ECONOMICS 2016 (A) ( NEW SYLLABUS ) SCHEME OF VALUATION. 1. Prof. Ragnar Frisch 1 1

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1 ECONOMICS 06 (A) ( NEW SYLLABUS ) SCHEME OF VALUATION Subject Code : (N/S) I. PART A. Prof. Ragnar Frisch. Yed q y y q. According to Watson, "production function is the relationship between physical inputs and physical output of a firm". 4. The process of determination of price by supply and demand forces is called price mechanism.. Duopoly Market is the market situation where there are only two firms operating in the market. 6. According to P.A. Samuelson, "Macro Economics is the study of the behaviour of the economy as a whole. It examines the overall level of nation's output, employment, prices and foreign trade". [ Turn over

2 Code No. (N/S) 7. Produced good used by other producer as material input is known as intermediate good. 8. Automated Teller Machine. 9. The ratio of the total change in income to the initial change in investment is known as Multiplier. 0. An open economy is one which has economic relations with other countries of the world with regard to goods and services, financial assets etc. II. PART B. Total utility is the amount of utility/satisfaction that consumer gains from consuming a given amount of goods or services over a period. Marginal utility is the amount of additional satisfaction/utility obtained by a consumer from the consumption of additional unit of a particular good or service. / / /. p is independent variable, Q d is dependent variable, 0 is constant and is co-efficient of p. p Q d 0 p

3 Code No. (N/S). Marginal product is the addition to the total product by the employment of an additional unit of a factor. Formula : MP n TP n TP n MP n TP n TP n 4. The law of supply states that, "other things remaining the same, a fall in price decreases the quantity of supply and a rise in price increases the quantity of supply". Linear function of supply curve is QS = a + bp. QS = a + bp.. Existence of few large firms Interdependence among firms Group behaviour between firms (iv) (v) Existence of Advertisement cost Production of Homogeneous or differentiated products. (vi) Price Rigidity. ( Write any four ) (iv) (v) (vi) [ Turn over

4 Code No. (N/S) 4 6. Prof. Alfred Marshall and J. M. Keynes. 7. Income method Expenditure method and Product method. 8. Transaction motive Precautionary motive and Speculative motive. 9. Tax concessions Govt. investment Low rate of interest (iv) Stability in price level (v) Abolition of certain monopoly privileges (vi) Competitive market structure (vii) New technology and innovation. ( any four ) (iv) (v) (vi) (vii)

5 Code No. (N/S) 0. Re-allocation of resources to achieve the desired socio-economic goals. (iv) Re-distribution of income and wealth to reduce inequalities Prevention of economic fluctuations to maintain economic stability and Control of monopolies and attainment of social welfare. (iv). Defence services, law and order, interest payments, subsidies, salaries, pensions, tax collection etc.. Balance of Trade refers to the differences between the value of visible items of exports and imports during a year. Balance of payments refers to the difference between the value of visible and invisible items of exports and imports during a year. [ Turn over

6 Code No. (N/S) 6 III. PART C. What to produce? How to produce? For whom to produce? ( Explanation is required ) 4. A mixed economy is one where there is co-existence of both private and public sector enterprises existing side by side. It is a golden mixture of both capitalism and a centrally planned economy. So resources are owned by both the government and private individuals. Explain how the price and planning mechanism together solve the problems of what to produce, how to produce and for whom to produce in a Mixed Economy. ( Explanation is required )

7 7 Code No. (N/S). Prof. Alfred Marshall is the chief exponent of cardinal approach. According to cardinal utility concept, it is possible to measure utility in cardinal numbers such as,,, 4 etc. Cardinal numbers can be added, subtracted or multiplied. J. R. Hicks and R.G.D. Allen are the chief exponents of ordinal approach. According to ordinal approach concept, utility cannot be measured but it can only be compared. The ordinal concept permits to say that the consumer prefers between different goods as I, II, III etc. ( Explanation is required ),,, 4 I II III [ Turn over

when the price increases, the demand for the good decreases". [ Explanation of diagram is required ] 7.

8 Code No. (N/S) 8 6. Law of demand states that, "Other things remaining constant, when the price of a good decreases, the demand for it increases and when the price increases, the demand for the good decreases". [ Explanation of diagram is required ] 7. Perfectly elastic demand ( ped = ) Perfectly inelastic demand ( ped = 0) Relatively elastic demand ( ped > ) (iv) Unitary elastic demand ( ped = ) (v) Relatively inelastic demand ( ped < ) ( Explanation is required ) ( ped = ) ( ped = 0) ( ped > ) (iv) ( ped = ) (v) ( ped < )

9 9 Code No. (N/S) 8. Technological progress Input prices Tax policy of the govt. (iv) Goals of the firm (v) Nature of the market (vi) Expectations about future prices. (vii) Climatic conditions. (Explanation for any five is required) (iv) (v) (vi) (vii) 9. According to TR and TC approach, firm attains equilibrium under monopoly at the point where the difference between the total revenue and total cost is maximum. At this point monopoly firm reaches equilibrium with maximum profit. The short-run equilibrium situation using TR-TC approach has been explained diagrammatically as follows : TR-TC [ Turn over

