Economics : 2010 : CBSE : [ All India ] : Set II

The budget line represents all bundles of two goods which a consumer can purchase with his entire money income.

Under perfect competition, a firm cannot influence the price of the product.

A monopoly (originated from the Greek language monos, one + polein, to sell) is defined as a persistent market situation where there is only one seller of a product or service.

In other words, a firm that has no competitor in its industry is called a monopoly firm.

Under monopolistic competition there are few sellers and large number of buyers.

Money is defined as anything which is generally acceptable by the people in exchange of goods & services or in repayment of debts.

Inflationary gap refers to the amount by which aggregate demand exceeds aggregate supply at the full employment level of income. It represents a situation of excess demand. It causes a rises in the price level.

Two sources of demand for foreign exchange are:
(a) To purchase goods and services from foreign countries. For example, Indian people and firms demand US Dollars to pay for goods and services they want to import from USA.
(b)  To purchase financial assets, i.e., demanding foreign exchange to invest in bonds and equity shares in a foreign country.

Normal goods are those goods whose demand increases with the increase in income.

Tax is a legally compulsory payment imposed by the government on the income & profit of persons & companies without reference to any benefit. Example, income tax, corporate tax, wealth tax etc.

The ratio of the change in saving to the change in income is called Marginal propensity to save.
         MPS = Change in saving / change in income