CUET-PG Economics Sample

ECONOMICS HARBOUR

CUET-PG ECONOMICS
STUDY MATERIAL
(FIRST EDITION)
Micro-Economics
Page | 1

DEMAND
 Demand refers to the quantity of a good or service that buyers are willing and able to
purchase at various prices during a given period of time.

Desire
Effective Means to
demand purchase
Willingness
to pay
 Unless desire is backed by purchasing power or ability and willingness to pay, it will
not be considered as demand.
IMPORTANT
- Quantity demanded is always at a given price.
Different prices would imply different quantities
demanded.
- Quantity demanded is a ‘flow’ concept.
Determinants of Demand:
1. Price of the commodity: Other things being equal, the demand for a commodity is inversely
related to its price. A rise in price of a commodity would lead to a fall in the quantity demanded
and vice-versa.
2. Price of related goods:
Related goods
Complementary
goods Substitute goods
(Goods that are (Used in place of
bought or/and one another)
consumed together.)
CUET-PG Economics Study Material (First Edition) by Economics Harbour

Micro-Economics
Page | 2
a. Complementary goods: Main feature of complementary goods is that an increase in demand
for one would lead to an increase in demand for the other.
Therefore, other things being equal, a fall in the price of one will cause an increase in the
demand for the other.
There is an inverse relationship between demand for a good and price of its complement.
b. Substitute goods: Say good X and Y are substitute goods
Price of good X increases
Buyers may switch to a cheaper substitute
Decrease in demand for X but increase in demand for Y.
There is a direct and positive relationship between the demand for a product and price of its
substitutes.
3. Income of the Consumer: The purchasing power of a buyer by the level of his disposable
income.
Increase in disposable income tends to increase the demand for the goods at any given price
and vice-versa.
Goods
Normal Inferior
goods goods
Necessities Luxuries
a. Normal goods: As consumer’s income increases, quantity demanded of it increases.

b. Inferior goods: As consumer’s income increases, quantity demanded of it decreases.
4. Tastes and Preferences of buyers:
Goods that are modern or more in fashion have higher demand than those that are out of
fashion.

Micro-Economics
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Bandwagon Effect
Demonstration Effect
Extent to which demand for a
Term coined by James
commodity is icnreased due to the
Duessenberry.
fact that others are also consuming
Refers to the desire of people to the same commodity.
emulate the consumption
In other words, it represents the
behaviour of others.
desire of people to stay in fashion.
Snob Effect
Extent to which the demand for a Veblen Effect
consumers' good is decreased due Named after Thorstein Veblen.
to others consuming the same High priced goods are consumed
commodity. by rich to satisfy their needs for
Represents the desire of the people conspicuous consumption.
to stay exclusive.
Difference between Snob Effect and Veblen Effect

Snob effect is the function of consumption of other
individuals.
Veblen effect is the function of price
5. Consumers’ Expectations:
If the consumers expect an increase in future prices, increase in income and shortages in supply,
more quantities will be demanded.
If consumers expect a fall in price or fall in income, they will postpone their purchases of non-
essential commodities and therefore, the current demand for them will fall.
Levels of consumer and business confidence about their future economic situations also affect
demand.
The Demand Function
 The demand function states the relationship between the demand for a product and its
determinants.
 A simple demand function is expressed as
Qx = f (Px, Y, Pr)
Where: Qx = quantity demanded of product X, Px = Price of good X, Y = Income of the
consumer, Pr = Price of related goods

Micro-Economics
Page | 4
Law of Demand
Prof. Alfred Marshall defined Law of Demand as:
“The greater the amount to be sold, the smaller must be the price at which it is offered in
order that it may find purchasers or in other words the amount demanded increases with a
fall in price and diminishes with a rise in price.”
There is an inverse relationship between price and quantity demanded, ceteris Paribas.
Illustration of the Law of Demand
Law of demand can be illustrated using
1) Demand Schedule: Tabular presentation of quantity demanded and price.
For example:
Price Quantity Demanded
10 2
8 4
6 6
4 8
2 10
2) Demand Curve: Graphical presentation of demand schedule.
 The negative or downward slope indicates that the quantity demanded increases as the
price falls.
 The downward sloping demand curve is in accordance with the law of demand which
describes an inverse price-demand relationship.
 Slope of a demand curve: (-)change in price/change in quantity
Market Demand Schedule
Total quantity that all the buyers of a commodity are willing to buy per unit of time at a given
price, other things remaining constant.

Micro-Economics
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1) Market Demand Schedule:
Quantity Demanded
Price A B Total Market
Demand
0 3 2 5
10 2 1 3
20 1 0 1
30 0 0 0
2) Market Demand Curve:

 The market demand curve for good X represents the quantities of good X demanded by
all buyers in the market for good X.
 Horizontal summation of all individual demand curves.
Reasons for the Law of Demand

1) Price Effect of a fall in Price:
Price effect indicates the way the consumer’s purchases of good X changes, when its price
changes.
Price Effect = Substitution Effect + Income Effect
a) Substitution Effect: Describes the change in demand for a
product when its relative price changes.
Say there are two goods, X and Y

Micro-Economics
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Price of good X decreases
Price ratio between the goods changes (Px/Py) and X becomes

cheaper than Y.
Consumers now substitute X for Y, which is now more

expensive
The total demand for X increases.
Substitution effect will be stronger when:

 Goods are close substitutes.
 Lower cost of switching to the substitute good.
 Lower inconvenience while switching to the substitute good.
b) Income Effect: Increase in demand due to increase in real income.
What is Real Income?

