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1. What is Microeconomics and Macroeconomics?
Microeconomics is the study of decisions made by people and businesses regarding the allocation of resources and prices of goods and
services.
 The government decides the regulation for taxes. Microeconomics focuses on the supply that determines the price level of the economy.
 It uses the bottom-up strategy to analyse the economy. In other words, microeconomics tries to understand human’s choices and allocation
of resources. It does not decide what are the changes taking place in the market, instead, it explains why there are changes happening in the
market.
 The key role of microeconomics is to examine how a company could maximise its production and capacity, so that it could lower the prices
and compete in its industry. A lot of microeconomics information can be obtained from the financial statements.
The key factors of microeconomics are as follows:
1.Demand, supply, and equilibrium
2.Production theory
3.Costs of production
4.Labour economics
Examples: Individual demand, and price of a product.
 Macroeconomics is a branch of economics that depicts a substantial picture. It scrutinises itself with the economy at a massive scale, and
several issues of an economy are considered.
 The issues confronted by an economy and the headway that it makes are measured and apprehended as a part and parcel
of macroeconomics.
 Macroeconomics studies the association between various countries regarding how the policies of one nation have an upshot on the other. It
circumscribes within its scope, analysing the success and failure of the government strategies.
 In macroeconomics, we normally survey the association of the nation’s total manufacture and the degree of employment with certain
features like cost prices, wage rates, rates of interest, profits, etc., by concentrating on a single imaginary good, and what happens to it.
The important concepts covered under macroeconomics are as follows:
1.Capitalist nation
2.Investment expenditure
3.Revenue
Examples: Aggregate demand, and national income.
1) State any two uses of the study of microeconomics?
(A) Helpful in the efficient employment of resources-allocation of resources: Micro Economics deals with the economizing of scarce resources
with efficiency. The principal problem faced by modern Governments is the allocation of resources among competing wants. In this sense,
the Government in the efficient employment of resources and achieving economic growth with stability uses Micro Economics.
(b) Helps in understanding the working of the economy: Micro Economics is of utmost importance in understanding th3e working of a free
economy. In such an economy, there is no agency to plan and coordinate the working of the economic system. The decisions like how to
produce, what do produce etc., are taken by producers mid consumers without any outside influence.
(c) Provide tools for economic policies: Microeconomics provides analytical tools for evaluating the economic policies of an Economy. Price
mechanism or market mechanism is the tool, which helps us in this respect. Micro Economics thus helps in formulating correct price policies.
(D) Useful in understanding the problems of Taxation: The study of microeconomics helps in understanding some of the problems of taxation.
It is used to explain the welfare implications of a tax. It studies the distribution of incidence of a commodity tax (excise duty/sales tax)
between sellers and consumers.
2) Explain Nature and scope of Business Economics?
Nature of Business Economics
Business Economics is a Science: Science is a systematized body of knowledge, which establishes cause and effect relationships. Business
Economics integrates the tools of decision sciences such as Mathematics, Statistics, and Econometrics with Economic Theory to arrive at
appropriate strategies for achieving the goals of the business enterprises.
Based on Micro Economics: Business Economics is based largely on Microeconomics. A business manager is usually concerned about
achievement of the predetermined objectives of his organisation to ensure the long-term survival and profitable functioning of the
organization.
Incorporates elements of Macro Analysis: A business unit does not operate in a vacuum. It is affected by the external environment of the
economy in which it operates such as, the general price level, income and employment levels in the economy and government policies with
respect to taxation, interest rates, exchange rates, industries, prices, distribution, wages, and regulation of monopolies.
Business Economics is an art: it involves practical application of rules and principles for the attainment of set objectives.
Use of Theory of Markets and Private Enterprises: Business Economics largely uses the theory of markets and private enterprise. It uses the
theory of the firm and resource allocation in the backdrop of a private enterprise economy.
Pragmatic in Approach: Microeconomics is abstract and purely theoretical and analyses economic phenomena under unrealistic assumptions.
In contrast, Business Economics is pragmatic in its approach as it tackles practical problems, which the firms face in the real world.

2. Interdisciplinary in nature: Business Economics is interdisciplinary in nature as it incorporates tools from other disciplines such as
Mathematics, Operations Research, Management Theory, Accounting, and marketing, Finance, Statistics, and Econometrics.
