WEST BENGAL CIVIL SERVICE
EXAMINATION - 2002
Time Allowed-3 Hours Full Marks-100
Answer any five questions, taking atleast tow from each group
Group - A
1. (a) Explain the difference between marginal cost and average cost.
(b) Is it true that the marginal cost would be the same when computed from variable cost as from total cost ? Explain.
(c) What is meant by opportunity cost ? 5 + 7 + 8
2. (a) How does a competitive firm decide on the amount it will supply ? Draw diagram to explain your answer.
(b) Bring out the main characteristics of a perfectly competitive market.
(c) Mention some of the sources of market imperfection. 10 + 5 + 5
3. (a) If the consumer is consuming exactly two goods, and he is always spending all of his money, can both of them be inferior goods ? Give your reasons.
(b) Distinguish between the Hicks substitution effect and the Slutsky substitution effect of a price change. 10+10
4. It has been argued that firms almost never set prices by aquaring marginal revenue to marginal cost. They follow instead what is known as mark-up pricing principle. Do you think that this principle has a strong rational basis ? Fully Explain. 20
5. (a) Do you think a consumption tax tends to be more favourable to saving than an income tax ? Give your reasons.
(b) Which type of the above tax you advocate for developing countries and why ? 12 + 8
Group - B
6. (a) What is "crowding-out effect" ?
(b) The crowding-out effect suggests that expansionary policy will exert less impact on aggregate demand than the basic Keynesian model implies. Discuss briefly. 6 + 14
7. Assume that the people expect that inflation will increase. What effect would that produce on the long term rate of interest ? 20
8. (a) Define "high-powered money".
(b) How does money affect the economy ?
(c) What are the "excess reserves" of a bank ? 4 + 2 + 4
9. (a) Why does LM curve slope upwards ?
(b) If a Central Bank were to set monetary policy to maintain a constant exchange rate. what type of LM curve would be the central bank to achieve its objective ? Explain. 8 + 12
10. Write Short Notes on the following (Any two)
(a) Technological dualism,
(b) Sustainable development,
(c) Paradox of thrift,
(d) Stolper-Samuelson theorem.