ B. For example, if A = {x, y} and B = {3, 6, 9}, then A ×
B = {(x, 3), (x, 6), (x, 9), (y, 3), (y, 6), (y, 9)}.
Relations in set theory
In mathematics, a relation is an association between, or property of, various objects. Relations can
be represented by sets of ordered pairs (a, b) where a bears a relation to b. Sets of ordered pairs are
commonly used to represent relations depicted on charts and graphs, on which, for example,
calendar years may be paired with automobile production figures, weeks with stock market
averages, and days with average temperatures.
A function f can be regarded as a relation between each object x in its domain and the value f(x). A
function f is a relation with a special property, however: each x is related by f to one and only one y.
That is, two ordered pairs (x, y) and (x, z) in f imply that y = z.
A one-to-one correspondence between sets A and B is similarly a pairing of each object in A with
one and only one object in B, with the dual property that each object in B has been thereby paired
with one and only one object in A. For example, if A = {x, z, w} and B = {4, 3, 9}, a one-to-one

correspondence can be obtained by pairing x with 4, z with 3, and w with 9. This pairing can be
represented by the set {(x, 4), (z, 3), (w, 9)} of ordered pairs.
Many relations display identifiable properties. For example, in the relation “is the same colour as,”
each object bears the relation to itself as well as to some other objects. Such relations are said to
be reflexive. The ordering relation “less than or equal to” (symbolized by ≤) is reflexive, but “less
than” (symbolized by <) is not. The relation “is parallel to” (symbolized by ∥) has the property that,
if an object bears the relation to a second object, then the second also bears that relation to the
first. Relations with this property are said to be symmetric. (Note that the ordering relation is not
symmetric.) These examples also have the property that whenever one object bears the relation to
a second, which further bears the relation to a third, then the first bears that relation to the third—
e.g., if a < b and b < c, then a < c. Such relations are said to be transitive.
Relations that have all three of these properties—reflexivity, symmetry, and transitivity—are called
equivalence relations. In an equivalence relation, all elements related to a particular element, say
a, are also related to each other, and they form what is called the equivalence class of a. For
example, the equivalence class of a line for the relation “is parallel to” consists of the set of all lines
parallel to it.
Essential features of Cantorian set theory
At best, the foregoing description presents only an intuitive concept of a set. Essential features of
the concept as Cantor understood it include: (1) that a set is a grouping into a single entity of
objects of any kind, and (2) that, given an object x and a set A, exactly one of the statements x ∊ A
and x ∉ A is true and the other is false. The definite relation that may or may not exist between an
object and a set is called the membership relation.
A further intent of this description is conveyed by what is called the principle of extension—a set is
determined by its members rather than by any particular way of describing the set. Thus, sets A
and B are equal if and only if every element in A is also in B and every element in B is in A;
symbolically, x ∊ A implies x ∊ B and vice versa. There exists, for example, exactly one set the
members of which are 2, 3, 5, and 7. It does not matter whether its members are described as
“prime numbers less than 10” or listed in some order (which order is immaterial) between small
braces, possibly {5, 2, 7, 3}.
The positive integers {1, 2, 3, …} are typically used for counting the elements in a finite set. For
example, the set {a, b, c} can be put in one-to-one correspondence with the elements of the set {1,
2, 3}. The number 3 is called the cardinal number, or cardinality, of the set {1, 2, 3} as well as any
set that can be put into a one-to-one correspondence with it. (Because the empty set has no
elements, its cardinality is defined as 0.) In general, a set A is finite and its cardinality is n if there
exists a pairing of its elements with the set {1, 2, 3, …, n}. A set for which there is no such
correspondence is said to be infinite.
To define infinite sets, Cantor used predicate formulas. The phrase “x is a professor” is an example
of a formula; if the symbol x in this phrase is replaced by the name of a person, there results a
declarative sentence that is true or false. The notation S(x) will be used to represent such a
formula. The phrase “x is a professor at university y and x is a male” is a formula with two
variables. If the occurrences of x and y are replaced by names of appropriate, specific objects, the
result is a declarative sentence that is true or false. Given any formula S(x) that contains the letter
x (and possibly others), Cantor’s principle of abstraction asserts the existence of a set A such that,
for each object x, x ∊ A if and only if S(x) holds. (Mathematicians later formulated a restricted
principle of abstraction, also known as the principle of comprehension, in which self-referencing
predicates, or S(A), are excluded in order to prevent certain paradoxes. See below Cardinality and
transfinite numbers.) Because of the principle of extension, the set A corresponding to S(x) must
be unique, and it is symbolized by {x | S(x)}, which is read “The set of all objects x such that S(x).”
For instance, {x | x is blue} is the set of all blue objects. This illustrates the fact that the principle of
abstraction implies the existence of sets the elements of which are all objects having a certain
property. It is actually more comprehensive. For example, it asserts the existence of a set B

