Subject: Economics Paper Name: Elementary Economics Paper Code: ECODSM-101T Semester: 1st Semester (FYUG) Exam Year: 2023 (Held in 2024) Full Marks: 70 (Pass Marks: 28) Time Duration: 3 Hours
SECTION-A
Answer ten questions, selecting two from each Unit ($2 \times 10 = 20$ Marks)
UNIT-I
2 Marks
1. Define opportunity cost.
Opportunity cost is the value of the next best alternative that is foregone when a choice is made between mutually exclusive options.
2 Marks
2. Mention any two basic problems of economics.
What to produce: Deciding which goods and services to produce and in what quantities.
How to produce: Choosing the technique of production (Labor-intensive vs Capital-intensive).
2 Marks
3. Write any two determinants of elasticity of demand.
Nature of the Commodity: Necessities like salt have inelastic demand, while luxuries have elastic demand.
Availability of Substitutes: Goods with close substitutes (like tea and coffee) have higher elasticity.
UNIT-II
2 Marks
4. Define budget constraint.
A budget constraint represents all the combinations of goods and services that a consumer may purchase given current prices within their given income.
2 Marks
5. Distinguish between cardinal utility and ordinal utility.
Basis
Cardinal Utility
Ordinal Utility
Measurement
Measurable in numerical units (Utils).
Rankable based on preference.
Analysis
Marginal Utility Analysis.
Indifference Curve Analysis.
2 Marks
6. Mention any two limitations of the law of diminishing marginal utility.
Homogeneity: The law assumes all units consumed are identical in quality and size.
Continuity: It assumes consumption is a continuous process without time gaps.
UNIT-III
2 Marks
7. What is production function?
A production function expresses the technical relationship between physical inputs (like labor and capital) and the resulting physical output.
2 Marks
8. Distinguish between returns to scale and returns to a factor.
Returns to factor: A short-run concept where one factor is varied while others are kept fixed.
Returns to scale: A long-run concept where all factors of production are changed in the same proportion.
2 Marks
9. What is cost of production? Give an example of fixed cost.
Cost of production refers to the total expenses incurred by a firm to produce a specific quantity of a product.
Example of Fixed Cost: Rent of a factory building.
UNIT-IV
2 Marks
10. Give any two examples of macroeconomic variables.
National Income
Aggregate Consumption
2 Marks
11. Distinguish between macro-statics and macro-dynamics.
Macro-statics studies the relationship between aggregate variables at a specific point of equilibrium without considering the process of change, whereas macro-dynamics analyzes the process of change and the path toward a new equilibrium over time.
UNIT-V
2 Marks
13. Define national income.
National income is the total value of all final goods and services produced by the residents of a country in a financial year, including net factor income from abroad.
2 Marks
15. Distinguish between NNP and NDP.
Net Domestic Product (NDP) is the value of output produced within the domestic boundaries of a country after subtracting depreciation.
Net National Product (NNP) includes NDP plus Net Factor Income from Abroad (NFIA).
SECTION-B
Answer five questions, selecting one from each Unit ($10 \times 5 = 50$ Marks)
UNIT-I
5+5 = 10 Marks
16. Distinguish between positive and normative economics. Justify whether microeconomics is positive or normative in nature.
Positive vs Normative Economics:
Positive Economics: Deals with "what is." It describes facts, cause-and-effect relationships, and objective data that can be tested (e.g., "An increase in tax leads to lower consumption").
Normative Economics: Deals with "what ought to be." It involves value judgments, ethics, and subjective opinions (e.g., "The government should provide free healthcare").
Justification:
Microeconomics is primarily positive in nature because it analyzes how individual agents (consumers/firms) behave and how prices are determined based on objective laws like the Law of Demand. However, it also has normative elements, especially in "Welfare Economics," where it suggests how resources *should* be allocated to achieve maximum social welfare.
7+3 = 10 Marks
17. State and explain the law of demand with suitable table and diagram. Mention any three exceptions to law of demand.
Law of Demand:
The Law of Demand states that, other things being equal (Ceteris Paribus), the quantity demanded of a commodity increases when its price falls and decreases when its price rises.
Demand Schedule:
Price (Rs)
Quantity Demanded (Units)
10
100
8
150
6
200
Exceptions:
Giffen Goods: Highly inferior goods where demand falls even if price falls.
Veblen Goods: Prestige goods (luxuries) where higher prices increase demand due to status.
Expectation of Future Price Changes: If consumers expect prices to rise further, they may buy more even at high current prices.
UNIT-II
2+6+2 = 10 Marks
18. State and explain the law of diminishing marginal utility. Mention any two limitations of the law.
Definition:
As a person consumes more and more units of a specific commodity, the utility derived from each successive unit goes on diminishing.
Explanation:
Total Utility (TU) increases at a decreasing rate while Marginal Utility (MU) falls. When TU is maximum, MU is zero. When TU starts falling, MU becomes negative.
Limitations:
Rationality: It assumes the consumer is rational and aims to maximize utility.
Suitable Units: The units of the commodity must not be too small (e.g., drops of water vs a glass of water).
UNIT-III
10 Marks
20. What are the conditions of producers equilibrium? Explain how a producer attains equilibrium with the help of iso-quant and iso-cost lines.
Conditions:
The Iso-cost line must be tangent to the Iso-quant curve.
The Iso-quant must be convex to the origin at the point of tangency (Marginal Rate of Technical Substitution must be diminishing).
Explanation:
A producer is in equilibrium when they produce a given level of output with the minimum cost or maximize output with a given cost. This occurs where the slope of the Iso-quant ($MRTS_{LK}$) equals the slope of the Iso-cost line ($w/r$).
UNIT-V
6+4 = 10 Marks
24. What are the different methods of estimating national income? Explain the difficulties of estimating national income.
Methods:
Product Method (Value Added): Summing the net value added by all producing units.
Income Method: Summing factor payments like wages, rent, interest, and profit.
Expenditure Method: Summing final consumption expenditure, investment, and net exports.
Difficulties:
Double Counting: The risk of including the value of an intermediate good more than once.
Non-Monetized Sector: Difficulty in valuing services like those of a housewife or subsistence farming.
Lack of Reliable Data: Inaccurate records in developing economies.
Exam Focus Enhancements
Important Formulas List
Real National Income: (Nominal Income / Price Index) x 100
Marginal Utility (MU): $TU_n - TU_{n-1}$
GDP at MP: C + I + G + (X - M)
Common Mistakes
Forgetting the **Ceteris Paribus** clause when defining laws.
Confusing **Micro** (Individual) with **Macro** (Aggregate).
Answer Presentation Strategy
Always draw a table (schedule) before the diagram for laws of demand or utility.
Clearly label the point of equilibrium in producer/consumer theory diagrams.