Explain the concept of marginal opportunity cost using a numerical example

a. Arrange the following coefficients of price elasticity of demand in ascending order:

-0.7, -0.3, -1.1, -0.8

b. Comment upon the degree of elasticity of demand for Good X, using the total outlay

method, if the price of X falls from 18 per unit to 13 per unit and its quantity demanded

rises from 50 units to 100 units. (1+3)

Identify which of the following is not true for the Indifference Curves. Give valid reasons

for the choice of your answer:

a. Lower indifference curve represents a lower level of satisfaction.

b. Two regular convex to origin indifference curves can intersect each other.

c. Indifference curve must be convex to the origin at the point of tangency with the budget

line at the consumer’s equilibrium.

d. Indifference curves are drawn under the ordinal approach to consumer equilibrium.

OR

A consumer has total money income of 250 to be spent on two goods X and Y with prices

of 25 and 10 per unit respectively. On the basis of the information given, answer the

following questions:

a. Give the equation of the budget line for the consumer.

b. What is the value of the slope of the budget line?

c. How many units can the consumer buy if he is to spend all his money income on good X?

d. How does the budget line change if there is a fall in the price of good Y?

Define Price Floor. What is the common purpose of fixation of floor price by the

government? Explain any one likely consequence of this nature of intervention by the

government.

OR

Define Price Ceiling. What is the common purpose for the price ceiling imposed by the

government? Explain any one likely consequence of this nature of intervention by the

government in the price determination process. (2+2+2)

a) Apply the geometric method to determine the elasticity of supply at point L on the supply

curve SS given above. (3)

b) Justify the statement, ‘In economics, normal profits are always a part of total cost’. (3)