INDIAN INSTITUTE OF TECHNOLOGY ROORKEE

DEPARTMENT OF HUMANITIES AND SOCIAL SCIENCES

End-term Examination: Autumn 2020-2021: HSS-01 - Economics
Duration: 2 hours Total Marks: 40

Answer all questions. Make sure you write the formulas and symbols/units wherever required.
Section A:
1) a. Maximize profits (π) for a firm, given total revenue R = 4000Q - 33Q2 and total cost C = 2Q3 – 3Q2 –
400Q – 5000, assuming Q>0. [2.5]
b. If the STC of a firm at various levels of output is given by the values in Table below and TR = P*Q =
$4*Q, determine the level of output at which the firm maximizes total losses, breaks even, and maximizes
total profits. [2.5]

c. Given the following TP, find the APL and MPL. On the same set of axes, plot the TPL, APL, and MPL
schedules and indicate on the figure the stages of production for L and K; where does the law of the
diminishing returns for L begin to operate? Where will a rational producer produce? Why? [2.5]

2) a. Starting with utility function U = U(X, Y) and budget constraint PXX + PYY = M, derive the equilibrium
condition using calculus. And explain the consumers equilibrium with the help of appropriate graph. [2.5]
b. A consumer carries ₹ 50000 with her. Case A: She (consumer) used to spend same amount (i.e., ₹500)
on petrol in each week; Case B: she used to spend 5 litres of petrol in each week. Calculate the elasticity of
demand in each case (A & B separately) till the entire amount got spent and justify your answer using the
appropriate equation or diagram. [4]

3) Multiple Choice Questions [0.75*8 = 6]

(You must justify your answer by explaining it in few suitable words)

I. A fall in the price of a commodity, holding everything else constant, results in and is referred to as
(a) an increase in demand (b) a decrease in demand
(c) an increase in the quantity demanded (d) a decrease in the quantity demanded.
II. An increase in the price of a commodity when demand is inelastic causes the total expenditures of
consumers of the commodity to
(a) increase (b) decrease (c) remain unchanged (d) any of the above
III. If we have constant returns to scale and we increase the quantity of labor used per unit of time by 10%
but keep the amount of capital constant, output will
(a) increase by 10% (b) decrease by 10%
(c) increase by more than 10% (d) increase by less than 10%.
IV. If only part of the labor force employed by a firm can be dismissed at any time and without pay, the
total wages and salaries paid out by the firm must be considered
(a) a fixed cost (b) a variable cost
(c) partly a fixed and partly a variable cost (d) any of the above.
V. Total profits are maximized where
(a) TR equals TC
(b) the TR curve and the TC curve are parallel
(c) the TR curve and the TC curve are parallel and TC exceeds TR
(d) the TR curve and the TC curve are parallel and TR exceeds TC.
VI. The best, or optimum, level of output for a perfectly competitive firm is given by the point where
(a) MR equals AC (b) MR equals MC
(c) MR exceeds MC by the greatest amount (d) MR equals MC and MC is rising.

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 VII. Which of the following is false with regard to the derivation of empirical demand curves?
(a) Supply shifts must be greater than demand shifts
(b) tastes must remain constant over the period of the analysis
(c) the price of related commodities must remain constant
(d) market and not individual demand curves are derived.
VIII. If the price-consumption curve for a commodity is horizontal at all relevant prices for it, the demand
curve for this commodity is
(a) horizontal (b) positively sloped (c) vertical (d ) a rectangular hyperbola

Section B:
4) a. People complain that inflation increases the cost of goods and services and therefore reduces their
purchasing power. If inflation and income grow at the same rate, is this complaint valid? Explain
carefully. [2]
b. Since real GDP is adjusted for inflation and nominal GDP is not, nominal GDP must always be higher
than real GDP. Do you agree or disagree? Why? [2]
c. Identify and contrast the differences between the rise in prices due to inflation and the rise in prices in
microeconomic markets. [2]
5) a. Given the following information, calculate GDPFC: NNPMP = Rs. 3200; Net factor income from abroad
(NFIA) = Rs. 200; Consumption of fixed capital = Rs. 1000; Indirect taxes = Rs. 500; Subsidies = Rs.
300. [3]
b. Following are the hypothetical data for the budget (Rs.cr.) of Central Government for a given financial year.
1. Revenue Receipts 751437
2. Tax Revenue (net to centre) 629765
3. Non-Tax Revenue 121672
4. Capital Receipts (5+6+7) 552928
5. Recoveries of Loans 18850
6. Other Receipts 18088
7. Borrowings and other liabilities 515990
8. Total Receipts (1+4) 1304365
9. Non-Plan Expenditure 891990
10. On Revenue Account of which 812049
11. Interest Payments 273150
12. On Capital Account 79941
13. Plan Expenditure 412375
14. On Revenue Account 333737
15. On Capital Account 78639
16. Total Expenditure (9+13) 1304365
17. Revenue Expenditure (10+14) 1145785
18. Of Which, Grants for creation of Capital Assets 132582
19. Capital Expenditure (12+15) 158580

i. Using the table above, calculate revenue deficit, fiscal deficit, and primary deficit. [3.5]
ii. Also, calculate revenue deficit, fiscal deficit, and primary deficit as a percentage of GDP, if GDP for this
year is estimated at Rs. 8912178 crore. [2]

