College · B.Com (Hons) — DU Official Syllabus · Semester 5
DSC-5.2 — Business Economics
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| Year | Question paper | Document | Access |
|---|---|---|---|
| 2024-25 | Business Economics · Semester 5 · 2024-25Searchable full text available | Pages —1.2 MB |
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- 1
Explain the concept of price elasticity of demand. Discuss the factors that determine whether a good has elastic or inelastic demand, and derive the formula used to measure it.
3×Appeared in: 2022 · 2023 · 2024
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Explain the concept of price elasticity of demand. Discuss the factors that determine whether a good has elastic or inelastic demand, and derive the formula used to measure it.10 marksseen 3x
Price elasticity of demand measures the responsiveness of quantity demanded to a change in price. It is calculated as the percentage change in quantity demanded divided by the percentage change in price. Demand is elastic when this value exceeds 1, unit elastic when it equals 1, and inelastic when it is less than 1. Key determinants include the availability of substitutes, whether the good is a necessity or luxury, the proportion of income it represents, and the time period under consideration. See the diagrams, formula, and table below for a full worked breakdown.
Appeared in: 2022,2023,2024
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A consumer has a preference for two complementary goods, Pen and Ink. Draw and explain the diagram for the given quantity and price of complementary goods. Also measure the cross elasticity for Pen and Ink with the following information: Pen — Before: Price 10, Quantity 5; After: Price 20, Quantity 3. Ink — Before: Price 5, Quantity 4; After: Price 5, Quantity 2.9 marks
Cross elasticity of ink with respect to pen's price works out to -0.5; the negative sign confirms pen and ink are complementary goods.
Appeared in: 2024
"Price elasticity of demand measures the responsiveness of demand for a good to a change in its price." Explain. Also illustrate the different methods of measurement of price elasticity.9 marks
Price elasticity measures responsiveness of quantity demanded to price change, measured via percentage method, total expenditure method, geometric method, or arc method.
Appeared in: 2024
How is the equilibrium of price and quantity determined? Also show the effect of an increase and decrease in demand and supply on equilibrium price and quantity.9 marks
Equilibrium is where demand and supply curves intersect; demand shifts move price and quantity in the same direction, supply shifts move them in opposite directions.
Appeared in: 2024
Why are indifference curves convex to the origin? Explain with a suitable example and diagram. (Note: the standard, meaningful version of this question — the convexity, not non-convexity, of indifference curves — is answered below.)9 marks
Indifference curves are convex to the origin because of diminishing marginal rate of substitution -- consumers give up progressively less Y for each extra unit of X.
Appeared in: 2024
A consumer spends his/her entire income on food and clothing. Draw the budget lines in the following situations, identifying the intercepts and slopes in each case: (i) The consumer's monthly income is 6000; price of food is 150 and clothing is 300. (ii) What will happen when his/her monthly income changes to 9000 or 4500?9 marks
At income 6000, food intercept is 40 units, clothing intercept 20 units, slope -0.5; income changes shift the line parallel outward (9000) or inward (4500).
Appeared in: 2024
Derive the Engel curve from the income consumption curve in the case of necessary goods, luxury goods, and inferior goods.9 marks
Engel curves derived from the ICC: concave/flattening for necessities, convex/steepening for luxuries, and backward-bending beyond a point for inferior goods.
Appeared in: 2024
Starting from the position of consumer equilibrium, show the substitution effect and income effect of a price change, for normal goods.9 marks
Total price effect for a normal good decomposes into a substitution effect (A to B, always positive quantity change) and an income effect (B to C), both reinforcing an increase in quantity demanded.
Appeared in: 2024
Discuss the different stages of production. At what stage does the rational producer operate, and why?9 marks
Production has three stages (increasing, diminishing, negative returns); the rational producer operates only in Stage II where both AP and MP are positive but falling.
Appeared in: 2024
Explain the long-run average cost curve and marginal cost curve.9 marks
LAC is the envelope of SAC curves reflecting economies/diseconomies of scale; LMC intersects LAC exactly at LAC's minimum point.
Appeared in: 2024
What is the marginal rate of technical substitution? Also, state on the basis of the following information whether the firm is employing the cost-minimizing (least-cost) combination of inputs K and L. If not, what should the firm do? Given: MPk = 5, MPl = 10, Pk = 2, Pl = 6.9 marks
MRTS (2) does not equal the factor price ratio (3); capital gives more output per rupee than labour, so the firm should use more capital and less labour.
Appeared in: 2024
What do you mean by an isoquant? Explain, with diagrams, the different features of an isoquant. Also explain the producer's equilibrium for: (i) how a producer minimizes his cost of production for a given level of output, and (ii) how a producer maximizes his output subject to a cost constraint.9 marks
An isoquant shows equal-output input combinations, convex to origin due to diminishing MRTS; producer equilibrium requires tangency of isoquant and isocost line where MRTS equals the factor price ratio.