Normative in Nature: Economic theory has developed along two lines – positive and normative. A positive or pure science analyses cause and
effect relationship between variables in an objective and scientific manner, but it does not involve any value judgement. As against this, a
normative science involves value judgement... Welfare considerations are embedded in normative science.
Scope of Business Economics
The scope of Business Economics may be discussed under the following two heads:-
1. Microeconomics applied to operational or internal Issues
Demand Analysis and Forecasting: Demand Analysis pertains to the behaviour of consumers in the market. It studies the nature of consumer
preferences and the effect of changes in the determinants of demand such as, price of the commodity, consumers’ income, prices of related
commodities, consumer tastes, etc.
Demand Forecasting is the technique of predicting future demand for goods and services based on the past behaviour of factors, which affect
demand. Accurate forecasting is essential for a firm to enable it to produce the required quantities at the right time and to arrange, well in
advance, for the various factors of production viz., raw materials, labour, machines, equipment, buildings etc.
Production and Cost Analysis: Production theory explains the relationship between inputs and output. A business economist has to decide on
the optimum size of output, given the objectives of the firm... Production analysis enables the firm to decide on the choice of appropriate
technology and selection of least - cost input-mix to achieve technically efficient way of producing output, given the inputs.
Cost analysis enables the firm to recognize the behaviour of costs when variables such as output, time, and size of plant change. The firm will
be able to identify ways to maximize profits by producing the desired level of output at the minimum possible cost.
Inventory Management: Inventory management theories pertain to rules that firms can use to minimize the costs associated with maintaining
inventory in the form of ‘work-in-process,’ ‘raw materials’, and ‘finished goods’. Inventory policies affect the profitability of the firm.
Market Structure and Pricing Policies: Analysis of the structure of the market provides information about the nature and extent of
competition, which the firms have to face. Price theory explains how prices are determined under different kinds of market conditions and
assists the firm in framing suitable price policies.
Resource Allocation: Business Economics, with the help of advanced tools such as linear programming, enables the firm to arrive at the best
course of action for optimum utilization of available resources.
Theory of Capital and Investment Decisions: For maximizing its profits, the firm has to carefully evaluate its investment decisions and carry out
a sensible policy of capital allocation. Theories related to capital and investment provides scientific criteria for choice of investment projects
and in assessment of the efficiency of capital. Business Economics supports decision making on allocation of scarce capital among competing
uses of funds.
Profit Analysis: Profits are, most often, uncertain due to changing prices and market conditions. Profit theory guides the firm in the
measurement and management of profit under conditions of uncertainty. Profit analysis is also immensely useful in future profit planning.
Risk and Uncertainty Analysis: Business firms generally operate under conditions of risk and uncertainty. Analysis of risks and uncertainties
helps the business firm in arriving efficient decisions and in formulating plans on the basis of past data, current information and future
prediction.
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2. Macroeconomics applied to environmental or external issues
Environmental factors have significant influence upon the functioning and performance of business. The major macro-economic factors are
related to-
othe type of economic system
ostage of business cycle
oThe general trends in national income, employment, prices, saving and investment.
ogovernment’s economic policies like industrial policy, competition policy, monetary and fiscal policy, price policy, foreign trade policy and
globalization policies
oworking of financial sector and capital market
oSocio-economic organisations like trade unions, producer and consumer unions, and cooperatives.
oSocial and political environment.
4) Distinguish between positive and normative economics
Positive Economics
 Positive economics is a stream of economics that focuses on the description, quantification, and explanation of economic developments,
expectations, and associated phenomena.
 It relies on objective data analysis, relevant facts, and associated figures. It attempts to establish any cause-and-effect relationships or
behavioural associations, which can help, ascertain and test the development of economics theories.
 Positive economics is objective and fact-based where the statements are precise, descriptive, and clearly measurable. These statements can
be measured against tangible evidence or historical instances. There are no instances of approval-disapproval in positive economics.

3.  Here is an example of a positive economic statement: "Government-provided healthcare increases public expenditures." This statement is
fact-based and has no value judgment attached to it. Its validity can be proven (or disproven) by studying healthcare spending where
governments provide healthcare.
Normative Economics
 Normative economics focuses on the ideological, opinion-oriented, prescriptive, value judgments, and "what should be" statements aimed
toward economic development, investment projects, and scenarios.
 Its goal is to summarize people's desirability (or the lack thereof) to various economic developments, situations, and programs by asking or
quoting what should happen or what ought to be.
