MAHARASHTRA NATIONAL LAW UNIVERSITY, NAGPUR

B.A.LL.B. (Hons.) Year-II Semester-III: Academic Year : 2020-2021

Second Open Book Assessment, November- 2020
3.4 Economics-I

Total Marks: Thirtry (30)

Instructions:
1. Read the questions carefully and answer.
2. No clarification shall be sought on the question paper.
3. Use the Answer File Template sent by Examination Section and fill the necessary
information.
4. Answer File Nomenclature : UID and Course Name (For Example- UID: UG2019-01
& Course: 3.4 Economics-I, Answer File Nomenclature: 2019-01Economics-I).
5. Use of open resource(s) to answer the question(s) permitted.
6. Email the answers in MS Word File to the course instructor on or before 2:00 pm,
November 8, 2020 (Sunday), without fail.

Note: Attempt any THREE (3) questions. All questions carry equal marks.

1.Consider a small city that is mired with rampant spread of a lethal virus.You have just opened
the only sanitization services company in the city. There are two distinct residential areas in the
city, high-end area and low-end area, but the cost of sanitization is the same in both areas. Consider
two consumers with different demand curves. Consumer A stays in the high-end residential area
and has a relatively inelastic demand for your sanitization services. In contrast, Consumer B stays
in the low-end residential area and has a relatively elastic demand for your sanitization services.
(a) If you were to engage in price discrimination, who would you charge a higher price and who
a lower price? Explain your answer. 3 Marks
(b) What is the type of price discrimination you engage in your answer to part (a)? What are the
conditions for price discrimination to occur? Explain why you will earn a lower profit if you charge
the same price to both customers as compared to exercising price discrimination. 7 Marks

2.(a)The perfectly competitive model assumes that firms know when its marginal revenue equals
marginal costs. If firms don’t have such knowledge, how might the theory of perfect competition
be changed to reflect the reality of the firms in a better way? 5 Marks
(b) If a firm is owned by its workers but otherwise meets all the qualifications for a perfectly
competitive firm, will its price and output decisions differ from the price and output decisions of
a regular perfectly competitive firm? Analyse critically. 5 Marks

3.Suppose that on the basis of a new study on climate change, government recently raised its
estimate of damage to the economy from greenhouse gases such as carbon dioxide. It has been
reported that steel production generates a great deal of carbon dioxide. Present and discuss a
diagram to help explain your answers to the following questions.
(a) Will the new higher estimate of social cost imply a higher or lower efficient quantity of steel?
5 Marks
(b) Will the new higher estimate of social cost imply a higher or lower level of the Pigouvian tax
required to attain the efficient level of steel? 5 Marks
(Strictly for Private Circulation)
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4. Consider the diagram given below :-

Generally, a developing country has these three avenues of economic growth and development.
But as a matter of fact, many developing countries are trapped in a vicious circle of
underdevelopment. Because they are poor , they have little or no extra output available for saving
so that it can feed and clothe the all of its present generation. Thus, they are doomed to stay poor
for a prolonged period. Further,for a developing country to grow, it needs capital. The major
source of capital in most of the developing countries is domestic saving, but the goal of stimulating
domestic saving usually found to be in conflict with government policies aimed at reducing
inequality in the distribution of income and wealth.
(a) Critically analyse each of the economic development path depicted in the given diagram and
suggest effective ways and means to breakout of the vicious circle of underdevelopment.
5 Marks
(b) Critically analyse the trade-off between equity and growth for each of the given path of
economic growth and development and suggest effective measures to resolve it . 5 Marks

5.The dynamism spurred by domestic as well as foreign economic and non-economic factors in a
globalised economy like India causes fluctuation in output gap of the economy. These aberrations
give rise to inflationary and deflationary gap in the economy. These anomalies in turn, are
responsible for undesirable phases like boom and recession in the economy that warrants timely
and effective policy intervention from the government.
(a) In the light of Keynesian Theory of Income and Output, critically analyse the effectiveness of
monetary and fiscal policy in influencing aggregate demand and output in the economy in order
to rectify macroeconomic imbalances. 5 Marks
(b) Critically anlyse the contradictions between the fiscal and monetary policies arising in the
rectification of inflationary and deflationay gap of the economy and suggest measures to deal with
these effectively. 5 Marks

***
(Strictly for Private Circulation)

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