1. Imagine there are two types of potential customer for jam sold by a small food shop.

One is the person who has just run out and wants some now. The other is the person
who looks in the cupboard, sees that the pot of jam is less than half full and thinks, ‘I
will soon need some more’.
A. How will the price elasticity of demand differ between these two customers?
B. Discuss first, second and third-degree price discrimination.
C. Why may a food shop charge higher prices than supermarkets for ‘essential items’
and yet very similar prices for delicatessen items?
2. Virtually every good is scarce in the sense we have defined it. There are, however, a
few exceptions. Under certain circumstances, water and air are not scarce.
A. When and where might this be true for (a) water and (b) air?
B. Why is it important to define water and air very carefully before deciding whether
they are scarce or abundant?
C. Under circumstances where they are not scarce, would it be possible to charge for
them?
3. The number of owners of mobile phones has grown rapidly and hence the demand for
mobile phones has also grown rapidly. Yet the price of mobile phones has fallen.
A. Discuss price elasticity of demand in above context.
B. What if one of the mobile phone manufacturers wants to increase the prices of their
products.? Will it be having any effect on the market prices and supply.
C. What if one of the mobile phone manufacturers wants to reduce the prices of their
products.? Will it be having any effect on the market prices and supply.
4. A. Can you think of 3 examples of goods which have a totally inelastic demand
(a) at all prices; (b) over a particular price range?
B. Discuss in detail various type of elasticities faced by the market.
C. Which of these two pairs are likely to have the highest cross-price elasticity of
demand: two brands of coffee, or coffee and tea? Why? Discuss in detail.
5. A. Why is perfect competition so rare?
B. Why does the market for fresh vegetables approximate to perfect competition,
whereas that for frozen or tinned ones does not?
C. ‘The outcomes of perfect competition are always good, whereas monopolies
are always bad.’ Discuss this statement.
6. A. For what reasons would you expect a monopoly to charge (a) a higher price
and (b) a lower price than if the industry were operating under perfect
competition?

B. Think of three examples of monopolies (local or national) and consider how

contestable their markets are.
C. Give three examples of a government-created monopoly. Is creating this
monopoly necessarily bad public policy? Explain.

7. A. Describe the three attributes of monopolistic competition.

B. How is monopolistic competition like monopoly? How is it like perfect
competition?
 C. Draw a diagram depicting a firm that is making a profit in a monopolistically
competitive market. Now show what happens to this firm as new firms enter
the industry.

8. A. 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 intersect.
where they do
B. How and why does a firm’s average-total-cost curve in the short run differ
from its average-total-cost curve in the long run?
C. Buffy is thinking about opening an amulet store. She estimates that it would
cost $350,000 per year to rent the location and buy the merchandise. In
addition, she would have to quit her $80,000 per year job as a vampire hunter.
a. Define opportunity cost.
b. What is Buffy’s opportunity cost of running the store for a year?
c. Buffy thinks she can sell $400,000 worth of amulets in a year. What would
her accountant consider the store’s profit?
d. Should Buffy open the store? Explain.
e. How much revenue would the store need to generate for Buffy to earn
positive economic profit?
9. The city government is considering two tax proposals:
• A lump-sum tax of $300 on each producer of hamburgers.
• A tax of $1 per burger, paid by producers of hamburgers.
A. Which of the following curves—average fixed cost, average variable cost,
average total cost, and marginal cost—would shift as a result of the lump-
sum tax?Why? Show this in a graph. Label the graph as precisely as possible
B. Which of these same four curves would shift as a result of the per-burger tax?
Why? Show this in a new graph. Label the graph as precisely as possible.
C. Describe the role of prices in market economies.
10.
A. “An increase in the demand for notebooks raises the quantity of notebooks
demanded but not the quantity supplied.” Is this statement true or false?
Explain.
B. Does a change in consumers’ tastes lead to a movement along the demand
curve or to a shift in the demand curve? Does a change in price lead to a movement
along the demand curve or to a shift in the demand curve? Explain your answers.
C. Beer and pizza are complements because they are often enjoyed together.
When the price of beer rises, what happens to the supply, demand, quantity supplied,
quantity demanded, and price in the market for pizza?

11. Explain each of the following statements using supply-and-demand diagrams.

A. “When a cold snap hits Florida, the price of orange juice rises in supermarkets
throughout the country.”
B. “When the weather turns warm in New England every summer, the price of
hotel rooms in Caribbean resorts plummets.”
C. “When a war breaks out in the Middle East, the price of gasoline rises and the
price of a used Cadillac falls.”