Real income is an economic measure that provides an
estimation of an individual’s actual purchasing power.
Real Income = Nominal Income Price of the commodity
(Please note: Marshall only talks about Substitution Effect)
Price of good X decreases
Consumer can now buy the same quantity of X with lesser

money or can buy more of X with the same amount of
money.
Consumer's real income increases.
This increase in real income can be used to buy more of the

commodity, if good X is normal.
Demand increases

Micro-Economics
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Exception: In the case of inferior goods, the income effect works in the opposite
direction to the substitution effect. Under such goods, the expansion in demand will
take place only if substitution effect is greater than income effect.
2) Utility maximising behaviour of the consumer:

 According to Marshall, the consumer has diminishing utility for each additional unit of
a commodity, and therefore, he will be willing to pay only less for each additional unit.
 He is induced to buy additional units only when the prices are lower.
 The operation of diminishing marginal utility and the act of the consumer to equalise
the utility of the commodity with its price leads to downward sloping demand curve.
3) New Consumers:
Price of good decreases
More consumers are induced to buy it.
Increases the number of consumers of a commodity at a lower

price.
Increases the demand
4) Different uses:
It will be
Price of
put to more Increase the
good X
number of demand
decreases
uses.

Micro-Economics
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5) Size of the market
More people will be

attracted as more
Decrease in price Demand increases
people can afford
the good.
Exceptions to the Law of Demand

1. Conspicuous Goods (The case of Veblen Effect):
 Articles of prestige value or conspicuous consumption are used by the rich people as a
status symbol for displaying wealth.
 Veblen effect takes place as some consumers measure the utility of the commodity by
its price, that is, more expensive the good, more will be its utility.
Higher the Higher the
Higher the price
prestige value demand
2. Giffen goods:
 Noticed by Sir Robert Giffen.
 He found that as the price of bread increased, the British workers purchased more of it.

Micro-Economics
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Price of bread increased
Led to a large decline in the purchasing power

of the poor.
They were forced to cut down the consumption

of meat and other expensive goods.
Despite an increase in price, bread was stull the

cheapest food article. So people consumed
more of it.
 Giffen goods exhibit a direct price-demand relationship.
 All giffen goods are inferior goods, but all inferior goods are not Giffen goods.
Inferior
Goods
Giffen goods
3. Conspicuous Necessities: Demand for certain goods like television, Phones, etc. is affected
by the demonstration effect.
4. Future Expectations about Prices:
 When prices are rising, households will expect that the prices in the future will be even
higher. As a result, they tend to buy larger quantities of such commodities.
 On the other hand, if prices are falling, people will anticipate a further fall, and hence
they will postpone their purchases.

Micro-Economics
Page | 10
5. Incomplete Information:
 When consumers have incomplete information, they make inconsistent decisions
regarding purchases.
 In other words, a household may demand larger quantity of a commodity even at a
higher price because it may be ignorant about the existing price of the commodity.
6. Necessary Goods:
 Law of demand does not apply on the necessity goods, such as medicines.
 Irrespective of the price, people have to consume the minimum quantities of necessary
commodities.
7. Speculative goods:
 In a speculative market, more will be demanded when prices are rising and vice-versa.
NETWORK EXTERNALITIES
1. Bandwagon Effect
 Due to positive network externalities.
 It arises when individuals demand
commodities because others are
doing so, or in simple words, it is in
fashion.
 It is a psychological phenomenon
where the demand of a commodity
increases because of a high
proportion of people purchasing it.
 More the number of people the
consumers find have bought the good,
the greater will be the demand for the
good, and further to the right demand
curve for the good lies.
Snob Effect
 Arises due to negative network
externality.
 Desire to purchase a commodity having a
prestige value so as to look different or
exclusive than others.
 The abnormal demand for Veblen goods
is influenced by snob effect.
 The quantity demanded of a commodity
having a snob value is greater when the number
of people owning it is smaller.

