Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
B. COM. General 1st Semester Fall Drive 2011 Subject Name: Economic Theory Subject code: BCC 103 4 credits (60 marks) (BKID: 1293) Set 1
Q1 A. B. C. D. E. Q2 Law of Demand: all other factors being equal, as the price of a good or service increases, consumer demand for the good or service will decrease and vice versa. This law summarizes the effect price changes have on consumer behavior. For example, a consumer will purchase more sugar if the price of sugar falls. The opposite is true if the price of sugar increases. Micro Macro Macro Micro Macro
Q3 A consumer's budget line characterizes on a graph the maximum amounts of goods that the consumer can afford. In a two good case, we can think of quantities of good X on the horizontal axis and quantities of good Y on the vertical axis. The term is often used when there are many goods, and without reference to any actual graph. If a consumer has weekly income of Rs 100, He purchases only two goods, packets of biscuits and packets of coffee. The price of each packet of biscuits is Rs 5 and the price of each packet of coffee is Rs 10. Given the assumed income and the price, of the two goods, the consumer can purchase various combination of goods or market combination of goods weekly. Based on combinations of the quantities of the two, consumer equilibrium can be reached.
Q4
Q6 Given the production function: Q = 100 + P 0.01P2 + 2N 0.03N2 Determine the marginal rate of technical substitution. Marginal Rate of Technical Substitution (MRTS) is the rate of substitution of one input (means of production) to another such that the production remains the same. In the equation, the only input is N. So, we cannot calculate MRTS, unless I am understanding this wrong. However, if we mean the substitution of P with N, then MRTS can be calculated from the equation:
Q 100 P 0.01P 2 2 N 0.03 N 2 dQ 0 dP 0.02 PdP 2dN 0.06 NdN SettingdQ 0 : 0 0 dP 0.02 PdP 2dN 0.06 NdN (0.02 P 1)dP (2 0.06 N )dN dP 0.06 N 2 dN 0.02 P 1
Q2 State the Marginal Productivity Theory. What are its features and assumptions? The theory of marginal productivity states that the marginal productivity of any input (i.e., means of production) decreases at an increasing rate when the input is used more and more.
Q3 Discuss Subsistence Theory and Wage Fund Theory of Wage Determination. The subsistence theory of wages, advanced by David Ricardo and other classical economists, was based on the population theory of Thomas Malthus. It held that the market price of labour would always tend toward the minimum required for subsistence. If the supply of labour increased, wages would fall, eventually causing a decrease in the labour supply. The wage-fund theory suggests that that a predetermined fund of wealth existed for the payment of wages. Smith defined this theoretical fund as the surplus or disposable income that could be used by the wealthy to employ others. Ricardo thought of it in terms of the capitalsuch as food, clothing, tools, etc.
Q4 Explain the Ricardian Theory of Rent. Also state the criticisms of this theory.
Ricardian Theory of Rent/Ricardian Model of Rent: Definition: The theory of economic rent was first propounded by the English Classical Economist David Ricardo (1773 -1823). David Ricardo in his book. "Principles of Political Economy and Taxation", defined rent as that: "Portion of the produce of the earth which is paid to a landlord on account of the original and indestructible powers of the soil, Ricardo in his theory of rent has
In the above schedule, we assume that there are four grades of land A, B, C and D in an uninhabited country. A grade land is more fertile than B grade land. B grade land is superior to C grade and so is C grade to D grade land. Following Ricardo let us assume, a batch of settlers migrate to this island. They begin cultivating A grade land which yield 50 quintals of wheat per acre. Let us suppose now that the population of that country increases and A grade land is not sufficient to meet the food requirements of the growing population. The inhabitants of that country shall then have to bring under cultivation B grade land. With the identical amounts of labor and capital. B grade land yields 35 quintals of wheat per acre. A surplus of 15 quintal of wheat {50 - 35 = 15) which arises with the same outlay on A grade land is an economic rent. B grade land being a marginal land gives no rent. When owing to the pressure of growing population and a rise in demand for food, C grade land is brought under cultivation, it yields only 20 quintals of wheat with the identical amount of labor and capital. With the cultivation of C grade land, the economic rent of A grade land is now raised to 30 quintals per acre: (50 - 20 = 30) and that of B grade land 15 quintals of wheat per acre. C grade land is a no rent land as it is cultivated at the margin.
In the figure (19.1), the various grades of land in the descending order of fertility are plotted on OX axis and yield per acre is shown on OY axis. The cultivated area due to pressure of population and the rising demand for food is pushed to D grade of land which is a marginal land. The owner of A grade of land gets a surplus, or economic rent of 35 quintals of wheat, of B, 20 quintals and on C grade, the rent is 5 quintals of wheat. Rent Under Intensive Cultivation:
Q5 Given the data: Price = . 50/ unit, Quantity sold = 400, Labour wages = . 4000, Raw materials = . 3500, Administrative costs = . 5000 and other miscellaneous expenses = . 2000. Find out the gross profit and net profit. Gross Profit = P x Q = 50 x 400 = 20000. Net Profit = Gross Profit all expenses = (50 x 400) 4000 3500 5000 2000 = 5500.
Q6 What is the impact (if any) on the national income of India in each of the following cases? a) Shyam receives . 5000 as a gift from his father who is also a resident of India. Both Shyam and his father are residents of India. So, this is a transfer without any equivalent production. National Income remains the same. b) Aggregate inventories in Indian companies go down by . 20, 000. [I forget the national income accounting standards of India, which are different from NI standards of some other countries --- you will have to read this up from some Indian Economics text book]. c) A receives 100 dollars as dividend from a company based in the USA. The $100 is an additional income of A. So, NI of India goes up by $100. [I forget the national income accounting standards of India, which are different from NI standards of some other countries --- you will have to read this up from some Indian Economics text book]. d) A sells shares and reaps capital gains worth . 1, 000 Assuming A is a citizen in India and sells the shares to other citizens in India, the NI does not change. [I forget the national income accounting standards of India, which are different from NI standards of some other countries --- you will have to read this up from some Indian Economics text book].