JGU Id. No.

______________

O.P. Jindal Global University

Jindal Global Law School
End-term Examinations – Semester A
Course Name : Economics I
Course Code : L-CA-0008
Programme : B.A., LL.B. (Hons.) 2014 – Year II
Session : 2015 – 2016
Time Allowed : 3 Hours
Maximum Marks : 70

This question paper has six (6) printed pages (including this page).

Instructions to students:
1. DO NOT write your Name and Student Id. No. anywhere on the answer book except on the space provided.
2. DO NOT write anything on the question paper except Student Id. No. on the space provided.
3. Start each question on a new page.
4. Draw all graphs neatly, preferably using a pencil.
5. Please be precise in answering your questions.
6. Simple calculators (non-scientific) are allowed but use of mobile phone or any electronic storage and access
system is prohibited.
7. Students undertaking the examination are requested to adhere to the University norms related to examinations.

__________________________________________________________________________________________________
This is a Closed Book examination. Students are not allowed to bring any material in the Examination Hall.
Warning: Plagiarism in any form is prohibited. Anyone found using unfair means will be penalized severely.

JGLS [Semester A, 2015 – 2016] Page 1

 Section A
(Multiple Choice)

Multiple Choice: Provide explanation in not more than 30 words. Attempt all the following questions:
(10 X 2 Marks = 20 Marks)

1) Dead weight loss due to government taxation will be higher when

A. Demand curve will be elastic and Supply curve will be inelastic
B. Demand curve will be inelastic and Supply curve will be elastic
C. Demand curve will be inelastic and Supply curve will be inelastic
D. Both Demand and Supply Curves will be elastic
E. None of the above

2) Choose the best statement.

A. An increase in the demand for a good increases the producer surplus.
B. If producers decrease the supply of the good, their producer surplus will increase.
C. Producer surplus is equal to the total revenue from selling the good.
D. Producer surplus is the excess of the value of the good over the market price, summed over the quantity
produced.

3) Suppose there are two goods in the economy – X and Y. If the marginal rate of substitution of X for Y is
greater than the price ratio between X and Y (Price of X / Price of Y), then the consumer.
A. Will keep X and Y unchanged
B. Will increase the consumption of Y
C. Will decrease the consumption of X
D. Will decrease the consumption of Y and not change consumption of X
E. Will decrease the consumption of Y and increase the consumption of X

4) Which of the following is a cause of market failure, per se?

A. Perfect competition
B. Monopoly
C. Private goods
D. Both A and B
E. Both B and C

5) Indifference curves for two normal goods which are perfect substitutes of one another are
A. Linear and downward sloping
B. Non-linear and downward sloping
C. Linear but need not be downward sloping
D. L-shaped
E. None of the above

JGLS [Semester A, 2015 – 2016] Page 2

6) A good or service exhibiting a positive externality is one where _______.
A. Marginal private benefit exceed marginal social benefit
B. Marginal social benefit are zero
C. Marginal social benefit exceeds the marginal private benefit
D. None of the above

7) If Korea imposes a binding import quota on US oranges, losers include Korean _____ of oranges and US
_____ of oranges.
A. consumers; consumers
B. consumers; producers
C. producers; consumers
D. producers; producers

8) Which is the preference direction (arrow) on an indifference map for a set of two “economic bads?”
A. North-east
B. South-west
C. South-east
D. North-west

9) Suppose a country decides to enter into trade with other countries, and finds that world price of cotton products
is higher than its domestic price. In such a situation:
A. It will be beneficial for the country to import, and the domestic producers of cotton products gain
B. It will be beneficial for the country to import, and the domestic consumers of cotton products gain
C. It will be beneficial for the country to export, and the domestic producers of cotton products gain
D. It will be beneficial for the country to export, and the domestic producers of cotton products lose out
E. It will be beneficial for the country to export, and the domestic consumers of cotton products gain

10) Which of the following factors does not affect the cross-price elasticity of demand?
A. Price of substitute good
B. Price of complementary good
C. The time horizon in which a change in the price is considered
D. Price of a related good

Section B
(Short Questions, not more than 100 words)

Attempt any six (6) questions from the following: (6 X 5 Marks = 30 Marks)

1) Let demand be: P = -10QD + 40; supply be P = 10QS. A per unit tax of Rs.10 is imposed on the suppliers. (a) What is
the pre-tax equilibrium price and quantity? (b) What is the post-tax price and quantity? (c) Calculate the numerical value
of the deadweight loss (DWL) and graphically show the DWL area on a graph. (1+1+3 = 5 Marks)

JGLS [Semester A, 2015 – 2016] Page 3

2) Answer both parts of this question:

a) What is a Nash Equilibrium? How would you differentiate between a Nash equilibrium and a dominant strategy
equilibrium? (2 Marks)

b) Two individuals, Rohan and Ratna who like each other, have arranged a date. They will meet either at a pop concert
or at a techno party. However, they have not decided on which of the two. Ratna would prefer going to the pop concert,
whereas Rohan, who is friends with a DJ would prefer going to the techno party. Importantly, the two prefer being
together rather than going alone to the pop party or to the techno party.

