Managerial Economics Descriptive Model Question Papers
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Q1. Inflation is a global Phenomenon which is associated with high price causes decline in the value for money. It exists when the amount of money in the country is in excess of the physical volume of goods and services. Explain the reasons for this monetary phenomenon.
Definition of Inflation
Inflation is commonly understood as a situation of substantial and rapid general increase in the level of prices and consequent deterioration in the value of money over a period of time. It refers to the average rise in the general level of prices and fall in the value of money.
Prof.Crowther defines inflation as “a state in which the value of money is falling i.e. Prices are rising”. Prof. Samuelson puts it thus, “inflation occurs when the general level of prices and the cost is rising”.
Causes for Inflation
- Demand side
Increase in aggregative effective demand is responsible for inflation. In this case, aggregate demand exceeds aggregate supply of goods and services. We can enumerate the following reasons for increase in effective demand.
- Increase in disposable income: Aggregate effective demand rises when disposable income of the people increases.
- Increase in private consumption expenditure and investment expenditure: An increase in private expenditure both on consumption and on investment leads to emergence of excess demand in an economy.
- Increase in Exports: An increase in the foreign demand for a country’s exports reduces the stock of goods available for home consumption.
- Existence of Black Money: The existence of black money in a country due to corruption, tax evasion, black-marketing etc, increases the aggregate demand.
- Supply side
Generally, the supply of goods and services do not keep pace with the ever-increasing demand for goods and services. Increase in supply of goods and services may be limited because of the following reasons.
- Shortage in the supply of factors of production: When there is shortage in the supply of factors of production like raw materials, labor, capital equipments etc.
- Hoarding by Consumers: Consumers may also hoard essential goods to avoid payment of higher prices in future.
- Role of Trade unions: Trade union activities leading to industrial unrest in the form of strikes and lockouts also reduce production.
- Role of Expectations
Expectations also play a significant role in accentuating inflation. The following points are worth mentioning:
- If people expect further rise in price, the current aggregate demand increases which in its turn causes a raise in the prices.
- Expectations about higher wages and salaries affect very much the prices of related goods.
- Expectations of wage increase often induce some business houses to increase prices even before upward wage revisions are actually made.
Q2. Monopoly is the situation there exists a single control over the market producing a commodity having no substitutes with no possibilities for anyone to enter the industry to compete. In that situation, they will not charge a uniform price for all the customers in the market and also the pricing policy followed in that situation.
The word monopoly is made up of two syllables – ‘MONO’ means single and “POLY” means to sell. Thus, monopoly means existence of a single seller in the market. Monopoly may be defined as a condition of production in which a person or a number of persons acting in combination have the power to fix the price of the commodity or the output of the commodity.
According to Prof. Watson – “A monopolist is the only producer of a product that has no close substitutes”.
Features of Monopoly
- Anti-Thesis of competition: Absence of competition in the market creates a situation of monopoly and hence the seller faces no threat of competition.
- Existence of a single seller: There will be only one seller in the market who exercises single control over the market.
- Absence of substitutes: There are no close substitutes for his product with a strong cross elasticity of demand.
- Control over supply: He will have complete control over output and supply of the commodity.
- Price Maker: The monopolist is the price – maker and in taking decisions on price fixation, he is independent.
- Entry barriers: Entry of other firms is barred somehow. Hence, monopolist will not have direct competitors or direct rivals in the market.
- Firm and industry is same: There will be no difference between firm and an industry.
- Nature of firm: The monopoly firm may be a proprietary concern, partnership concern, Joint Stock Company or a public utility which pursues an independent price-output policy.
Kinds of Price Discrimination
Prof. A.C. Pigou speaks of three kinds of price discrimination.
- Discrimination of the first degree: Under price discrimination of the first degree the producer exploits the consumers to the maximum possible extent by asking him to pay the maximum he is prepared to pay rather than go without the commodity.
- Discrimination of the second degree: In case of discrimination of the second degree, the monopolist charges different prices for different units of the same commodity, but not at maximum possible rate but at a lower rate. The monopolist will leave a certain amount of consumer’s surplus with the consumers.
- Discrimination of the third degree: In case of discrimination of the third degree, the markets are divided into many sub markets or sub groups. The price charged in each case roughly depends on the ability to pay of different sub groups in the market.
Q4. Describe Cost-Output Relationship in brief.
Q5. Discuss the practical application of Price elasticity and Income elasticity of demand.
Q6. Discuss the scope of managerial economics.
Q7. Economic stability implies avoiding fluctuations in economic activities. It is important to avoid the economic and financial crisis. The challenge is to minimise the instability without affecting productivity, efficiency, employment. Find out the instruments to face the challenges and to maintain an economic stability.
Q8. Explain any eight macroeconomic ratios.
Q9. Define Inflation and explain the types of inflation.
Q10. Define Fiscal Policy and the instruments of Fiscal policy
Q11. Investment is a part of income which can be used for various purposes. It is necessary to create employment in an economy and to increase national income. To understand the benefits of income, study the various types of investment.
Q12. Discuss any two laws of returns to scale with example.
Q13. Explain the profit maximisation model in detail.
Q14. Describe the objectives of pricing Policies.
Q15. Explain the kinds and the basis of Price discrimination under monopoly.
Q16. Define the term Business Cycle and also explain the phases of business or trade cycle in brief.
Q17. Discuss profit maximising model in detail.
Q18. Discuss the various survey methods to forecast demand.
Q19. Describe the characteristics of Monopolistic Competition.
Q20. Explain the price elasticity of demand and also its applications.
Q21. Explain the factors determining elasticity of supply.
Q22. Define monopolistic competition and explain its characteristics.
Q23. When should a firm in perfectly competitive market shut down its operation?
Q24. Fiscal policy is a package of economic measures of the government regarding public expenditure, public revenue, public debt or borrowings. It is very important since it refers to the budgetary policy of the government. Explain the fiscal policy and its instruments in detail.
Q25. Explain the various methods of forecasting demand.
Q26. What is production function and its uses? Explain the two types of production functions.
Q27. A cost-schedule is a statement of variations in costs resulting from variations in the levels of output and it shows the response of costs to changes in output. If we represent the relationship between changes in the level of output and costs of production, we get different types of cost curves in the short run. Define the kinds of cost concepts like TFC, TVC, TC, AFC, AVC, AC and MC and its corresponding curves with suitable diagrams for each.
Q28. Define economies of scale. Discuss the kinds of internal economies.
Q29. Consumers’ interview method is a survey method used for estimating the demand for new products. This method is very important with regard to collect the relevant information directly from the consumers with regard to their future purchase plans. Opinion surveys and direct interview method are the two important techniques among all. Describe these two methods in detail.
Q30. Describe perfect competition and its features.
Q31. Define revenue. Explain the types of revenue and the relationship between TR, AR and MR with an example of a hypothetical revenue schedule.