12. Consider public policy aimed at smoking.

 A. Studies indicate that the price elasticity of demand for cigarettes is about 0.4.
If a pack of cigarettes currently costs $5 and the government wants to reduce
smoking by 20 percent, by how much should it increase the price?
B. If the government permanently increases the price of cigarettes, will the policy
have a larger effect on smoking one year from now or five years from now?
C. Studies also find that teenagers have a higher price elasticity of demand than
adults. Why might this be true?
13.
A. A farmer sells wheat to a baker for $2. The baker uses the wheat to make
bread, which is sold for $3. What is the total contribution of these transactions
to GDP?
B. Why is it desirable for a country to have a large GDP? Give an example of
something that would raise GDP and yet be undesirable.
C. What items are excluded from national income statistics which would be
important to take account of if we were to get a true indication of a country’s
standard of living?
14. A. Describe some of the trade-offs faced by each of the following:
a. a family deciding whether to buy a new car b. a member of Congress
deciding how much to spend on national parks
c. a company president deciding whether to open a new factory
d. a professor deciding how much to prepare for class
e. a recent college graduate deciding whether to go to graduate school
B. You were planning to spend Saturday working at your part-time job, but a
friend asks you to go skiing. What is the true cost of going skiing? Now
suppose you had been planning to spend the day studying at the library. What
is the cost of going skiing in this case? Explain.
C. In what ways is your standard of living different from that of your parents or
grandparents when they were your age? Why have these changes occurred?

15. A. Give two examples of price discrimination. In each case, explain why the
monopolist chooses to follow this business strategy.
B. Why is a monopolist’s marginal revenue less than the price of its good? Can
marginal revenue ever be negative? Explain.
C. Describe the two problems that arise when regulators tell a natural monopoly
that it must set a price equal to marginal cost

16. Opportunity cost measures the benefit foregone in the next best alternative. When
making any decision it is important to consider not only the immediate costs involved
in it but also what would be sacrificed to pursue this course of action. In international
trade, for example, a country is competitive in the production of any given product if
it has a lower opportunity cost than others because it sacrifices less. A return of 5%
may look attractive in itself but if the alternative could earn 7% then it is not so
attractive. Opportunity cost is therefore a key concept in decision making.
 What according to the case study opportunity cost is?
 Do you think, while making important decision, one needs to take in consideration the
other costs involved apart from Opportunity cost, State reasons?
 Discuss the importance of opportunity cost as per the case study given above?
 17. Germany in 2009 there was considerable debate about the extent to which the
government should be intervening in the economy. For example, its citizens were
worried about the future of Opel, a German car brand that was part of the ailing
General Motors. Some wanted the government to make sure jobs were saved no
matter what. Others, however, were more hesitant and worried about becoming the
government becoming too interventionist. Traditionally since the Second World War
the German government has seen itself as a referee in market issues and has avoided
trying to control parts of the economy. It would regulate anti-competitive behaviour,
for example, but not try to run many industries. However in the recession of 2009
when the economy was shrinking the government was forced to spend more to
stimulate demand and had to intervene heavily to save the banking sector from
collapse. The government also had to offer aid to businesses to keep them alive.

 What are the possible benefits of a government intervening in an economy?

 What prompted greater intervention by the German government in 2009?
 What would determine whether the German continued to intervene on this scale in the
future?

18. The freezing cold spell at the beginning of 2010 not only increased demand for road
salt, (see the additional case study for chapter 6) but it increased demand for gas in the
UK. Usage reached 454 cubic metres; the previous record was 449m set in January
2003. The National Grid which is responsible for energy in the UK issued several
warnings in a matter of days that demand could outstrip supply and asked supplier so
increase the supply. The National Grid also told major gas users, such as power
plants, to reduce demand. Big generators, such as E.On, have both gas-fired and coal-
fired power stations and are able to choose between the two. In total, 27 large gas
users were asked to switch - 12 in the East Midlands and 15 in the North West.
 Illustrate the effect of the cold spell on the demand for gas using a demand curve
diagram.
 Illustrate the effect of the National Grid instructing major gas users to reduce their
demand.
 Analyse two other factors that you think influence demand for gas.

19. The price of raw sugar recently reached its highest level since 1981 due to problems
with supply. Historically, raw sugar has traded at between 10 and 12 US cents per
pound at the New York Board of Trade. But the price increased to over 18 cents last
month. Growing demand in Brazil for sugar to be turned into ethanol for fuel, coupled
with a sharp fall in Indian production have both been factors in the price increase.
Sugar production in India for 2008-09 fell 45% year-on-year due to less rain in the
monsoon season damaging a number of agricultural crops.

 Explain, using supply and demand analysis, why the price of sugar has been increasing
recently.
 Do you think a) the supply and b) the demand for sugar is price elastic or inelastic?
Justify your choices and explain whether this means any given change in supply or
demand will have a bigger effect on the equilibrium price of quantity.
 In what ways is the market for sugar used in confectionery related to the market for
ethanol?