corresponding to “Either x is an astronaut or x is a natural number.” Astronauts have no particular
property in common with numbers (other than both being members of B).
Equivalent sets
Cantorian set theory is founded on the principles of extension and abstraction, described above. To
describe some results based upon these principles, the notion of equivalence of sets will be defined.
The idea is that two sets are equivalent if it is possible to pair off members of the first set with
members of the second, with no leftover members on either side. To capture this idea in set-
theoretic terms, the set A is defined as equivalent to the set B (symbolized by A ≡ B) if and only if
there exists a third set the members of which are ordered pairs such that: (1) the first member of
each pair is an element of A and the second is an element of B, and (2) each member of A occurs as
a first member and each member of B occurs as a second member of exactly one pair. Thus, if A
and B are finite and A ≡ B, then the third set that establishes this fact provides a pairing, or
matching, of the elements of A with those of B. Conversely, if it is possible to match the elements of
A with those of B, then A ≡ B, because a set of pairs meeting requirements (1) and (2) can be
formed—i.e., if a ∊ A is matched with b ∊ B, then the ordered pair (a, b) is one member of the set.
By thus defining equivalence of sets in terms of the notion of matching, equivalence is formulated
independently of finiteness. As an illustration involving infinite sets, ℕ may be taken to denote the
set of natural numbers 0, 1, 2, … (some authors exclude 0 from the natural numbers). Then {(n,
n2) | n ∊ℕ} establishes the seemingly paradoxical equivalence of ℕ and the subset of ℕ formed by
the squares of the natural numbers.
As stated previously, a set B is included in, or is a subset of, a set A (symbolized by B ⊆ A) if every
element of B is an element of A. So defined, a subset may possibly include all of the elements of A,
so that A can be a subset of itself. Furthermore, the empty set, because it by definition has no
elements that are not included in other sets, is a subset of every set.
Cardinality and transfinite numbers
The application of the notion of equivalence to infinite sets was first systematically explored by
Cantor. With ℕ defined as the set of natural numbers, Cantor’s initial significant finding was that
the set of all rational numbers is equivalent to ℕ but that the set of all real numbers is not
equivalent to ℕ. The existence of nonequivalent infinite sets justified Cantor’s introduction of
“transfinite” cardinal numbers as measures of size for such sets. Cantor defined the cardinal of an
arbitrary set A as the concept that can be abstracted from A taken together with the totality of
other equivalent sets. Gottlob Frege, in 1884, and Bertrand Russell, in 1902, both mathematical
logicians, defined the cardinal number Depiction of the cardinal number. of a set A somewhat
more explicitly, as the set of all sets that are equivalent to A. This definition thus provides a place
for cardinal numbers as objects of a universe whose only members are sets.
The above definitions are consistent with the usage of natural numbers as cardinal numbers.
Intuitively, a cardinal number, whether finite (i.e., a natural number) or transfinite (i.e.,
nonfinite), is a measure of the size of a set. Exactly how a cardinal number is defined is
unimportant; what is important is that Equation. if and only if A ≡ B.
Axiomatic set theory
In contrast to naive set theory, the attitude adopted in an axiomatic development of set theory is
that it is not necessary to know what the “things” are that are called “sets” or what the relation of
membership means. Of sole concern are the properties assumed about sets and the membership
relation. Thus, in an axiomatic theory of sets, set and the membership relation ∊ are undefined
terms. The assumptions adopted about these notions are called the axioms of the theory.
Axiomatic set theorems are the axioms together with statements that can be deduced from the
axioms using the rules of inference provided by a system of logic. Criteria for the choice of axioms
include: (1) consistency—it should be impossible to derive as theorems both a statement and its
negation; (2) plausibility—axioms should be in accord with intuitive beliefs about sets; and (3)
richness—desirable results of Cantorian set theory can be derived as theorems.
The Zermelo-Fraenkel axioms

