Suppose there are two consumers in the market for a good and their demand functions are as follows:
d1(p) = 20 – p for any price less than or equal to 20, and d1(p) = 0 at any price greater than 20.
d2(p) = 30 – 2p for any price less than or equal to 15 and d1(p) = 0 at any price greater than 15.
Find out the market demand function.
d1 (p) 20-p
d2 (p) 30-2p
For price less than Rs 15 ( p ≤ 15)
Market demand for a good = d1(p)+d2(p)
20 – p + 30 – 2p
= 50 – 3p
For price more than Rs 15 but less than Rs 20 (15 < ≤ p 20)
Market demand =d1(p) + d2 (p)
= 0+0 (∵for p>15, d1 ( p) 0,d2(p)=0)
= 0
Thus, market demand
= 50 – 3p if p ≤15
= 20 – p if 15 < ≤ p 20
= 0 if p>20
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 your friend is indifferent to the bundles (5, 6) and (6, 6). Are the preferences of your friend monotonic?
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.
Consider the demand curve D (p) = 10 – 3p. What is the elasticity at price 53?
What is budget line?
Explain why the budget line is downward sloping.
What do you mean by an ‘inferior good’? Give some examples
Suppose a consumer wants to consume two goods which are available only in
integer units. The two goods are equally priced at Rs 10 and the consumer’s
income is Rs 40.
(i) Write down all the bundles that are available to the consumer.
(ii) Among the bundles that are available to the consumer, identify those which cost her exactly Rs 40.
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)?
What do you mean by substitutes? Give examples of two goods which are substitutes of each other.
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.
Discuss the central problems of an economy.
What are the characteristics of a perfectly competitive market?
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?
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?
Will the monopolist firm continue to produce in the short run if a loss is incurred at the best short run level of output?
What do you understand by positive economic analysis?
What does the average fixed cost curve look like? Why does it look so?
Can there be a positive level of output that a profit-maximising firm produces in a competitive market at which market price is not equal to marginal cost? Give an explanation.
Why is the total revenue curve of a price-taking firm an upward-sloping straight line? Why does the curve pass through the origin?
Explain through a diagram the effect of a rightward shift of both the demand and supply curves on equilibrium price and quantity.
Discuss the central problems of an economy.
A monopoly firm has a total fixed cost of Rs 100 and has the following demand schedule:
Quantity |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
10 |
Marginal Revenue |
100 |
90 |
80 |
70 |
60 |
50 |
40 |
30 |
20 |
10 |
Find the short run equilibrium quantity, price and total profit. What would be the equilibrium in the long run? In case the total cost is Rs.1000, describe the equilibrium in the short run and in the long run.
A firm earns a revenue of Rs 50 when the market price of a good is Rs 10. The market price increases to Rs 15 and the firm now earns a revenue of Rs 150. What is the price elasticity of the firm’s supply curve?
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.