Ques 1: Give the meaning of market supply.
Ans: Market supply is the combined supply of everyone?s ability to sell goods in the market.
Ques 2: A 15 per cent rise in the price of a commodity raises its supply from 300 units to 345 units. Calculate its price elasticity of supply.
Ans:
Es = 1
Ques 3: Explain the conditions of consumer?s equilibrium under utility analysis.
Ans: Conditions for consumer's equilibrium are:
(i) Budget line should be tangent to indifference curve, i.e.,
(Slope of IC) = Slope of Budget Line
(ii) Indifference curve should be convex to the point of origin, i.e., MRS is diminishing.
At equilibrium, marginal rate of substitution should he equal to the ratio of prices of the two goods:
MRSxy > PxPy It means that to obtain one extra unit of X the consumer is willing to sacrifice more than he has to sacrifice actually. In the process, the consumer gains. As he goes on obtaining more and more units of X, marginal utility of X goes on declining. Therefore, the consumer is willing to sacrifice less and less of Y each time he obtains one extra unit of X. As a result, MRSxy falls and ultimately becomes equal to Px/Py some combination of X and Y At this combination the consumer is in equilibrium.
MRSxy < Px/Py If the consumer attempts to obtain more units of X beyond the equilibrium level, MRSxy will become less thanPx/Py and he will start losing. So he will not try to obtain more of X.
Ques 4: Price elasticity of demand of a good is 0.75 . Calculate the percentage fall in its price that will result in 15 per cent rise in its demand.
Ans:
Elasticity of demand =
or
. [Let x be the percentage change in price]
or
Price will fall by 20%
Ques 5: State three sources each of revenue receipts and capital receipts in government budget.
Ans: Sources of revenue receipts: (i) Direct tax, (ii) Indirect tax and (iii) Commercial revenue.
Sources of capital receipts: (i) Recovery of loan, (ii) Borrowings and (iii) Funds raised through disinvestment.
Ques 6: Explain any two methods of credit control used by central bank.
Ans:
Bank Rate: Bank rate is the rate which is fixed by the Central Bank. Credit is controlled by the central bank by making variations in the bank rate. This is the rate of interest which is charged from commercial bank for giving them loans. When the value of credit is to be increased, the bank rate reduces and vice-versa.
Open market operations: In the open market operation, some activities going on such as buying and selling the government securities in open market. When the central bank is purchasing securities from the market it means it wants to increase the volume of credit. Banks starts selling securities for increasing their cash reserves i.e., their liquid assets increase. On the other hand, when central bank starts selling securities in the market it means it wants to control the volume credit, which are bought by the commercial banks. In the result their cash reserves are reduced and this effects their power of creating credit.
Ques 7: From the following data about an economy, calculate (a) equilibrium level of national income and (b) total consumption expenditure at equilibrium level of national income.
(i) C = 200 + 0.5Y is the consumption function where C is consumption expenditure and Y is national income.
(ii) Investment expenditure is 1,500.
Ans:
Given, consumption function, C=200+0.5Y,
Investment, I = 1,500
We know that, Y=C+I
Y=200+0.5Y+1,500
or Y=1,700+0.5Y
or 0.5Y=1,700
or
(a) Equilibrium level of National Income, Y = 3,400
(b) Total Consumption Expenditure, C=200+0.5Y
=200+0.5(3,400)
=200+1,700=1,900
Ques 8: Explain all the changes that will take place in an economy when aggregate demand is not equal to aggregate supply.
Ans:
In the deficient demand, the equilibrium level takes place before the full employment level. This is the case of involuntary unemployment. This signifies that deficiency of aggregate demand does not lead to the full use of given resources at the full employment level. Therefore, for reaching the stage of full employment where all the given resources are fully utilized, AD is required to be incorrected.
In the diagram (i) OZ is the full employment level and OY is the actual output level, where AD equals to AS.
In the case of excess demand, the equilibrium takes place after the stage of full employment. The level of equilibrium is higher and cannot be met by full use of resources and output does not increase, only price increases in this case.
The necessary methods should be used for reducing the level of aggregate demand, for achieving the level of full employment. In the diagram (ii) OZ is the full employment level and OY is the actual level of employments at equilibrium, where AD is equal to AS.
4 videos|168 docs
|
|
Explore Courses for Commerce exam
|