The first axiomatization of set theory was given in 1908 by German mathematician Ernst Zermelo.
From his analysis of the paradoxes described above in the section Cardinality and transfinite
numbers, he concluded that they are associated with sets that are “too big,” such as the set of all
sets in Cantor’s paradox. Thus, the axioms that Zermelo formulated are restrictive insofar as the
asserting or implying of the existence of sets is concerned. As a consequence, there is no apparent
way, in his system, to derive the known contradictions from them. On the other hand, the results of
classical set theory short of the paradoxes can be derived. Zermelo’s axiomatic theory is here
discussed in a form that incorporates modifications and improvements suggested by later
mathematicians, principally Thoralf Albert Skolem, a Norwegian pioneer in metalogic, and
Abraham Adolf Fraenkel, an Israeli mathematician. In the literature on set theory, it is called
Zermelo-Fraenkel set theory and abbreviated ZFC (“C” because of the inclusion of the axiom of
choice). See the
Zermelo-Fraenkel axioms
table of Zermelo-Fraenkel axioms.
Schemas for generating well-formed formulas
The ZFC “axiom of extension” conveys the idea that, as in naive set theory, a set is determined
solely by its members. It should be noted that this is not merely a logically necessary property of
equality but an assumption about the membership relation as well.
The set defined by the “axiom of the empty set” is the empty (or null) set Ø.
For an understanding of the “axiom schema of separation” considerable explanation is required.
Zermelo’s original system included the assumption that, if a formula S(x) is “definite” for all
elements of a set A, then there exists a set the elements of which are precisely those elements x of A
for which S(x) holds. This is a restricted version of the principle of abstraction, now known as the
principle of comprehension, for it provides for the existence of sets corresponding to formulas. It
restricts that principle, however, in two ways: (1) Instead of asserting the existence of sets
unconditionally, it can be applied only in conjunction with preexisting sets, and (2) only “definite”
formulas may be used. Zermelo offered only a vague description of “definite,” but clarification was
given by Skolem (1922) by way of a precise definition of what will be called simply a formula of
ZFC. Using tools of modern logic, the definition may be made as follows:

I. For any variables x and y, x ∊ y and x = y are formulas (such formulas are called atomic).
II. If S and T are formulas and x is any variable, then each of the following is a formula: If S, then
T; S if and only if T; S and T; S or T; not S; for all x, S; for some x, T.
Formulas are constructed recursively (in a finite number of systematic steps) beginning with the
(atomic) formulas of (I) and proceeding via the constructions permitted in (II). “Not (x ∊ y),” for
example, is a formula (which is abbreviated to x ∉ y), and “There exists an x such that for every y, y
∉ x” is a formula. A variable is free in a formula if it occurs at least once in the formula without
being introduced by one of the phrases “for some x” or “for all x.” Henceforth, a formula S in which
x occurs as a free variable will be called “a condition on x” and symbolized S(x). The formula “For
every y, x ∊ y,” for example, is a condition on x. It is to be understood that a formula is a formal
expression—i.e., a term without meaning. Indeed, a computer can be programmed to generate
atomic formulas and build up from them other formulas of ever-increasing complexity using
logical connectives (“not,” “and,” etc.) and operators (“for all” and “for some”). A formula acquires
meaning only when an interpretation of the theory is specified; i.e., when
(1) a nonempty collection (called the domain of the interpretation) is specified as the range of
values of the variables (thus the term set is assigned a meaning, viz., an object in the domain),
(2) the membership relation is defined for these sets,
(3) the logical connectives and operators are interpreted as in everyday language,
(4) the logical relation of equality is taken to be identity among the objects in the domain.
Axioms for compounding sets
Although the axiom schema of separation has a constructive quality, further means of constructing
sets from existing sets must be introduced if some of the desirable features of Cantorian set theory
are to be established. Three axioms in the table—axiom of pairing, axiom of union, and axiom of
power set—are of this sort.
By using five of the axioms (2–6), a variety of basic concepts of naive set theory (e.g., the
operations of union, intersection, and Cartesian product; the notions of relation, equivalence
relation, ordering relation, and function) can be defined with ZFC. Further, the standard results
about these concepts that were attainable in naive set theory can be proved as theorems of ZFC.
Axioms for infinite and ordered sets
If I is an interpretation of an axiomatic theory of sets, the sentence that results from an axiom
when a meaning has been assigned to “set” and “∊,” as specified by I, is either true or false. If each
axiom is true for I, then I is called a model of the theory. If the domain of a model is infinite, this
fact does not imply that any object of the domain is an “infinite set.” An infinite set in the latter
sense is an object d of the domain D of I for which there is an infinity of distinct objects d′ in D
such that d′Ed holds (E standing for the interpretation of ∊). Though the domain of any model of
the theory of which the axioms thus far discussed are axioms is clearly infinite, models in which
every set is finite have been devised. For the full development of classical set theory, including the
theories of real numbers and of infinite cardinal numbers, the existence of infinite sets is needed;
thus the “axiom of infinity” is included
Schema for transfinite induction and ordinal arithmetic
When Zermelo’s axioms 1–8 were found to be inadequate for a full-blown development of
transfinite induction and ordinal arithmetic, Fraenkel and Skolem independently proposed an
additional axiom schema to eliminate the difficulty. As modified by Hungarian-born American
mathematician John von Neumann, it says, intuitively, that if with each element of a set there is
associated exactly one set, then the collection of the associated sets is itself a set; i.e., it offers a way
to “collect” existing sets to form sets. As an illustration, each of ω, P(ω), P(P(ω)), …, formed by
recursively taking power sets (set formed of all the subsets of the preceding set), is a set in the