Page | 1 Macro-Economics
NATIONAL INCOME: CONCEPTS AND MEASUREMENTS

National Income Accounting refers to the government bookkeeping system that measures the
health of an economy, projected growth, economic activity and development during a certain
period of time.
Helps in assessing the performance and flow of money in an economy.
‘Double entry system’ is used to prepare the National Income Accounts.
National income is the sum total of factor incomes earned by normal residents of a country
during the period of one year.
n
NY   FYi
i
Where:
Rent, interest, profit and wages
NY = National Income are the factor incomes. So
national income is the sum total
∑ = Sum or total of rent, interest, profit and wages
FY = Factor Income earned by normal residents of a
country during an accounting
N = all normal residents of a country year.
i ranges from 1 to n
“National Income is the sum total of factor incomes earned by the normal residents of a country
in the form of wages, rent, interest and profit in an accounting year.” - Central Statistical
Organisation.
Production Generates Income
National income is also defined as the sum total of the market value of final goods and services,
produced by normal residents of a country in one year.
All Income is Ultimately Spent
National income is also estimated and defined in terms of the sum total of expenditure on the
final goods and services produced by the residents of a country during the period of one year.
National Income (NY) = Consumption Expenditure (C) + Investment Expenditure (I)
Concepts of National Income
1. Gross: No allowance for capital consumption has been made or depreciation has yet to be
deducted.
2. Net: Provision for capital consumption has already been made or that depreciation has
already been deducted.
3. National: Denotes that aggregate under consideration represents the total income which
accrues to the residents of a country due to their participation in the world production during
the current year.
4. Domestic: Value of output or income originating within the specified geographical boundary
of a country.

Three Expressions of National Income

1. NY   PG
Where PG = Market value of the final goods and services produced

2. NY   FYi
3. NY  C  I
Points to note:
 Production of goods and services is done by using factor services. This implies national
income in the form of national product or goods and services produced during the year.
 Value of national product is distributed among those who produce it. Thus, national
product is distributed among the factors of production in the form of rent, interest, profit
and wages.
 Income is spent on the purchase of goods and services. Thus, income is converted into
expenditure, and we get national income in the form of national expenditure.
 Expenditure on goods and services goes back to the producers in the form of receipts
from their sales.
Aggregates related to National Income
1) Gross Domestic Product at Market Price (GDPMP):
GDP is the market value of the final goods Short cut
and services produced during a year Market Price (MP) to Factor Cost (FC) = Subtract
within the domestic territory of a country. Net Indirect Taxes, that is, taxes – subsidies
Gross: Implies that the term is inclusive Middle D to Middle N (e.g. GDP to GNP): Add Net
of depreciation, that is, consumption of factor income from abroad, that is, factor income from
fixed capital. abroad – factor income to abroad
First G to First N (e.g. GDP to NDP): Subtract
Domestic: Goods and services produced depreciation
within the domestic territory of the
country.
Value of final goods and services: Implies that the cost of intermediary goods is excluded.
2) Gross National Product at Market Price (GNPMP):
GNPMP is the market value of the final goods and services produced within the domestic
territory of a country by the normal residents during an accounting year along with a) net factor
income earned from abroad, and b) consumption of fixed capital.
GNPMP = GDPMP + Net factor income from abroad
Net factor income from abroad is the difference between factor income earned by our
residents from rest of the world and factor income earned by non-residents within our country.
Net factor income from abroad includes:
 Net compensation of employees: difference between compensation received by
resident workers, temporarily employed abroad and a similar payment made to non-
resident workers who are employed temporarily within the domestic territory of a
country.

 Net income from property and entrepreneurship: difference between the income in
the form of rent, interest and profit received by the residents of a country and similar
payments made to the rest of the world.
 Net retained earnings of resident companies abroad: difference between the retained
earnings of resident companies located abroad and retained earnings of foreign
companies located within the domestic territory of a country.
3) Net National Product at Market Price (NNPMP):

NNPMP measures the value of final goods and services produced by the normal residents in the
domestic territory and abroad in an accounting year after worn out capital goods have been
replaced.
Difference between Final goods and Intermediate goods
Final goods Intermediate goods
These are those goods which have crossed These are those goods which are within the
the boundary line of production boundary line of production
No value is to be added to final goods Value is yet to be added to intermediate
goods
Final goods are ready for use by their final Intermediate goods are not ready for use by
users (which include consumers and their final users.
producers).
Final goods are included in the estimation of Intermediate goods are not included in the
national product or national income. estimation of national product or national
income.
Depreciation, also called consumption of fixed capital refers to the loss of value of fixed
assets (in use) on account of:
 Normal wear and tear
 Expected obsolescence
 Accidental damages
4) Net Domestic Product at Market Prices (NDPMP)
NDPMP is the market value of final goods and services produced within the domestic territory
of a country during a year, exclusive of depreciation.
5) Net Domestic Income or Net Domestic Product at Factor Cost (NDPFC)
NDPFC is the sum total of factor incomes (rent + profit + wages + interest) generated within
the domestic territory of a country during a year.
6) Gross Domestic Product at Factor Cost (GDPFC)
GDPFC is the sum total of factor incomes (rent + profit + wages + interest) generated within
the domestic territory of a country, along with consumption of fixed capital, during a year.
7) Net National Product at Factor Cost (NNPFC)
NNPFC is the sum total of factor incomes (rent + interest + profit + wages) generated within
the domestic territory of a country, along with net factor income from abroad during a year.
OR