20. In the FAST RETAILING Group’s Corporate Social Responsibility activities, we are
expected to take concrete, effective action in ever broadening areas by proactively and
quickly disclosing information, engaging in two-way communication, responding
sincerely to customers, developing sound relationships with business partners, and
demonstrating our concern for the global environment. For example, we vigorously
implemented social contribution activities through the AllProduct Recycling
Initiative, the promotion of employment of persons with disabilities, and support for
various charitable organizations. Furthermore, as a company that manufactures and
sells 400 million items of clothing a year, we have come to establish the backbone of
our CSR activities with which we engaged in quality and safety control as well as
environmental conservation throughout the supply chain, sought thorough health care
 management and promoted career development for our employees. In addition, we
required compliance with labor and environmental regulations and respect for human
rights from our business partners, including partner factories.

 What do you understand by CSR from above case?

 Why would a clothes retailer be interested in Corporate Social Responsibility? What
benefits might it bring to the business?
 Analyze the ways in which the behaviour of a clothes retailer wanting to act in a socially
responsible way might be affected.

21. At the start of 2010 a new free trade area was established incorporating China and the
six founding members of the Association of South East Asian Nations (ASEAN).
These countries are Brunei, Indonesia, Malaysia, Philippines, Singapore, and
Thailand. The aim is to eliminate 90% of imported goods. This deal created the
largest trade area in the world, with nearly 1.9bn people. Although there are
undoubted gains there have also been warnings from South East Asia that some
industries are not ready to compete with China and that jobs will be lost.
 What is a free trade area?
 Outline the potential advantages and disadvantages of joining this area for the member
countries.
 What factors determine the extent to which industries within a country gain or lose?

22. In 2010 the Greek government had to inform the European Commission on how it
would control its budget deficit and improve the performance of its economy. The
government’s debt is so high that agencies assessing the creditworthiness of the
government downgraded it (which would mean more interest has to be paid to raise
finance). Proposals were likely to include a 10% cut in government spending.
 What would the effect on aggregate demand be if the government cut public spending by
10%?
 What actions can the government take to increase national income growth in Greece?
 If the Greek economy is in recession what would you expect to be the effect on: a)
Inflation? b) Unemployment? c) Imports? Explain your answers.
 23. PESTEL analysis involves a study of the macro external environment. This can be
compared with the strengths and weaknesses of the business to help determine its
strategy. The growth of emerging markets, for example, may lead a business to switch
resources into targeting economies such as China and Russia. When undertaking
PESTEL analysis managers will review the position of the business and debate
possible future changes; this discussion in itself is useful because it gets managers
talking and evaluating opportunities and threats. However the value of PESTEL
analysis depends on how accurate the information is (and this can be difficult when
estimating economic change, for example), how well managers identify the relevant
factors and what actions is taken as a result. Managers will need to develop an
appropriate plan and then implement it effectively.
 Discuss the possible value to managers of undertaking PESTEL analysis.
 Describe the importance of PESTEL analysis from the scope of Business Environment?
 What two changes in your economy in recent years do you think are likely to be most
important for businesses? Justify your choices.

24. If a business expands then in the long term it may experience internal economies or
diseconomies of scale. Internal economies of scale exist when the long run average
cost falls; diseconomies of scale exist when the long run average costs rises as a
business expands. Economies of scale include: technical, managerial, financial and
purchasing. Diseconomies of scale include motivation, coordination, control and
communication. As a business gets bigger it can be difficult to manage effectively as
there are so many people involved in the process. The existence of economies and
diseconomies will vary from industry to industry and business to business. The use of
budgets, effective communication systems such as regular briefings and updates and
good management training can help avoid diseconomies of scale, for example. The
existence of high initial costs to set up the business, for example in
telecommunications, can lead to substantial economies of scale.
 What do you mean by Economies of Scale from the above case study?
 What do you mean by Diseconomies of Scale from the above case study?
 Discuss the potential cost advantages and disadvantages to a business of expanding.
 25. In some senses it is scientific- economists can monitor what has changed and what the
effect of this is; from this they can build models. However, conditions can change
quickly and models can become out of date. Economists will argue about the validity
of models and their priorities and at times economist must be creative in their thinking
of solutions to problems.
 How does the economists help to recover the economy during difficult times?
 Do you think the models initiated by the renowned economists is going to help the
different economy in future?
 Is economics a science or an art

26. Faster growth may: Create jobs Increase the standard of living as measured by real
GDP per person However faster growth may have many disadvantages such as: •
Involve unwelcome environmental effects • May lead to a poor quality of life (e.g.
due to pollution and more working hours) • May create even more social inequality •
May not make people happy Governments are likely to consider what their voters
want and respond to this. If people believe that faster growth and higher incomes are
key this is likely to drive policy.
 Is faster growth a sensible aim for government?
 How prevailing economic conditions helps the country to learn and grow
simultaneously?
 Is it always feasible for all the economies to grow?

