If the price of a substitute Y of good X increases, what impact does it have on the equilibrium price and quantity of good X?
X and Y being substitute goods, if the price of Y increases, then it will reduce the demand for Y and people will switch to X, which will raise the demand for X. thus, the demand curve will shift from D1D1 to D2D2. At the existing price P1 there will be an excees demand. Due to the pressure of excees demand the existing price will increase. Consequently, the new equilibrium occurs at E2 where the new demand curve D2D2 intersects the supply curve S1S1. The
new equilibrium price is P2 which is higher than P1 and equilibrium quantity is q2 which is higher than q1. Therefore due to the increase in the price of substitute good Y the equilibrium price of X will rise and equilibrium output of X will also be higher.
How will a change in the price of coffee affect the equilibrium price of tea? Explain the effect on equilibrium quantity also through a diagram.
Suppose the price at which the equilibrium is attained in exercise 5 is above the minimum average cost of the firms constituting the market. Now if we allow for free entry and exit of firms, how will the market price adjust to it?
When do we say that there is an excess demand for a commodity in the market?
Suppose the market determined rent for apartments is too high for common people to afford. If the government comes forward to help those seeking apartments on rent by imposing control on rent, what impact will it have on the market for apartments?
Explain through a diagram the effect of a rightward shift of both the demand and supply curves on equilibrium price and quantity.
When do we say that there is an excess supply for a commodity in the market?
How are equilibrium price and quantity affected when income of the consumers
a) Increase
b) Decrease
Explain market equilibrium.
In what respect do the supply and demand curves in the labor market differ from those in the goods market?
Explain how price is determined in a perfectly competitive market with a fixed number of firms.
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?
Discuss the central problems of an economy.
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 |
- |
What do you mean by the production possibilities of an economy?
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?
What is the marginal product of an input?
Explain why the budget line is downward sloping.
What are the total fixed cost, total variable cost and total cost of a firm? How are they related?
What are the average fixed cost, average variable cost and average cost of a firm? How are they related?
What is meant by prices being rigid? How can oligopoly behavior lead to such an outcome?
A consumer wants to consume two goods. The prices of the two goods are Rs 4
and Rs 5 respectively. The consumer’s income is Rs 20.
(i) Write down the equation of the budget line.
(ii) How much of good 1 can the consumer consume if she spends her entire
income on that good?
(iii) How much of good 2 can she consume if she spends her entire income on
that good?
(iv) What is the slope of the budget line?
Questions 5, 6 and 7 are related to question 4.
Suppose a consumer’s preferences are monotonic. What can you say about her preference ranking over the bundles (10, 10), (10, 9) and (9, 9)?
Will the monopolist firm continue to produce in the short run if a loss is incurred at the best short run level of output?
Why is the short-run marginal cost curve 'U'-shaped?
Consider the demand for a good. At price Rs 4, the demand for the good is 25 units. Suppose the price of the good increases to Rs 5, and as a result, the demand for the good falls to 20 units. Calculate the price elasticity.