Vishwakarma Institute of Technology

Assignment

Q.1 A] Solve any two questions

a) Explain the following concepts with help of a graph: 4
a) Movement along demand curve
b) Shift in demand curve
b) Differentiate between (any two): 4
i) Individual Demand Curve & Market Demand Curve
ii) Normal Good & Inferior Good
iii) Price Elasticity of Demand & Income Elasticity of Demand
c) List any four determinants of supply and explain their effect on supply. 4
B] Solve any one questions
a) List any six determinants of demand and explain their effect on demand. 6
b) How is market equilibrium determined? Illustrate with an example. 6

Q.2 a) Enumerate four benefits of competition for the following categories: 6

i) Industry
ii) Customer
iii) Economy
b) List any two strategies that firms would adopt in case of following 8
competitions:
a) Monopoly
b) Duopoly
c) Oligopoly
d) Monopolistic Competition
c) Explain the law of diminishing marginal utility. 4
Q.3 Solve all questions
a) Asset value is Rs. 20,000. Calculate depreciation according to following 4
methods for four years only:
i) Straight line method (20%)
ii) Reducing balance method (20%)
b) Raj has saved Rs. 20,000 which he wants to invest in a short-term 8
business venture. He has two alternatives, viz, Milk Distribution Agency
and Newspaper Distribution Agency. Raj estimates the life of both the
alternatives as 3 years with cash flows as given below:
Year Milk Distribution Newspaper Distribution
Agency Agency
1 Rs. 5,000 Rs. 17,000
2 Rs. 9,000 Rs. 5,000
3 Rs. 16,000 Rs. 5,000
Consider cost of capital as 10%. Which alternative should Ganesh select
on the basis of following criterion:
1. Payback period
2. Discounted payback period
3. Net present value
4. Profitability index
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Q.4 Matching Definitions: (Fill in the blanks from words given below) 10
change in quantity demanded, change in quantity supplied, complements, demand, demand
price, equilibrium price, excess demand (shortage), excess supply (surplus), supply price,
inferior good, law of demand, market equilibrium, normal good, quantity demanded, quantity
supplied, substitutes, supply, arc elasticity, cross elasticity, elastic demand, income elasticity,
inelastic demand, point elasticity, demand elasticity, cartel, capacity expansion as a barrier to
entry, monopolistic competition, monopoly, strong barrier to entry, market definition, switching
costs, oligopoly, perfect competition, tacit collusion, marginal utility, substitution effect, Giffen
good, income effect, utility, utility function
1. ___________________ Amount of a good or service that
consumers are willing and able to purchase during a given period
of time.
2. ___________________ A good for which demand decreases with
decreases in income.
3. ___________________ A good for which demand increases with
decreases in income.
4. ___________________ Two goods for which an increase in the
price of one causes an increase in consumption of the other, all
other things constant.
5. ___________________ Two goods for which a decrease in the
price of one causes an increase in consumption of the other, all
other things constant.
6. ___________________ The relation that shows how quantity
demanded varies with price, holding all other factors constant.
7. ___________________ The maximum price consumers will pay
for a specific amount of a good.
8. ___________________ Quantity demanded increases when price
falls and decreases when price rises, other things held constant.
9. ___________________ A movement along a given demand curve
caused by a change in the good’s own price.
10. ___________________ The amount of a good or service offered
for sale per time period.
11. ___________________ The functional relation between price and
quantity supplied, holding all other factors constant.
12. ___________________ A movement along the supply curve
caused by a change in the price of the good.
13. ___________________ The minimum price necessary to induce
producers voluntarily to offer a given quantity for sale.
14. ___________________ Buyers can purchase all of a good they
wish and producers can sell all they wish at the prevailing price.
15. ___________________ The price at which quantity demanded
equals quantity supplied.
16. ___________________ When quantity supplied is greater than
quantity demanded.
17. ___________________ When quantity demanded is greater than
quantity supplied.
18. __________________ A measure of consumers’ sensitivity or
responsiveness to changes in the price of a good or service.
19. ___________________ When the percentage change in price (in
absolute value) is more than the percentage change in quantity
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demanded (in absolute value).

20. ___________________ When the percentage change in quantity
demanded (in absolute value) is more than the percentage
change in price (in absolute value).
21. ___________________ An elasticity calculated over an interval of
a demand curve or demand schedule.
22. ___________________ Elasticity at a specific price or point on a
demand curve.
23. ___________________ A measure of how responsive quantity
demanded is to a change in income, all other things constant.
24. ___________________ A measure showing how responsive the
quantity demanded of one good is to changes in the price of
another good, other factors constant.
25. ___________________ A market structure in which a large
number of firms sell a homogenous product or service with no
restrictions on entry or exit and each firm is a price-taker.
26. ____________________ Firm that produces a good for which
there are no close substitutes in a market that other firms are
prevented from entering because of entry barriers.
27. ____________________ Market consisting of a large number of
firms selling a differentiated product with low barriers to entry.
28. ____________________ The identification of the producers and
products that compete for consumers in a particular area.
29. ____________________ Condition that makes it difficult for new
firms to enter a market in which economic profits are being
earned.
30. ____________________ Costs consumers incur when they
switch to new or different products or services.
31. ___________________ A market consisting of a few relatively
large firms, each with a substantial share of the market and all
recognize their interdependence.
32. ___________________ A group of firms that agree to limit
competitive forces in a market.
33. ___________________ Cooperation among firms that does not
involve an explicit agreement.
34. ___________________ Strategy in which an established firm
irreversibly expands capacity to make credible its threat to
decrease price if entry occurs.
35. ___________________ The satisfaction or benefit that consumers
receive from consuming goods or services.
36. ___________________ Equation showing a consumer’s
perception of the total utility forthcoming from consuming each
bundle of goods and services.
37. ___________________ The addition to total utility attributable to
consuming one more unit of a good, holding the consumption of
all other goods constant.
38. ___________________ The change in the consumption of a good
that would result if the consumer remained on the original
indifference curve after the price of the good changes.
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39. ___________________ The change in consumption of a good

