BIRLA INSTITUTE OF TECHNOLOGY AND SCIENCE, PILANI GOA CAMPUS 1 SEMESTER (2009-10) Course No. + ECON C212 Course Title : Principles of Economics TEST 1 MAXIMUM MARKS: 20 Date: 22-09-09 DURATION: 60 MINUTES Time: 2:00PM-3:00PM Tnstructions: Answer all the questions. Justify your answer by using diagrams ‘wherever necessary. 1. Suppose the market demand for Pepsi is given by Qu-300-20P and the market supply for Pepsi given by Q,-20P-100, where P=Price (per 350ml. bottle) (a)Graph the supply and demand schedules for Pepsi using Rs. 5 through Rs.15 as the value of P. (b) In equilibrium, how many Pepsi bottles would be sold and at what price? (6) What would happen, if suppliers set the price of Pepsi as Rs.15? Explain the market adjustment process. (@) Suppose the price of Coca-cola, a perfect substitute for Pepsi, doubles, Write the equation for the new market demand for Pepsi () Find the new equilibrium price and quantity of Pepsi- [(41+1#141) Marks) Q.2. For this problem, assume that Amir has Rs.80 to spend on books and movies each month, oP at both goods must be purchased whole. Movies cost Rs. each, while books cost Rs. 16 aren. Amir’s preferences for movies and books by the following information: No. per | Movies Books month | Marginal | Marginal Utility (MU) | Utility (MU) i 80 192 2 64 160 3 56 144 4 48 128 5 40 96 6 32 48 T 24 32 (@ Given the budget of Rs.80, what quantity of books and what quantity of movies will maximize Amir’s level of satisfaction? Explain briefly. (b) Draw the budget constraint (with books on horizontal axis) and identify the optimal combination as point A. {@) Now suppose the price of book falls to Rs. After price chane®, how many movies and how many books will Amir purchase? Draw the new budget constraint (with books on horizontal axis) and identify the optimal combination as point B. [(2+142) Marks]Q.3. Explain the properties or characteristics of indifference curve (IC) analysis and find out the ‘consumer utility maximizing principle as per the IC analysis. [#1 Marks) Q.4. If Ashok’s marginal rate of substitution of ¥ for X is 5-that is MUx/MUy =5- the Price of X is Rs9 and the Price of Y is Rs. he is spending too much of his income on Y. Do you agree or disagree? Explain it. [1 Mark] Q.5. Given the following information, Price | Total Outlay (inRs.) | Or Expenditure 6 1200 8 480 4 1400 Estimate and see whether the demand is elastic(Ed>1) or inelastic (Ed<1) (a)When price increases from Rs.6 to Rs. 8. (b) When price decreases from Rs.8 to Rs. 4. [(+1) Marks} Q.6. What are the major goals of macroeconomics and tools or instruments of macroeconomic policy? Write in a brief for each of the tools or instruments of macroeconomic policy. [(2+2) Marks] enskieissdiersmemanenBIRLA INSTITUTE OF TECHNOLOGY AND SCIENCE, PILANI GOA CAMPUS I SEMESTER (2009-10) Course No. : ECON C212 Course Title : Principles of Eeonomics (CB) TEST 2 MAXIMUM MARKS: 20 Date: 18-11-09 DURATION: 60 MINUTES. ‘Time: 2.00PM-3.00PM ‘(Answer all the questions) 1. The fixed cost (TFC) of a firm is Rs 10,000, average variable cost (AVC) per unit of output is Rs 15 and the firm sells its product at Rs.20 per unit. Determine the break even level of output. (imark) 2. A firm’s production function is given by Q=AK.L (a)Check the returns to scale for this production function. (a) Calculate MRTS between L and K. (Imarks) 3._Fill up the blanks: (5 marks) Q Te TFC__[TvVC_|ATC [AFC [AVC | MC 0 125 : = = : - : 10 - : = = = : 3 20 : = = a : = 30 - = 110 = : = : 40 255 = 5 = : = : 30 : : : = = 3 = 60 : F : 3 = 5 70 5 = 3 = = = 80 E [295 = : = 4, Suppose the firm is facing the following Demand function: P=100-2Q Firm’s AC=MC=20.Determine the equilibrium levels of firm’s output, price and profits. (2 marks) 5. Do you agree or disagree with each of the following statements? Explain your answer. (3 marks) (a) “Housing is a public good and should be produced by the public sector because private markets will fail to produce it efficiently”. (b) “ Monopoly power is inefficient, because large firms will produce too ‘much product, dumping it on the market at artificially low prices”. (©) “ Medical care is an example of a potentially inefficient market because consumers do not have perfect information about the market.”6. Consider the following