Explanation

• Marginal utility theory explains satisfaction from consuming goods.
• As a person consumes less of a good, each unit becomes more valuable.
• This follows the law of diminishing marginal utility (reverse case).
• Scarcity of a liked good increases its importance.
• Therefore, marginal utility rises when consumption decreases.

Last verified on 22-04-2026

Explanation

• The Lerner index measures monopoly power.
• It shows how much price exceeds marginal cost.
• When demand is more elastic, consumers are more sensitive to price.
• Firms cannot charge high markups in this case.
• So, the Lerner index becomes lower.

Last verified on 22-04-2026

Explanation

• A recessionary gap occurs when actual output is below potential output.
• There is excess supply of labour → unemployment is high.
• In the long run, wages adjust downward.
• Lower wages reduce costs and shift supply.
• This leads to falling prices and falling unemployment.

Last verified on 22-04-2026

Explanation

Firm hires until: Price × MP of labor = Wage  

10 × (1/L) = 1  

10/L = 1  

L = 10  

So the firm will hire 10 units of labour.

Last verified on 22-04-2026

Explanation

• GDP ↑ → Income ↑
• Imports (M) ↑ due to higher consumption
• Exports (X): not dependent on domestic GDP directly
• Government spending (G): policy decision
• Model: C + I + G + (X − M)

Last verified on 22-04-2026

Explanation

• The actual budget deficit is the total government deficit in a given year.
• It has two main parts: structural and cyclical deficits.
• Structural deficit exists even at full employment.
• Cyclical deficit changes with the business cycle.
• Therefore, actual deficit = structural + cyclical deficit.

Last verified on 22-04-2026

Explanation

• In a perfectly competitive resource (labour) market, firms are price takers.
• The Marginal Revenue Product (MRP) depends on MPL × price of output.
• As more labour is employed, marginal productivity typically falls.
• This makes MRP decline as employment increases.
• Therefore, the MRP curve is downward sloping.

Last verified on 22-04-2026

Explanation

• Governments and central banks control money markets using different tools.
• These include reserve requirements, monetary base control, and interest rate policies.
• Since financial reforms in the 1980s, Pakistan shifted toward market-based policies.
• Direct interest rate control (fixed/administered rates) was largely discontinued.

Last verified on 22-04-2026

Explanation

• Money performs important roles in an economy.
• It is used to buy and sell goods and services.
• It helps in measuring value of goods.
• It also helps in saving wealth over time.
• But barter is not a function of money; it is an old exchange system without money.

Last verified on 22-04-2026

Explanation

• Tax burden depends on elasticity of demand and supply.
• More inelastic side bears more tax burden.
• If demand is perfectly elastic, buyers avoid the tax burden.
• If supply is perfectly inelastic, sellers cannot reduce quantity easily.
• In that case, sellers bear the entire tax burden.

Last verified on 22-04-2026