Unit –5
CUET-PG
 Theory + MCQs

2 Indian Economy
Content Table
Overview of colonial economy Page 2
National Income Page 6
Occupational Structure in India Page 13
Agrarian Structure Page 22
Agriculture Market and Institutions Page 25
Railways and Industry Page 36
Economy and State in Imperial Contest Page 45
Balance of Payment Page 57
New Economic Policy 1991 Page 64
Taxation Page 68
The de-industrialisation debate Page 76
Overview of colonial economy
British Colonial Rule: Impact.
Destruction of Indian Handicrafts:
The Industrial Revolution in England created a serious impact on Indian economy as it reversed
the character and composition of India’s foreign trade. This led to destruction of Indian
handicrafts although there was no substantial growth of modern factory industry.
The factors which were responsible for the gradual decay of Indian handicrafts were—
disappearance of princely courts and their patronage, aggressive trade policy of the East India
Company and the British Government, increasing competition of British machine—made goods
and increasing demand for Western commodities as a result of foreign influence.
The destruction of Indian handicrafts created a vacuum in Indian markets which was subsequently
fed by British manufactured goods. The destruction of Indian handicrafts led to serious
unemployment problem and the weavers were most seriously affected.
Moreover, this unemployed craftsmen and artisans could not find any alternative occupation open
to them and thus they had to return to agricultural sector leading to ‘progressive ruralisation of
India’. Thus, this dependence of population on agriculture gradually increased from 55 per cent in
1901 to 72 per cent in 1931 and this led to progressive sub-division and fragmentation of
agricultural holdings.
British Colonial Rule: Impact .
New Land System:
New land system of the British ruler also created a serious impact on the Indian economy. During
the East India Company rule, the company administrators imposed land revenue at exorbitant
rates and thereby realised larger returns from land.
Thereafter, the British Government introduced the land settlement in 1793. Permanent settlement
was introduced in Bengal and other neighbouring areas, and then gradually extended to other
states. This settlement led to introduction of zamindary system where zamindars were responsible
for collecting and remitting the land revenue to the British rulers.

3 Indian Economy
Later on, another system known as ryotwary settlement was also introduced in Bombay and
Madras and then subsequently to northeastern and north-western India where peasant landlords
were directly responsible to the state for the annual payment of land revenue.
Under both these systems, the land revenue or the rent fixed was excessively high and this led to
destruction of the organic village community in India.
In this connection, Daniel and Alice Thorner wrote, “Whereas the zamindary system made
the landlords masters of the village communities, the Ryotwary system cut through
the heart of the village communities by making separate arrangement between each
peasant cultivator and the state”.
Thus the new land system of the British created a class of absentee landlords making way for
exploitation of the peasants. Thus both the zamindary system and the Ryotwary system introduced
by the British led to the concentration of economic power in the hands of few. This resulted total
depression in agriculture and industry.
Commercialisation of Agriculture:
Commercialisation of Indian agriculture during the British period created a serious impact on the
Indian economy. Commercialisation of agriculture indicates production of various crops not for
home consumption but for sale. Industrial revolution in Britain had raised the demand for agro-
raw-materials, especially raw cotton, jute, sugarcane, groundnuts etc. for British industries.
As the British industries were offering higher prices for commercial crops the peasants gradually
started to shift their cropping pattern substituting commercial crops for food crops. In some areas
commercialisation of agriculture reached to such an extent that the peasants even could not
produce food crops for their home consumption and started to purchase foodstuff from the
mandis.
Moreover, the development of irrigation also intensified the commercialisation of agriculture in
India.
British Colonial Rule: Impact
Development of Railway Network:
The development of an elaborate railway network primarily intensified the commercialisation of
agriculture and on the other hand brought foreign machine made manufactures to India. This
sharpened the competition of machine made goods with Indian handicrafts which resulted into
total destruction of Indian handicrafts industry.
Occurrence of Famines:
Indian economy was facing occurrence of famines too frequently during the British rule.
Commercialisation of agriculture reduced the production of food grains by transferring land from
the cultivation of food crops to non-food crops like industrial raw materials. The new land system
worked as a built-in-depressor as it retarded the process of agricultural development.

