QUESTION BANK

Economics for Managers

Noble Group of Institutions - Junagadh

1. Wholesale Price Index (WPI) is not a perfect measure of cost of living. – Discuss. (07)
2. The study of economics has many facets and the field is unified by several central ideas regarding decision making of
peoples, their interaction and the working of economy as a whole- Explain. (07)
3. Describe the economic logic behind purchasing power parity theory. (07)
4. Why aggregate supply curve slopes upward in short run? Explain. (07)
5. If a German car costs 500000 Euro, a similar Indian (Home Country) car costs Rs. 10000, and a rupee can buy 100
Euro, what is the nominal and real exchange rate? (07)
6. Distinguish between demand function and demand curve. (07)
7. If price of Navy Submarine rises is the CPI or GDP deflator affected more? Why? (07)
8. How fiscal policy influences aggregate demand? (07)
9. What are the variables that can shift the demand curve? Discuss. (07)
10. What is price elasticity of demand? Explain in detail. (07)
11. Ink Pens and pencils are substitutes. When the price of an ink pen falls, what happens to the supply, demand, quantity
supplied, quantity demanded, and price in the market for pencils. (07)
12. Should Tax laws be reformed to encourage the savings? Give reasons. (07)
13. What gives the government the power to regulate mergers between firms? From the standpoint of the welfare of
society, give pros and cons that two firms might want to merge. (07)
14. Explain economies and diseconomies of scale and explain why they might arise. (07)
15. Why do competitive firms stay in business if they make zero economic profit? Discuss. (07)
16. Why might the short run aggregate demand curve shift? (07)
17. What are the controversies over the Antitrust Policy? Discuss. (07)
18. A demands Schedule for pens of student at ABC school is presented in the following table: (07)
19. Price Rs. 6 5 4 3 2 1 0
Qx 0 20 40 60 80 100 120
a. Find out the price elasticity of demand when the price changes from
(i) Rs. 5/- to Rs. 3/- and (ii) Rs. 3/- to Rs. 5/-
20. Explain the concept of price discrimination. Why a seller chooses to follow this business strategy? Give two examples
of price discrimination. (07)
21. Draw a consumer‟s indifference curves for Pepsi and Pizza. Describe and explain four properties of this indifference
curve. (07)
22. Describe the four components of GDP. Give an example of each. (07)
23. What is resale price maintenance and why is it controversial? (07)
24. John‟s own a painting company with fixed of $200 and the following schedule for variable costs. (07)
Quantity of Houses 1 2 3 4 5 6 7
Painted per month 10 20 40 80 160 320 640
25. Calculate average fixed cost, average variable cost and average total cost for each Quantity.
26. Explain with diagram price determination under perfect competition, if a competitive firm is in short run equilibrium.
(07)
27. What is the Prisoner‟s Dilemma and what does it have to do with Oligopoly. (07)
28. Explain the relationship among saving, investment and net-capital outflow. (07)
29. Explain why the long – run aggregate supply curve is vertical? (07)
30. Explain how does population growth affects a society. (07)
31. What is the role of the financial system? Name and describe two markets that are part of the financial system in the US
economy. (07)
32. Define money. Discuss the role of money in a modern capitalist economy. (07)
33. Write a note on the Volcker Disinflation. (07)
34. Write your comments on “Should fiscal policymakers reduce the govt. debt”. (07)
35. Define consumer‟s surplus and producer surplus. Write a note on its utility for business decisions. (07)
36. The cost of producing DVD players has fallen over the past several years. Let‟s consider some implications of this fact.
i. Draw a supply-and-demand diagram to show the effect of falling production costs on the price and quantity of DVD
players sold. ii. In your diagram, show what happens to consumer surplus and producer surplus. iii. Suppose the supply
of DVD players is very elastic. Who benefits most from falling production costs? (07)
37. Several studies have found that the overall demand for automobiles has an elasticity of about 1.3 i. How do you
interpret this coefficient? ii. After knowing about these results, a Ford dealer in Ahmadabad cut his price by 10 percent
and sold 22 percent more cars. What is the elasticity of demand in this case? Does this mean the estimate of 1.3 is
incorrect? Explain. (07)
38. Explain the circular flow of income model. Identify the parts of the model that correspond to the flow of goods and
services and flow of money for each of the following activities. i. Leena buys onion for Rs. 10. ii. Mr. Sameer is paid
Rs. 2000 as an honorarium for delivering a guest lecturer at an MBA institute. iii. Prerna pays Rs.100 at Fun Republic
to watch a movie. (07)
39. What are the determinants of an individual demand and an individual‟s supply of a commodity? (07)
40. Explain how the higher rate of savings, investment and policy of open economy influence the GDP growth? (07)
41. Under what conditions a competitive firm shuts down temporarily and exits permanently? Explain with help of a
diagram. (07)
42. Explain the following concepts : (i) Stagflation (ii) Catch-up effect (07)
43. Explain the difference between nominal and real variables and give two example of each. According to the principle of
monetary neutrality, which variables are affected by changes in the quantity of money? (07)
44. Explain the following concepts: (i) Crowding out (ii) Inflation Tax (07)
45. What is government budget deficit? How does it affect interest rate, investment and economic growth? (07)
46. Why are some economists against a target of zero inflation? (07)
47. Draw a circular-flow diagram representing the interactions between households and firms in a simple economy.
Explain briefly the various parts of the diagram. (07)
48. What is the difference between a "change in demand" and a "change in quantity demanded"? Graph your answer. Also
Explain what factor/s will cause “change in demand” and what factor/s will cause “change in quantity demanded” (07)
49. Explain the three main reasons responsible for monopoly. (07)
50. Explain the following terms for oligopoly market (i) indeterminateness of demand curve (ii) interdependence of firms
(07)
51. What is income effect and substitution effect caused by a change in the price of a good? (07)
52. What are the problems in measuring the cost of living? (07)
53. Why is productivity related to the standard of living? In your answer be sure to explain what productivity and standard
of living mean. Describe determinants of productivity. (07)
54. Explain the available supply shock. Use the model of aggregate demand and aggregate supply to explain the effects of
such a shock of economic system. Draw appropriate diagram. (07)
55. Explain the concept of multiple creations of deposits under fractional reserve system. (07)
56. Using Demand-and-supply diagrams show the effect of a fall in production of sugarcane on the price and quantity of
sugar during the Diwali months (when demand for sugar increases). (07)
57. Given the unpopularity of inflation, why doesn‟t the government always support efforts to reduce inflation? Many
economists believe that countries can reduce the cost of disinflation by letting their central banks make decision about
monetary policy without interference from politicians. Why might this be so? (07)
58. Draw the demand, marginal revenue and marginal – cost carves for a monopolist. Show the profit maximizing level of
output & price. (07)
59. Honest Juice Bar has the following cost schedules. (07)