resulting strictly from the change in purchasing power after the
price of a good changes.
40. ___________________ A good for which quantity demanded
varies directly with price, causing an upward sloping demand
curve.
Q.5 Multiple Choice Quiz: Mark your answers in the OMR sheet 10
1. If the price of a complement increases, all else equal,
a) quantity demanded will increase.
b) quantity supplied will increase.
c) demand will increase.
d) demand will decrease.
e) supply will decrease.
2. Which of the following would lead to an INCREASE in the demand for golf balls?
a) decrease in the price of golf balls.
b) increase in the price of golf clubs.
c) decrease in the cost of producing golf balls.
d) increase in average household income when golf balls are a normal good.
e) none of the above
3. Which of the following would decrease the supply of wheat?
a) A decrease in the price of pesticides
b) An increase in the demand for wheat
c) A rise in the price of wheat.
d) An increase in the price of corn.
e) none of the above
4. Which of the following will cause a change in quantity supplied?
a) Technological change.
b) A change in input prices.
c) A change in the market price of the good.
d) A change in the number of firms in the market.
e) all of the above.
5. Demand: Qd = 600 - 30P Supply: Qs = -300 + 120P
Equilibrium price and output are
a) P = $2 and Q = 540.
b) P = $10 and Q = 300.
c) P = $6 and Q = 420.
d) P = $3.33 and Q = 500.
e) none of the above
6. Demand: Qd = 600 - 30P Supply: Qs = -300 + 120P
If the price is currently $8, there is a
a) surplus of 360 units.
b) shortage of 360 units.
c) surplus of 300 units.
d) shortage of 660 units.
e) none of the above
7. Demand: Qd = 600 - 30P Supply: Qs = -300 + 120P
If the price is currently $4, there is a
a) shortage of 300 units.
b) shortage of 480 units.
c) surplus of 180 units.
d) shortage of 180 units.
e) none of the above
8. Qd = 100 - 5P + 0.004M - 5PR
where P is the price of good X, M is income and PR is the price of a related good, R.
What is the demand function when M = $40,000 and PR = $20?
a) Qd = 360 - 5P
b) Qd = 160 - 5P
Vishwakarma Institute of Technology

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c) Qd = 260 - 5P
d) Qd = 160 - 100P
e) none of the above
9. Qd = 100 - 5P + 0.004M - 5PR
where P is the price of good X, M is income and PR is the price of a related good, R.
From the demand function it is apparent that related good R is
a) a complement for good X.
b) a substitute for good X.
c) a normal good.
d) an inferior good.
10. Qd = 100 - 5P + 0.004M - 5PR
where P is the price of good X, M is income and PR is the price of a related good, R.
From the demand function it is apparent that good X is
a) a complement good.
b) a substitute good.
c) a normal good.
d) an inferior good.
11. Consumer surplus…
a) is always positive.
b) for a particular unit of consumption is computed by taking the difference
between quantity demand and quantity supplied.
c) for all units consumed is the area below demand and below market price over
all the units consumed.
d) added to producer surplus provides a measure of the net gain to society from the
production and consumption of the good.
e) all of the above
12. The cross-price elasticity of demand between two goods, X and Y…

a) is less than zero if X and Y are substitutes.

b) is the percentage change in the price of Y divided by the percentage change in
the quantity of X demanded.
c) measures the responsiveness of the quantity of X demanded to changes in the
price of Y.
d) both a and c
e) all of the above
13. Refer the following table showing a demand schedule:
Price Quantity demanded
$250 1500
200 2100
150 2700
If price falls from $250 to $200, what is the elasticity of demand over this range?
a) -0.67
b) -1.0
c) -0.08
d) -1.5
e) -2.0
14. If the price elasticity of DVD players is -1.5 and price decreases 20%, what happens to the
quantity of DVD players demanded?

a) quantity increases by 7.5%

b) quantity increases by 30%
c) quantity decreases by 13%
d) quantity decreases by 1.5%
e) none of the above
15. If the own-price elasticity of demand for a good is -0.6 and quantity demanded decreases by
30%, price must have…

a) decreased by 0.6%.
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b) decreased by 18%.
c) increased by 20%.
d) increased by 50%.
e) none of the above
16. Which of the following is a condition of perfect competition?

a) products produced by rival firms are perfect substitutes

b) individual firms can affect market supply
c) industry sales are small
d) restricted entry and exit
e) firms do not have complete knowledge about production and prices
17. A monopolist…

a) always charges a price that is higher than marginal revenue.

b) can earn a greater than normal rate of return in the long run.
c) can raise its price without losing any sales because it is the only supplier in the
market.
d) both a and b
e) both b and c
18. In a monopolistically competitive market,

a) no firm has any market power.

b) firms are small relative to the total market.
c) there is easy entry and exit in the market.
d) a and b
e) b and c
19. What is the most important characteristic of an oligopoly?

a) barriers to entry
b) product differentiation
c) interdependence of profits
d) market power
e) none of the above

20. Demand is unitary elastic at P = $________.

a) 6
b) 10
c) 20
d) 30
e) 60
OMR Sheet
Vishwakarma Institute of Technology

Assignment