IEcoS (Economic Services) Economics Paper-1: Questions 54 - 60 of 85

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Question number: 54

» Theory of Distribution » Euler's Theorem, Pricing of Factors

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Appeared in Year: 2017

Essay Question▾

Describe in Detail

State, prove and give an economic interpretation of Euler’s theorem. Show that at the minimum point of the long-run average cost, the total product is exhausted.

Explanation

  • When F (L, K) is a production function then Euler’s Theorem says that if factors of production are paid according to their marginal productivities the total factor payment is equal to the degree of homogeneity of the production function times output.

  • If each factor is rewarded equal to its marginal product, the total product should be dispo

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Question number: 55

» Theory of Consumer's Demand » Price Income and Substitution Effects

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Appeared in Year: 2017

Essay Question▾

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Define the method of Compensating Variation of lncome and the method of Cost Difference. Why is the latter method superior to the former one?

Explanation

  • In economics, compensating variation is a measure of utility change introduced by John Hicks. ‘Compensating variation’ refers to the amount of additional money an agent would need to reach its initial utility after a change in prices, or a change in product quality, or the introduction of new products.

  • In Slutsky’s approach, income is reduc

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Question number: 56

» Theory of Value » Pricing under Different Market Structures » Marginal Cost Pricing

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Appeared in Year: 2015

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How is the monopoly power measured? State Lerner’s measure of degree of monopoly power. Show that the degree of monopoly power is the inverse of the price elasticity of demand.

Explanation

  • Meaning of Monopoly Power: The monopolist is the only seller in the market of his product. As the only seller, he possesses a monopolistic dominance or monopoly power in the market. But the degree of monopoly power is not the same in the case of all monopolies.

  • The less elastic is the demand for a monopolist’s product, the more would be his

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Question number: 57

» Theory of Consumer's Demand » Slutsky Theorem and Demand Curve, Revealed Preference Theory

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Appeared in Year: 2017

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How can you measure the price elasticity of demand at any point on a straight-line demand curve?

Explanation

  • Price elasticity of demand is an economic measure of the change in the quantity demanded or purchased of a product in relation to its price change. Expressed mathematically, it is:

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Question number: 58

» Theory of Value » Pricing under Different Market Structures » Marginal Cost Pricing

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Appeared in Year: 2015

Essay Question▾

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What do you mean by collusive oligopoly? Distinguish between cartel and price-leadership with respect to the determination of price and quantity. Write a note on barometric price-leadership model. (Part-1)

Explanation

  • A collusive oligopoly is an economic structure consisting of only a few producers, who typically form secret cooperative policies that aim to dominate a certain market, influence product-pricing and dictate market shares among competing corporations.

  • The Organization of Petroleum Exporting Countries, commonly known as OPEC, is an example of

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Question number: 59

» Welfare Economics » Divergence between Social and Private Welfare

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Appeared in Year: 2017

Essay Question▾

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Explain the concept of divergence in the context of social and private welfare.

Explanation

  • Divergences between private and social costs and returns (benefits) are known as externalities, external effects or external economies and diseconomies. Another term is spillovers or “neighborhood effects”.

  • An external effect is assumed to exist whenever the production by a firm or the utility of an individual depends on some activity of an

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Question number: 60

» Theory of Consumer's Demand » Cardinal Utility Analysis

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Appeared in Year: 2017

Essay Question▾

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Why do we need the constancy assumption of marginal utility of money in Cardinal Utility Analysis? Justify your answer.

Explanation

Constancy of the Marginal Utility of Money:

  • An important assumption of the cardinal utility analysis is the constancy of the marginal utility of money. Thus, while the cardinal utility analysis assumes that marginal utilities of commodities diminish as more of them are purchased or consumed, but the marginal utility of money remains constant t

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