WEST BENGAL CIVIL SERVICE
EXAMINATION - 2008
Economics Paper-I
Time Allowed-3 Hours Full Marks-100
Group - A
1. (a) Explain the substitution effect of price change of a commodity and point out the difference between the approaches taken by Hicks and Slutsky in the context of a compensated demand curve;
(b) Clearly show the difference between an inferior good and a Giffen good. 12+8
2. (a) In a two period world with intertemporal budget constraint utility function is given by, U = C1C2 and budget line is given by, C2 = -C1 (1 + i ) + [M1 (1 + i ) + M2]. What is the optimal allocation of life time consumption of a consumer when saving-borrowing options are considered ?
C1 and C2 = consumption in period 1 and period 2;
M1 and M2 = income in period 1 and period 2 ;
i = rate of interest.
[Use indifference curve framework.]
(b) Comment on the corner solution for a consumer in the indifference curve framework — with usual commodity pattern and budget line. 14+6
3. (a) A physician charges different rates of fee from different groups of patients without losing market. How would you explain the situation ?
(b) A monopolist faces a demand with a constant price elasticity of 1.5. He has a constant marginal cost of Rs. 40/-. If marginal cost increases by 25 percent, would the price charged by the monopolist also increase by 25 percent ?
(c) If price equals marginal cost, can the monopolist earn profit ? 8+8+4
4. Explain the factors behind money supply whenMl concept of money supply is taken into consideration. Explain the interest elasticity of money supply. Show the impact of interest sensitivity of money supply on government policies for increasing income and employment. 10+5+5
5. Explain any two of the following :
(a) Contribution and limitation of the IS - LM model.
(b) Crowding in and crowding out effect of expansionary fiscal policy.
(c) Income expansion mechanism following an increase in autonomous expenditure when both consumption and investment functionally depend on income.
(d) (i) Increasing returns in perfectly competitive firm and industry.
(ii) First order and second order conditions for profit maximisation for a competitive firm. 10+10
Group—B
6. Explain any two of the following :
(a) Need for protection in a developing economy.
(b) Possible causes of gender discrimination and implication of such discrimination on the process of development.
(c) Equal sacrifice principle as applied in the progressive system of taxation.
(d) Conditions of successful devaluation. 10+10
7. (a) Explain the process of capital accumulation and economic growth in a labour surplus economy with the help of a suitable model, giving the assumptions and limitations. Examine the possibility of existence of disguised unemployment. 10+4
(b) Discuss the unbalanced growth strategy in the context of a less developed country. 6
8. Explain the theory of factor price equalisation giving the assumptions. What empirical tests are found in support of or against the theory ? What are the shortcomings of the theory ? 10+7+3
Group—C
9. Write short notes (any four):
(a) Investment savings gap and export import gap.
(b) Case when the value of balanced budget multiplier is less than one.
(c) Free rider problem in case of public good.
(d) Demerits of indirect taxes.
(e) Gains from trade. 5x4
10. Justify the case for public good in a market economy in the following cases :
(a) "Provision of merit good.
(b) Infrastructure building in LDC-S.
(c) Externalities of production.
(d) Lumpiness of factors. 5x4
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