NNPFC is the sum total of factor incomes earned by normal residents of a country during a
year.
Difference between NDPFC (Domestic Income) and NNPFC (National Income)
NDPFC (Domestic Income) NNPFC (National Income)
It is the sum total of factor incomes generated It is the sum total of factor incomes generated
within the domestic territory of a country, no by residents of a country, no matter where
matter who generates this income – residents this income is generated – within the
or non-residents. domestic territory or in rest of the world.
It does not include net factor income from It includes net factor income from abroad.
abroad.
8) Gross National Product at Factor Cost (GNPFC)

GNPFC is the sum total of factor incomes earned by normal residents of a country, along with
consumption of fixed capital, during a year.
9) National Disposable Income
National Disposable Income is the income from all sources (earned income as well as transfer
payments from abroad) available to residents of a country for consumption expenditure or for
saving during a year.
Net National Disposable Income = Gross National Disposable Income – Current
Replacement Cost (which is depreciation at the level of economy as a whole).
10) Factor Income from Net Domestic Product Accruing to Private Sector
Private Sector includes all enterprises owned and controlled by the private individuals.
Public Sector includes basically the government departmental enterprises of the government
(like Railways and Post and Telegraph) and non-departmental enterprises of the government
(like Air India and Indian Airlines).
Factor income from net domestic product accruing to private sector excludes:
 Property and entrepreneurial income of the departmental
 Saving of the non-departmental enterprises of the government.
11) Private Income
“Private income is the total of factor income from all sources and current transfers from the
government and rest of the world accruing to private sector.” –Central Statistical Organisation
Difference between National Income and Private Income
National Income Private Income
Includes income both in the public and Includes income of the private sector only.
private sectors of the economy.
Includes only factor incomes. It does not Includes both the factor incomes as well as
include any kind of transfers. current transfers from the government and
the rest of the world.
Interest on national debt is not included. Interest on national debt is included.

Difference between Private Income and Factor Income from Net Domestic Product
accruing to Private Sector
Private Income Factor Income
It is a national concept. It includes net factor Factor income is a domestic concept. It
income from abroad. includes only domestic income and excludes
net factor income from abroad.
Includes factor payments as well as transfer Includes only factor payments.
payments.
Interest on national debt is included. Interest on national debt is not included.
12) Personal Income

Personal Income is the income actually received by the individuals and households from all
sources in the form of factor income and current transfers.
Difference between Private Income and Personal Income
The concept of private income is broader than the concept of personal income. The principal
difference between private income and personal income is that while private income includes
corporate taxes and corporate saving, personal income does not.
Difference between Personal Income and National Income
Personal Income National Income
Related to receipts of income Related to the generation of income
Includes both factor income and transfer Includes only factor incomes.
payments.
Corporate saving and corporate tax is not Corporate saving and corporate tax is
included. included.
Interest on national debt is included. Interest on national debt is not included.
13) Personal Disposable Income

Personal Disposable Income is the income remaining with individuals and households after
deduction of all taxes levied against their income and their property by the government.
National Income and Related Aggregates
1. GDPMP = Market value of final goods and services produced within the domestic territory
of a country in an accounting year.
2. GNPMP = GDPMP + Net Factor Income from Abroad
3. NNPMP = GNPMP – Consumption of fixed capital or depreciation
4. NDPMP = NNPMP – Net Factor Income from Abroad
5. NDPFC = NDPMP – Indirect Taxes + Subsidies
6. GDPFC = NDPFC + Depreciation
7. GNPFC = GDPFC + Net Factor Income from Abroad
8. NNPFC = GNPFC – Depreciation
9. Net National Disposable Income = Net Domestic Income + Net Indirect Taxes + Net
Factor Income from Abroad + Net Current Transfers from Rest of the World

10.Gross National Disposable Income = Net National Disposable Income + Current

Replacement Cost
11. Factor income from Net Domestic Product accruing to private sector = NDPFC –
Property and entrepreneurial income of the departmental enterprises of the government –
saving od non-departmental enterprises.
12. Private Income = Income from Domestic Product accruing to private sector + net factor
income from abroad + Current transfers from government + Current transfers from the rest
of the world (Net) + interest on national debt
12. Personal income = Private income – corporate profit tax – undistributed profits or
corporate saving
13. Personal Disposable Income = Personal Income – Direct Personal Taxes –
Miscellaneous fees and fines paid by the households.
Calculating National Income

Methods given by Simon Kuznets:
1. Product Method:
GDPMP = Value added by primary sector + value added by secondary sector + value added by
tertiary sector
Value added = Sales – Intermediate Cost + Change in Stock
Change in stock = Closing stock – opening stock
National Income (NNPFC) = GDPMP – Depreciation + Net Factor Income from Abroad – Net
Indirect Taxes
2. Income Method:
National Income = Compensation of employees + Operating surplus + mixed income of self-
employed + Net Factor Income from Abroad
Operating surplus = Rent + Royalty + Interest + Profit
Profit = Corporate tax + Dividends + Undistributed Profits
Compensation of employees = Wages & salaries + Contribution of employers in social
security schemes