information for a T shirt manufacturing firm that can sell as many T shirts as it wants for $3 per shirt: (4: marks) Number [Noofshiris [MP, [TR ] MRP. of workers | produced per Bay. 0 0 = |= = 1 30 = |= = 2 80 = = 3 0 = - = 4 135 |= = 3 = 20 [= es 6 170 = = = 7 = = |= 30 8 al = = 15. (a) Fill in the blanks in the table. (b) If this firm must pay a wage rate of $40 per worker per day, how many workers should it hire? Briefly explain why? (©) Suppose the firm adopts a new technology that doubles output at each level of employment and that the price of shirts remains at $3.What is the effect of this new technology on MP, and on MRP,? At a wage of $50, how many workers should the firm hire now? 7. Diagrammatically explain the short run equilibrium of a firm under perfect Competition (the three cases, abnormal profit, losses, and normal profit) (4marks)BIRLA INSTITUTE OF TECHNOLOGY AND SCIENCE, PILANI GOA CAMPUS I SEMESTER (2009-10) Course No. : ECON C212 Course Title +: Principles of Economics COMPREHENSIVE EXAM MAXIMUM MARKS: 50 Date: 15-12-09 DURATION: 3 Hours ‘Time: 9.00-12.00PM Instructions: _ (1) Answer all the questions from PART A and PART B. (2)Make an Index of your answers in the First Answer Book separately for PART A and PART B. (3)Justify your answers by using diagrams wherever necessary. PARTA 1. (@) If Ashok's consumption function is of the form C = 100 + 0.8Y, at what level of income her saving equals zero? Also calculate the value of multiplier. (b)If Suman’s saving function is of the form S = -150 + 0.SY. at what level of income his consumption equals his income? Also calculate the value of multiplier. [2+2=4 Marks] Given the income distribution (in Rs.) of two hypothetical economies A and B having five people each, A-10, 25, 35, 60 &70. B-10, 20, 35, 40 & 45. Calculate the (i)Head-Count Ratio (CR), (ii)Poverty Gap Index (PGI), (iii)Squared Poverty Gap (SPG) and (iv) Gini Coefficient for these two economies separately (assuming that persons having less than mean income are classified as poor). [4 Marks] 3. (a) Find out the relationship between personal income and national income, (b) Given the following information, GDP at Market Prices =Rs.200 crore Find out Net Factor Income from Abroad. (2+2=4 Marks] 4. A monopolist has the following cost function TC=10+5Q (@) If the price elasticity of demand for his products is -2, find out price he will fix for his product. (b) Ifthe price elasticity of demand for his product changes to -4, how will he change his price? [2+2=4 marks}5. Given the following linear demand and cost functions, show that monopolist will produce half of the output under perfect competition. Q= 300-2P (Linear demand function) TC=150+10Q [141-2 marks] 6. Suppose a discriminating monopolist is selling a product in two separate markets in which demand functions are The monopolist TC function is TC=342Q (@) As the economic adviser you are asked to determine the prices to be charged in the two ‘markets and amount of output to be sold in each market so that profits are maximized. (b) Calculate the total profits to be made from the strategy of price discrimination. [24+2=4 marks] 7. Examine the short run graph in the following figure for a monopolistically competitive firm. (a) What is the profit maximizing level of output? (b) What price will be charged in the short run? (c) How much are short-run total revenue (TR), total cost (TC), and total profit?” (4) What will happen to this firm in the long run? [141+1+1=4 marks}PARTB . Discuss the effect of income and price change on consumer's equilibrium and derive an individual's demand curve through indifference curve analysis. (3+2=5 Marks} Explain what is meant by the paradox of thrift with the help of a diagram? Also, discuss what effect a decreased desire to save will have on consumption, saving, planned investment, and output. [2+2=4 Marks} What are the characteristics of pure public goods? Distinguish between pure private goods and pure public goods with the help of diagrams. [242-4 Marks] Briefly explain the functions of RBI. [5 Marks} Distinguish between (a) Primary market and Secondary market (b) Sinking fund bonds and Capital gains bonds [242-4 marks} Diagrammatically explain how the rate of interest is determined in the economy. [1+1=2 marks}