Economics Paper I Past Paper 2014

Maths carries the Economics Paper I past paper 2014 further than most years. Q.2 hands over a profit function and asks for its maximum through the Lagrange multiplier method. Q.3 shows that the total price effect equals the sum of the income and substitution effects. Q.4 sets monopoly against perfect competition and asks how price and output are fixed under monopoly in the short run. Q.5 defines average fixed, variable and total cost and marginal cost, then asks why marginal cost matters where it meets average cost. Q.6 hands over money-market data and asks for the monetary base, M1, the money multiplier and the change in base that M1 of 800 needs. Q.7 uses the Keynesian cross to predict the impact of higher purchases, higher taxes, and both together. Q.8 closes with short notes on surplus, on compensating and equivalent variation, and on the Philips curve. This file holds the Part-II sheet only.

What this paper contains

  • This file carries Part-II (the descriptive part) of the paper.
  • Part-II — attempt any FOUR questions from Q.2–Q.8; each question carries 20 marks (Part-I holds the 20 MCQs, per the printed header)

Part-II questions

Q.2 — Given the profit function of a firm. π = 80X– 2X² – XY– 3Y² + 100Y Using the Lagrange Multiplier Method, find the maximum of the profit function subject to the constraint that: X + Y = 12. (20)

Q.3 — Using the utility maximization model show that total price effect is equal to the sum of income and substitution effects. (20)

Q.4 — Differentiate between monopoly and perfect competition? How price and output is determined under monopoly in the short run? (20)

Q.5 — (a) Define and explain the concept of average fixed cost, average variable cost, average total cost and marginal cost with the help of diagram. (10 each)
(b) What is the significance of the point where marginal cost is equal to average cost? Describe this relationship mathematically as well as graphically. (20)

Q.6 — Given below is the information about money market in a economy (all values in billions): C = Currency in circulation D = Demand deposits = $ 600 X = Excess Reserves r = reserve requirement on Demand Deposits = 0.05 (C/D) = 0.25 (X/D) = 0.05 Calculate the value of the following: (5 each) (20)
(a) Monetary Base
(b) M1 Money Supply
(c) Money Multiplier
(d) Change in Monetary base required to achieve M1 = $800

Q.7 — Use the Keynesian Cross to predict the impact of: (20)
(a) An increase in government purchases (7)
(b) An increase in taxes (7)
(c) An equal increase in government purchases and taxes (6)

Q.8 — Write short NOTES on the following: (20)
(a) Consumer and producer surplus (7)
(b) Compensating and Equivalent variation (7)
(c) Philips curve (6)

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