 Normative economics is subjective and value-based, originating from personal perspectives, feelings, or opinions involved in the decision-
making process. Normative economics statements are rigid and prescriptive in nature. They often sound political or authoritarian, which is
why this economic branch is also called "what should be" or "what ought to be" economics.
 An example of a normative economic statement is: "The government should provide basic healthcare to all citizens." As you can deduce from
this statement, it is value-based, rooted in personal perspective, and satisfies the requirement of what "should" be.
5) Explain various types of price elasticity of demand with the help of diagrams.
1. Perfectly Elastic Demand:
When a small change in price of a product causes a major change in its demand, it is said to be perfectly elastic demand. In perfectly elastic
demand, a small rise in price results in fall in demand to zero, while a small fall in price causes increase in demand to infinity. In such a case,
the demand is perfectly elastic or ep = 00
In perfectly elastic demand, the demand curve is represented as a horizontal straight line, which is shown in Figure-2:
2. Perfectly Inelastic Demand:
A perfectly inelastic demand is one when there is no change produced in the demand of a product with change in its price. The numerical value
for perfectly inelastic demand is zero (ep=0).
In case of perfectly inelastic demand, demand curve is represented as a straight vertical line, which is shown in Figure-3:
It can be interpreted from Figure-3 that the movement in price from OP1 to OP2 and OP2 to OP3 does not show any change in the demand of
a product (OQ). The demand remains constant for any value of price. Perfectly inelastic demand is a theoretical concept and cannot be applied
in a practical situation. However, in case of essential goods, such as salt, the demand does not change with change in price. Therefore, the
demand for essential goods is perfectly inelastic
3. Relatively Elastic Demand:
Relatively elastic demand refers to the demand when the proportionate change produced in demand is greater than the proportionate change
in price of a product. The numerical value of relatively elastic demand ranges between one to infinity.
Mathematically, relatively elastic demand is known as more than unit elastic demand (ep>1). For example, if the price of a product increases by
20% and the demand of the product decreases by 25%, then the demand would be relatively elastic.
The demand curve of relatively elastic demand is gradually sloping, as shown in Figure-4:
It can be interpreted from Figure-4 that the proportionate change in demand from OQ1 to OQ2 is relatively larger than the proportionate
change in price from OP1 to OP2. Relatively elastic demand has a practical application as demand for many of products respond in the same
manner with respect to change in their prices.
4. Relatively Inelastic Demand:
Relatively inelastic demand is one when the percentage change produced in demand is less than the percentage change in the price of a
product. For example, if the price of a product increases by 30% and the demand for the product decreases only by 10%, then the demand
would be called relatively inelastic. The numerical value of relatively elastic demand ranges between zero to one (ep<1). Marshall has termed
relatively inelastic demand as elasticity being less than unity.
The demand curve of relatively inelastic demand is rapidly sloping, as shown in Figure-5:

4. It can be interpreted from Figure-5 that the proportionate change in demand from OQ1 to OQ2 is relatively smaller than the proportionate
change in price from OP1 to OP2. Relatively inelastic demand has a practical application as demand for many of products respond in the same
manner with respect to change in their prices.
5. Unitary Elastic Demand:
When the proportionate change in demand produces the same change in the price of the product, the demand is referred as unitary elastic
demand. The numerical value for unitary elastic demand is equal to one (ep=1).
The demand curve for unitary elastic demand is represented as a rectangular hyperbola, as shown in Figure-6:
From Figure-6, it can be interpreted that change in price OP1 to OP2 produces the same change in demand from OQ1 to OQ2. Therefore, the
demand is unitary elastic.
7) State and explain with suitable diagrams the law of demand. What are the reasons for the downward slope of the demand?
Demand, in economic terms, basically means the desire to purchase something. However, the desire itself is not sufficient. It also requires the
willingness and purchasing power of people to acquire the commodity. According to the law of demand, when other factors are constant, there is an
inverse relationship between price and demand. In other words, the demand for something increases as its price false. Conversely, demand reduces
when the price increases. We can understand this inverse relationship using the following individual demand schedule:
Demand Curve
From the demand schedule we have seen above, we can derive the following demand curve:
Price Demand
5 100
4 200
3 300
2 400
1 500

5. This graph also shows the demand curve falling as the price reduces. The downward sloping of this curve explains the law of demand. Furthermore,
its rightward shift with falling prices indicates increasing demand.
