BIRLA INSTITUTE OF TECHNOLOGY AND SCIENCE, PILANI K.K. BIRLA GOA CAMPUS II SEMESTER (2012-13) Course No. : ECON F211 Course Title : Principles of Economics TEST1 MAXIMUM MARKS: 30 (Weightage 20%) Date: 15-02-13 DURATION: 60 MINUTES Time: 4:00PM-S:00PM Instructions: (1) Answer all the questions, Justify your answer by using diagrams or figures wherever necessary. (2)Make an Index of your answers in the first page of Main Answer Book. Q.1. “The market value of the amount of some commodity bears no necessary relation to the total utility that consumers derive from that amount”. Examine the validity of this statement in the context of diamond-water paradox. [Word Limit: 250] [4 Marks] Q. 2. For the following problem, assume that Amir has Rs.80 to spend on books and movies each month, and that both goods must be purchased whole. Movies cost Rs.8 each, while books cost Rs. 16 each. Amir’s preferences for movies and books by the following information: No. per | Movies Books month | Marginal Utility (MU) _| Marginal Utility (MU) 1 30 192 2 64 160 3 56 144 \4 48 128 3 40 96 6 32 48 7 24 32 (a) 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.8. After price change, 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+1+2) Marks] Q.3. Explain the properties or characteristics of indifference curve (IC) and explain them in the context of underlying assumptions and/or its very definition. Also find out the consumer utility maximizing principle as per the IC analysis. [Hints: Clearly mention if these characteristics are not met, which assumptions are violated?] [Word Limit: 250] [(4#1) Marks] Q.4. Outline the main determinants of the elasticity of demand. Why is demand more elastic in the long run than in the short-run? [Word Limit: 200] [3 Marks} (P.T.0.)Q5. Given the following information: Price Total Outlay (in Rs.)__| Or Expenditure 6 1200 8 480 4 1400 Estimate and see whether the demand is elastic(Ed>1) or inelastic (Ed<1) [Use Are elasticity method/Mid-point formula) (a)When price increases from Rs.6 to Rs. 8. (b) When price decreases from Rs.8 to Rs. 4. [(2+2) Marks} Q.6. Assume that a firm’s cost of labour is Rs.10 per unit and its cost of capital is Rs. 40 per unit. a) Construct an isocost line such that total cost is constant at Rs. 200. b) If this firm is producing efficiently, what is the marginal rate of technical substitution between labour and capital? c) How are the expansion path and the long-run average cost curve related? [(1+142) Marks} Q.7. What is the law of diminishing returns, and what does it imply about the likely shape of short-run cost curve? [Word Limit: 200] [5 Marks] SHouiieianeiiiihieseineiiininininiiirsBIRLA INSTITUTE OF TECHNOLOGY AND SCIENCE, PILANI K.K. BIRLA GOA CAMPUS IL SEMESTER (2012-13) Course No. : ECON F211 Course Title : Principles of Economics TEST 2 MAXIMUM MARKS: 30 (Weightage 20%) Date: 21-03-13 DURATION: 60 MINUTES Time: 4:00PM-5:00PM Instructions: (1) Answer all the questions. Justify your answer by using diagrams or figures wherever necessary. (2)Make an Index of your answers in the first page of Main Answer Book. Qu. Explain in detail the expenditure approach to national income accounting and give reasoning why imports, which have to be subtracted from and exports have to be added in to get the correct figure of GDP? [442 Marks] Q 2,(a)Distinguish between demand-pull and cost-push inflation, Also discuss its consequences, (b) Why are intermediate goods, used goods and paper transactions not accounted in GDP? Explain with appropriate examples, [(3+3) Marks] Q.3. You are provided with the following information of a hypothetical economy: a) GDP rc =Rs. 6000; Corporate Income Tax= Rs. 1,200; Personal Income Tax= Rs. 800; Subsidies= Rs.400; Factor incomes received from abroad= Rs.1,00; Factor incomes paid abroad= Rs.1,800; Undistributed profits= Rs.250; Indirect taxes= Rs.800, Transfer Payments-Rs.450 and Depreciation=Rs.700. Compute PDI, National Income and GDP yp. b) With the above information as mentioned in Q.3. (a), instead of GDP gc, if GNP po =Rs. 6000, calculate PDI, NI and GNP yy» assuming all other data remain unchanged, (Hints: Here PDI, FC and MP stands for personal disposable income, factor cost and market prices respectively) [343-6 