Priyadarshini College of Engineering, Nagpur

Department: CSE/IT/CT Semester: VI

Section: A & B
Question Bank (2023-24)
CAT 1

Q.N. Questions CO

1 Differentiate between Microeconomics and Macroeconomics. 1

2 State the Law of Demand and its assumptions. 1

3 Explain Law of Supply with a suitable diagram. 1

4 Discuss the concept of Elasticity of Demand and explain its various 1

types.

5 Differentiate between deflation and recession. 1

6 Explain the role of IT Industry in Economic Growth of the country. 2

7 Differentiate between Labour-intensive and Capital-intensive industry. 2

8 Explain Digital Economy and their components. 2

9 Explain advantages and disadvantages of Digital Economy. 2

10 Explain the concept of Digital Divide and Digital Age. 2

11 Explain Business Cycle and its various phases. 2

 Answers

Q.1 : Differentiate between Microeconomics and Macroeconomics.

Microeconomics
Microeconomics focuses on the choices made by individual consumers as well as businesses
concerning the fluctuating cost of goods and services in an economy.
Macroeconomics
Macroeconomics studies the economic progress and steps taken by a nation. It also includes the
study of policies and other influencing factors that affect the economy as a whole.

Difference

Features Microeconomics Macroeconomics

Economic Unit It is the study of individual economic It is the study of economy as a
units of an economy. whole and its aggregates.
Scope It deals with individual income, It deals with aggregates like
individual prices and individual output. national income, general price level
and national output.
Known as Price theory Income and Employment theory

Main tools Its main tools are demand and supply of Its main tools are aggregate demand
particular commodity factor. and aggregate supply of economy as
a whole.
Use It helps to solve the central problem of It helps to solve the central problem
what, how and for whom to produce in of full employment of resources in
the economy. the economy.
Determinants Price is the main determinant of Employment is the main
microeconomic problems. determinants of macroeconomic
problems.
Limitations It is based on unrealistic assumption i.e It has been analyzed that fallacy of
In microeconomics it is assumed that composition involves, which
there is a full employment in the society sometimes dosen’t proves true
which is not at all possible. because it is possible that what is
truw for aggregate may not be true
for individual too.
Approach While analyzing any economy While analyzing any economy
microecnomics take bottom up macroecnomics take bottom up
approach. approach.

Q.2 : State the Law of Demand and its assumptions.

Demand- Demand is the quantity of consumers who are willing and able to buy products at various
prices during a given period of time.

Law of Demand-
 The law of demand is a fundamental principle in economics that describes the relationship
between the price of a good or service and the quantity demanded by consumers.
 Law of demand states that, when the price of the product decreases, the quantity demanded
increases and conversely, when the price of a product increases, the quantity demanded
decreases.
 In law of demand, price is inversely proportional to demand.
 In simpler terms, people generally buy more of a product when its price is lower, and they buy
less of it when its price is higher. This relationship is often represented graphically as a
 downward-sloping demand curve on a supply and demand graph.
 The demand curve is a graphical representation of the relationship between the price of a good
or service and the quantity demanded for a given period of time.
 In a typical representation, the price will appear on the left vertical axis, the quantity
demanded on the horizontal axis. Note that this formulation implies that price is the
independent variable, and quantity the dependent variable.
 The demand curve will move downward from the left to the right, which expresses the law of
demand: as the price of a given commodity increases, the quantity demanded decreases, all
else being equal.

Assumptions of Law of Demand

1) There is no expectation of the consIncome of the consumer is constant.

2) There is no change in availability and price of the related commodities. (complementary and
substitutes)
3) umers about changes in the future price and income.
4) Consumer taste and preference remain the same.
5) There is no change in the population and its structure.

Q.3 : Explain Law of Supply with a suitable diagram.

Supply- Supply is the amount of a good or service that is available to consumers. It can also refer
to the number of units of goods or services that a supplier is willing and able to bring to the market
for a specific price.

