Amity Business School- MBA (HR)

FIRST SEMESTER END TERM EXAMINATION: NOVEMBER-2011

ECONOMIC ANALYSIS

Time: 3 Hrs. Maximum Marks: 70

Note: Attempt questions from all sections as directed.

SECTION-A (30 Marks)

Attempt any 5 questions.
Each question carries 6 marks.

1. The decision making problem faced by business firms is one of constrained optimization. Discuss.
2. Why does a firm keep profit maximization as its objective? What conditions need to be satisfied by the firm
to achieve profit maximization?
3. Explain the concept of cross elasticity of demand. Using the concept of cross elasticity, define substitutes
and complimentary products.
4. Explain the concept of Law of Variable proportions. Analyze the three stages of this law with the help of a
diagram.
5. What is a cost function? If ATC curve is U shaped, prove that MC shall always intersect ATC curve from
below at its minimum point.
6. Write short notes on:
a) GNP Factor cost and GNP Market price
b) Call Money market
c) Investment multiplier

SECTION-B (20 Marks)

Attempt any 2 questions.
Each question carries 10 marks.

7. What is meant by demand forecasting? Critically examine Delphi and survey of sales force as methods of
demand forecasting. What are their advantages and disadvantages?
Or
Explain Sweezs model of kinked demand curve under oligopoly.
8. Explain fiscal policy measures that should be adopted for cutting recession and reviving economy. How does
an expansionary fiscal policy work? Explain in Indian context.
9. In a 4 sector open economy, explain with a circular income flow model that sum of investment, govt.
expenditure and net exports must equal to savings and taxes.

SECTION-C (20 Marks)

(Compulsory)

10. Analyze case study and answer.

In an economy growing with rapid growth of middle class, compensation of consumer durables is an indicator
of level of urbanization. Purchase of automobiles is important indicator of consumer buying behavior.
Contribution of auto industry to GNP has been increasing steadily. Global car manufacturers have flocked to
the country. But in order to establish they have to know Indian customers, their specific tastes, preferences
and demand determinants. To begin with, since cars are still high priced product (Maruti 800 has changed this
perception) the level of income is important determinant. Given that inflation is more or less under control,
which in turn is because of the active support to agriculture by govt. which sets floor prices for agricultural
products and gives subsidies to but fertilizers and electricity, making non-urban sector a potential market.
Non-urban area is divided in to rich farmers, plantation owners and absentee landlords who diversified into
other businesses. First kind of market segment is on the basis of income group. Logically, buying behavior in
terms of attitudes towards price, brand consciousness and taste will be different for non-urban buyers when
compared to their urban counterparts. There are cars in the economy segment, mid segment and premium
segment. Market research suggests that people from semi and non-urban India envisage heavy- looking,
brightly colored goods as sign of strength, durability and sturdiness. Generally speaking, demand is going to be
elastic since cars are still considered luxury items, especially in small towns and rural areas. Heavy advertising
and B2C communication in urban areas are helping manufacturers develop brand image. Urban buyer tends to
be less price-sensitive. In cities, equal number of women drivers who prefer delicate looking cars. There is an
inverse relationship between price and quantity demanded. Studying demand patterns, proper positioning of
car and gaining market share becomes more important as supply of passenger car ever since the sector has
been deregulated has far outstripped actual demand for cars, making this a buyers market.

Questions:
i) Discuss determinants of demand for passenger cars in India.
ii) What role does non-urban India play in forming demand in auto-market?
iii) What role do you think govt. plays as far as non-urban demand is concerned?
iv) What is implication of having buyers market?
v) Do you agree that law of demand cannot work in an auto market? Justify.
vi) Explain significance of market segmentation.
vii) Imagine you are new global auto maker planning to enter Indian market. List the various demand aspects
you think are important. Prioritize them and explain prioritization plan you wish to follow.