Quantity Variable cost Total cost

0 Rs. 0 Rs. 30
1 10 40
2 25 55
 3 45 75
4 70 100
5 100 130
6 135 165
Calculate AVC, TC & MC for each quantity, Graph all three curves. What is the relationship between the marginal cost
curve and the average total cost curve?
60. Explain and Draw a Production Possibilities Frontier for an Indian Economy that produces Wheat & Rice. (07)
61. What are the costs of inflation? Which of these costs do you think are most important for the Capitalistic Economy? (
07)
62. Distinguish between monopolistic and perfect competition. (07) .
63. Give an example of a Govt. policy that acts as an automatic stabilizer. Explain why the policy has this effect. (07)
64. How change in Govt. purchases influences the aggregate demand of loanable funds. (07)
65. Q How and why does a firm‟s average-total-cost curve differ in the short run and in the long run? Explain. (07)
66. Define Duopoly and explain collusion and cartel. How and size of an oligopoly affects market outcome. (07)
67. How the Phillips curve is related to the model of aggregate demand and aggregate supply (07) Draw the Marginal
Cost and Average Total Cost Curves for a typical firm. Explain why the curves have the shapes that they do and why
they cross where they do. (07)
68. Answer the following 1. Explain three key facts about economic fluctuation 2. Explain the Sticky Price Theory & the
Sticky-Wage Theory (07)
69. Prestige restaurant has the following cost schedule.

Quantity 0 10 20 30 40 50 60 70
Variable 0 400 700 930 1100 1400 1900 2500
cost
Total cost 1000 1400 1700 1930 2100 2400 2900 3500
Calculate the AVC, ATC & MC.
Compare the column for Average Total Cost and the column for the Marginal Cost. Explain the relationship (07)

70. Below are some data for an X economy, which produces only two goods A & B.

Year Price of A Qty. A Price of B Qty. B

2008 $1 150 $2 100
2009 2 200 3 150
2010 3 250 4 200
Calculate Nominal GDP, Real GDP & GDP Deflator for each year, using 2008 as a base year (07)

