Question No. 1:Rohan consumes two commodities, wheat and rice.

The marginal utility derived by him from rice is two and half time the utility derived from the marginal utility of wheat. If wheat is available for Rs.12 /kg, what price will he be willing to pay for rice in orde r to maximize his utility? Solution:In this case Rohan is consuming two commodities, wheat and rice. y Now marginal utility derived by him from rice is = 2 y It is given in the question that half time utility derived from marginal utility of wheat which is now = 1 y We have price of one commodity that is wheat = 12 y Now in equation MU1/P1 = MU2/P2 That mean MU1= 2, MU2= 1, Price of one commodity is =12 We have to calculate the other one.. 2/P1=1/12 by solving this equation (By Cross Multiplication) We got the amount of Rs.24, now he will be willing to pay this amount for rice in order to maximize his utility.

Question no.2: The fundamental economic problems of what to produce, how to produce and for whom to produce are solved differently by diffe rent economic systems. Discuss how a capitalist Economy solves ? Solution :This question focusing on how Capitalist Economy solves fundamental economic problems of what to produce, how to produce and for whom to produ ce. A Capitalist Economy Basically, there are three major sources of growth in this concern.
y y y

Growth of labor force Capital formation Technological progress

But, as far as Capitalist Economy is concerned, a capital economy is one in which means of production are owned, controlled & operated b y private persons and production is done mainly to earn profit. I.e Economy of U.S.A and Japan.

In a market-oriented or capitalist economy central problems are solved by market or price mechanism.

It totally depends on the market price of commodity which guides  What to Produce  How to Produce  For Whom to Produce to the producers Finally in Capitalist Economy Market Price of a commodity is determined by free forces of demand and supply of the commodity.

Question no.3:Tomatoes and potatoes are available for Rs. 7/kg and Rs. 10 /kg respectively. If you have an income of Rs. 35000, draw the budget line as graph.

Solution:This question is based on Budget Line, Budget Line divides the commodity space into two parts:a.) Feasibility area b.) Non feasibility area

The area under the budget line (including the budget line) is feasibility area, in this any combination of goods X and Y representing by a point within this area or on the boundary line is a feasible combination. Th e area beyond the budget line is non feasibility area because any point falling in this area is unattainable.

Budget line graph

3 5 0 0

P ot at o e s

5000

Toma toes

Explanation In this graph, we have two commodities that is (X) Tomato and (Y) Potatoes. Amount of X is = 5000 (calculated by total income which is 35000) Amount of Y is = 3500 (calculated by total income which is 35000)

Question no.4:Suppose you are the manager of California winey. How would you expect the following events to affect the price you receive for a bottle of wine? a. The price of French wines decreases b. One hundred new wineries open in California c. The unemployment rate in USA decreases d. The price of cheese increases

e. The price of a glass bottle increases significantly due to government anti shatter regulations Solution a.) This statement is concerned with relationship between price and quantity demanded In this case prices of French wine are decreases then it leads to rising in quantity demand. People start purchasing more and more quantity as their interest will also rise to consume more that product.

b.) One hundred new wineries open in California. In this case one hundred new wineries are opening that means supply is increasing of that particular commodity, due to change in factors other than price. Cause of increases in Supply (Rightward Shift)     Fall in the prices of competing commodities. Fall in the prices of inputs/factors of production. Improvement in Technology. Change in objectives of producers from Profit maximization to sales maximization.  Decrease in excise duty.  Increase in numbers of firms in the market.

c.) The unemployment rate in U.S.A decreases, this statement states rise in demand due to change in factors other than the price. It leads increase in demand Graphically Representation

d.) The price of cheese increases. This statement is directly concerned with fall in demand due to rise in price of a commodity, other remains the same. In other words this is Contraction of Demand Graphically Representation

Question no.5:Other things being the same what would happen to the supply of a particular product if a. price of the product decreases b. a technological breakthrough enables the good significantly lower cost to be produced at a

c. the price of inputs used to produce the product increases d. the price of substitute commodity decreases e. the managers of the firms that produce that good expect the rise in price of that product in near future .

Question no. 6:A) What is income consumption c urve? Draw income consumption curve for a normal and inferior goods B) B) Suppose the supply curve for allutikki passes through the point P= Rs.25 and Q s=500. Give two interpretations of this point on the supply curve.

Solution Part - A Incomeconsumption curve traces the different possible equilibriums between income levels and levels of consumption (or consumption bundles) by showing how the consumer's equilibrium consumption choice varies with a higher income; there will be a new budget constraint line that intersects a higher indifference curve. The income-consumption curve is the intersection of the points of tangency of the sets of budget constraint lines and indifference curves GRAPHICALLY REPRESENTATION OF NORMAL AND INFERIOR GOODS

Normal Goods

Inferior Goods

Question no.8:Shweta spends her whole weekly food allowance of $42 on Pizza and soft drinks. The price of single pizza is $2 and of soft drinks is $1.Shweta buys 12 pizzas and 18 soft drinks and her marginal rate of substitution between pizza and soft drinks is 1. Is Shweta in equilibrium? Explain. Solution Graphically representation of Shewtas Marginal Rate of Substitution between two commodities X1 and X2.

Question no: - 10 The price of chocolate is Rs.10 and you have to analyze the consumer behavior under cardinal utility analysis. By the assumption of constant marginal utility of money show the consumer equilibrium with the help of table and diagram Solution Graphically Representation of Consumer Behaviour under Cardinal Utility

T he consumer is confronted in making a choice. For example, a man is thirsty. He goes to the market and satisfies his thirst by purchasing coca -cola instead of tea. We are here to examine the economic forces which make him purchase a particular commodity. The answer is simple. The consumer buys a commodity because it gives him satisfaction. In technical term, a consumer purchases a commodity because it has utility for him. We now examine the tools which are used in the analysis of consumer behaviour.

Question No: - 13 For each of the following, state whether economists would consider it as a resource and if they would identify which of the four types of resources the item is a. A computer used by CBI agent to track the whereabouts of suspected criminals. b. The office building in which CBI agent works c. The time that a CBI agent spends on a case d. A farmers tractor e. Crude oil f. A package of frozen vegetables g. plastic bags used by a company for holding its products

Solution a.) Material Resources (A computer used by CBI agent to track the whereabouts of suspected criminals.) b.) Physical Resources (The office building in which CBI agent works )

c.) Human Resources (The time that a CBI agent spends on a case ) d.) Material Resources (A farmers tractor) e.) Natural Resources ( Crude Oil) f.) Material Resources(plastic bags used by a company for holding its product )

Material Resources (plastic bags used by a company for holding its products )