Law of Supply-

 Law of Supply states that the direct relationship between price and quantity supplied, keeping
the other factors constant.
 "All else being equal, as the price of a good or service increases, the quantity supplied by
producers will also increase, and as the price decreases, the quantity supplied will decrease."
 In other words, there is a direct positive relationship between the price of a product and the
quantity that producers are willing to supply. This relationship is typically depicted on a graph
as an upward-sloping supply curve, where the quantity supplied increases as the price
increases.
 The supply curve is upward sloping because, over time, suppliers can choose how much of
their goods to produce and later bring to market.
 At any given point in time, however, the supply that sellers bring to market is fixed, and
sellers simply face a decision to either sell or withhold their stock from a sale;
consumer demand sets the price, and sellers can only charge what the market will bear.
 If consumer demand rises over time, the price will rise, and suppliers can choose to devote
new resources to production (or new suppliers can enter the market), which increases
the quantity supplied. Demand ultimately sets the price in a competitive market; supplier
response to the price they can expect to receive sets the quantity supplied.
 The law of supply is one of the most fundamental concepts in economics. It works with the
law of demand to explain how market economies allocate resources and determine the prices
of goods and services.

Q.4 : Discuss the concept of Elasticity of Demand and explain its various types.

 The elasticity of demand refers to the degree to which demand responds to a change in an
economic factor. Price is the most common economic factor used when determining elasticity.
 Other factors include income level and substitute availability. Elasticity measures how
demand shifts when economic factors change. When demand remains constant regardless of
 price changes, it is called inelasticity.
 The elasticity of demand refers to the change in demand when there is a change in another
economic factor, such as price or income.
 Demand is considered inelastic if demand for a good or service remains unchanged even when
the price changes,
 Elastic goods include luxury items and certain food and beverages as changes in their prices
affect demand.
 Inelastic goods may include items such as tobacco and prescription drugs as demand often
remains constant despite price changes.
 There three types of Elasticity of Demand:
Types of
Elasticity of
Demand

Price Elasticity of Income Elasticity Cross Elasticity of

Demand of Demand Demand

1. Price Elasticity of Demand : Any change in the price of a commodity, whether it’s a
decrease or increase, affects the quantity demanded for a product. For example, when there is
a rise in the prices of ceiling fans, the quantity demanded goes down. This measure of
responsiveness of quantity demanded when there is a change in price is termed as the Price
Elasticity of Demand (PED).

2. Income Elasticity of Demand : The income levels of consumers play an important role in the
quantity demanded for a product. This can be understood by looking at the difference in
goods sold in the rural markets versus the goods sold in metro cities. The Income Elasticity of
Demand, also represented by YED, refers to the sensitivity of quantity demanded for a certain
good to a change in real income (the income earned by an individual after accounting for
inflation) of the consumers who buy this good, keeping all other things constant.

3. Cross Elasticity of Demand : In a market where there is an oligopoly, multiple players

compete. Thus, the quantity demanded for a product does not only depend on itself but rather,
there is an effect even when prices of other goods change. Cross Elasticity of Demand, also
represented as XED, is an economic concept that measures the sensitiveness of quantity
demanded of one good (X) when there is a change in the price of another good (Y), and that’s
why it is also referred to as Cross-Price Elasticity of Demand.

Q.5 : Differentiate between deflation and recession.

Deflation- Deflation is the general decline of the price level of goods and services. Deflation is
usually associated with a contraction in the supply of money and credit, but prices can also fall due
to increased productivity and technological improvements.
Recession- A recession is a significant, widespread, and prolonged downturn in economic
activity.A common rule of thumb is that two consecutive quarters of negative gross domestic
product (GDP) growth mean recession, although more complex formulas are also used.

