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Ch. I

Introduction to Micro Economics

SHORT QUESTIONS

(1)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

Mention the circular flow of income w.r.t. product and factor markets.

(9)

(10)

(11)

(12)

2006

2008

2010

(2)

LONG QUESTIONS

(1)

(2)

a)

b)

a)

b)

How can the PPC be used to address the three central problems

of the society ?

(3)

(4)

(5)

(6)

a)

b)

a)

b)

a)

b)

between firms and households.

(7)

(8)

economy.

(9)

2007, 2008

(10)

2007

(11)

2009

(3)

Ch. 2

Basics of demand and supply

SHORT QUESTIONS

(13)

(14)

(15)

(16)

(17)

demand curve ?

(18)

demand.

(19)

(20)

change in demand.

(21)

Explain the idea of price elasticity of demand. Why does the formula

have a negative sign ?

(22)

(23)

(24)

Find out the slope of the demand curve when the demand curve is (i)

vertical (ii) perfectly horizontal

(25)

goods.

(4)

(26)

(i)

(ii)

(27)

(28)

(29)

(30)

curves.

(31)

(32)

(33)

(34)

a) Specific tax

b) advalorem Tax

(35)

(36)

(37)

(38)

Noodles ?

(39)

2006

If excise tax on cars is expected to fall what will happen to the current

market demand for cars ?

2006

(5)

(40)

For a giffen good, the demand curve is positively sloped. True or false?

Justify

(41)

2006

The slope of the demand curve and the price elasticity of demand are

identical concepts. True or false ? Justify

(42)

2007

All giffen goods are interior but all inferior goods are not giffen.

Explain

2007

(43)

Shaw that two goods cannot be inferior in a two commodity world. 2007

(44)

demand ?

(45)

2007

utility. Justify.

2008

(46)

(47)

Show ed varies from zero to infinity along a linear demand curve 2009

(48)

(49)

(i)

(ii)

2008, 2009

2009

diagram under which price will increase but quantity sold remains

unchanged.

2010

(6)

LONG QUESTIONS

(12)

a)

Define demand.

b)

c)

curve.

(13)

a)

b)

How can one derive the market demand ? Explain the idea by

using the desirable assumptions.

(14)

Explain the idea of shift in demand. What are the factors affecting the

shift in demand ?

(15)

to law of demand.

(16)

b) Discuss the are method of calculating it ?

(17)

straight line demand curve.

(18)

b) Discuss as to how we can classify goods according to the various

values.

(19)

(7)

(20)

b) What is the contradiction between the two ?

c) How is this contradiction resolved ?

(21)

b) How can the law of demand be explained with the help of SE and

IE ?

(22)

a) Explain the concept of equilibrium.

b) Analyse the stability concept of equilibrium by considering price

as the adjusting variable.

c) Explain the significance of the market equilibrium.

(23)

Let a supply and a demand curve be given. In this regard, discuss the

possible effects when

a) Only supply rises, demand remains unchanged.

b) Only demand rises, supply remains unchanged.

c) Both demand and supply rise.

(24)

b) Discuss the concept with the help of a graphical excise.

(25)

(8)

(26)

paradox.

(27)

(28)

b) How is it different from quota ?

c) Explain the logic as to why a tariff is imposed ?

(29)

b) Show that welfare declines for a tariff imposing country.

c) What is the economic interpretation of net loss ?

(30)

b) Show that quota and tariff are more or less same except for the

revenue effect.

(31)

b) Show that the domestic producers producing importable goods

prefer quota to tariff.

(32)

b) Analyse the effects following the imposition of a tax.

(33)

a) Supply curve is relatively elastic

(9)

c) Demand curve is relatively elastic

d) Demand curve is relatively inelastic

(34)

b) Calculate the excess burden of a tax

c) What are the methods to lower excess burden ?

(35)

b) Explain the idea by using a suitable diagram.

c) Trace out the welfare effects of such an exercise.

(36)

b) Discuss the idea by considering the labour market.

c) Calculate the welfare effects of such an exercise.

(37)

a) If a specific tax is imposed show that for the buyer the price rises,

for the seller the price falls.

b) Consider a competitive market for wheat. What would be the

impact of a price support programme (price floor) on the quantity

demanded and supplied. Do you think that price support is

responsible for over production ?

(10)

policy, what would be the impact on quantity of wheat produced and

the associated welfare impacts ?

(38)

2006, 2009

b) Discuss the conditions under which quota is equivalent to tariff.

2007

(39)

equilibrium.

b) Under what cases will change in market equilibrium lead to

increase in both price and quantity ?

(40)

2007

a) Shaw that the price elasticity of demand will vary between zero to

infinity for a straight line demand curve.

b) Consider two parallel demand curves. Comment on the price

elasticity of demand of the demand curves at the same price.

