Who bears more burden of the tax is demand is relatively inelastic and supply is relatively elastic and vice-versa?
Consumer bears a proportionately higher burden of the tax if demand is relatively inelastic and supply is relatively elastic. Similarly, producer bears a proportionately higher burden of the tax if supply is relatively inelastic and demand is relatively elastic
What is monetory & fiscal policy?
Monetary policy is the process by which the central bank of the country controls the cost of very short-term borrowing (or the monetary base). This is achieved by targeting either the inflation rate or interest rate (base rate) to ensure price stability and increase borrowings to stimulate economic growth. Fiscal policy is generally administered by the central government. The fiscal policy is used to determine appropriate changes and adjustments in taxation and government spending in order to positively influence aggregate demand and the level of economic activity in the country.
Why is the PPC concave in shape?
PPC is concave in shape because of two reasons (either one can be given in options): 1. Law of increasing costs: The law states that once all factors of production are at maximum output, infusion of any more input to produce more units of the good will result in costs higher than the average cost. 2. Law of diminishing marginal returns: The law states that, given fixed inputs are constant, at some point, adding an additional variable input for an increase in production results in propotionately smaller increases in output.