Question

Provide definition and one example for market power, productivity, inflation, business cycle, circular flow chart and microeconomics.

Answer 1

1. Market power refers to the ability of a firm to raise the market prices above competitive price level.

Example- Monopolist has the highest market power.

2. Productivity refers to the effeciency to convert inputs into outputs.

Example- If machine A can produce 10 units of output in one day and machine B can produce 20 units of output in one day. Machine A is more productive.

3. Inflation refers to the general rise in the price level of goods and services. It leads to fall in purchasing power.

Example- Prices of certain goods are double that of decade ago.

4. Business cycle refers to the expansion and contraction in the economy. It is the upward and downward movement of GDP around long term growth trend.

Expansion→ peak→contraction(recession)→trough→ expansion

Example- Great depression of 1930s saw a severe drop in GDP.

5. Circular flow chart refers to the flow of goods and services and money between different sectors of an economy like households, business, government and foreign sector.

Example- Households offer labor services to the firms and in return gets wages.

6. Microeconomics refers to the study of economic behaviour of individual units. The word is dervied from greek word 'mikros' meaning small.

Example- Rise in price of pizza leads to fall in demand for pizza.