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 c. Following Table below contains hypothetical data for the date Jan. 24, 2021. Calculate Sensex for this
date. Other information are given below: Full Market Capitalisation on the base date i.e., Jan.17, 2021:
2743292. Free Float Market Capitalisation on the base date Jan.17, 2021: 1350000, and Sensex on the
base data: 15000. [2.5]

Close No.of Shares Full Mkt. Cap. (Rs. Free-Float Adj. Free-Float Mkt. Cap *Weight in
Company
Price (normal) crore) Factor (Rs. crore) Index (%)*

RELIANCE 879.6 3274230107 288001.28 0.55 158400.7 10.97

INFOSYS LTD 2829.1 574203082 162447.79 0.85 138080.62 9.56

I T C LTD 210.35 7773036720 163505.83 0.7 114454.08 7.93

ICICI BANK L 885.2 1152447612 102014.66 1 102014.66 7.06

HOUSING DEVE 682.9 1469093501 100324.4 0.95 95308.18 6.6

HDFC BANK LT 482.1 2335493765 112594.15 0.8 90075.32 6.24

LARSEN & TOU 1392.85 611161097 85125.57 0.9 76613.02 5.31

TCS LTD. 1099.1 1957220996 215118.16 0.3 64535.45 4.47

STATE BANK O 1964.25 634998991 124729.68 0.45 56128.35 3.89

BHARTI ARTL 397.95 3797530096 151122.71 0.35 52892.95 3.66

ONG CORP LTD 277.65 8555490120 237543.18 0.2 47508.64 3.29

MAHINDRA & M 835.05 613974839 51269.97 0.8 41015.98 2.84

HIND UNI LT 378.85 2160326258 81843.96 0.5 40921.98 2.83

TATA MOTORS 188 2691485485 50599.93 0.7 35419.95 2.45

TATA STL 467.9 959214779 44881.66 0.7 31417.16 2.18

NTPC LTD 179.55 8245464400 148047.31 0.2 29609.46 2.05

BHEL 333.65 2447600000 81664.17 0.35 28582.46 1.98

BAJAJ AUTO 1743.1 289367020 50439.57 0.5 25219.78 1.75

JINDAL STEEL 577.3 934509595 53949.24 0.45 24277.16 1.68

WIPRO LTD. 371.55 2457457840 91306.85 0.25 22826.71 1.58

SUN PHARMA 511.55 1035550385 52973.58 0.4 21189.43 1.47

HEROMOTOCO 2116.2 199687500 42257.87 0.5 21128.93 1.46

COAL INDIA 326.35 6316364400 206134.55 0.1 20613.46 1.43

HINDALCO IN 139 1918551613 26667.87 0.7 18667.51 1.29

STERLITE IN 123.15 3360700478 41387.03 0.45 18624.16 1.29

TATA POWER 103.3 2373072360 24513.84 0.7 17159.69 1.19

MARUTISUZUK 1123.35 288910060 32454.71 0.5 16227.36 1.12

CIPLA LTD. 293.7 802921357 23581.8 0.65 15328.17 1.06

DLF LIMITED 246.8 1698001797 41906.68 0.25 10476.67 0.73

JAIPRAK ASSO 79.25 2126433182 16851.98 0.55 9268.59 0.64

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6) Multiple Choice Questions (Provide one line justification for your choice) [0.75*4 = 3]

I. An Indian firm buys a new industrial sewing machine from a company located in France. Which of the
following is TRUE? Explain your answer.
i. India’s net exports decrease
ii. India’s investment increases
A) only i B) only ii C) both i and ii D) neither i nor ii

II. In calculating a country’s GNP at market prices, which of the following is not included?
A. Wages and Salaries before tax B. Indirect taxes
C. Retirement pensions D. Subsidies

III. In calculating national income, a transfer can be recognized if:

A. No money transaction is involved B. Consumer income is increased
C. No goods or services are produced in the process D. No tax relief is involved

IV. To obtain real average hourly earnings, nominal average hourly earnings are multiplied by the CPI.
A. True B. False