Appeared in: 2024
Using marginal principles under a perfectly competitive market, explain the equilibrium of the firm in the short run and long run. Also state when a firm reaches the shut-down point.9 marks
Firm equilibrium occurs at MC=MR=Price; long-run entry/exit drives price to minimum LAC (normal profit); the firm shuts down when price falls below minimum AVC.
Appeared in: 2024
How is a monopolistic market different from a monopoly market? Also explain how equilibrium is attained in the short run and long run in a monopolistic competition market.9 marks
Monopoly has one seller with entry barriers; monopolistic competition has many sellers with free entry, driving long-run equilibrium to a tangency where price equals ATC (normal profit, excess capacity).
Appeared in: 2024
Using marginal principles under a monopolistic competition market, explain the equilibrium of the firm in the short run and the long run.9 marks
Short-run profit under monopolistic competition attracts entry, shifting each firm's demand curve until it is tangent to ATC in the long run, yielding only normal profit and excess capacity.
Appeared in: 2024
Explain the different degrees of price discrimination. Also state when a particular degree of discrimination will be profitable for the firm.9 marks
Price discrimination has three degrees (per-unit, block, market-segment); it is profitable only when markets are separable and demand elasticities differ, charging less to the more elastic segment.
Appeared in: 2024
How does the reaction curve of duopolists help in determining Cournot's equilibrium?9 marks
Cournot equilibrium occurs at the intersection of the two firms' reaction curves, where each firm's output is the best response to the rival's actual output, a stable outcome.
Appeared in: 2024
Write short notes on: (i) Peak load pricing (ii) Rent control in the short run and long run.9 marks
Peak load pricing charges more at high-demand periods to ration scarce capacity; rent control creates a mild shortage short-run but a worsening shortage and reduced housing investment long-run.
Appeared in: 2024
Why do oligopolist firms find themselves in a prisoner's dilemma? Explain the concept of the prisoner's dilemma with a suitable example.9 marks
Oligopolists face a prisoner's dilemma because each firm's dominant strategy (undercutting) leads both to lower profits than if they had cooperated on a high price.
Appeared in: 2024
Write short notes on: (i) Excess capacity hypothesis (ii) Kinked demand curve.9 marks
Excess capacity means monopolistically competitive firms operate below minimum-ATC output; the kinked demand curve explains oligopoly price rigidity via a discontinuous MR curve.
Appeared in: 2024
"Other things remaining the same, the price and quantity supplied of any commodity are directly related." In light of this statement, explain the 'other things'. Also explain why the supply curve is upward sloping.9 marks
The law of supply holds other determinants (input prices, technology, related goods, policy, number of sellers, expectations) constant; supply curves slope upward due to profit motive, rising marginal cost, and new firm entry.
Appeared in: 2025
Explain the following statements/situations with the help of a demand and supply diagram: (i) The effect on demand of a policy measure to ban the sale of cigarettes and alcohol near university campuses. (ii) Promoting fruit exports should increase the fruit price in the domestic market. (iii) Promotion of electric vehicles will decrease the demand for petrol/diesel vehicles.9 marks
A campus ban shifts cigarette/alcohol demand left; export promotion effectively cuts domestic supply raising price; EV promotion shifts petrol-vehicle demand left as a substitute effect.
Appeared in: 2025
Given three demand schedules, identify and explain the situation using the total expenditure method of price elasticity of demand. Price: 12, 10, 8, 6, 4, 2. Commodity A quantity: 100, 120, 150, 200, 300, 600. Commodity B quantity: 100, 110, 125, 150, 200, 300. Commodity C quantity: 100, 130, 175, 250, 400, 900.9 marks
Total expenditure stays constant for A (unit elastic), falls for B (inelastic), and rises for C (elastic) as price falls.
Appeared in: 2025
"Elasticity of supply measures the responsiveness of supply of any good to a change in its own price." In light of this statement, explain with a diagram the different degrees of price elasticity of supply.9 marks
Supply elasticity ranges from perfectly elastic (horizontal) to perfectly inelastic (vertical); a straight-line supply curve through the origin is unit elastic, cutting the price axis means elastic, cutting the quantity axis means inelastic.
Appeared in: 2025
What is a budget line? In what circumstances will it shift? Explain with a diagram.9 marks
A budget line shows affordable combinations of two goods; income changes shift it parallel, while price changes rotate it around the fixed intercept of the unchanged-price good.
Appeared in: 2025
Explain consumer equilibrium with the help of an indifference curve. Also explain, with a diagram, what will happen if at the point of equilibrium the indifference curve is concave to the origin.9 marks
Consumer equilibrium requires tangency between the budget line and a convex indifference curve where MRS equals the price ratio; if the curve were concave, the tangency would be a minimum and true equilibrium would be a corner solution.
