Economics : 2015 : CBSE : [All India] : Set- I

A curve that shows different combinations of two goods between which a consumer is indifferent is called indifference curve.

The correct answer is b) Complement goods. If a fall in the price of one good causes increase in the demand for the other, goods are called complementary goods.

The correct answer is b) Downward sloping concave. If the marginal rate of substitution is increasing throughout, the indifference curve will be downward sloping concave.

The PPC curve of the given schedule is

As shown in figure, the PPC curve is concave to the origin. This is because to produce an additional unit of good X, more and more unit of good Y needs to be sacrificed. In other words, marginal rate of transformation is increasing throughout the production.

An appeal to the foreign investors by the Prime Minister of India will increase the inflow of capital in the economy. As India is a country of scarce capital (resources), an increase in inflow of capital will increase the resources available for production at all level. Now, the economy can produce more of both the goods. It will cause the PPC curve to shift to its right.

An effort to reduce the unemployment means that existing resources will become more efficient and producible (optimal utilisation of resources). Under-utilisation is indicated by the point inside the PPC curve say, A.

The impact of efforts towards reducing unemployment on the production potential of the economy will shift the point (here, A) close to PPC curve (indicating better utilisation of resources) or on the PPC curve (indicating fuller utilisation of resources).

The significance of ‘minus sign’ attached to the measure of price elasticity of demand in case of a normal good indicates the inverse relationship between price and quantity demanded. The inverse relationship implies that when the price of good increases, quantity demanded for good decreases, ceteris paribus.

On the other hand, the plus sign attached to the measure of price elasticity of supply indicates the positive relation between price of good and supply of good. It means that when the price of good increases, it leads to increase in supply of good.

In perfectly competitive market all firms produce homogeneous products. It implies that the products of different producers are identical. Buyers cannot distinguish between them in terms of size, colour, shape, etc. This indicates that the buyers are indifferent between the products of different buyers. A single price prevails for the products in the market. It implies that if any firm fixes its price higher than the equilibrium market price, then buyer would shift from this firm to the other. In such situation, the policy of higher price will simply fail.

Price floor means the minimum price on which the good is sold in the market. It is fixed by the government to protect the interest of producer. The effects of price floor are as follows:

• It will raise the maximum price on which good is sold in the market. Thus, producer gets better return for their output.
• It will create excess supply in the market because at fixed floor price there will be some consumers who are not able to purchase the good.
• To support this policy, government often buys this surplus and stores it, as buffer stock.

P₀ = 10

Total Expenditure = Rs 1,000

Quantity demanded, Q₀ = 1000/10 = 100 units

P₁ = 8 (10 – 20% of 10)

Total Expenditure = 800

Quantity demanded, Q₁ = 800/8 = 100 units

ΔP = 2

ΔQ = 0