4 Indian Economy
Moreover, the destruction of Indian handicrafts increased the pressure of population on land. All
these led to frequent occurrence of famines in India causing untold misery and suffering for the
Indian cultivators and general people.
Transforming Trade Pattern:
Colonial exploitation of the Indian economy by the British transformed the pattern of trade in
India to become an exporter of raw materials and foodstuffs and an importer of manufactures.
Moreover, colonial exploitation through the entry of British capital and finance capital and also
through the payment for the costs of administration led to huge economic drain of India
weakening the base of Indian economy.
Thus the British rule in India was a long history of systematic exploitation of Indian people by the
imperialistic Government.
Macro Trends –
Macroeconomic trends are powerful asset return factors because they affect risk aversion and risk-
neutral valuations of securities at the same time. The influence of macroeconomics appears to be
strongest over longer horizons. A macro trend indicator can be defined as an updatable time series
that represents a meaningful economic trend and that can be mapped to the performance of
tradable assets or derivatives positions. It can be based on three complementary types of
information: economic data, financial market data, and expert judgment. Economic data establish
a direct link between investment and economic reality, market data inform on the state of financial
markets and economic trends that are not (yet) incorporated in economic data, and expert
judgment is critical for formulating stable theories and choosing the right data sets.
The importance of macro trends
Why macroeconomic trends matters
Macroeconomic trends move asset prices for two reasons. They influence investors’ attitudes
towards risk and they affect the risk-neutral expected payoff of securities. An example of the first is
the rise in risk aversion in economic recessions when cash flows and incomes fall to critical
thresholds. Examples of the second are the impact of inflation on the real return on nominal fixed
income securities, the influence of economic growth and relative price-wage trends on the earning
prospects of stocks, the effect of financial conditions on the default risk of credit, and the relation
between external balances and exchange rate dynamics.
Due to the pervasive influence of macroeconomic trends, most investors watch economic data
releases and employ economists to analyze them. Empirical studies show that bond and equity
markets are more likely to post large moves on days of key data releases than on other days (view
post here). However, the influence of economic data on market price changes is the stronger the
longer the time horizon that we consider. This is because economic changes are typically more
persistent than non-fundamental factors. They are therefore a major explanatory variable of
medium to long-term price trends.
For the fixed-income market, it has been estimated that on a quarterly basis more than a third
of bond price fluctuations in the U.S. can be explained by deviations in the country’s major
published economic data from analyst expectations (view post here). By contrast, data surprises
explain only 10% on market fluctuations on a daily basis. Medium-term returns of government
bonds seem to be predictable through nowcasted economic growth, as well as measures of
financial market tail risk (view post here). Over the longer-term bond yields seem to move almost
one-to-one with expected inflation and the estimated equilibrium short-term real interest rate

5 Indian Economy
(view post here). Equilibrium theory explains how macroeconomic trends and related expectations
for future short-term interest rates shape the yield curve Long-term yield trends arise from
learning about stable components in GDP growth and inflation. Cyclical movements in yields
curves result from learning about transitory deviations of GDP growth and inflation.
Moreover, research claims that most of the decline in equilibrium real interest rates from the
1980s to 2010s may be explained by a single fundamental divergence. On the one hand, the
propensity to save surged due to demographic changes (view post here), rising inequality of wealth
and the reserve accumulation of emerging market central banks. On the other hand, investment
spending was held back by cheapening capital goods and declining government activity
In the foreign exchange space, both theory and evidence point to a close relationship between
relative business cycles and exchange rate dynamics (view post here). Currencies of countries in a
strong cyclical position should appreciate against those in a weak position. Also, deviations of
currency values from their medium-term equilibrium give rise to multi-year exchange rate trends.
Indeed, long-term empirical evidence for developed market currencies suggests that real exchange
rates have been mean-reverting and that re-alignment occurs mainly through the nominal
exchange rate (view post here).
Also, external balances that describe transactions between residents and non-residents of a
currency area help to predict exchange rates and FX returns. Modern international capital flows
are mainly about financing rather than goods transactions. Hence, risks and consequences of
various financial shocks depend upon financial relations (view post here). For example, a large
negative international investment position of a currency area encourages FX hedging against that
currency, particularly in times of turmoil, and hence positive but pro-cyclical FX returns (view post
here).
As to equity, research shows a close link between macroeconomic developments and the two key
components of stock valuation: earnings and discount rate expectations. Notably, metrics of
macroeconomic uncertainty serve as predictors of equity market volatility (view post here). Also,
research suggests that a downshift in expected inflation raises average company valuation ratios,
such as price-earnings ratios, and credit default risk at the same time, thus giving rise to a relative
asset class trend (view post here). Also, the prices of equity factor portfolios seem to be anchored
by the macroeconomy in the long run. This implies predictability of equity factor performance
going forward (view post here).
Taking a longer-term perspective, some economic estimates suggest that all of the real stock
market gains in the U.S. since the 1980s have been caused by the gradual redistribution of the
benefits of productivity gains from workers to shareholders (view post here). Importantly,
macroeconomic conditions also seem to have a bearing on equity factor timing, i.e. when to receive
and when to pay alternative non-directional risk premia (view post here). Put simply,
macroeconomic conditions may influence the probability that a specific investment factor will
yield good returns. This is consistent with the evidence of momentum in various equity factor
strategies (view post here), i.e. past equity factor returns have historically predicted future returns.
In commodity markets, macroeconomic trends affect mainly industrial demand and financial
investor preferences. There is strong evidence that macroeconomic data support predictions of
short-term energy market trends (view post here). Valid macro indicators include shipping costs,
industrial production measures, non-energy industrial commodity prices, transportation data,
weather data, financial conditions indices, and geopolitical uncertainty measures. Meanwhile, the
big cycles in some raw material prices have been driven mainly by “demand shocks”, which seem
to be related to global macroeconomic changes and have persistent effects of 10 years or more
Precious metals prices have a long-term equilibrium relationship with consumer prices and hence
are natural candidates for hedges against inflationary monetary policy
The correlation across asset markets also depends on macro factors. The most prominent
example is the correlation between equity and bond returns. A key macro force behind it is
economic policy (view post here). In an active monetary policy regime, where central bank rates
respond disproportionately to inflation changes, the influence of technology (supply) shocks
dominates markets and the correlation turns positive. In a fiscal policy regime, where governments

