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537 2 3
537
2. (i) Introduction of minimum-wage law causes
unemployment in labour market.
3.

4. (ii) The unemployment rate should be below

3%.
5.

(ii) Increase in public health expenditure

will increase the overall expenditure of
1. (a)There are 10 workers in Australia and cach can government.
produce either 2 computers or 30 tons of rice.
There are. 10 workers in India and each, can (c Use the concept of Production Possibilities Frontier

produce either 5 computers or 40 tons of rice. (PPF) to illustrate society's trade-off between two
goods. Explain why PPF most likely has a bowed
(i) Draw the production possibility curve for
TE out shape. Show a point that is impossible for the
böth the countries. economny to achieve. Show a point that is feasible
but inefficient. (6+6+6)
(ii) Which country hs absolute advantage in
(5
production of computers?

(iii) Which country has a comparative.

advantage in the production of rice?

(b) Differentiate between a, normative and positive,

statement. Are the following statements positive
or normative?

P.T.0.
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537 4
537 5

2. (a) Calculate elasticity of demand and elastícity of

supply at the equilibrium price for the given demand
(m)
and supply function:

Qd = 80 -6P: Os = - 10 + 3P

brA technological advancement reduces the cost of

making computers enormously. Use supply-and
demand diagram to show:

(i) What happens to equilibrium price and

quantity in the market for software2

(ii) What will happen to the price and quantity

in the market for typewriters?

(ii) Whose producers (typewriter or software)

will be happy?

(c) What are the factors that influence the elasticity

of demand for any good? Suppose the price
elasticity of demand for good X is about 0.3 and
5Aits current price is 60. By how much should the
E
government increase the price if it wants to reduce
the consumption of good X by 30 percent?
(6+6+6)

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6 537 7
537
3. (ayThe demand (Q4) and supply (Q) for apple is
2P;Q, =-10 P Calculate
+
given as: Q,=170-
the equilibrium price and quantity of apples. The
Od = 80
– 6P; Qs =- 10 + 3P
a
government passed a law that introduces

statutory minimum price for apples as 70. Explain

the resulting change in market price, quantity
demanded and new consumer surplus and producer
surplus.

(b) Explain whether the following statements are true

or false.

(i)Pizza and cold drink are considered

ss complementary goods, if the price of pizza
decreases the quantity demanded for both
? goods will increase.

(ii) A drought in the entire state raises the

total revenue that farmers receive from the
sale of rice, but a drought only in one
district reduces the total revenue received
by the farmers of that district.

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8
537 537
in nature?
(c)_AWhen is a. pricc floor non-binding
a binding
Suppose that the government imposes
market. What would be
pricc floor in the wheat
on the quantity of wheat
the effect of this policy

bought and sold? Would the total revenue of the

farmers increase or decrease? Explain.

(6+6+6)

() ta t T
(Q) sir aryfi (Q) yaR :
Q=170– 2P; Q.=-10 +P tT HgT áMT r

I GR YA, a market
HGT AT 3
34I 4: a)Süppose that for tables is described
by the following supply and demand functions:

=3P; Q, = 200 -P. Calculate the equilibrium

price and the equilibrium quantity of tables.

Suppose that a tax of 40 is placed on buyers.
Solve for the new equilibrium. What happens to

the price received by sellers, the price paid by

buyers and the quantity sold? Calculate the dead
weight loss.

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10
537 537 11
Commons? Suppose
(6YWhat is the Tragedy'of Delhi

Metro is planning to charge higher fares during

is
rush hours than during the rest of the day. Why
a
it proposing such plan?

la Evnlain in detail the market based policies that 5. (a} Assume India is an importer of televisions and
government can use to solve the problem of there are no trade restrictions. Indian consumers

inefficiency caused by externalities. (6+6+6) buy 10,000 televisions per year, of which 4,000
are produced domestically and 6,000 are imported.

Suppose that a technological advance among

Japanese television manufacturers causes the world
price of televisions to fall by 100. After the fall
in price, Indian consumers buy 12,000 televisions,
of which 2,000 are produced domestically and
10,000 are imported. Calculate the change in
consumer surplus, producer surplus, and total
surplus from the price reduction of 100.

(b) Differentiate between price and cross-price

elasticity of demand. Suppose an increase in price
40 to per unit results in an
of burger from 44
to
increase in demand for noodles from 100 units
120 units. Estimate cross price elasticity of
demand
two goods.
and comment on the nature of these
<br>

12
537 537 13
of externalitý using examples,
Eyplain the concept (a) JATsutt
government try to internalize the
How can the
education? (6t6+6)
externality caused by

aå10,000 (a) Explore the relationship between

deadweight
loss from tax, tax revenue
and tax size. W

fhe government be ill

f iT able to increase its revenue
if
it imp0ses tax on 'a good
which has inelastic
demand?

(h) Most of the contagious

. diseases can be prevented
by taking an injection of vaccine
in local hospitals.
R The decision to take the vaccine
is purely
voluntary and some people choose not to go ahead
with it due to the high cost involved. What type
of
a: externality occurs for vaccines against highly
a suitable diagram to
() it HT GH-ET à ag âfI Contagious.diseases? Use
show the market equilibrium quantity of the
vaccine. Is the quantity also socially efficient?
Suggest one method to achieve a socially efficient
outcome.