Discuss the subject matter of economics.
The subject matter of economics is sub-divided into two core branches, Micro Economics and Macro Economics. This division came into existence only after 1930 as per the suggestion by Ragnar Frisch. The domains of interest of these two branches of economics can be presented as Microeconomics is the study of individual economic units, i.e. the behaviour of consumers and firms. The study of how they utilise the given resources in the best possible manner in order to maximise their rationale objectives falls under the domain of microeconomics. It is also the study of demand and supply and how their interaction determines prices of various goods and services. Microeconomics helps in solving the three central problems of an economy. It is also called the Price theory as it primarily focuses on how prices are determined both in commodity and factor markets. In Macroeconomics we study how the economy as a whole operates. It focuses on the determination of the aggregate measures, like aggregate demand, aggregate supply and overall price level and how they change over time. It is also known as the Theory of Income and Employment as its main focus is on how income and employment levels are determined. Macroeconomics helps in understanding and solving problems like inflation, unemployment, Balance of Payments (BOP) disequilibrium, poverty, etc.
Distinguish between a centrally planned economy and a market economy.
Distinguish between microeconomics and macroeconomics.
What do you mean by the production possibilities of an economy?
What is a production possibility frontier?
Discuss the central problems of an economy.
What do you understand by normative economic analysis?
What do you understand by positive economic analysis?
Explain the concept of a production function
What would be the shape of the demand curve so that the total revenue curve is?
(a) A positively sloped straight line passing through the origin?
(b) A horizontal line?
Explain market equilibrium.
What are the characteristics of a perfectly competitive market?
What do you mean by the budget set of a consumer?
What is the total product of input?
From the schedule provided below calculate the total revenue, demand curve and the price elasticity of demand:
Quantity |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
Marginal Revenue |
10 |
6 |
2 |
2 |
2 |
0 |
0 |
0 |
- |
When do we say that there is an excess demand for a commodity in the market?
How are the total revenue of a firm, market price, and the quantity sold by the firm related to each other?
What is budget line?
Suppose the demand and supply curves of salt are given by:
(a) Find the equilibrium price and quantity.
(b) Now, suppose that the price of an input that used to produce salt has increased so, that the new supply curve is qs = 400 + 3p
How does the equilibrium price and quantity change? Does the change conform to your expectation?
(a) Suppose the government has imposed at ax of Rs 3 per unit of sale on salt. How does it affect the equilibrium rice quantity?
How does the budget line change if the price of good 2 decreases by a rupee
but the price of good 1 and the consumer’s income remain unchanged?
Suppose there are 20 consumers for a good and they have identical demand functions:
d(p)=10–3pd(p)=10–3p for any price less than or equal to 103103 and d1(p)=0d1(p)=0 at any price greater than 103.
A shift in demand curve has a larger effect on price and smaller effect on quantity when the number of firms is fixed compared to the situation when free entry and exits is permitted. Explain.
What do you mean by complements? Give examples of two goods which are complements of each other.
What is the reason for the long run equilibrium of a firm in monopolistic competition to be associated with zero profit?
Consider a market where there are just two consumers and suppose their demands for the good are given as follows:
Calculate the market demand for the good.
p |
d1 |
d2 |
1 |
9 |
24 |
2 |
8 |
20 |
3 |
7 |
18 |
4 |
6 |
16 |
5 |
5 |
14 |
6 |
4 |
12 |
Explain why the budget line is downward sloping.
What conditions must hold if a profit-maximising firm produces positive output in a competitive market?
Let the production function of a firm be Q=2 L2 K2Q=2 L2 K2
Find out the maximum possible output that the firm can produce with 5 units of LL and 2 units of KK. What is the maximum possible output that the firm can produce with zero units of LL and 10 units of KK?