3. Expenditure method:
National Income = Private final consumption expenditure (C) + Government Final
Consumption Expenditure (G) + Investment (I) + Net Exports – Depreciation – Net Indirect
Taxes + Net Factor Income from Abroad
Lay down the path for the following journey

GDPMP to NNPFC (First try it yourself)
GDPMP – Depreciation = NDPMP
– Net Indirect Taxes =
NDPFC
– Net factor income from abroad
= NNPFC
Now why don’t you try on your own? Lay
down the path for NNPFC to GDPMP

DETERMINATION OF OUTPUT AND EMPLOYMENT

CLASSICAL THEORY OF OUTPUT AND EMPLOYMENT
The terms ‘Classicals’ was coined by Karl Marx. According to them, the economy will
always be in a state of full employment, and any deviations from the equilibrium would be
restored automatically through market mechanism.
Main assumptions of the classical theory:
1. Full Employment: All resources (Labour, Capital) are fully employed. There is no
government interference, that is, laissez-faire.
Furthermore, any deviation from full employment,
Market forces act accordingly, and bring the Remember!
economy back to its original situation. Classicals stated that there can
be frictional and voluntary
unemployment in the state of
full employment situation.
2. Economy is always, in the state of equilibrium
Value of Goods and Services = Income
Income earners spend their entire income
No overproduction and under production
In Long Run, AD= AS and economy comes to the

state of stable equilibrium
3. Laissez - faire system (Necessary Condition)
 Absence of Government Control

 Absence of Monopolies and restrictive trade practices
 Freedom of Choice – Consumers and Producers
 Market forces of demand and supply operate
4. Money does not matter / Money is neutral
According to Classicals, money acts as a medium of exchange.
Level of output and employment = f (real resources in the economy, i.e., Labour, Capital)
Other Assumption taken by Classicals:
1) Perfect Competition (No monopolies)
2) Closed economy (no trade)

3) Workers don’t suffer from

Classical Dichotomy
money illusion, that is, workers
easily determine price levels in the The view in classical economics and neoclassical
economy and hence demand real economics that real variables in the economy are
wages. determined purely by real factors and not by monetary
4) Existence of two sectors - Real factors, and nominal variables are determined purely by
and Monetary (Classical monetary factors and not by real ones. This view is rejected
Dichotomy) by Keynesian and monetarist economics, mainly through
the argument of sticky prices: if prices fail to adjust in the
5) Prices, wages are flexible in both
short run, an increase in the money supply raises aggregate
upward and downward duration.
demand and thus alters real macroeconomic variables.
6) Rate of interest = f ( Savings(+),
Investment(-))
7) Quantity Theory is used to determine price.
8) Demand and Supply of labour = f (w/P) where w = nominal wages; P = Price Level and w/P
means real wages). This implies there is no money illusion.
Say’s law was the basis of Classical Theory saying that supply creates its own demand.
Assumed a barter economy initially. J.B. Say stated that it was the abundance
of products in general which facilitated sales and not the abundance of money.
Money simply forms a medium of exchange and is neutral in nature.
Goods produced by people
Some of it used for own consumption
other part / surplus is used to purchase other goods
No overproduction
In the exchange economy
Production of Goods and services
Employment of factors of production
Generates Income in the form of factor prices
Spending the Income means generating demand for Goods and

services

Quick test!
1. The terms classicals was given by
2. According to Classicals which types of unemployment can
exists in the economy?
3. As per Classicals, Money only acts as
4. There is an existence of which two sectors?
5. Supply of labour is a function of real/nominal wages. (Tick
one)
Consequently, Aggregate Demand becomes equal to aggregate supply, or savings become

equal to investment, thus, leaving behind no surplus or deficit in production and the market
clears.
According to Classicals, any kind of over production or under production is:
 Transitory in nature.
 Caused due to factors external to the economy.
 Short term in nature.
In case of under-production:
Decreases demand
Excess demand Increase in prices
and increases supply
In case of over-production:
Increases demand
Excess Supply Decrease in prices
and decreases supply
1. Employment-Output Determination: Labour market

Y = f(K, L)
 In the classical model, equilibrium level of output is determined by the employment of
labour.
 Demand for labour: Labour will be demanded upto the point where the revenue earned
from selling the total product produced by the marginal unit of labour is equal to the
marginal cost of labour.
P = MC = W/MPL
W/P = MPL
Where: W = Money wage, P = Price level, W/P = Real wage.
 MP curve for labour indicates the firm’s demand for labour, that is, more labour is
demanded at a lower wage.
DL = f(W/P) (Negative relationship)
SL = f(W/P) (Positive relationship)
Equilibrium: DL = SL

MEASURES OF CENTRAL TENDENCY
An average is a single value that is used to represent all of the values in the series.
Measures of
Central Tendency
Mathematical Positional Special