6 Indian Economy
use debt financing to manage the economy, the influence of investment (financial) shocks
dominates and the correlation turns negative.
National income
National income of a country means the sum total of incomes earned by the citizens of that country
during a given period, over a year.
National income accounting refers to the set of methods and principles that are used by the
government for measuring production and income, or in other words economic activity of a
country in a given time period.
The various measures of determining national income are GDP (Gross Domestic Product), GNP
(Gross National Product), and NNP (Net National Product) along with other measures such as
personal income and disposable income.
It should be noted that national income is not the sum of all incomes earned by all citizens, but
only those incomes which accrue due to participation in the production process.
Individuals participate in the production process by supplying factors of production which they
possess.
According to Marshall: “The labour and capital of a country acting on its natural resources
produce annually a certain net aggregate of commodities, material and immaterial including
services of all kinds. This is the true net annual income or revenue of the country or national
dividend.” In this definition, the word ‘net’ refers to deductions from the gross national income in
respect of depreciation and wearing out of machines. And to this, must be added income from
abroad.
National income accounting equation is an equation that shows the relationship between income
and expense of an economy and other categories. It is represented by the following equation:
Y = C + I + G + (X – M)
Where
Y = National income
X = Net exports
M = Imports
The most important metrics that are determined by national income accounting are GDP, GNP,
NNP, disposable income, and personal income. Let us know more about these concepts briefly in
the following lines.

7 Indian Economy
Importance of quantifying economic growth
Economic indicators portray the “big-picture” of a country or region in regards to the economy. A
single indicator or a small set of indicators attempts to give you an idea of the overall economic
health of a particular geography.
It can help investors assess whether financial markets are in line with economic fundamentals or if
there’s a mismatch. This indicates either a run-up in financial markets ahead of fundamentals or
markets that are lagging behind. This information can be useful for investors when they’re making
investment and asset allocation decisions.
Economic growth can be considered among the most crucial indicators that are released. The
reason why it’s so important is that it indicates the growth in economic output, whether measured
by GDP (gross domestic product), GVA (gross value added), or any other measure.
The stage of development of an economy is crucial for comparing two economies. Developed
economies have a much slower growth pace YoY (year-over-year) than emerging or developing
economies. As a result, comparing the US and China’s economic growth rates won’t be accurate.
Instead, comparing the economic growth of countries in the same stage of development—
preferably the same geographic region—provides a more comparable picture.
Assessing economic output also helps investors understand what drives an economy. For instance,
over two-thirds of the US economy depends on consumer spending.
National Income accounting
National income data have the following importance:
For the Economy:
National income data are of great importance for the economy of a country. These days the
national income data are regarded as accounts of the economy, which are known as social
accounts. These refer to net national income and net national expenditure, which ultimately equal
each other.
Social accounts tell us how the aggregates of a nation’s income, output and product result from the
income of different individuals, products of industries and transactions of international trade.
Their main constituents are inter-related and each particular account can be used to verify the
correctness of any other account.
National Policies:
National income data form the basis of national policies such as employment policy, because these
figures enable us to know the direction in which the industrial output, investment and savings, etc.
change, and proper measures can be adopted to bring the economy to the right path.
Economic Planning:
In the present age of planning, the national data are of great importance. For economic planning, it
is essential that the data pertaining to a country’s gross income, output, saving and consumption
from different sources should be available. Without these, planning is not possible.
Economic Models:
The economists propound short-run as well as long-run economic models or long-run investment
models in which the national income data are very widely used.
Research:
The national income data are also made use of by the research scholars of economics. They make
use of the various data of the country’s input, output, income, saving, consumption, investment,
employment, etc., which are obtained from social accounts.
Per Capita Income:

