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0804 - Ec 1

0804 - Ec 1

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Suggested Answers with Examiner's Feedback 
Question Paper
Economics - I (MSF1A3): April 2008
 
Answer all 81 questions.
 
Marks are indicated against each question.
 
Total Marks : 1001.
The tendency of market prices to direct individuals pursuing their own interests into productive activities that alsopromote the economic well being of the society, is referred to as(a)Price mechanism(b)Invisible hand principle(c)Competitive efficiency(d)Marginal analysis(e)Allocative efficiency.
( 1 mark)
2.
According to general equilibrium analysis who among the following is/are considered as decision making agents?I. Consumers.II. Producers.III. Resource owners.(a)Only (I) above(b)Only (II) above(c)Only (III) above(d)Both (II) and (III) above(e)All (I), (II) and (III) above.
( 1 mark)
3.
Which of the following statements is
not true
?(a)The quantity desired to be purchased may be different from the quantity actually bought bythe consumer(b)Quantity demanded is a flow concept(c)The factors that influence the decision of the consumer to buy, other than price are assumed tobe constant in demand analysis(d)While plotting the demand curve the price of the commodity is placed on x-axis(e)There exists an inverse relation between price and quantity demanded.
( 1 mark)
4.
There will be an increase in revenue for an increase in price when the price elasticity isI. Equal to zero.II. Less than one.III. Equal to one.(a)Only (I) above(b)Only (II) above(c)Only (III) above(d)Both (I) and (II) above(e)All (I), (II) and (III) above.
( 1 mark)
5.
An educational institution is considering an increase in course fees of a particular course to enhance its revenue. If the institute expects that raising course fees would enhance revenue, then(a)It is ignoring the law of demand(b)It is assuming that the demand for the course is elastic(c)It is assuming that the supply of the course is elastic(d)It is assuming that the demand for the course is inelastic(e)It is assuming that the supply of the course is inelastic.
( 1 mark)
6.
Market research has shown that the cross price elasticity of demand for good X with respect to the price of good Y isa negative number. This means that(a)Both the goods have a upward sloping demand curve(b)The supply curve for X is a horizontal straight line(c)X and Y are complements(d)X and Y are substitutes(e)Both X and Y are normal goods.
( 1 mark)
7.
Which of the following is a movement along the supply curve?(a)A fall in the output of rice because of a rise in the prices of pesticides and fertilizers
http://206.223.65.215/suggested/MSF1A3-0408.htm (1 of 21) [28/Apr/08 2:24:45 AM]
 
Suggested Answers with Examiner's Feedback 
(b)An increase in supply of air travel because of the liberalization of the aviation sector(c)A rise in the price of sugar leading to an increased production of sugarcane(d)A rise in the wages for workers in the software industry leading to an increase in the supply of software professionals(e)An increase in the supply of computers because of entry of many firms into the industry.
( 1 mark)8.
The supply and demand functions of a commodity are estimated asQ
d
= 1,000
 – 
200PQ
s
= 800P
 – 
2,000At equilibrium, the elasticity of supply for the commodity is(a)2(b)4(c)6(d)8(e)1.
( 1 mark)
9.
Which of the following statements is
not true
?(a)The concept of total utility is subjective(b)The operation of law of diminishing marginal utility is subject to a particular time period(c)The marginal utility curve slopes downwards from left to right(d)At satiety point the total utility is minimum(e)The marginal utility curve can be derived by measuring the slope of the total utility curve atvarious points on the total utility curve.
( 1 mark)
10.
The shape of indifference curve in case of perfect complements is(a)L-shaped(b)Straight line sloping downward(c)Straight line sloping upward(d)Convex to origin(e)U-Shaped.
( 1 mark)
11.
For a good to be considered as a
luxury good
the value of its income elasticity of demand should be(a)Equal to one(b)Greater than one(c)Less than one(d)Zero(e)Negative.
( 1 mark)
12.
The locus of all tangency points between budget lines and the indifference curves is called as the(a)Income consumption curve(b)Production consumption curve(c)Isoquant(d)Isocost line(e)Production possibility curve.
( 1 mark)
13.
Diamond- water
paradox shows the operation of (a)Law of demand(b)Law of supply(c)Law of diminishing marginal utility(d)Law of variable proportions(e)Law of equi-marginal utility.
( 1 mark)
14.
Given the money income of the consumer as Rs. 700 and the prices of two products M and N on which he spends allhis income. The product M costs him Rs. 20 per unit and per unit price of product N is Rs.35. What would be thebudget constraint?(a)Q
M
+ Q
N
= 700(b)20 Q
M
+ 35 Q
N
= 700(c)20 Q
M
 
 – 
35 Q
N
= 700(d)(e)(20 + Q
M
) (35 + Q
N
) = 700.
( 1 mark)
15.
The shape of marginal product curve is
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Suggested Answers with Examiner's Feedback 
(a)Inverted U-shaped(b)U-shaped(c)Vertical straight line(d)Horizontal straight line(e)Downward sloping straight line.
( 1 mark)16.
Which of the following statements is/ are
false
?I. Isoquant is a curve drawn on a graph with different factors of production on the two axes.II. The output is same on any point of the isoquant curve.III All parallel isoquant curves represent the same output.IV. The point where an isocost line is tangential to an isoquant curve is the point where the cost is the least.V. The point where an isocost line is tangential to an isoquant curve is the point where the cost is the highest.(a)Only (I) above(b)Only (II) above(c)Both (III) and (IV) above(d)Both (III) and (V) above(e)(I), (III) and (IV) above.
( 1 mark)
17.
According to the law of variable proportions when the units of labor are increased keeping the capital same, themarginal productivity of labor will(a)First increase and then decrease(b)First decrease and then increase(c)Increase continuously(d)Decrease continuously(e)Remain the same.
( 1 mark)
18.
At a stage where the total product is maximum, the marginal product will be(a)Maximum(b)Minimum(c)Zero(d)Equal to total product(e)Equal to average product.
( 1 mark)
19.
Expansion path is the locus of various points where the firm
s expenditure(a)Increases without any change in the price of inputs(b)Increases with some change in the price of inputs(c)Increases with change in the price of outputs(d)Decreases without any change in the price of inputs(e)Decreases with change in the price of inputs.
( 1 mark)
20.
Which of the following statements is
false
?(a)Isoquants are useful only when two variable inputs are used(b)Isoquants are also called as production indifference curves(c)Marginal Rate of Substitution (MRS) is expressed through an isoquant(d)Two isoquants never touch each other(e)A higher isoquant represent a higher level of output.
( 1 mark)
21.
Which of the following curves are
not
convex to origin?I. Individual supply curve.II. Isoquant curve.III. Isocost curve.IV. Budget line.V. Total Product curve.(a)Both (I) and (II) above(b)Both (II) and (III) above(c)(I), (II) and (III) above(d)(I), (II) and (IV) above(e)(I), (III), (IV) and (V) above.
( 1 mark)
22.
Which of the following statements is
not true
?(a)Average product cannot be zero(b)Average product will always be greater than marginal product(c)Marginal product is zero when total product is maximum
http://206.223.65.215/suggested/MSF1A3-0408.htm (3 of 21) [28/Apr/08 2:24:45 AM]

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