Averages Averages Averages
1. Moving
Arithmetic Geometric Harmonic Average
Mean Mean Median Mode
Mean 2. Progressive
average
1. Arithmetic Mean
 Arithmetic mean is obtained by dividing the sum of the values of all items of a series by the number
of items of that series.
 Denoted as 𝑋̅.
 Can be computed for ungrouped data (individual series) as well as classified or grouped data
(discrete or continuous series).
Individual Series
Formula:
Direct Method –
∑𝑿
̅=
𝑿
𝑵
Where: 𝑋̅ = Arithmetic Mean, ∑ 𝑋 = Sum of all values of variable X, N = Number of individual
observations.
Example:
Calculate the Arithmetic Mean for
5, 15, 25, 35, 45, 55
∑ 𝑋=180, N = 6
Page | 2 Statistics
𝑋̅= 180/6 = 30
Short-cut Method or Assumed Mean Method –
∑𝒅
̅ =𝑨+
𝑿
𝑵
Where: 𝑋̅ = Arithmetic Mean, A = Assumed Mean (any value), ∑ 𝑑 = Sum of deviations from assumed
mean = ∑(𝑋 − 𝐴), N = Number of observations
Example: Calculate Arithmetic Mean for
5, 15, 25, 35, 45, 55
Taking ‘Assumed Mean’ to be 40.
X d = X – 40
5 -35
15 -25
25 -15
35 -5
45 5
55 15
∑ 𝒅= - 60
𝑋̅ = 40 + (-60)/6 = 30
Discrete Series
∑ 𝒇𝑿
̅=
𝑿
𝑵
Where: 𝑋̅ = Arithmetic Mean, ∑ 𝑓𝑋 = Sum of products of frequency and value of variable, N = ∑ 𝑓 = Sum
of frequencies
Example:
X f fX
5 10 50
15 20 300
25 30 750
35 50 1750
45 40 1800
55 30 1650
N=180 ∑ 𝒇𝑿=6300
∑ 𝑓𝑋 6300
𝑋̅ = = = 35
𝑁 180
Page | 3 Statistics
Continuous Series
∑ 𝒇𝒎
̅=
𝑿
𝑵
Where: 𝑋̅= Arithmetic mean, ∑ 𝑓𝑚 = Sum of products of mid-points and frequency, N = ∑ 𝑓= Sum of
frequencies
Mid-point (m) = (Lower limit + Upper limit)/2
Example
X m f fm
0-10 5 10 50
10-20 15 20 300
20-30 25 30 750
30-40 35 50 1750
40-50 45 40 1800
50-60 55 30 1650
N=180 ∑ 𝒇𝒎=6300
∑ 𝑓𝑚 6300
𝑋̅ = = = 35
𝑁 180
Assumed Mean Method
∑ 𝒇𝒅
̅ =𝑨+
𝑿
𝑵
Where: 𝑋̅= Arithmetic Mean, A = Assumed Mean, ∑ 𝑓𝑑=Sum of products of deviations and frequencies,
N = ∑ 𝑓 = Sum of frequencies
Example:
X m f (m-40) = d fd
0-10 5 10 -35 -350
10-20 15 20 -25 -500
20-30 25 30 -15 -450
30-40 35 50 -5 -250
40-50 45 40 5 200
50-60 55 30 15 450
N=180 ∑ 𝒅=-60 ∑ 𝒇𝒅= -900
−900
𝑋̅ = 40 + = 35
180
Note: The method remains the same even for discrete series
Page | 4 Statistics
Step-Deviation Method
(Here we divide the deviation by the class interval)
∑ 𝒇𝒅′
̅ =𝑨+
𝑿 ∗𝒄
𝑵
Where: 𝑋̅=Arithmetic mean, A = Assumed mean, ∑ 𝑓𝑑′=Sum of products of deviations and frequencies,
N = ∑ 𝑓= Sum of frequencies, c = class interval
Example:
X m f (X-45)/10 = d’ fd’
0-10 5 10 -4 -40
10-20 15 20 -3 -60
20-30 25 30 -2 -60
30-40 35 50 -1 -50
40-50 45 40 0 0
50-60 55 30 1 30
∑ 𝒇𝒅′=-180
Here Assumed Mean = 45

∑ 𝑓𝑑′
𝑋̅ = 𝐴 + ∗𝑐
𝑁
−180
𝑋̅ = 45 + ∗ 10 = 35
180
Mathematical Properties of Arithmetic Mean

1. Sum of deviations of the items from arithmetic mean is always zero, that is, ∑(𝑋 − 𝑋̅) = 0.
2. Sum of the squared deviations of the items from arithmetic mean, that is, ∑(𝑋 − 𝑋̅)2 is minimum.
3. Arithmetic mean can be used to compute the combined average of two or more related series.
4. If each of the values of a variable X is increased or decreased by some constant c, the arithmetic
mean also increases or decreases by c.
5. When the values of a variable X are multiplied or divided by c, the arithmetic mean is also
multiplied or divided by c.
Page | 5 Statistics
COMBINED MEAN
𝑵𝟏 ̅̅̅̅
𝑿𝟏 + 𝑵𝟐 ̅̅̅̅
𝑿𝟐
̅̅̅̅̅
𝑿𝟏𝟐 =
𝑵𝟏 + 𝑵𝟐
Where: ̅̅̅̅̅
𝑋12 = Combined mean of two groups, N1 =
Number of observations in the first group, N2 = Number of
̅̅̅1=Arithmetic mean of
observations in the second group, 𝑋
̅̅̅
the first group, 𝑋2=Arithmetic mean of the second group
Merits of Arithmetic Mean

