Department of Humanities and Social Sciences

DATE: 8.7.2020
This home assignment only pertains to registered students who have received an FF
grade in the HS 101 Spring semester 2019-20 course.

Kindly email back TODAY at spghosh.iitb@gmail.com acknowledging that you have

received this assignment.

The assignment should be written on an answer sheet containing your roll number, and
scanned and emailed back to me by 12 noon of 10th July, Friday in the following address:
spghosh.iitb@gmail.com

Subject to satisfactory performance in the home assignment, you will be eligible for a
maximum of DD grade in the course.

General Instruction:

If you think that any question contains insufficient information for you to be able to answer, or is
logically inconsistent, then clearly mention why you think it is so. Then make an appropriate
assumption, and proceed to answer the question based on the assumption you have made.

Answer all the questions:

1) A) i) What is substitution effect?

ii) What is income effect?

B) Suppose there are two goods, X and Y. X is a normal good, while Y is an inferior good.
Suppose the price of Y is increased by a small amount, all other things remaining
constant. What will be the effect on the demand of Y? Explain all possible cases that
may arise in details.

Use diagrams to explain your answer in parts (A) and (B).

[20 marks]

2) A) i) What is income elasticity?

(ii) What is the sign of income elasticity?
(iii) Suppose when the income of a consumer was 1500 rupees, she consumed 40 units
of a commodity X, which increased to 85 units when her income rose to 1600
rupees. Is it possible to compute the income elasticity of her demand in this case?
What is it?

B) i) What is cross price elasticity?

ii) What is the sign of cross price elasticity?

 iii) Suppose when the price of commodity X was 20 rupees, the demand for
commodity Y was 250 units, which increased to 850 units when the price of X rose
to 25 rupees. Is it possible to compute the cross price elasticity of demand in this
case? What is it?

[(2+4+4)+(2+4+4)=20 marks]

3) Explain the circular flow diagram in details. [10 marks]