Date: 04/11/2024

Paper Code: 12275101

Course: All Course

Semester: I


The DU SOL Previous Year Question Paper for Introductory Microeconomics (Semester 1) with Unique Paper Code 12275101 is a valuable resource for students in the Delhi University School of Open Learning (DU SOL) program. This paper helps students grasp key economic concepts, understand exam patterns, and prepare effectively for their examinations.

Question are as follows:

Question 1. a. Classify the following statements into Positive and Normative statements with reasons for your classification. (5)
i. The government should emphasise more on poverty reduction than on economic growth.
ii. People would prefer a policy that lowered the level of unemployment to one that brought inflation down.
iii. Higher taxes discourage work effort.
iv. A rapid growth rate of money is the cause of inflation.
v. Government should raise the tax on tobacco as to discourage people from smoking.
b. Kelen and Chris produce rice and wheat. In an hour, Kelen can produce 1 unit of wheat or one unit of rice, while Chris can produce 2 units of wheat and 3 units of rice. They each work 10 hours a day. (8.75)
i. Who has an absolute advantage in producing wheat? Who has an absolute advantage in producing rice? Explain.
ii. Who has comparative advantage in producing wheat? Who has Comparative advantage in producing rice? Draw a production possibilities frontier for Kelen and Chris assuming that each spends same number of hours each day as the other in producing wheat and rice.
c. Calculate TFC, if AC and AVC are $22 and $18 respectively at output of 10 unit. (5)

Question 2. a. Calculate the price elasticity of demand using the mid-point Method from the following information.

Price203040
Quantity906045

Would your result be different if instead you consider the total revenue approach to calculate the price elasticity of demand? (5.75)
b. Show that a minimum wage set above the market clearing wage rate causes excess supply of labour. Why would a government impose minimum wage despite knowing its effect on unemployment? (6)
c.
What is effect on producer surplus if taste changes in favor of organic food. Explain it diagrammatically. Will it affect producer surplus in the market for organic food? (7)

Question 3. a. During the Covid-19 pandemic, the Ayurvedic medicines have an inelastic demand and electronic devices have an elastic demand. Imagine that technological advancement doubles the supply of both products (i.e. quantity supplied at each price is twice as it was earlier)
i. What will be the equilibrium price and quantity in each market?
ii. Which product experiences a larger change in price and which product experiences larger change in quantity. (9)
b. Do you agree with this statement, MC curve crosses the ATC curve at its minimum? Why? (4)
c. How does an increase in interest rate affects household savings? Explain with the help of an example with graph. (5.75)

Question 4. a. Suppose government imposes $2 tax on each liter of petrol purchased and all petrol vehicle users require paying the same.
i. Draw a demand and supply diagram of the market for petrol without the tax. Show the price paid by consumers, price received by producers and the quantity of petrol sold.What is the difference between price paid by consumers and received by producers?
ii. Draw a demand and supply diagram of the market for the petrol with the tax. Show the price paid by consumers and received by producers and the quantity of petrol sold. What is the difference between the price paid by consumers and received by producers? Has the quantity of petrol sold increased or decreased?
b. What is the Dead weight loss of taxation? How does the dead weight loss change with the change in size of the tax? Give reasons. (6.75)

Question 5. a. “Government should regulate mergers between firms” Give reason in favor and against this statement. (4.75)
b. Draw the diagram with demand and supply curves for an importing country. What is the consumer surplus and producer surplus before trade is allowed? What will be the consumer and producer surplus with free trade? Explain the change in total surplus. (7)
c. A company is considering constructing a Flyover bridge over the busiest road to avoid the traffic. The bridge would cost $2 million to build. The following table shows the company’s anticipated demand over the lifetime of the bridge:

Price per
Crossing ($)
No. of Crossings
in Thousand
80
7100
6200
5300
4400
3500
2600
1700
0800

i. If the company builds the flyover bridge, what would be its profit maximizing price? Would that be the efficient output? Give reason.
ii. If the company is interested in maximizing profit, should it build the flyover bridge?
What would be its profit or loss? If the government were to build the bridge, what price should it charge? (7)

Question 6. a. Draw a consumer budget constraint and indifference curves for Pepsi and Pizza. Find out the optimal consumption choice when consumer has income of $2000 and the price of Pepsi is $5 per bottle and the price of per pizza is $10.What is the marginal rate of substitution at this optimum? (6)
b. Piyush spends his entire income between food grains and books (both of which are normal goods) Pandemic causes a large increase in the prices of food grains in India.
i. Show the effect of Pandemic on Piyush’s budget constraint.
ii. Show the effect of Pandemic on Piyush’s optimal consumption bundle assuming
that substitution effect outweighs the income effect for books.
iii. Show the effect of Pandemic on Piyush’s optimal consumption bundle assuming
that income effect outweighs the substitution effect for books. (6)
c. Suppose that labor is the only input used by perfectly competitive firm. The firm’s production function is as follows:

Days of LabourOutput
00
17
213
319
425
528
629
729

i. Calculate the marginal product for each additional worker.
ii. Each unit of output sells for $10. Calculate the value of the marginal product of each worker.
iii. Compute the demand schedule and firms demand curve showing the number of workers hired for all wages from 0 to $100 a day. (6.75)


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