1. Easy to understand
2. Simple to calculate
3. Based on all items of the series.
4. Rigidly defined by mathematical formula.
5. Capable of further algebraic treatment.
6. Least affected by sampling fluctuations
Limitations of Arithmetic Mean
1. Affected by extreme values, that is, very small or large values.
2. Cannot be computed with accuracy in case of open-ended distribution.
3. Not useful in case of qualitative variables.
Weighted Arithmetic Mean
Weighted arithmetic mean refers to the arithmetic mean calculated after assigning weights to different
values of the variable.
The method is suitable where the relative importance of different items of variable is not the same.
Used mostly while constructing index numbers.
̅ ) and Weighted Arithmetic Mean (𝑿
Relationship between Simple Arithmetic Mean (𝑿 ̅̅̅̅
𝒘)
̅ = ̅̅̅̅
1. 𝑿 𝑿𝒘 , if equal weights are assigned to all the items of a series.
̅ > ̅̅̅̅
2. 𝑿 𝑿𝒘 , if smaller weight is assigned to the higher values and greater weight is assigned to the
lower values.
̅ < ̅̅̅̅
3. 𝑿 𝑿𝒘 , if greater weight is assigned to the higher values and smaller weight is assigned to the
lower values.
Formula:
∑ 𝑾𝑿
̅̅̅̅
𝑿𝒘 =
∑𝑾
Page | 6 Statistics
Where: W = Weights, X = values in the series.

Try this out!
Question: A person walks 9 hours at a speed of 3 km per hour and again walks 6
hours at a speed of 4 km per hour. What is the average speed in km per hour?
(Answer: 3.4 km per hour)
MEDIAN
 Central value of the variable that divides the series into
two equal parts.
 Also called ‘positional average’ because it is based on the
position of a given observation in a series arranged in an
ascending or descending order and the position of the
median is such that an equal number of items lie on either
side of it.
Computation of Median
I. Individual Series
Step 1: Arrange the items in ascending or descending order.
Step 2: (N+1)/2 th item = Median
If (N+1)/2 th comes out to be in fractions, then

Median = Size of the full item + 50% of the difference between immediate next item and size of full item.
Example:
Data given is
25, 55, 5, 45, 15, 35
Arranging it in ascending order, we get,
5, 15, 25, 35, 45, 55
𝑁+1 6+1
Median = = = 3.5
2 2
Page | 7 Statistics
Median = 3rd item + 50% of (4th item – 3rd item)

Median = 25 + 5 = 30
II. Discrete Series
Step 1: Arrange the item (X) in ascending or descending

order.
Step 2: Calculate cumulative frequencies.
Step 3: (N+1)/2 th item
Step 4: Median = size of the item corresponding to the

cumulative frequencies which includes (N+1)/2 th item.
Example:
X 45 55 25 35 5 15
Frequency 40 30 30 50 10 20
(F)
X Frequency Cumulative frequency

5 10 10
15 20 30
25 30 60
35 50 110
45 40 150
55 30 180
Median = (N+1)/2 = 181/2 = 90.5th item

Median = 35
III. Continuous Series
Page | 8 Statistics
Step 1: Calculate cumulative frequencies
Step 2: (N/2)th item
𝑁
−𝑐.𝑓
2
Step 3: Median = 𝐿 + ∗𝑖
𝑓
Here: L = Lower limit of the class, c.f. = Cumulative frequency of the preceding class, f = frequency of
the class, i = class interval.
Example:
X F c.f
0-10 10 10
10-20 20 30
20-30 30 60
30-40 50 110
40-50 40 150
50-60 30 180
Median = N/2 = 180/2 = 90

𝑁
−𝑐.𝑓
2
Median = 𝐿 + ∗𝑖
𝑓
180
−60
2
Median = 30 + 50
∗ 10 = 36
Mathematical Property of Median

Sum of absolute deviations (that is, deviations ignoring signs) from the median is minimum,
that is,
∑|𝑿 − 𝑴𝒅 | 𝒊𝒔 𝒎𝒊𝒏𝒊𝒎𝒖𝒎
Merits
1. Useful in case of open-ended series.
2. Easier to compute than mean in case of unequal class interval.
3. Not affected by extreme values.
4. Most suitable average for dealing with qualitative data.
5. Can be determined graphically.
Page | 9 Statistics
6. Minimises total absolute deviations.

