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NATIONAL LAW SCHOOL OF INDIA UNIVERSITY

BANGALORE

I YEAR I TRIMESTER REPEAT EXAMINATION (13th NOV.I 2017


ECONOMICS - I

Marks:60
Time: 3 hours

Instntctions:
t. Stud.ents are expected. to relg on the question paper a:t lt is and,
respond tn tt. No clariJicatlon can be sought.
tt. Electronic gadgets are strtctlg prohibited, tnsidc the Exanination Ho.ll.
Possession oJ the same will attract dtsclplinary proceedlngs.

1. The use of 'artificial intelligence'has made the production of smartphones cheaper.


At the same time there is an increase in the popularity of smartphones. How would
these changes affect the average market price of smart phones? Use demand supply
graphs to illustrate. 5 marks

2. The government decides to subsidise housing for the low income families. It
provides a fifty percent subsidy on the rent paid by the households. The Kumar
family qualifies for this subsidy. They spend Rs. 3000 per month on rent and
receive Rs.1500 from the government. After a year the government decides to delink
the subsidy from rental expenditure and instead transfers Rs.1500 to the family to
use as they wish. Would the Kumars be better off with the new program or
indifferent? Use diagram to illustrate. 1O marks 1OO words

3. The new Government canteen which provides subsidized food sells a plate of idli's
at Rs.4.50 per plate. It sells about 525 plates per day. With approaching elections it
decides to temporarily cut prices further to Rs. 3.50 per plate. Sales increase to 600
plates per day.
a. Calculate the price elasticity of demand.
b. Post elections the government is considering a more permanent reduction in price
to Rs 4 per plate to encourage increased sales. What is your evaluation of this move
by the government? 5 marks ( Computations involved in both sectionsf

4. A textile company is uses labour and machine hours for producing its products. At
present the marginal productivity of machine hours is twice that of labour. The
wage rate per hour is Rs.100 and per machine hour is Rs.150.
a. Is the current combination of inputs the optimal combination? Explain your
answer. (Computation)
b. The government decides to encourage the use of more labour in production of textile
products and hence provides a subsidy equal to 50% of the labour wage bill for
each firm. How does this affect the production decision? Explain with the help of a
diagram. 1OO words , 1O marks
5. A taxi firm, in a market that is not very competitive, has adopted a pricing policy
which charges a higher price based on the destination of the passenger. TWo people
travelling the same distance but to different destinations could be charged different
prices. What is the rationale of using the nature of the destination to charge price?
If you were the advisor to the company how would you use the 'nature' of
destination to charge price? Use a diagram for your answer. 1O marks , 1OO words

6. A person travels quite frequently to other countries by flight. She always make sure
to buy a travel insurance that covers any losses that could arise due to missec
flights, misplaced luggage or accidents that could occur during the trip. She usually
travels just for a few days. But in spite of many travels she has never really had to
use the insurance. Is her investment in this insurance rational? Give your
reasoning. The insurance company reduces prices for those who have never had
any insurance claims in the past three instances of travel. What is it attempting to
do? Explain. 5 marks
7. Assume the market for burgers is perfectly competitive. The market supply and
demand curves for burgers are given as follows:
Supplycurve: P:0.000002Q ; demandcurve: P= 11- 0.00002Q
The short run marginal cost curve for a typical tortilla factory is:
MC = 0.1 + 0.0009Q
Determine the equilibrium price and profit maxirnizing short run
equilibrium level of output for a burger outlet. (computation)
b. At the level of output determined above, is the factory making a profit, breaking-
even, or making a loss? Explain your answer. Use diagram for illustration. lOO
words
c. Assuming that all of the burger outlets are identical, how many burger
outlets are producing burgers? 1O marks (computation|

8. Raghu has a credit card account with Card Bank. Card Bank's available strategies
are to raise Raghu's credit card interest rate or do nothing. Raghu's available
strategies are to transfer his Card Bank account balance to another creditor or do
nothine. strat
n The strategy pa s are lnolca
indicated below

Credit Raghu
bank Transfer Do nothine
Raise interest rate -300 . - 100 1000. - 1000
Do nothins -300 . -150 o.o
Does either player have a dominant strategy? Does the game have any Nash
equilibria? What is the maximin strategy of each player in the game? Give
reasoning. 5 marks
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