(41)

2007

b) Discuss economic effects of a tariff.

2008

(42)

2008

(43)

Show how the share of the tax paid by the buyers depends in price

elasticity of demand & supply

(44)

2009

2010

(11)

(45)

(46)

2010

NUMERICAL QUESTIONS

(1)

At price 14, two units are demanded. The slope of the demand curve

is 3. Find the equation of the demand curve.

(2)

that ed = 1

(3)

10, the quantity demanded falls to 4. Find ed.

(4)

constants. Find price elasticity and income elasticity.

(5)

A market has two consumers where they demand q1and q2, such that

q = q 1 + q2 .

a) Find out the price elasticity of market demand.

b) What happens if there are n consumers ?

(6)

would demand he elastic ?

(7)

(12)

(8)

the same time.

(9)

income elasticity of y is 2.5, find that of x.

(10)

From the given table, comment whether the goods are substitutes or

complements.

(11)

px

qx

Py

10

12

demand curves where the price

level is given as p. Compare the ed

P

C

A

x

values at x, y.

(12)

demand curves where the price

values at x, y.

q

B

P

C

A

x

(13)

(13)

intersecting at x. The point x lies on

both the demand curves. Which

demand curve would have a higher

elasticity value at x ?

(14)

Show that the sum of own price elasticity of demand, cross elasticity

and income elasticity is equal of zero.

(15)

1

Xp

slope of demand curve

p = 6 + q. Find ed and es at equilibrium.

(16)

surplus when 3 units are demanded.

(17)

Qx = 70 3.5Px 0.6M + 4Pz where

Qx is the number of units of x demanded;

Px is the price of good x, M is income, Pz is

the price of a related good Z.

a) Is X normal or inferior good ? Explain.

b) Are X & Z substitutes or complements ?

c) If Px = 10, M = 30, Pz = 6, find price, income

& cross elasticities.

2006

(14)

(18)

when 3 units are produced

(19)

If the price is Rs.50, find ed.

(20)

2009

Find ed at p = 3.

(22)

2008

Find equilibrium price & quantity.

(21)

2007

2010

Q = 100 10P + 0.5Y where P = 7 and

Y (income) = 50.

a) At P = 7, what is ed ?

b) At Y = 50, what is income elasticity ?

(23)

2010

are :

Qd = 100 0.04p

Qs = 40 + 0.02p.

Determine the rental price (p) and the number

of apartments rented.

2010

(15)

Ch. 3

Production

SHORT QUESTIONS

(50)

(51)

(52)

(53)

(54)

(55)

(56)

(57)

population that is continuously rising ?

(58)

(59)

(60)

(61)

(62)

(63)

(64)

(65)

the concept of returns to scale can be explained with that idea.

(66)

When APL falls, MPL must be below it. True or false ? Justify

2006

(16)

(67)

The average and marginal products are equal when average product

maximum

(68)

If w = r and MPL > MPK, is the firm operating efficiently ? Why or why

not ?

(69)

2007

2007

In the law of variable proportions, which stage will the producer select

for production ?

2007

(70)

2008

(71)

The Marginal product curve intersects the average product curve at its

maximum point. Explain

2009

(72)

2009

(73)

2009

(74)

example.

(75)

2010

(17)

LONG QUESTIONS

(47)

(48)

a)

b)

a)

b)

significance of APL and MPL

(49)

a)

desirable assumptions.

(50)

b)

c)

a)

b)

(51)

(52)

capital and labour.

(53)

Show that output maximization and cost minimization for a firm would

give us the same answer

2007

(54)

2009

(55)

expansion path.

2006

(18)

(56)

a)

b)

Show that the expansion path is a linear line through the

origin.

(57)

input and diminishing returns to scale.

(58)

2006

Trace out the difference between returns to scale and returns to the

variable factor.

(59)

2008, 2010

2007

substitution and convexity of isoquants

2010

(19)

NUMERICAL QUESTIONS

(24)

(25)

Find the APL & MPL values at L = 5.

(26)

a) Maximum APL

b) MPL when APL is maximum.

c) Maximum output.

d) The value of L for which MPL is maximum.

(27)

Q = - L3 + L2 + 6L

3

Beyond which point, diminishing returns to labour exist ?

(28)

3. The total cost is as 39. Find maximum output.

(29)

If the target output is 1200 units, find minimum cost.

(30)

Q = 2L2 - 32Lx + 30x2 where L is labour and x is the units of land

cultivated. Determine the various stages of production if 2 units of

land are cultivated.