Demerits
1. Not based on all items of the series.
2. Not capable of further algebraic treatment.
3. Affected more by sampling fluctuations than the value of mean.
Partition Values
Partition
Values
Quartiles Octiles Deciles Percentiles
I. Quartiles
Divides the series into 4 equal parts
Q1 Lower quartile
(Value of the variate below which there are 25% of the observations
and above which there are 75% of the observations.)
Q2 Median
(Divides the distribution into two equal parts, that is, 50%
observations are above it and 50% below it.
Q3 Upper quartile
(Value of a variate below which there are 75% observations and
above which there are 25% observations.)
Q1 < Q2 < Q3
Computation of Quartiles
1. Individual and Discrete Series
First, arrange the series in descending or ascending order.
𝑁+1
Q1 = ( ) 𝑡ℎ 𝑖𝑡𝑒𝑚
4
2(𝑁+1) 𝑁+1
Q2 = = 𝑡ℎ 𝑖𝑡𝑒𝑚
4 2
3(𝑁+1)
Q3 = 𝑡ℎ 𝑖𝑡𝑒𝑚
4
2. Continuous Series
Page | 10 Statistics
𝑁
−𝑐.𝑓
4
Q1 = 𝐿 + ∗𝑖
𝑓
3𝑁
−𝑐.𝑓
4
Q3 = 𝐿 + ∗𝑖
𝑓
Where: L = Lower limit of quartile class, c.f. = Cumulative frequency preceding the quartile class, f =
frequency in the quartile class, i = class interval of quartile class
II. Octiles
 Value of the variate that divides a given series into 8 equal parts.
 Each octile contains 12.5% of the total number of observations.
Calculation of Octiles
1. Individual or Discrete Series
𝑗(𝑁+1)
Oj = Size of 𝑡ℎ 𝑖𝑡𝑒𝑚, j = 1 to 7
8
𝑗𝑁
−𝑐.𝑓.
8
Oj = 𝐿 + ∗ 𝑖, j = 1 to 7
𝑓
III. Deciles
 Values of a variate that divide the series or the distribution into 10 equal parts.
 Each part contains 10% of total observations.
Calculation of Deciles
1. Individual and Discrete Series
Dj = Size of j(N+1)/10 th item
Where j = 1 to 9
𝑗𝑁
−𝑐.𝑓.
10
Dj = 𝐿 + ∗𝑖
𝑓
Where: j = 1 to 9
IV. Percentiles
 Value of a variate which divides a given series or distribution into 100 equal parts.
 Each percentile contains 1% of the total number of observations.
Calculation of Percentiles
1. Individual or Discrete Series

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ECONOMICS HARBOUR

CUET-PG Economics Study Material (First Edition) by Economics Harbour

Price of good X increases

Buyers may switch to a cheaper substitute

Decrease in demand for X but increase in demand for Y.

a. Normal goods: As consumer’s income increases, quantity demanded of it increases.

CUET-PG Economics Study Material (First Edition) by Economics Harbour

Difference between Snob Effect and Veblen Effect

CUET-PG Economics Study Material (First Edition) by Economics Harbour

2) Demand Curve: Graphical presentation of demand schedule.

CUET-PG Economics Study Material (First Edition) by Economics Harbour

2) Market Demand Curve:

Reasons for the Law of Demand

CUET-PG Economics Study Material (First Edition) by Economics Harbour

Price of good X decreases

Price ratio between the goods changes (Px/Py) and X becomes

Consumers now substitute X for Y, which is now more

The total demand for X increases.

Substitution effect will be stronger when:

What is Real Income?

Real Income = Nominal Income Price of the commodity

(Please note: Marshall only talks about Substitution Effect)

Price of good X decreases

Consumer can now buy the same quantity of X with lesser

Consumer's real income increases.

This increase in real income can be used to buy more of the

CUET-PG Economics Study Material (First Edition) by Economics Harbour

2) Utility maximising behaviour of the consumer:

Price of good decreases

More consumers are induced to buy it.

Increases the number of consumers of a commodity at a lower

Increases the demand

CUET-PG Economics Study Material (First Edition) by Economics Harbour

More people will be

Exceptions to the Law of Demand

CUET-PG Economics Study Material (First Edition) by Economics Harbour

Price of bread increased

Led to a large decline in the purchasing power

They were forced to cut down the consumption

Despite an increase in price, bread was stull the

CUET-PG Economics Study Material (First Edition) by Economics Harbour

CUET-PG Economics Study Material (First Edition) by Economics Harbour

NATIONAL INCOME: CONCEPTS AND MEASUREMENTS

CUET-PG Economics Study Material (First Edition) by Economics Harbour

Three Expressions of National Income

Where PG = Market value of the final goods and services produced

CUET-PG Economics Study Material (First Edition) by Economics Harbour

3) Net National Product at Market Price (NNPMP):

CUET-PG Economics Study Material (First Edition) by Economics Harbour

8) Gross National Product at Factor Cost (GNPFC)

CUET-PG Economics Study Material (First Edition) by Economics Harbour

12) Personal Income

13) Personal Disposable Income

National Income and Related Aggregates

CUET-PG Economics Study Material (First Edition) by Economics Harbour

10.Gross National Disposable Income = Net National Disposable Income + Current

Calculating National Income

CUET-PG Economics Study Material (First Edition) by Economics Harbour

Lay down the path for the following journey

CUET-PG Economics Study Material (First Edition) by Economics Harbour