SECTION-A
1. Demand for a product depends upon price and a number of other variables that are assumed to be held constant while drawing the demand curve. Plot a demand curve with Price on the Y0axis and Quantity on the X-axis. Identify the 'other' variables that are assumed to be constant and explain the effect on demand of a change in each of the 'other' variables. Use examples, wherever possible.
2. (a) Oligopoly is the most observed market structure in the real world. What is oligopoly? And how does it differ from Monopoly? What is the distinguishing feature of oligopoly?
(b) Firms in oligopoly can either (I) collude or (ii) compete. What will happen in case the firms decide to collude i.e. form a cartel? Why are cartel arrangements not likely to be stable? Explain.
3. (a) What is the difference between an accountant's view of profit and an economist's view of profit? In this context be sure to explain the difference between explicit costs and implicit costs, with examples.
(b) What is 'normal' profit? What is 'economic' profit? If a firm in a perfectly competitive market is making 'economic' profit in the short-run, explain the changes that will take place in the market in the transition to the long-0run equilibrium.
4. (a) What is third degree price discrimination? What are the necessary conditions for implementing price discrimination? (b) Assume that Indian Airlines wish to introduce price discrimination across different 'types' of travellers. Identify the different types of travelers and explain how it can implement this strategy successful. In this context be sure to illustrate the importance of knowledge of price elasticity's of different types of travellers.
5. Write short notes on the following
(a) Barriers to Entry
(b) Prisoner's Dilemma
(c) Consumers Surplus
(d) Economies of Scale
(e) Bundling
SECTION-B
6. What is price elasticity id demand, income elasticity of demand, and cross price elasticity of demand? What is the relation between the total revenue, marginal revenue and price elasticity of demand? Examine.
7. In early 1991, there was a sharp increase in the price of newsprint, the paper used by the newspapers. Since newsprint is the largest expense for India newspapers (after salaries) publishers were concerned about the price hike. Suppose that the demand for newsprint can be represented as follows:
Qi = 17-3 -- 0-0092 p +0-0067
Where Q. equals the quantity demanded (in kilograms per capital), P is the price of newsprint (in Rs. per metric ton) and I is the income per capita (in Rs.),
(a) If there are 1 million people in the market, and if per capita income equals Rs. 10,000 what is the demand curve for newsprint?
(b) Under these circumstances, what is the price elasticity of demand if the price of newsprint equals Rs. 400 per metric ton?
(c) According to a study, the demand curve for newsprint in India is:
Q2 = 2672 -- 0-51 p
Where, Q2 is the number of metrix tons of newsprint demanded (in thousand). What is the price elasticity of demand for newsprint in India if price equals Rs. 500 per metric ton?
(d) Based in this study, will the 1991 price increase result in an increase or decrease in the amount spent on newsprint on newsprint in India? Why?