Difference

Aspect Recession Deflation

 Definition A significant decline in economic A sustained decrease in the general price
activity measured by a decrease in level of goods and services in an economy.
GDP over two consecutive quarters.
Cause Can be triggered by various factors Often associated with a decrease in
such as reduced consumer aggregate demand, which can be caused by
spending, investment, or factors like reduced consumer spending,
government spending, often lower business investments, or decreased
resulting from economic shocks, money supply.
financial crises, or policy changes.
Impact on Prices may decrease due to reduced A decrease in the general price level of
prices demand for goods and services, but goods and services is the primary
it's not a defining characteristic. characteristic.
Inflation can still occur during a
recession.
Employmen Typically leads to increased Can lead to increased unemployment as
t unemployment as businesses cut businesses may reduce production and cut
costs and lay off workers due to costs, but the impact on employment may
reduced demand. vary depending on other economic factors.
Consumer Consumers may postpone large Consumers may delay purchases in
Behavior purchases, leading to further anticipation of lower prices in the future,
decreases in demand and economic which can further reduce demand and
activity. economic activity.

Q.6 : Explain the role of IT Industry in Economic Growth of the country.

The IT industry plays a crucial role in the economic growth of a country in several ways:
1. Job Creation: The IT sector generates a significant number of employment opportunities.
It not only provides jobs directly related to information technology but also indirectly
supports employment in various other sectors.
2. Innovation and Productivity: IT promotes innovation and enhances overall productivity
by introducing new technologies, tools, and systems. Automation, data analytics, and
artificial intelligence contribute to efficiency gains in various industries.
3. Global Competitiveness: A thriving IT sector improves a country's global
competitiveness. It allows businesses to participate in the global market, facilitates
international trade, and attracts foreign investments.
4. Economic Diversification: The IT industry contributes to economic diversification by
reducing dependence on traditional sectors. It enables a more balanced and resilient
economy less susceptible to fluctuations in specific industries.
5. Entrepreneurship and Startups: The IT sector fosters entrepreneurship and the growth
of startups. It provides a platform for individuals and small businesses to innovate, disrupt
traditional models, and create new economic opportunities.
6. Education and Skill Development: The demand for IT skills drives educational and skill
development initiatives. Investing in education related to technology and information
systems creates a workforce capable of meeting industry needs, fostering a knowledge-
based economy.
7. Infrastructure Development: The IT industry often necessitates robust digital
infrastructure. Governments invest in improving internet connectivity, data centers, and
telecommunications, which not only supports the IT sector but also benefits other
industries.
8. Government Efficiency: Implementing IT solutions in government processes enhances
efficiency, reduces bureaucracy, and minimizes corruption. E-governance initiatives
streamline public services, contributing to economic development.

9. Research and Development: The IT sector is a hub for research and development
activities. Continuous innovation in software, hardware, and emerging technologies
contributes to long-term economic growth by pushing the boundaries of what is possible.
10. Financial Contributions: The IT industry generates substantial revenue through software
 exports, IT services, and licensing fees. This revenue contributes directly to a country's
GDP and helps in maintaining fiscal stability.

Q.7 : Differentiate between Labour-intensive and Capital-intensive industry.

Labour-Intensive Industry- Labour-intensive is a production activity that requires a large

amount of labour to manufacture a product or service. Labour-intensive industries require large
amounts of manual labour to produce their goods or services.
 Capital-Intensive Industry- Capital intensive refers to a business, industry, or production
process that requires a large amount of investment in fixed assets, such as property, plant,
and equipment, relative to the labour employed. Capital-intensive production processes will
have a relatively low ratio of labour inputs and will have higher labour productivity (output per
worker).
 Difference

Criteria Labour-Intensive Production Capital-Intensive Production

Primary Input Relies heavily on human labour as Emphasizes the use of machinery,
the primary input. technology, and capital.
Workforce Large workforce is required. Relatively smaller workforce is needed.
Cost Structure Lower initial capital investment, but Higher initial capital investment, but
higher labour costs. lower labour costs.
Productivity Productivity may be influenced by Productivity is often more consistent and
the skill and effort of the labour predictable due to automation.
force.
Flexibility More adaptable to changes in Less adaptable to rapid changes;
production needs. reconfiguring machinery can be time-
consuming.
Skill Relies on a skilled labour force. Requires skilled technicians to operate
Requirements and maintain machinery.
Examples Cottage industries, handicrafts, some Automotive manufacturing,
agricultural practices. semiconductor production, automated
assembly lines.

