Download 1st Year, Paper IA - Heramba Chandra College

Heramba Chandra College
Question Bank
Economics (Hons.)
1st year Class
Paper I A
Microeconomics
Section A
Each of the following questions carries 4 Marks
1) What are positive and normative statements?
2) Why economics is called a social science?
3) What causes market failure?
4) What is opportunity cost? Describe with example.
5) Distinguish between absolute and comparative advantage.
6) What is meant by gains from trade?
7) Why do economists oppose policies that restrict trade among nations?
8) Define equilibrium of a market.
9) What are the factors that determine individual demand?
10) How do market adjusts itself in case of an excess supply?
11) If demand is elastic, how will an increase in price change total revenue. Explain.
12) How the price elasticity of supply can vary?
13) What do we call a good where income elasticity is less than zero?
14) Give an example of a price ceiling and an example of a price floor.
15) What determines how the burden of a tax is divided between buyers and sellers?
Why?
16) What leads to the growth of black market?
17) Discuss consumer surplus with the help of a diagram.
18) What is efficiency? Is it the only goal of economic policymakers?
19) What is dead weight loss? Explain with a diagram.
20) Describe the role of prices in market economies.
21) What is price elasticity of supply of Picasso paintings?
22) Which cause a shortage of a good – a price ceiling or a price floor? Which causes a
surplus?
23) What happens to the deadweight loss and tax revenue when a tax is increased?
24) What does the invisible hand do?
25) What are “excludable” & “rival” goods? Is pizza “excludable” or “rival”?
Section B
Each of the following questions carries 6 marks
26.Classify the following topics as relating to micro or macroeconomics with proper
reasoning:(i)A family decision about how much income to save
(ii)The impact of higher saving on economic growth
(iii)A firm’s decision about how many workers to hire
27.Are the following statements true or false? Explain
2+2+2
(i)Two countries can achieve gains from trade even if one of the countries has an absolute
advantage in the production of all goods.
(ii)If a certain trade is good for one person, it can’t be good for the other one.
3+3
28 Suppose that in the year 2000, the number of births is temporarily high. How does this
baby boom effect the price of baby-sitting services in 2005 and 2015? (Five year olds need
baby- sitters, whereas fifteen year olds can be baby –sitter)
29.Suppose a severe drought hits the sugarcane crop. Predict how this will affect the
equilibrium price and quantity in the market for sugar and the market for honey. Draw supply
and demand diagrams to illustrate your answers.
30.Consider a lake in a state park where everyone is allowed to fish as much as they want.
What outcome do you predict? Might this problem be averted if the lake were privately
owned and fishing licenses were sold?
31.During 2004, some economists argued that the Federal Reserve should undertake policies
to slow the economic expansion in the United States in order to ensure low inflation. Other
economists opposed such policies, arguing that the damages of inflation were exaggerated
and attempts by the Federal Reserve to slow the economy would lead to higher
unemployment. Is this a disagreement about positive economics or about normative
economics? Explain.
32.Does the externalities that public goods involve generally positive or negative? Use
examples in your answer. Is the free market quantity of public goods generally greater or less
than the efficient quantity?
33.Why is there litter along most highways but rarely in peoples’ yards?
34.Explain what category each of the following goods fall in to:
(i)Police Protection (ii) Snow ploughing (iii) education
(iv)education (v) rural roads (vi) city streets
35.Why the failure of communism is can be viewed as Tragedy of Cannons?
36.Who do the governments try to limit the use of common resources?
37.The cost of producing computers has fallen substantially over the past decade.
(i)Use a SS-DD diagram to show the effect of falling production costs on the price and
quantity of computers sold.
(ii)Show what happens to Consumer & Producer Surpluses.
3+3
38.What is the key assumption that justifies economists’ use of consumer surplus as a
measure of economic well-being? How might the existence of advertising affect our
confidence in this assumption?
3+3
39.Evaluate the following two statements stating whether you agree or disagree:
(i)A tax that has no deadweight loss cannot raise any revenue for the government.
(ii)A tax that raises no revenue for the government cannot have any deadweight loss.
40.Suppose in the market for pizza with a negative DD and upward SS curve, the government
forces each Pizzeria to pay Re. 1/- tax on each pizza sold. Illustrate this effect of the tax on
the pizza market being sure to label the Consumer surplus, Producer Surplus, Government
Revenue & Deadweight Loss. How does each area compare to the pre-tax case?
41. QS= 2P
QD=300 – P
(i)Solve for the equilibrium price and quantity
(ii)Suppose that a tax of “T” is placed on buyers , so the new DD equation is :
QD= 300 – (P+T)
(i)Solve for the new equilibrium. What happens to the price received by sellers, the price paid
by buyers & the quantity sold?
(ii)Calculate the deadweight loss of taxation.
3+3
1. Explain why consumers will maximize utility where the ratio of Marginal
Utility to price is equal for all products.
2. What is diminishing marginal utility? Will marginal utility be diminishing in
all cases necessarily? Explain.
3. What is the paradox of value?
4. What determines how the burden of a tax is divided between buyers and
sellers? Why?
5. The market for tickets to the symphony can be described by QD= 20,000 – 90P
QS= 10000+100P
(1) What are the equilibrium price and quantity?
(2) Lovers of classical music persuade congress to impose a price ceiling of
Rs. 40 per ticket. How many tickets are now sold in the market? Does this
policy get more or fewer people to attend classical music concerts?
6. In the 1970’s OPEC caused a dramatic increase in the price of oil. What
prevented them from maintaining this high price through the 1098’s?
7. For each of the following pairs of goods, which good would you expect to
have more elastic demand & why?
(a) Required textbooks or mystery novels
(b) Beethoven recordings or classical music recordings in general
8.
Explain the main differences between administered prices and auction prices,
and discuss which markets are most suitable for these two different
mechanisms.
9. Consider a professor who is writing a book. The professor can both write the
chapters and gather the needed data faster than anyone else at his university.
Still, he pays a student to collect data at the library. Is this sensible? Explain.
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