Q14 of 30 Page 1

A consumer, Mr. Aman is in the state of equilibrium consuming two goods X and Y, with given

prices Px and Py. Explain what will happen if:


a. MUx / Px is greater than MUy / Py.


b. Py falls

If MUx / Px is greater than MUy / Py then Aman would increase the X consumption. As consumption of Y gets reduced MUy would increases. Similarly if X’s consumption is increased then MUx would decrease.


b.


This means MUx / Px is less than MUy / Py. Aman will buy more good Y than X.


More from this chapter

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12

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)

 13

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)

 15

State, with valid reasons, which of the following statement are true or false:

a. Average Revenue curve under the Perfect Competition is a downward sloping curve.


b. AFC curve is a rectangular hyperbola curve.


c. When MR is falling but positive, TR will also be falling and positive

 16

Supply of money refers to the quantity of money

a. As on 31st March


b. During any specified period of time


c. As on any point of time


d. During a fiscal year