Q.8 : Explain Digital Economy and their components.

 The digital economy refers to an economic system that is primarily based on digital
technologies, including electronic devices, networks, and the internet.
 In a digital economy, businesses, governments, and individuals use digital technologies to
create, distribute, and consume goods and services.
 This includes online commerce, digital communication, data-driven decision-making, and
various other activities enabled by technology.
 The digital economy has profound implications for industries, employment, and global
economic systems.
 It has created new opportunities for innovation and growth but also poses challenges related to
privacy, cyber security, and the digital divide.
 Governments, businesses, and individuals are adapting to this digital transformation, and it
continues to shape the way we live, work, and conduct business.

Components of Digital Economy

 E-Business

E-Business
E-Commerce
Infrastructure

Componets of
Digital Economy

1. E-Business Infrastructure: This refers to the electronic systems that businesses use to conduct
their operations. This includes the hardware, software, networks, and data storage systems.
2. E-Business: It is the conduct of business activities through the use of electronic systems. This
includes the processes of buying and selling and the marketing, production, and delivery of
goods and services digitally.
3. E-Commerce: This is the buying and selling of goods and services through electronic systems.
This includes exchanging money, goods, and services between businesses and consumers.

Q.9 : Explain advantages and disadvantages of Digital Economy.

Advantages of Digital Economy:
i. Efficiency and Productivity: Digital technologies enable automation, streamlining
processes, and increasing overall efficiency and productivity.
ii. Global Reach: Digital platforms facilitate global connectivity, allowing businesses to reach
a wider audience and participate in international trade more easily.
iii. Cost Savings: Online business models often have lower operational costs, as they may not
require physical storefronts or extensive traditional infrastructure.
iv. Convenience for Consumers: Digital technologies provide consumers with convenient
access to a wide range of products and services from the comfort of their homes.
v. Job Creation: The digital economy creates job opportunities in areas such as software
development, digital marketing, data analysis, and other technology-related fields.

Disadvantages of the Digital Economy:

i. Digital Divide: Not everyone has equal access to digital technologies, leading to a digital
divide that can exacerbate existing socioeconomic inequalities.
ii. Cybersecurity Risks: Increased reliance on digital systems exposes individuals and
organizations to cybersecurity threats, including data breaches, hacking, and identity theft.
iii. Dependency on Technology: Overreliance on digital technologies can create
vulnerabilities, as disruptions in technology infrastructure can have widespread
consequences.
iv. Digital Addiction and Health Issues: Excessive use of digital devices can contribute to
issues such as digital addiction, mental health concerns, and physical health problems
related to sedentary behaviour.
v. Loss of Traditional Business Models: The shift to the digital economy can lead to the
decline or obsolescence of traditional businesses that are unable to adapt to the digital
landscape.

Q.10 : Explain the concept of Digital Divide and Digital Age.

Digital Divide
 The digital age refers to the current era characterized by the widespread use and integration of
digital technologies in various aspects of human life, society, and the economy.
 It is also commonly referred to as the "Information Age" or the "Computer Age."
 The digital age represents a significant shift from earlier industrial and mechanical eras, as it
is defined by the rapid development and adoption of digital technology, particularly in the
form of computers, the internet, and other electronic devices.
 The digital age has transformed how individuals communicate, work, learn, and conduct
business.
 It has led to significant advancements in various fields, but it also presents challenges related
to privacy, security, and the impact on traditional industries.
 Embracing and navigating the complexities of the digital age are essential for individuals,
businesses, and societies to thrive in this rapidly evolving technological landscape.
 It continues to shape the way people interact, work, and live, with ongoing advancements in
technology influencing the trajectory of this era.
 Key Features of Digital Age are as follows :
i. Digital Technologies: The digital age is marked by the pervasive use of digital
technologies, including computers, smartphones, tablets, and other electronic devices that
process and transmit information in digital form.
ii. Automation and Artificial Intelligence (AI): Automation and AI technologies have become
integral parts of the digital age, impacting industries, services, and even daily life. These
technologies automate tasks, enhance productivity, and enable the development of
intelligent systems.
iii. Globalization of Information: Information is shared and disseminated globally in real-time.
News, ideas, and cultural influences can spread rapidly through digital channels,
contributing to a more interconnected world.
iv. Cyber security Challenges: With increased reliance on digital technologies, cyber security
has become a critical concern. The digital age brings challenges related to protecting
sensitive information, preventing cyber attacks, and ensuring the security of digital
systems.

