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13 views2 pages

HS1340

Uploaded by

Rakesh Mahalik
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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National Institute of Technology, Rourkela

Mid – Semester Examination, 2019


Session: 2019 – 20, Autumn Semester
Programme: B.Tech

Dept. Code: HS Course Code: HS-1340


Course Name: Principles of Economics Full Marks: 30
Duration of Examination: 2 hours
Figures at the right hand margin indicate marks
All parts of a question should be answered at one place

Q. N Section A Marks
Answer any FIVE 5x3=15

1. Define and describe the three fundamental concepts of Economics. Discuss


the four criteria used in judging the economic outcomes.

2. ‘Economics is a broad and diverse discipline with many special fields of


inquiry.’ Discuss. Also, differentiate between positive and normative
economics.

3. Discuss the basic decision making units of an economy. Also discuss the
concept of ‘circular flow’ in an economy between the input and output
markets.

4. Explain the law of demand and the law of supply. Discuss the determinants of
supply and demand in an economy. How does a market attain equilibrium?

5. Discuss the various types of elasticity of demand. Explain its salient


determinants.

6. Elucidate the law of diminishing marginal utility with suitable diagrams.


Discuss the utility maximization principle subject to budget constraint.

Section B Marks
Answer any THREE 3x5=15

7. Consider the market for apple juice. In this market, the supply curve is given
by and the demand curve is given by
where J denotes apple juice, A denotes apples, and T denotes tea.

a. Assume that is fixed at $1 and = $5. Calculate the equilibrium price


and quantity demand in the apple juice market.

b. Suppose that a poor harvest season raises the price of apples to = $2.
Find the new equilibrium price and quantity demand of apple juice. Draw a
graph to illustrate your answer.

c. Suppose = $1 but the price of tea drops to = $3. Find the new
equilibrium price and quantity of apple juice.

d. =$1, = $5, and there is a price ceiling on apple juice of = $5.


What is the excess demand for apple juice as a result? Draw a graph to
illustrate your answer.

8. You have been asked to analyze the market for steel. From public sources, you
are able to find that last year’s price for steel was $20 per ton. At this price,
100 million tons were sold on the world market. From trade association data
you are able to obtain estimates for the own price elasticities of demand and
supply on the world markets as −0.25 for demand and 0.5 for supply. Assume
that steel has linear demand and supply curves throughout.

a. Solve for the equations of demand and supply in this market and sketch the
demand and supply curves.

b. Suppose that you discover that the current price of steel is $15 per ton and
the current level of worldwide sales of steel is 150 million tons. The most
recent elasticity estimates from the trade association this year are −0.125
for demand and 0.25 for supply. Describe the change in the supply and
demand curves over the past year using your diagram from part (a). What
sort of event(s) might explain the change?

9. Harish consumes two goods X and Y, his utility function is .


Suppose the price of X is $10, while the price of Y is $15. Harish’s income is
$500.

a. Write the expression for indifference curve when Harish gets utility level
40. And along the indifference curve you found, calculate out the numbers
of consumption of X when Y=4.

b. Write the expression for Harish’s budget constraint, graph the budget
constraint and determine its slope.

c. Determine the X and Y combination which maximizes Harish’s utility,


given his budget constraint. And figure out what’s marginal rate of
substitution (MRS) between two goods at that maximization point.

d. Suppose now the price of X is changed to $15, calulate the impact on


Harish’s optimum choice. What’s the change to his maximized utility?

10. For a certain item the demand curve is


and the supply curve is . Find the equilibrium price and
equilibrium quantity. Then compute the consumer and producer surplus.

**End**

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