Unit –6
CUET-PG
 Theory+ MCQs

Public Economics Unit – 6
COPYRIGHTS @ DIWAKAR EDUCATION HUB 1
Content Table
Public Good and Private Good Page 1
Voluntary Exchange Model Page 9
The Samuelson Model Page 11
Pigovian Taxes and Subsidies Page 17
Budget Page 26
Fiscal Deficit Page 28
Public Debt in India Page 29
Restructuring India’s Fiscal Federalism Page 31
Taxation Page 34
Incidence of Taxation Page 42
Optimal Taxation Page 52
Public Good and Private Good
Public goods, as the name suggests, are for the facility and welfare of the public in general for free of cost.
Whereas, private products are the ones which are sold by private companies to earn profits and fulfil the
needs of the buyers. This is a significant difference between these two types of goods.
However, both public goods and private goods are for the consumer’s benefit; they differ drastically from
each other. But, where public goods benefit the mass population, private products are only for those who
have affordability. To know these differences in detail, read below.
Difference and Comparison
BASIS PUBLIC GOODS PRIVATE GOODS
Meaning Public goods are the ones which are provided
by the nature or the government for free use
by the public.
Private goods are the ones which are
manufactured and sold by the private
companies to satisfy the consumer
needs and wants.
Provider Nature or government Manufacturers i.e. entrepreneurs
Consumer
equality
Rich and poor are treated equally Preference to rich consumers
Availability Readily available to all Reduces with each consumption
Quality Remains constant Varies with ability to buy
Decision Social choice Consumer's decision
Objective Overall growth and development Profit earning

BASIS PUBLIC GOODS PRIVATE GOODS
Traded in Free
Market
No Yes
Opportunity
Cost
No Yes
Free riders
problem
Yes No
Rivalry Non-rival Rival
Excludability Non-excludable Excludable
Demand Curve Horizontal Vertical
Examples Police service, fire brigade, national defense,
public transport, roads, dams and river
Clothes, cosmetics, footwear, cars,
electronic products and food
Types of Goods
Before we read about the different kinds of goods available, we must clearly understand the meaning of
the following two determinants of these types:
 Rivalry: Rivalry can be perceived as competition in consumption i./e. If one person consumes
a particular good, the other has to let go of the opportunity of using it simultaneously.
 Excludability: The term excludability refers to the restriction on the usage of a product
limited to the people who have paid for it.
Now, by the above two attributes, the goods are categorized into the following

four types
1. Private Goods: The products which are rival and excludable at the same time as clothes,
cosmetics and electronics are termed as private goods.
2. Common Goods: These goods are though rival but are non-excludable, including a public
library and playgrounds which can be used by anyone. Also, usage by one person or team
restricts its usage by the other person or group.
3. Club Goods: Such goods are though excludable but are not rival like the telephone and
electricity which are both chargeable, but many people can relish these services
simultaneously.
4. Public Goods: The goods which are non-rival and non-excludable at the same time, for
instance, road, bridge and dams are called public goods.
What are Public Goods?
Public goods are the commodities or services provided by the nature of the government of a country, free
of cost or by taxing the few people to offer mass benefit to the public in general.

Characteristics of Public Goods
These commodities or services develop the infrastructure and living standard of a country. To know more
about public goods, let us go through its following feature:
 Non-Rival: The public goods are non-competitive, i.e. it can serve many people at the same
time without hindering the usage of one another.
 Non-Excludable: These goods are usually free of cost and can be used by anyone without any
restriction.
 Non-Rejectable: The consumption of such goods cannot be dismissed or unaccepted by the
public since it is available collectively to all the people.
 Free-Riding: The goods categorized under public goods benefit even those who have not paid
for it. Such people are termed as free-riders.
What are Private Goods?
Private goods are the products or services which are manufactured or produced by the companies owned
by entrepreneurs who aim at meeting customer’s requirement to earn profits through the trading of such
goods in the free market.
Characteristics of Private Goods
Private goods serve the personal needs of consumers. Following are the various characteristics of these
goods:

 Rival: The private products involve rivalry or competition among the consumers for its usage
since the consumption by one person will restrict its use by another.
 Excludable: These goods involve cost, and therefore the non-payers are excluded from the
consumption.
 Rejectable: Private goods can be unaccepted or rejected by the consumers since they have
multiple alternatives and the right to select the product according to their preference.
 Traded in Free Market: Such goods can be freely bought and sold in the market at a given
price.
 Opportunity Cost: These goods have an opportunity, i.e. the consumer has to let go of the
benefit from a similar product while selecting a particular private commodity.
Advantages of Public Goods
Public goods carry the mass benefit for the people. They have a broader perspective.
These goods can be used by many people or the public simultaneously. These are usually free of cost and
can be utilized by the rich and poor equally.
The primary objective of such goods is to provide essential amenities to the public in general, along with
promoting social welfare and development of the nation as a whole.