Interestingly, both would like to give a surprise to the other and hence they do not communicate with each other about
their decision. A “game” with possible pay-offs in this scenario can be represented as following:

Ratna

Techno Pop
Rohan
Techno 10,9 2,2

Pop 0,0 9,10

On the basis of the above information, find out if there exists a unique dominant strategy equilibrium. What is/are the Nash
Equilibrium/Equilibria? (3 Marks)

3) Plastic bags have been blamed for street litter, ocean pollution, and soil degradation. Many shops in Delhi have started
charging Rs.5 per plastic bag, with an intention to reduce urban waste by encouraging reusable bags.
a. In this context, how would you explain the concept of externality? (2 Marks)
b. How would you justify charging for plastic bags which was earlier given away free of cost? (3 Marks)

4) “With global warming of the planet, the polar ice cap is shrinking. As the Arctic Sea expands more underwater mineral
resources will be accessible. Countries are staking out territorial claims to parts of the polar region.” [Source: The Wall
Street Journal, April 7, 2009]. Explain, in the absence of territorial claims, how ownership of these mineral resources
will influence the amount of damage done to the Arctic Sea and its wildlife. (5 Marks)

5) What is diminishing marginal rate of substitution? Explain, using graphs, four properties of well-behaved indifference
curves for goods? (1+ 4 = 5 Marks)

6) The supply curve of luxury boats is perfectly elastic, the demand curve for luxury boats is unit elastic. With no tax on
luxury boats, the price is $1million and 240 luxury boats a week are bought. Now luxury boats are taxed at $500,000
per boat.
a) Show the effect of imposing the tax using a graph. Is this tax efficient? (2 Marks)
b) What is the price that buyers pay? How is the tax split between the buyer and the seller? Graphically show the
shift(s). (1.5+1.5 = 3 Marks)

JGLS [Semester A, 2015 – 2016] Page 4

7) A competitive firm is selling digital equipment and bears a fixed cost of given by Rs. 100. The variable costs of
production is given in the following table:

Output Total Fixed Total Variable

Costs costs

10 100 100

11 100 120

12 100 130

13 100 140

14 100 150

15 100 160

16 100 170

17 100 180

18 100 190

a) Find the total cost, average total cost, average fixed cost and marginal cost schedule. (3 Marks)
b) Given a sale price of Rs.20 what is the profit maximizing level of output. (2 Marks)

8) Briefly explain the following:

a) Characteristics of public goods. (1 Mark)
b) What is the relation between short run average total cost and short run marginal cost for a competitive firm?
(2 Marks)
c) Why would competitive firms continue production in the long run without any super-normal profits?
(Hint: do not wear an accountant’s hat) (2 Marks)

9) (a) Using examples and graphs, explain and differentiate between “economies of scale” and “diseconomies of scale”.
(3 Marks)
(b) Briefly explain any four assumptions of a perfectly competitive market structure. (2 Marks)

10) Rare earth metals are used in the manufacture of (circuit boards) iPhones. The decreased availability of rare earth metals
leads to an increase in the cost of extraction. On the basis of this answer the following questions.
a) Draw a diagram to show the impact of an increase in the cost of extraction of rare earth metals on price and
quantity in the iPhone market. (2.5 Marks)
b) The iOS operating system and iPhone hardware are complements. Draw a supply and demand diagram to show
what happens to price and quantity in the iOS market. (2.5 Marks)

JGLS [Semester A, 2015 – 2016] Page 5

 Section C
(Long question)

Attempt any two (2) questions from the following: (2 X 10 Marks = 20 Marks)

1) Explain the following with appropriate diagrams

a. Explain, using examples, the difference between strategic and structural entry barriers imposed by a monopolist.
(2 Marks)
b. Using an example and a graph explain a Natural Monopoly. (3 Marks)
c. Explain dead weight loss in case of a country imposing tariff on its import when world price is lower than the
domestic market equilibrium price. Explain with the help of a diagram how consumer surplus, producer surplus,
government revenue, and total surplus will change after imposition of tariff as compared to what it was prior to
imposition of tariff. (5 Marks)

2) (a) A monopolist can produce at a constant average and marginal cost of AC=MC=6. The firm faces a market demand
curve given by Q=53-P. Calculate the profit maximizing price and quantity for this monopolist. Also calculate the
monopolist’s profits. (2 + 1 + 2 = 5 Marks)
(b) Graphically show why a Monopolist does not face a horizontal demand curve like a competitive firm. (3 Marks)
(c) Graphically explain why a monopoly leads to an inefficient outcome? (2 Marks)

3) Assume that the demand curve for cigars is highly elastic and the supply curve is highly inelastic.
a. If the tastes of the public shift away from smoking, will the effect be larger on price or on quantity? Show using
a detailed diagram. (2 Marks)
b. The government decides to impose a tax on manufacturers of cigars. Illustrate the impact on market equilibrium
after the tax. What is the impact on the price buyers have to pay before and after the tax? Illustrate using a
diagram. (3 Marks)
c. Who bears a greater burden of the tax? Discuss tax incidence. (2 Marks)
d. What is the change in consumer, producer and total surplus before and after the tax? What is the change in total
surplus? Illustrate using a diagram. (3 Marks)

4) Consider the labor market in Karambhoomi. The demand for labor is given by: LD = 34 – 4*w, where w is the wage
rate. The labor supply is given by LS = L + 2*w, where L is the number of people who are willing to work at zero
wages.
a. Suppose L = 10. Find the equilibrium wage and equilibrium labor demand. Now assume the government
imposes a minimum wage of 6. (i) Is this minimum wage binding? (ii) If yes, what is the excess labor/surplus
labor/unemployment? (2+3 = 5 Marks)
b. Now suppose there is no minimum wage imposed by the government. Instead, there is a sudden influx of migrant
labor, which increases the number of people willing to work at a zero wage to L = 16. Calculate the new market
equilibrium. Explain what happens to the equilibrium wage rate. (2+3 = 5 Marks)

JGLS [Semester A, 2015 – 2016] Page 6