(20)

(31)

are IRS, CRS, DRS

a) q = K2 + L2

e) q = (K2 + L2)1/3

(32)

b) q = K L

K+L

c) q = K2 + L2

The production is

q = K0.8 L0.4, w = 8, r = 16 and C = C,

Find equilibrium values of K,L.

(33)

2006

q = K0.3 L0.7,

(i)

2007

(34)

2008

(35)

a) q = 6KL

b) q = 6K L

What find of RTS are the production functions subject to ? Also find

out the degree of homogeneity in each case.

(36)

2009

MPK = 60. Is the firm operating optimally ?

What adjustment is necessary to achieve optimality ?

(37)

2009

a) Derive equation of isocost line

b) Find optimum levels of K & L employed.

c) Determine the maximum level of output produced.

2010

(21)

Ch. 4

SHORT QUESTIONS

(76)

(77)

(78)

(79)

(80)

(81)

(82)

(83)

(84)

APL

MPL

(85)

(86)

(87)

(88)

(89)

Explain why AC and AFC come closer and closer to each other as

output rises but they never meet ?

(90)

Define marginal cost. Show that it is the mirror image of the MPL curve.

(91)

(92)

(93)

(94)

(22)

(95)

(96)

(97)

(98)

(99)

(100) Explain the idea of the learning curve and state its significance.

(101) Explain briefly as to why a learning curve is useful to the firms.

(102) All products show learning curve effect. True or false ? Justify.

(103) State whether existence of excess capacity is necessary for exhibiting

economies of scope.

(104) Explain the idea of economies of scope in purchasing and mention its

significance.

(105) State the measure of economies of scale and scope in advertising and

state its use.

(106) What is the use of economies of scale & scope in R. & D ?

(107) Define cost reduction strategies. How is it different from cost control

methods ?

(108) State the elements needed for a successful cost reduction strategy.

(109) Mention four advantages and disadvantages of cost reduction strategies.

(110) Explain the idea of BE analysis.

(111) State the significance of contribution margin.

(112) Trace out how can the BE output can be expressed in terms of sales.

(113) State the concept and significance of operating leverage.

(23)

(114) If a firms long run average cost curve (LAC) is horizontal, what can you

say about the long run marginal curve (LMC) ?

2006

2006

2006

(117) Show MC = w .

MPL

2007

2008, 2009

2009

2010

2010

What kind of positive externalities would you expect ?

2010

(24)

LONG QUESTIONS

(60)

(61)

(62)

(63)

(64)

(65)

a)

b)

c)

a)

b)

c)

a)

b)

c)

a)

b)

a)

b)

considering the various returns to factor.

(66)

(67)

a)

Define MC

b)

a)

b)

(25)

(68)

(69)

a)

b)

a)

Distinguish between short run and long run w.r.t. the costs of a

firm.

(70)

b)

a)

Trace out the method of deriving the long run average cost

curve.

b)

w.r.t. LAC ?

(71)

(72)

(73)

The learning curve reflects the efficiency gains resulting from the

cumulative total of all output produced till date Elucidate.

(74)

a)

b)

(i) in purchasing (ii) in advertising (iii) in R & D.

(75)

(76)

a)

b)

c)

a)

b)

(77)

(78)

a)

(26)

(79)

b)

a)

break even

analysis.

b)

Show that as variable cost rise, the breakeven output will also

rise.

(80)

2006

(81)

strategies.

2006

(82)

2007

(83)

a)

b)

mathematically)

(84)

scale & scope in advertising

(85)

2009

2009

b) Why are all costs variable in long run ?

(86)

c) Derive the LAC from the short run average cost curves.

2010

2010

(27)

NUMERICAL QUESTIONS

(38)

AFC is given as 10 Find the slope of AFC when 10 units are produced.

q

(39)

(40)

TC = a + bq dq2 + kq3, where a, b, d, k are positive constants, show

that MC reaches its minimum before AVC.

(41)

Maruti produces 10,000 cars per month, its long run total cost is

Rs.150,000,000. If it produces 10,500 cars per month, its long run total

cost

is

Rs.227,500,000.

Does

Maruti

exhibit

economies

diseconomies of scale ?

(42)

or

2006

The fixed cost is Rs.10,000, the price per unit is Rs.100, the variable

cost per unit is Rs.75. Find BE output.

(43)

rate Rs.60. The average product of labour is 30. The firm has

produced 12 units of additional output from the last worker

employed. The total fixed cost is Rs.3600/a) What is the value of MC ?

b) What is the value of AVC ?

c) How much output is produced ?

d) What is the value of AC ?

(44)

2009

Calculate BE output if

Variable cost per unit = Rs.12, fixed cost = Rs.60000, selling price

per unit = Rs.18.

2009

(45)

(46)

(47)

(28)

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