Marks] (P.T.0.)Q.4. Assume a large number of firms in a perfectly competitive industry and all have access to the same production technology. The cost function associated with this technology is TC (q) = 40q - 24q? + 4q°, where, q denotes individual output. If the demand function for the industry’s product is Q = 19 — P. Find numbers of firms when the market is at its long run competitive equilibrium? [4 Marks] QS. (a) Up to a certain point a perfectly competitive profit-maximizing firm will keep investing in new capital for the current project. Examine the statement. (b) The supply of land is perfectly inelastic at a given location. Explain how the rent on land can be determined in a perfectly competitive market? (©) Why demand for factors of production is a derived demand function? Explain. [(3+3+2) Marks]BIRLA INSTITUTE OF TECHNOLOGY & SCIENCE-PILANI, K. K. BIRLA GOA CAMPUS TL SEMESTER (2010-11) Course No. : ECON F211 Course Title : PRINCIPLES OF ECONOMICS COMPREHENSIVE EXAMINATION MAXIMUM MARKS: 60 (Weightage 40%) Date: 08-05-2013 DURATION: 3 Hours Time: 2,00-5.00 PM Instructions: (1) Answer all the questions. Q)Justify your answers by using diagrams wherever necessary. (3)Make an Index of your answers on the front page of the Main Answer Book, otherwise -5 Marks. Q.1. Let Qy be the amount of food consumed by a household and Q; be the amount of clothing. Assume that the household’s utility function based on indifference curve analysis is represented by U (Qi, Qs) = QQ: and that it faces per unit price of food Py=%4 and clothing P;=€10 with a given level of income M=%200. Find out the (a) Utility maximizing bundle (Q)*, Q2*) and (b) Marginal utility of money income [34+2=5 Marks] Q.2. Suppose a firm sells packets of corn in a perfectly competitive product market for Rs. 35 each. The production follows a specific cost structure as- . Packets of corn | Units of factor input | Total Cost produced used 0 0 40 10 1 140 20 3 220 30 6 340 40 10 520 50 15 790 60 22 1120 70. 32 1470 80 44 1880 90 60 2380. 100 80 3040 (a) Find out equilibrium price, output and mention the amount of maximum profit, (b) Sketch an input demand curve on the basis of above information. [3+1=4 Marks] (.7.0.)Q.3. From the following table estimate Nominal GDP, Real GDP and GDP deflator with base _year 2010. Year Price of Rice | Quantity of Rice | Price of Wheat | Quantity of Wheat 2010 31 100 $2 30 2011 $2 150 $3 100 2012 $3 200 $4 150 [3 Marks] Q.4. A monopoly firm faces the following demand curve: P = 100 - 0.01Q; where Q is weekly production and P is price, measured in Rs. per unit. The firm's cost function is given by C = 50Q + 30,000. Assuming the firm maximizes profits, what is the level of production, price, and total profit per week? [3 Marks] Q.5. (a) Why do people hold money when there is higher yielding asset available? (b) Suppose Central Bank has taken expansionary monetary policy measure to adjust the short Tun aggregate demand in the economy. What would be the impact on money market and commodity market? (c) What is crowding out effect? Also explain its determinants. (a) Why might investment not respond positively to low interest rates during a recession and not respond negatively to high interest rates during a boom? [4+4+4+4=16 Marks] Q.6. Algebraically explain different fiscal policy multipliers and their final impact on equilibrium level of income or output. [6 Marks] Q.7. (a) Given the demand function P=70-4Q, and the supply function P=5+Q,, evaluate the consumer’s surplus and the producer's surplus, assuming equilibrium.[Hint: Use only calculus method] (b) Find simultaneous equilibrium income and interest rate for the goods and money market when C=100+0.8Y,,1 =150-6i, T=0.25Y,G = 100, L = 0.2Y -2i,andM = 150. Where C= Household spending, I=Investment spending, G=Government spending, i= The interest rate, Yd= Disposable income, T= Tax Revenue L= The total demand for money, M= The Money Supply. [4+4=8 Marks] Q.8. Write short notes on the followings: (a) The Post-hoc fallacy and fallacy of composition (b) Fiscal drag (©) The law of increasing opportunity cost (@) Nature of supply curve in the monopoly market (©) The paradox of thrift [343434343=15 Marks] Jhb oi ddbsiobinbinbinisiiniiniiniietioii: 2