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

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.

It is the graphic presentation of all the bundles that a consumer can actually purchase with his income at the prevailing market prices.

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 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.

The PPC curve of the given schedule is

As shown in figure, the PPC curve is a downward sloping straight line. This is because to produce an additional unit of good X, one unit of good Y needs to be sacrificed. Here, marginal rate of transformation is constant throughout the production (i.e. 4 units of good Y for 1 unit of good X).

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).

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.

Non-price competition in an oligopoly market refers to firms’ efforts to distinguish their products from competing products on the basis of attributes other than price. The implication is that firms spend huge amount of money on advertisements, providing better services to customers, etc. to attract consumers.

(a)

It is the fixed cost per unit of output. AFC slopes downwards to the right and never touches the x-axis. It means average fixed cost goes on diminishing as more and more units of a good are produced. But it never touches x-axis because total fixed cost will never be zero.

(b)

Average variable cost curve is the variable cost per unit of output. The shape of AVC is U- shaped. At first as more and more unit of output is produced, it declines due to decreasing cost. Then the curve starts rising. It means, as output increases, average variable cost tends to increase.