10 Code No. (N/S) 0 TR-TC 4 4 ( Explanation of diagram is required ) 0. Scope of Macro-Economics refers to the areas of study of Macro- Economics. Major sectors National income General Employment (iv) General price level (v) Theory of Money (vi) International Trade ( Explanation is required for any five ) (iv) (v) (vi)

11 Code No. (N/S). A) Primary functions of Money : ) Medium of exchange ) Measure of value B) Secondary functions of Money : ) Standard of Deferred payments ) Store of value ) Transfer of value. A) B) ( Brief explanation is required ) ) ) ) ) ). Keynes consumption function shows the relationship between income and consumption. Its relationship is symbolically written as c f (y), consumption function indicates that consumption is determined by income. It is also known as propensity to consume. This function has been explained with the help of following table : c f (y) [ Turn over

12 Code No. (N/S) ( Explanation of table is required.). Public Expenditure Public Revenue Public debt (iv) Deficit Financing ( Brief explanation is required ) (iv)

13 Code No. (N/S) 4. Flexible exchange rate Fixed exchange rate Managed floating exchange rate ( Explanation is required ) IV. PART D. Budget line is a graphical representation of all possible combinations of two goods which can be purchased with a given income and prices, such that the cost of each of these combinations is equal to the money income of the consumer.( Suitable example is required ) Budget set is a collection of all bundles available to a consumer at the prevailing market price at a given level of income. 4 ( Example is required ) [ Turn over

14 Code No. (N/S) 4 4 Table / ( Explanation of table is required ) ( Explanation of diagram required )

15 Code No. (N/S) 6. In the short period, if a firm wants to expand its production, it can do so by increasing its variable input keeping the fixed inputs constant. As a result the proportion between fixed and variable factors gets changed. Such a situation is called the law of variable proportions. The stages of law of variable proportion are : Increasing returns Diminishing returns Negative returns ( Assumptions are required ) ( ) Land ( in Acre ) Amount Capital Units of Labour TP ( in tonnes ) AP ( in tonnes ) MP ( in tones ) 0, , , , , , , [ Turn over

16 Code No. (N/S) 6 ( Explanation of table and diagram is required ) 7. Monopolistic competitive market is a type of imperfect competition, in which there are many sellers selling differentiated products but not perfect substitutes. Features are : Existence of large number of buyers and sellers Product differentiation Selling costs (iv) Price maker (v) Free entry and Free exit of firms (vi) Downward sloping demand curve. ( Explanation is required ) 8

17 7 Code No. (N/S) (iv) (v) (vi) 8 8. Functions of RBI : A) Traditional functions : Monopoly of Note issue Banker to the government Bankers' Bank (iv) Lender of lost resort (v) Clearing house (vi) Leader of Money Market (vii) Controller of credit (viii) Custodian of Foreign exchange reserves B) Developmental functions : Agricultural finance Industrial finance C) Other functions : Research functions Special functions. ( Brief explanation is required ) A) 6 (iv) (v) [ Turn over

18 Code No. (N/S) 8 (vi) (vii) (viii) 6 B) C) V. PART E 9. OUTPUT (in units) TFC TVC TC AFC AVC AC ( For Blind students only : ) TFC It is payment made for fixed factors of production which does not change with the change in the level of production. TVC Total variable cost is payment made for variable factors of production which changes along with the quantity of output. TC It is a combination of both total fixed cost and total variable cost. AC It is per unit total cost of production. MC It is the cost of producing an extra unit of a commodity.

19 9 Code No. (N/S) 40. QD = QS, then 0 0 P = + P 0 P P = 0 7 P = P Equilibrium price Rs. / 7 QD = 0 0 P QS = + P = 0 0 () = + () = 0 0 = + 7 QD = 00 QS = 00 If the price is greater than, then there will be excess supply Suppose P = 4, then, QD = 0 0 P QS = + P = 0 0 (4) = + (4) = 0 00 = + 00 QD = 0 QS = where QS > QD If the price is less than Rs., there will be excess demand Suppose P = then, QD = 0 0 P QS = + P = 0 0 () = + () = 0 00 = + 0 QD = 0 QS = 7, then QD > QS Thus, only at equilibrium price of Rs. QD and QS are equal. [ Turn over

20 Code No. (N/S) 0 ( For Blind Students only) Goods which are consumed together to satisfy a want are called complementary goods. Ex : Pen and Ink, Tea and Sugar, Cellphone and Currency. Goods which are used as alternatives to satisfy a particular need are called substitute goods. Ex. : Tea and Coffee, Bus and Train, Diesel and Gas. 4. Stocks / Flows / Wealth / Bank Deposits Foodgrain stock Salary / Foreign reserves exchange Exports / (iv) Capital / (iv) Imports / (v) National Income (vi) Net investment

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Downloaded from XII ECONOMICS SURE SHOT SHORT ANSWER QUESTIONS MICROECONOMICS UNIT - INTRODUCTION Q. Distinguish between microeconomics and macroeconomics. 3 Q.2 Discuss the central problems of an economy. Why do they