Basic Concepts Of Microeconomics

**Opportunity cost:** It refers to the potential benefit an individual or entity gives up when choosing one option over another. In simpler terms, it's what you miss out on by making a specific choice. **Free commodity by the government:** When the government provides a good or service for free, it doesn't eliminate the opportunity cost. The resources used to provide that free good could have been used for something else. **Taxpayers bear the burden:** The resources for "free" public goods come from somewhere, usually taxpayer money. So, the opportunity cost isn't eliminated, it's simply shifted. Taxpayers give up the potential use of those resources in exchange for a free good or service. In essence, while the individual consumer might not directly pay for the good, the cost is still there and borne by the tax-paying public.

**1. Price of Substitute Increases:** When the price of a substitute good goes up, consumers may switch to the original good as a more affordable alternative. This increases demand for the original good. **2. Price of Complement Increases:** In some cases, an increase in the price of a complementary good can lead to a decrease in demand for the original good (e.g., bread and butter). However, this isn't always the case. **3. Inferior Good and Income Increase:** If the good is inferior (a good for which demand decreases as income rises), then an increase in income will lead to a decrease in demand for that good, not an increase. **4. Price Falls:** According to the law of demand, when the price of a good falls, consumers tend to buy more of it, assuming other factors remain constant. This is because the goods become more affordable. Therefore, the correct code is 1 and 4 only.

* **Farmer's plough - Working capital - Incorrect**: A farmer's plough is a long-term asset used repeatedly over time, making it fixed capital. * **Computer - Fixed capital - Correct**: A computer is a long-term asset used over a period of time, making it fixed capital. * **Yarn used by the weaver - Fixed capital - Incorrect**: Yarn is consumed in the production process and needs to be replaced regularly, making it working capital. * **Petrol - Working capital - Correct**: Petrol is consumed in the production process and needs to be replenished regularly, making it working capital. **Therefore, only two pairs are correctly matched.**