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 The fundamental economic problems of what to produce, how to produce and for whom
to produce are solved differently by different economic systems. Discuss how a capitalist
Economy solve.

Ans. This problem is solved by capitalist,social and mixed economy

  
  
 

  
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$ Suppose you are the manager of California winey. How would you expect the following
events to affect the price you receive for a bottle of wine?
Ans.a)the price will remail constant.
b)we will fix the price accordin t o the market situations.
c)it will not effect the price ,but may increase the sales.
d)it will not effect the price of wine.
e) due government anti -shatter regulation ,i have to increase the price of the glass wine
bottle only.

Q3. Other things being the same what would happen to the sup ply of a particular product if .

Ans.a)supply of the commodity will increase.

b)new machinery will increase production and there will be more supply.

c)the cost of the commodity will increa se and supply will decrease.

d)supply will remain constant.

e)supply will be decreased to gain the future profits.

Q4. A) What is income consumption curve? Draw income consumption curve for a normal
and inferior goods.

B) Suppose the supply curve for allu tikki passes through the point P= Rs.25 and Qs =500.
Give two interpretations of this point on the supply curve .

Ans.(a) it shows the relationship betweenincome and demand.income and demand

increases in case oflow value goods and income incr eases and demand decreases as
purchasers switch to highe priced products.

And inferior goods consumption curve is demand dicreases income increases if de mand
increases income decreases the diagrams of normal goods ans inferior goods are as follow -
Q5. Shweta spends her whole weekly food allowance of $42 on Pizza and soft drinks. The
price of single pizza is $2 and of soft drinks is $1.Shweta buys 12 pizzas and 18 soft drinks
and her marginal rate of substitution between pizza and soft drinks is 1. Is Shweta in
equilibrium? Explain.

Ans. Yes shweta is in equilibrium

Q6. In 2003, the Men`s Hair company increased the price of its shampoo and subsequently
sold more shampoo than 2002. Is the demand curve for this company positively sloped?
When the demand curve slopes positively? Give an example of a product in whose case
demand curve slopes positively and also explain the exceptions of law of demand

Ans.exceptions of law of demand are -

1.ignorance

2. gifften goods

3.expectation of rise in price in future.

Q7. You are working for O O
O 
as the market head. The company is planning to float a
new drink which is white in colour. What lessons from the concept of elasticity can you draw
while fixing the price f or this new drink?

Ans.i will considerthe following thinngs -

1.factors

2.nature of commodity

3. availability of subsit uters

4.income of the consumer

5.prepartion of income spent on a commodity

Q8. For each of the following ,state whether economists would consider it as a resource and
if they would identify which of the fou r types of resources the item is.

An s. Economics will be considered as a resourceo in the following things

1. A farmer¶s tractor.

2. Crude oil

3. A package of frozen vegetable

4. plastic bags used by a company for holding its product.

Q9. A domestic servant spends his total income only on two goods, food and clothing.
Analyze the effect of increase in his income on consumption of food and clothing. Illustrate
the derivation of his Income Consumption Curve.

Ans.his income increases and demand will also increase because it is case of law value
goods according to income consumption curve. .

Q10. Rohan consumes two commodities, wheat and rice. The marginal utility derived by him
from rice is two and half time the utility derived from the marginal utility of wheat. If wheat is
available for Rs.12 /kg, what price will he be willing to pay for rice in order to maximize his
utility?

Ans.as rohan consume two cmmodites wheat and rice .as wheat is at Rs 12kg price of rice
in order to get maximase his utility is (12 x 2.5)=30.

Q11. The price of chocolate is Rs.10 and you have to analyze the consumer behavior under
cardinal utility analysis. By the assumption of constant marginal utility of money show the
consumer equilibrium with the help of table and diagram.
Ans.The following t able shows the consumer equilibrium is -

Price Consumer equilibrium

5 10
5 7
5 equilibrium 5
5 3
5 1

Q12. Tomatoes and potatoes are available for Rs. 7/kg and Rs. 10 /kg respectively. If you
have an income of Rs. 35000, draw the budget line as graph.
Ans consumption of tomatoes = 35000/7 =500
= 3500
There is noshift in budget line because the income of potatoes was constant .so they have to
be within the buget line as the diagram shows -