Appeared in: 2025
Suppose the price of good X is Rs 5 per unit and the price of good Y is Rs 10 per unit. The monetary income is Rs 100. You are required to: (i) Calculate the intercept and slope, (ii) Write the budget equation, (iii) Show and comment on equilibrium, (iv) On this budget line, what is the slope of the indifference curve at the equilibrium point?9 marks
X-intercept 20, Y-intercept 10, slope -0.5; budget equation 100=5X+10Y; equilibrium requires MRS=0.5, matching the price ratio.
Appeared in: 2025
With the help of a budget line and indifference curve, prove that a government policy of lump-sum subsidy has a better effect on the welfare of the consumer than an excise (price) subsidy.9 marks
For equal fiscal cost, a lump-sum subsidy's parallel budget-line shift lets the consumer reach a higher indifference curve than a price subsidy's rotated line, proving lump-sum transfers are welfare-superior.
Appeared in: 2025
Describe the different types of returns to scale with the help of suitable diagrams. Discuss the factors responsible for the occurrence of each.9 marks
Returns to scale can be increasing (isoquants closer, from specialization economies), constant (equally spaced, simple replication), or decreasing (isoquants farther apart, from managerial diseconomies).
Appeared in: 2025
Distinguish between the short-run and long-run expansion paths of a firm. Explain how each shows the firm's optimal input combinations as output increases.9 marks
The short-run expansion path is a horizontal line reflecting a fixed capital stock (least-cost at only one output), while the long-run path is curved, always maintaining MRTS equal to the factor price ratio as output expands.
Appeared in: 2025
Discuss how the Long-run Average Cost (LAC) curve is derived from a family of Short-run Average Cost (SAC) curves. Explain why the LAC curve is referred to as the firm's planning curve.9 marks
LAC is the envelope of SAC curves for all possible plant sizes, tangent to each at the least-cost point for that output; it is called the planning curve because it guides plant-size choice before building.
Appeared in: 2025
Explain the relationship between production and cost curves. How is an understanding of this relationship relevant for making effective business decisions? Discuss.9 marks
Cost curves mirror production curves (MC/AVC are inverses of MP/AP); this relationship guides efficient input use, pricing/shut-down decisions, and capacity planning.
Appeared in: 2025
Explain the concept of the shut-down point for a perfectly competitive firm. Under what condition does a perfectly competitive firm shut down in the short run? Explain with the help of a diagram.9 marks
A perfectly competitive firm shuts down in the short run only when price falls below minimum AVC, since it can no longer cover variable costs even at its best output.
Appeared in: 2025
"The supply curve under monopoly is indeterminate." Discuss this statement in the context of the absence of a unique relationship between price and quantity supplied.9 marks
Because a monopolist equates MC to MR (not price) and output depends jointly on MC and the shape of demand, there is no unique price-quantity mapping, so monopoly has no well-defined supply curve.
Appeared in: 2025
Discuss long-run equilibrium in monopolistic competition. Explain the managerial implications of the entry of new firms into the industry in the long run.9 marks
Free entry in the long run shifts each firm's demand curve until it is tangent to ATC (normal profit, excess capacity); managers must respond with differentiation and demand-side strategy rather than relying on short-run profits.
Appeared in: 2025
Discuss the features of oligopolistic market structure. Why does price rigidity arise in oligopolistic markets? Explain with the help of a diagram.9 marks
Oligopoly features few interdependent sellers with entry barriers; price rigidity arises from the kinked demand curve, where rivals ignore price rises but match price cuts, creating a gap in the MR curve.
Appeared in: 2025
"Firms undergo an adjustment procedure to attain long-run equilibrium under perfect competition." Discuss this statement with the help of a suitable diagram.9 marks
Entry (attracted by supernormal profit) shifts industry supply right, lowering price; exit (due to losses) shifts supply left, raising price -- both converging to price equal to minimum LAC, the long-run equilibrium.
Appeared in: 2025
Write short notes on: (i) Floor price (ii) Rent control in the short run and long run.9 marks
A floor price above equilibrium creates a surplus the government must absorb; rent control below equilibrium creates a mild short-run shortage that worsens in the long run as housing investment declines.
Appeared in: 2025
Define discriminating monopoly and explain first-degree price discrimination. Discuss whether price discrimination is desirable.9 marks
A discriminating monopolist charges different prices without cost justification; first-degree discrimination captures the entire consumer surplus while achieving efficient output, making it efficient but raising equity concerns.
Appeared in: 2025
"Demand is the consumer's desire for a commodity at a particular point of time and place, where he is ready to apply the available resources with him to purchase the desired quantity of the commodity." Explain. Also illustrate and explain the different demand schedules.9 marks
Demand is desire backed by willingness and ability to pay; individual demand schedules sum horizontally into the market demand schedule, both yielding a downward-sloping demand curve.
Appeared in: 2024
Write short notes on the managerial implications of: (i) Peak load pricing (ii) Individual's backward-bending supply curve of labour.9 marks
Peak load pricing charges more during high-demand periods to manage fixed capacity; the backward-bending labour supply curve shows hours worked eventually falling as high wages trigger a dominant income effect favoring leisure.
Appeared in: 2025
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