Digital Age
 The digital divide refers to the gap or disparity between those who have access to modern
information and communication technologies (ICTs) and those who do not.
 This divide can manifest in various forms, including differences in access to the internet,
digital devices, skills to use digital tools, and the ability to benefit from information and
communication technologies.
 The digital divide can exist at local, regional, national, and global levels and is often
influenced by factors such as socioeconomic status, geography, education, and infrastructure.
 Addressing the digital divide is crucial for promoting inclusivity, equal opportunities, and
socioeconomic development.
 Efforts to bridge the divide often involve policy interventions, infrastructure development,
digital literacy programs, and initiatives to make technology more accessible to marginalized
or under served populations.
 Closing the digital divide contributes to creating a more equitable and connected global
society.
 There are types of digital divides:
i. The access divide: This is the most visible digital divide. It refers to the socioeconomic
differences among people and the impact on their ability to afford the devices necessary to get
online. In developing countries, many people have limited access to technology or the internet
and do not have the skills necessary to use it effectively.
ii. The use divide: This refers to the difference in the level of skills possessed by individuals.
There is a generation gap when it comes to the skills necessary to use the internet. It is also
affected by the quality of education that an individual receives. Younger, educated people
tend to have more skills than older, less educated ones.
iii. The quality-of-use gap: This measure is a little more complicated. It refers to the different
ways that people use the internet and the fact that some people are far more able to get the
information they need from it than others.
Q.11 : Explain Business Cycle and its various phases.
 The business cycle is the rise and fall of economic activities that occur over time in an
economy.
 It is also referred to as an ‘economic cycle’ or
‘trade cycle’.
 It is an alternate expansion and contraction in
overall business activity, as evident by
fluctuations in the gross domestic product
(GDP).
 Generally, the business cycle is characterized
by four phases which are Expansion (Boom),
Contraction (recession), Depression and
Recovery.
 The duration of business cycles may be
anywhere from about two to twelve years, with
most cycles averaging six years in length.
 It represents the fluctuations in economic activity around its long-term trend.

Phases of Business Cycle

The business cycle typically consists of four phases:

1. Expansion: During this phase, the economy experiences increased economic activity,
rising employment levels, higher consumer spending, and growing production of goods
and services. This is often accompanied by higher investment and business optimism.
2. Peak: The peak represents the highest point of economic activity in a business cycle. It
marks the transition from expansion to contraction. At this stage, various economic
indicators may start showing signs of slowing down or levelling off.
3. Contraction (Recession): In this phase, economic activity starts to decline. There is a
decrease in consumer spending, business investment, and production. Unemployment may
rise, and overall economic growth contracts. Recessions can vary in severity and duration.
4. Trough: The trough is the lowest point of economic activity in the business cycle. It marks
the end of the contraction phase and the beginning of a new expansion phase. At this stage,
the economy starts to recover, and economic indicators gradually improve.
5. Recovery: Once the economy touches the lowest level, it happens to be the end of
negativism and beginning of positivism. This leads to reversal of the process of business
cycle. As a result, individuals and organizations start developing a positive attitude toward
the various economic factors, such as investment, employment, and production. This
process of reversal starts from the labour market.
6. Depression: There is a commensurate rise in unemployment. The growth in economy
continuous to decline and it falls below the steady growth line.
7. Prosperity: Growth level is maximum. All economic indicators like income, demand,
investments and profits are high.
8. Steady Line of Growth: A steady growth line in a business cycle indicates that the
economy is improving steadily over several cycles.