FYUG Even Semester Exam, 2025 ECONOMICS: ECODSM-151 (Elementary Economics)
UNIT-I
Question 1 (Answer any two) 2 x 2 = 4 Marks
(a) Mention two limitations of microeconomics.
- Static Analysis: Microeconomics often assumes "ceteris paribus" (all other things being equal), which may not hold true in a dynamic real-world economy.
- Unrealistic Assumptions: It frequently relies on the assumption of full employment and perfect competition, which are rarely found in reality.
(b) Define positive economics with examples.
Positive economics deals with "what is"—it focuses on objective analysis and factual statements that can be tested or rejected by evidence.
Example: "An increase in the tax rate on cigarettes will lead to a decrease in smoking."
(c) Write two determinants of demand.
- Price of the Commodity: Generally, as price rises, demand falls.
- Income of the Consumer: For normal goods, an increase in income leads to an increase in demand.
Question 2 10 Marks
Subject Matter and Importance of Microeconomics.
Subject Matter (7 Marks): Microeconomics studies the behavior of individual economic units. Its core areas include:
- Product Pricing: Theories of consumer behavior (demand) and production/costs (supply).
- Factor Pricing: Determination of rent, wages, interest, and profit.
- Economic Welfare: Studying the efficiency of resource allocation.
Importance (3 Marks): It helps in understanding the working of a free market economy, assists the government in framing price policies, and provides tools for efficient resource allocation.
Law of Demand and its Exceptions.
The Law (7 Marks): The Law of Demand states that, other things being equal, the quantity demanded of a commodity increases when its price falls and decreases when its price rises.
Exceptions (3 Marks):
- Giffen Goods: Inferior goods where demand rises as price rises.
- Veblen Goods: Luxury items consumed for status (Conspicuous Consumption).
- Emergencies: Consumers may buy more even at high prices during shortages or war.
UNIT-II
Question 3 (Answer any two) 2 x 2 = 4 Marks
(a) Why two indifference curves can never intersect each other?
If they intersected, the point of intersection would represent a level of satisfaction equal to points on both curves. However, due to the principle of transitivity and non-satiety, higher curves must represent higher satisfaction, making intersection logically impossible.
(c) What is meant by consumer's equilibrium?
Consumer's equilibrium is a situation where a consumer spends their limited income on goods in such a way that they maximize their total satisfaction (utility), with no intention to change their expenditure pattern.
Question 4 10 Marks
Utility and Law of Diminishing Marginal Utility (LDMU).
Utility: The want-satisfying power of a commodity.
LDMU: States that as a consumer consumes more units of a commodity, the marginal utility derived from each successive unit declines.
UNIT-III
Question 6 10 Marks
Relationship between AC and MC.
- When MC < AC, AC is falling.
- When MC = AC, AC is at its minimum point.
- When MC > AC, AC is rising.
Envelope Curve: The LRAC is called an envelope curve because it supports or "envelopes" a series of SRAC curves, representing the lowest cost of producing any output level in the long run.
UNIT-IV
Question 8 10 Marks
Circular Flow of Income.
In a three-sector economy (Households, Firms, and Government), the flow includes:
- Households to Government: Taxes.
- Government to Households: Transfer payments and wages.
- Firms to Government: Corporate taxes.
- Government to Firms: Subsidies and payment for goods/services.
UNIT-V
Question 10 10 Marks
National Income and Measurement Methods.
National Income is the total value of all final goods and services produced by a country's residents in a given year.
Methods:
- Value Added Method: Sum of net value added by all productive enterprises.
- Income Method: Sum of wages, rent, interest, and profit.
- Expenditure Method: Sum of consumption, investment, government spending, and net exports (C+I+G+X-M).