27. The free market has many potential failures and imperfections such as monopoly,
externalities and asymmetric information. This may require government intervention
to remedy the failures. The government may tax, subsidise, provide directly or
legislate. Whether more intervention is needed depends on the views of the voters and
MPs, whether forms behaviour gets worse and whether existing approaches have been
relaxed. In recent years there have been many instances of undesirable behaviour such
as criticisms of the rewards to bankers even after the financial crisis, the phone
hacking scandal by News International and the misrepresentation of the LIBOR
interest rate by banks. This has led to greater pressure to control some sectors of the
economy in the UK.
 Illustrate and relate your understanding on the basis of Economic conditions of any
country?
 Do you think voters takes the right decision themselves or get influences by someone?
 Does the government need to regulate business behaviour more?

28. Firms in India are losing productivity because of Facebook. Office staff are spending
too long on the social networking site. According to The Associated Chambers of
Commerce and Industry (Assocham) employees use Orkut, Facebook, Myspace, and
Linkedin for "romancing" and other purposes. On average, employees spend an hour a
day on sites like Facebook. This reduces productivity by 12.5%. Nearly half of office
employees accessed Facebook during work time. Some 83% saw nothing wrong in
surfing at work during office hours. In September 2009 Portsmouth City Council in
England banned staff from accessing Facebook on its computers when it was
discovered that they spent, on average, 400 hours on the site every month.
 What is meant by productivity?
 Analyze the impact on a fall in productivity on costs.
 Analyze the possible consequences for businesses in India of banning access to Facebook
and other social networking sites.

29. The existence of economies and diseconomies will vary from industry to industry and
business to business. The use of budgets, effective communication systems such as
regular briefings and updates and good management training can help avoid
diseconomies of scale, for example. The existence of high initial costs to set up the
business, for example in telecommunications, can lead to substantial economies of
scale.
 Illustrate as per the above case study the scenario of Indian telecom sector?
 What do you mean by Diseconomies of Scale as per the above case study?
 Discuss the potential cost advantages to a business of expanding?

30. Since the Second World War the German government has seen itself as a referee in
market issues and has avoided trying to control parts of the economy. It would
regulate anti-competitive behaviour, for example, but not try to run many industries.
 However in the recession of 2009 when the economy was shrinking the government
was forced to spend more to stimulate demand and had to intervene heavily to save
the banking sector from collapse. The government also had to offer aid to businesses
to keep them alive.
 Illustrate as per the above case study the scenario of different Indian sectors?
 How prevailing economic conditions helps the country to learn and grow
simultaneously?
 What actions can the government take to increase national income growth in their
country?

31. a. How the value is added in the production function?

b. What factors of production will be require to construct a factory? Explain.
c. How the law of variable proportion works with the use of single variable?

48. A How impact substitute’s assumption is applicable in Law of variable proportion?

b. How the different types of return are determined in Law of variable Proportion
c. Why the law of variable proportion is called Law of diminishing returns?

32. a. Discuss the returns to scale with the help of isoquants

b. How the companies can take the advantage of economies of scale?
C “all inputs are variable in long run and only two inputs are used”, this
statement is related To which Law?

33. Explain the following features in context of Agriculture industry:

a. Homogeneous product
b Perfect knowledge of market
b How the price is determined in the short run in perfect competition
c How Advertisement helps monopolist to increase its market share?

34. A. How the price of the frim is determined from industry price?
B. Compare the Automobile industry and agriculture according to market structure.
C Give two examples of each 1. Legal Monopoly 2. Economic Monopoly

35. How the price and Output for the firm and industry are determined in the long run during
the perfect competition
Discuss the market demand equilibrium.
Give two example of each 1. Reginal Monopoly 2. Economics Monopoly

36. Why the firms determined to leave the industry in the short run? Explain with the help of
a diagram
Explain the concept of Monopoly by taking appropriate example from the industry
Discuss the type of demand by taking example.

37. Why non price completion exist in Oligopoly?

Why Cartels exist in Cement Industry
Explain the concept of market equilibrium due to change in supply.

38. “Cartels are legal in India”? Explain.

How internal business environment affect the business?
How the demand for any product is determined?

39. Discuss the Law of demand in context of Substitution effect

Explain concept of Duopoly with suitable examples.
How the equilibrium changes with the change in both demand and supply

40. Discuss the Law of demand in context of Income effect

Why and how demand curve changes?
How super normal profits are determined in Monopolistic competition?

Q:41
a) Explain different stages of business cycles?
b) Define inflation and its different types?
c) Define unemployment and its types?

Q:42
a) Explain meaning, types and consequences of inflation?
b) Explain theory of business cycle with real world examples?