71. What is Production Functions? How does long run production function differ from a short run production function?
(07)
72. Price stability and creating employment opportunities are two important goals of any country‟s macroeconomic policy.
Is there any trade off in short run and long run? Explain. (07)
73. Sneha views butter and cheese as perfectly substitutable for each other. (07)
a. Draw a set of indifference curve that describes Sneha‟s preferences for butter and cheese.
b. If butter costs rupees 20 per package while cheese cost rupees 10 and Sneha has a budget of only rupees 200/-
to spend a month, which butter-cheese market will she choose.
c. Explain with the help of a proper schedule and graph.
74. Suppose that your demand schedule for DVDs is as follows :- Price Quantity Demanded (income = Rupees 10000)
Quantity Demanded (income = Rupees 12000) 8 40 50 10 32 45 12 24 30 14 16 20 16 8 12 a) Calculate your price
elasticity of demand as the price of DVD increases from 8 to 10 if i) Your income is rupees 10000 ii) Your income is
rupees 12000 b) Calculate your income elasticity of demand as your income increases from rupees 10000 to rupees
12000 i) The price is 12 ii) The price is 16 (07)
75. Pharmaceutical drugs have an inelastic demand and computers have an elastic demand. Suppose that technological
advance doubles the supply of both products (that is the quantity supplied at each price is twice what it was a) what
 happens to the equilibrium price and quantity in each market? c) Which product experiences a larger change in price?
d) Which product experiences a larger change in quantity? e) What happens to total consumer spending on each
product? (07)
76. The „GoldMine‟ Company has a monopoly in the sale of bands and faces the following demand schedule: PRICE (in
rupees) QUANTITY DEMANDED 40 0 35 10,000 30 20,000 25 30,000 20 40,000 15 50,000 10 60,000
5 70,000 0 80,000 The firm has fixed cost of rupees 60,000. The marginal cost of each band is a constant rupees 15
per band. a. Compute total revenue, total cost and profit at each quantity. What equity would a profit maximizing
manufacturer choose? What price would it charge? b. Compute marginal revenue. How does marginal revenue compare
to the price? Explain. c. Graph the marginal revenue, marginal cost and demand curves. At what quantity do the
marginal revenue and marginal cost curves intersect? What does this signify? d. In your graph, shade in the dead
weight loss. Explain in words what this means. e. If the fixed cost rise to rupees 70000, how would this affect the firm‟s
decision about what to price? (07)
77. Dhama Industries Inc. is a leading manufacturer of treadmill. The company offers the product to both dealers and retail
customers. The finance manager estimates that each product costs the company rupees 10,000 in labour and material
expenses. Demand and marginal revenue relations for the product are Pw = 15000 – 5Qw (wholsale) MRw = ΔTRw/
ΔQw = 15,000 – 10Qw Pr = 50,000 – 20Qr (retail) MRr = ΔTRr/ ΔQr = 50,000 – 40Qr a) What is price
discrimination? b) Assuming that the company can price discriminate between its two types of customers, calculate the
profit maximizing price, output and profit contribution levels. c) Calculate point price elasticity for each customer type
at the activity levels identified in part (b). Are the differences in these elasticities consistent with your recommended
price differences in part (b)? Why or why not? ( 07)
78. The following is the output of a firm in a perfectly competitive market. (07)
79. The firms cost function is given in the following schedule: OUTPUT TOTAL COST (in rupees) 0 50 10 120 20 170 30
210 40 260 50 330 60 430 Prevailing market price is rupees 7 per unit a) What is firms profit maximizing output
levels? b) Is the industry in long equilibrium? Justify your answer.
80. Below are some data from land of cotton and cheese. Year Price of Cotton (in rupees) Quantity of Cotton (in units)
Price of Cheese (in rupees) Quantity of Cheese (in units) 2010 1 100 2 50 2011 1 200 2 100 2012 2 200 4 100 a)
Compute nominal GDP, real GDP and the GDP deflator for each year, using 2010 as the base year. b) Compute the
percentage change in nominal GDP, real GDP and GDP deflator in 2011 and 2012 from the preceding year. For each
year, identify the variable that does not change. Justify the result. c) Did economic well-being rise more in 2011 or
2012? Explain. (07)
81. Suppose the natural rate of unemployment is 6 percent. On one graph, draw two Phillips curves that describe the four
situations listed here. Label the point that shows the position of the economy in each case. a) Actual inflation is 5
percent, and expected inflation is 3 percent. b) Actual inflation is 3 percent, and expected inflation is 5 percent. c)
Actual inflation is 5 percent, and expected inflation is 5 percent. d) Actual inflation is 3 percent, and expected inflation
is 3 percent. (07)
82. Suppose the Federal Government expands the money supply, but because the public expects this action, it
simultaneously raises its expectation of the price level. What will happen to output and the price level in the short run?
Compare this result to the outcome if the Federal Government expanded the money supply but the public didn‟t change
its expectation of the price level. (07)
83. What is happening to the India real exchange rate in each of the following situations? Explain. a) The India nominal
exchange rate is unchanged, but prices rise faster in India than abroad. b) The India nominal exchange rate is
unchanged, but prices rise faster abroad than in India. c) India nominal exchange rate declines, and prices are
unchanged in India and abroad. d) India nominal exchange rate declines, and prices rise faster abroad than in India.
(07)
84. Suppose a society decided to reduce consumption and increase investment. a) How would this change affect economic
growth? b) What groups in society would benefit from this change? What groups in society would be adversely
affected? (07)
85. You are curator of a major art museum. Your director of finance tells you that the museum is running short of funds
and suggests that you consider changing the price of admission to increase total revenue. What do you do? Do you raise
the price of admission, or do you lower it? Justify your answer with an explanation. (07)