End Term Examination – November 2021

Course: Economics

Time: 1hour 30mins Max. Marks: 40

Instructions:
 Attempt any Three Questions from Section A (each carrying 6 marks); any Two Questions from
Section B (each carrying 6 marks). Section C is Compulsory (carrying 10 marks).
 Start each answer on a fresh page and number your answers clearly. Answer all parts of the same
Question together and in sequence.
 Use of calculator is permitted.

Section A (Attempt any Three Questions)- 3x6=18 marks

1. Explain the effect of the following factors on the equilibrium price & quantity in the market
for smart TVs:
i. increase in the lower middle class population [3+3]=6
ii technical improvements in the production process

2. A particular car manufacturer regards his business as highly competitive, as he is keenly

aware of his rivalry with the other car manufacturers. Like others, he undertakes serious
advertising campaigns and seeks to convince the potential buyers of the superior quality
and better style of his automobiles and reacts very quickly to claims of superiority by his [3+3]=6
rivals. Is this what is meant by Monopolistic Competition from an economics point of view?
Explain. In the light of this, discuss the important characteristics of Monopolistic
Competition market.
3. The market demand and supply functions for white board marker in Gurgaon region were
Qd = 5000 – 500P
Qs = 1000 + 500P
a) Determine the equilibrium price and quantity of marker.
b) Discuss the demand curve faced by one of the marker players in this market on
[2+4]=6
the assumption that the market is perfectly competitive . Show also the
equilibrium position and profit/loss of this particular player taking into
consideration its cost curves.

4. Write short notes on the following:

a) Internal and external economies & diseconomies of scale
b) Significance of Cartelisation [3+3]=6

SECTION B (Attempt any Two Questions)- 2x6 = 12 Marks

5. For the year 2019-2020, the following information is given for an economy : [1.5+1.5
(Rs. Crore)
NNP at factor cost 8,10,100 +1.5+1.
Depreciation 95,000 5]=6
Subsidies 25,100
Net factor income from abroad - 20,000
 Indirect taxes 1,50,000
Personal income taxes 24,000
Corporate taxes 21,000
Retained profits 10,000

Calculate the following:-

i) GNP at market prices

ii) NNP at market prices
iii) NDP at factor cost
iv) Personal Disposable Income

6. a) Suppose that exports currently equal imports and that imports are a function of the level
of income while exports are exogenously determined or given . What happens to the level
of income and the country’s trade balance if Government expenditures decrease.

b) The current level of income is Rs. 600cr. Full employment is defined as Rs. 700 cr. If [3+3]=6
taxes are unrelated to income and the marginal propensity to consume is 0.75, by how much
tax should be changed to bring about full employment.

7. What are the causes , effects and remedies for controlling inflation ? The discussion should
take into consideration the present Indian inflationary scenario.
[6]

SECTION C is Compulsory- 10 marks

8. ‘Bread Basket’ of India in a dilemma [6+4]=
10
Travelling through the state of Punjab, one is surprised at the progress the state has made in
field of agriculture. As Ukraine is called the bread Basket of the world, so is Punjab, the
bread basket of India.
In order to access the impact of the new agricultural policy of the government, whereby the
govt. wants to completely do away with the subsidy program in a phased manner, a team of
economists visited Punjab to review the situation by talking to farmers.
A sample of 200 farmers was taken from the very rich, rich, upper middle class and middle
income groups. While their reactions to questions varied to a lesser or greater extent, one
statement was made unanimously which surprised the study team.
Every farmer, who owned any land, said he would prefer a year when everybody had a bad
crop instead of a bumper crop. The farming community went ahead to elaborate by saying,
“if a mild disaster falls on all, of us it is not a disaster, but as a boom as we actually become
richer”. To this a wealthy farmer added, “A large volume of crop can not fetch us the
revenue which a small can.”
Working out the logic of their argument, economists realized that an individual farmer is a
‘price taker’; and cannot affect the prevailing price; hence the farming community
determines its revenue in terms of volumes of production. To this, some agriculturalists
express surprise. Prof Tripathi said,” for years we are doing intensive research to see how a
bumper crop can be grown, and here we get to hear that farmers prefer scarce production.”
Yet another scientist said, ‘how do these farmers earn good revenue with low production, as
there is scarcity of food production, agreed that the prices go up but the volumes come
down, how then does the farmer evaluate which is a better situation, a low production high
price or a high production low price?’
Economists in the study team agreed that in order to understand the farming community’s
logic, one had to understand the situation in more detail.
Further discussions with the farmers across earning levels revealed that the best situation for
a farmer is a good harvest in his own field and a general crop failure, while the worst
situation is a bad harvest in the farmer’s field and a good one for everybody else. But if
everyone is to enjoy the harvest, a moderately bad harvest is preferred to a very good one.
The icing on the cake was that the farmers were highly critical of the governments import
policy regarding food grains during a food crisis. The reason given was that the government
imported food grain and made it available to the non-farming community at a much cheaper
rate. This puts pursue on the government exchequer and harms the farming community
badly.
Farmers however seemed to be very happy with the government’s policy of buying food
grains from the farmers during a bumper crop. In their words,’ the government has to
intervene when there is a bumper crop, but should not overreact during shortages by
importing cheap quality food grain.’
Economists finally agree that the farming community understands and applies the powerful
relation between price elasticity, prices and revenuer. Their behavior revolves around this
powerful relation.

Now answer the following questions:

Q1. Elaborate the concept of relation between price, price elasticity and total revenue in the
context of this case.
Q2. Based on the above concept, do you think the behavior of the farming community is
logical? Why?