Advantages of Private Goods
These goods have a mutual benefit for the manufacturers and the consumers; both serve their purpose
through the selling and buying of such products respectively.
Private goods are essential to carry on trade activities for economic development. It is done with
the motive of earning a profit from the entrepreneurs.
Such goods restrict the consumption by the people who do not have buying capacity, thus limiting its usage
by the rich in other words it discourages the free-riders.
Disadvantages of Public Goods
Let us see some of the limitations of public goods, elaborated below:
For providing public goods to be used by all the people, government charges tax from a few consumers
while the others are free to use the services or commodities even without paying for it. They are
called free-riders. Some also find a way for tax evasion. This increase the cost of production of such
products for the government and leads to market failure.
Moreover, these facilities or benefits are taken for granted and misused or not maintained by some people
since they have not paid for it and did not realise its value.

DIWAKAR EDUCATION HUB Page 3
Unit- 1 MCQs
1. Any individual who purchases goods and
services from the market for his/her end-use is
called a .......
(1) Customer
(2) Purchaser
(3) Consumer
(4) All these
Answer: 1
2. ------------ is nothing but willingness of
consumers to purchase products and services as
per their taste, need and of course pocket.
(1) Consumer behavior
(2) Consumer interest
(3) Consumer attitude
(4) Consumer perception
Answer: 2
3. ------------- is a branch which deals with the
various stages a consumer goes through before
purchasing products or services for his end use.
(4) Consumer perception
Answer: 1
4. -------------- refers to how an individual
perceives a particular message
(4) Consumer interpretation.
Answer: 4
5. “----------- is the action and decisions process
or people who purchase goods and services for
personal consumption.”
(4) Consumer interpretation.
Answer: 1
6. ________________ emphasize(s) that
profitable marketing begins with the discovery
and understanding of consumer needs and then
develops a marketing mix to satisfy these needs.
(1) The marketing concept
(2) The strategic plan
(3) The product influences
(4) The price influences.
Answer: 1
7. ________________ is one of the most basic
influences on an individual’s needs, wants, and
behaviour.
(1) Brand
(2) Culture
(3) Product
(4) Price
Answer: 2
8. In terms of consumer behaviour; culture,
social class, and reference group influences have
been related to purchase and _______________.
(1) Economic situations
(2) Situational influences
(3) Consumption decisions
(4) Physiological influences
Answer: 3
9. Many sub-cultural barriers are decreasing
because of mass communication, mass transit,
and a
___________________.
(1) Decline in the influence of religious values
(2) Decline in communal influences
(3) Strong awareness of brands in the market
(4) Strong awareness of pricing policies in the
market.
Answer: 1
10. ___________ develop on the basis of wealth,
skills and power.
(1) Economical classes
(2) Purchasing communities
(3) Competitors
(4) Social classes.
Answer: 4
11. _____________ (is) are transmitted through
three basic organizations: the family, religious

DIWAKAR EDUCATION HUB Page 4
organizations, and educational institutions; and
in today’s society, educational institutions are
playing an increasingly greater role in this
regard.
(1) Consumer feedback
(2) Marketing information systems (3) Market
share estimates
(4) Cultural values.
Answer: 4
12. In large nations, the population is bound to
lose a lot of its homogeneity, and thus
_________________ arise.
(1) Multilingual needs
(2) Cultures
(3) Subcultures
(4) Product adaptation requirements
Answer: 3
13. _______________ are based on such things
as geographic areas, religions, nationalities,
ethnic groups, and age.
(1) Multilingual needs
(2) Cultures
(3) Subcultures
(4) Product adaptation requirements.
Answer: 3
14. Marketing managers should adapt the
marketing mix to ___________________ and
constantly monitor value changes and
differences in both domestic and global markets.
(1) Sales strategies
(2) Marketing concepts
(3) Cultural values
(4) Brand images.
Answer: 3
15. _____________ has become increasingly
important for developing a marketing strategy in
recent years.
(1) Change in consumers’ attitudes (2) Inflation
of the dollar
(3) The concept and the brand
(4) Age groups, such as the teen market, baby
boomers, and the mature market.
Answer: 4
16. Two of the most important psychological
factors that impact consumer decision-making
process are product _____________ and
product involvement.
(1) Marketing
(2) Strategy
(3) Price
(4) Knowledge
Answer: 4
17. Which of the following is the most valuable
piece of information for determining the social
class of your best friend's parents?
(1) The number of years schooling that they had
(2) Their ethnic backgrounds
(3) Their combined annual income (4) Their
occupations
Answer: 4
18. Changes in consumer values have been
recognized by many business firms that have
expanded their emphasis on ____________
products.
(1) Latest technology
(2) Timesaving, convenience-oriented
(3) Health related
(4) Communication.
Answer: 2
19. Many sub cultural barriers are decreasing
because of mass communication, mass transit,
and
________________.
(1) The rising unemployment situation

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