Causes for Downward Sloping of Demand Curves
1) The law of diminishing the marginal utility
2) Substitution effect
3) Income effect
4) New buyers
5) Old buyers
8) Distinguish between cardinal and ordinal utility
Cardinal Utility Ordinal Utility
Definition
It explains that the satisfaction level after consuming
any goods or services can be scaled in terms of
countable numbers.
It explains that the satisfaction level after consuming any goods or services
cannot be scaled in numbers. However, these things can be arranged in the
order of preference.
Example
Pizza gives Sam 60 utile of satisfaction, whereas burger
gives him only 40 utile.
Sam gets more satisfaction from a pizza as compared to that of a burger.
Measurement
Utility is measured based on utile. Utility is ranked based on satisfaction.
Realistic
It is less practical. It is more practical and sensible.
Used By
This theory was applied by Prof. Marshall This theory was applied by Prof. J R Hicks
9) What is Demand forecasting and explain its methods?
Demand Forecasting is a systematic and scientific estimation of future demand for a product. Simply, estimating the sales proceeds
or demand for a product in the future is called as demand forecasting.
The methods of forecasting can be classified into two broad categories:
1.Survey Methods: Under the survey method, the consumers are contacted directly and are asked about their intentions for a product and
their future purchase plans. This method is often used when the forecasting of a demand is to be done for a short period of time.
The survey method includes:
 Consumer Survey Method
 Opinion Poll Methods

6. 2. Statistical Methods: The statistical methods are often used when the forecasting of demand is to be done for a longer period. The
statistical methods utilize the time-series (historical) and cross-sectional data to estimate the long-term demand for a product. The
statistical methods are used more often and are considered superior than the other techniques of demand forecasting due to the
following reasons:
 There is a minimum element of subjectivity in the statistical methods.
 The estimation method is scientific and depends on the relationship between the dependent and independent variables.
 The estimates are more reliable
 In addition, the cost involved in the estimation of demand is the minimum.
The statistical methods include:
 Trend Projection Methods
 Barometric Methods
 Econometric Methods
10) What is meant by change in supply and change in quantity supplied?
Change in supply: When the supply of a commodity changes due to any factor (taxation policy, technology etc.) other than price, then such a
change is known as change in supply. This results in shift in the supply curve.
Change in Quantity supplied: When the supply of a commodity changes due to change in its price keeping other factors instant, then such a
change is known as Change in Quantity supplied. This results in movement along the supply curve
11) A good is an inferior good for one and at the same time normal good for another consumer. Do you agree? Explain with the help of an
example.
It is true as it is the income of a consumer which determines whether the good is inferior or normal. A good, which is a normal good for the
consumer having lower income, may become an inferior good for the consumer having higher income.
Let us assume that the income of consumer A is high and that of consumer B is low.
Let the good of interest be 'Keypad mobile phone'.
For consumer A with higher income, it is an 'inferior good'.
However, the same good is a 'normal good' for the consumer B who has a lower income level.
When income level increases, the demand for a normal good increases
CASE STUDY SOLUTION-
1. After the acquisition from Star Hub their announced a 4 dollar increase in and basic package from 20 to 24 dollars a month. They decided
to include the EPL on its sports package. They had also announces a 7 dollar increase in the sports package from eight to 15 dollars a
month. The sports packages included the ESPN star sports. This resulted in the TV operators paying a royalty to ESPN based on the
number of subscribers on Star Hub.
2. The payment of royalties to content providers is the main cause of the increase in pricing of pay TV within the country, especially
basing on Star Hub’s case study. In addition, the company is the only provider of the cable TV in the country and the licence of
acquiring the cable TV rights is very costly too.
3. Prior to the increase in 2007, star hub has already maximised the profits that it made from the provision of its services, This begins
from the sports package from $20 to $24 and raise in all new sports package airing EPL matches by $10 to $25.
4. Cable TV operator is bound by provision to ensure that he remits subsequent payments to the content provider for each of its
customer as royalty. It is against broadcast rights to air another company is content without prior permission from the content
provider, which in turn leads to the breaking of the terms of media broadcast rights.
5. A lump-sum bid would be instrumental in resolving the asymmetry of information between EPL and cable TV operators such as Star
Hub as this payment enables the live streaming of matches from EPL to these Cable TV providers. This covers the overhead costs
thereby enabling the fans to watch the games one on one.