Birla Institute of Technology & Science, Pilani, Hyderabad Campus
Principles of Economics (ECON F211)
Mid Semester Exam (Open Book)
Date: 14/03/2022
Duration: 90 Minutes
Total Marks: 60
Instructions:
 There are two sections of the paper. First section contains 20 objective type questions each containing
one mark and the second section contains 5 subjective type questions.
 Maximum time is 40 mins for part A. Part A is to be answered on question paper itself.
Section A (Objective Type)
1. Assume that the market demand curve for a good Y turns out to be positively sloped and the market
supply curve is as usual positively sloped, though the slopes of both the curves are different, then if
we move away from equilibrium, will we come back to it or diverge away?
a) Come back to it
b) Diverge away
c) Come back to it or diverge away
d) None of the options given
2. In Thumkunta, the local government decrees that thousands of apartments close to BITS campus are
uninhabitable and must be torn down next semester. If you want to pay the lowest rent possible, should
you hope that demand for apartments is elastic or inelastic?
3. Pradhan Mantri Gramodaya Yojana (a poverty alleviation scheme) launched in 2000-01 envisages
allocation of Additional Central Assistance (ACA) to the States and UTs for selected basic services
such as primary health, primary education, rural shelter, rural drinking water, nutrition and rural
electrification. With which criteria we can judge this economic issue?
4. Suppose that drug addicts pay for their addiction by stealing: So the higher the total revenue of the
illegal drug industry, the higher the amount of theft. If a government crackdown on drug suppliers
leads to a higher price of drugs, what will happen to the amount of stealing if the demand for drugs is
elastic?
5. Flooding due heavy rains can severely damage the economy's infrastructure (roads, telephone
systems), homes, and factories. An economist describing the effect of a flood would show
a. an inward shift in the production possibilities curve.
b. an outward shift in the production possibilities curve.
c. a movement along the production possibilities curve, from consumption to capital.
d. a movement along the production possibilities curve, from capital to consumption.
e. a movement inside the curve, the curve remaining intact.
6. Norton consumes two commodities X and Y at an equilibrium level. If marginal utility of commodity
X is 175, price of commodity X is Rs.25 and the price of commodity Y is Rs.40, the marginal utility
of Y is _________-.
7. The staff economist for Bata’s Boots estimates that if the Bata firm increases the price of its boots by
10 percent, it would lead to a 6 percent reduction in the quantity of boots demanded. If the firm is
interested in maximizing total revenue, it should
a. increase price 10 percent.
b. decrease price 6 percent.
c. hold price constant.
d. increase quantity demanded 10 percent.
e. increase quantity demanded 6 percent.
8. Which of the following might not lead to a decrease in the demand for a type of labour?
a) A decrease in the number of firms using the labour.
b) An increase in the capital intensive technology
c) A fall in the price of a substitute input.
d) A decrease in the demand for the produce or products which the labour is used to produce.
e) none of the above
9. You have observed that every time you get a new tattoo the day before you take an exam, you get an
A grade. You therefore conclude that to get an A grade for an exam, all you have to do is get a new
tattoo the day before. You have committed the _____________
10. If demand for hatchback cars decreases by 17% when income increases by 5%, income elasticity of
demand for hatchback cars is ___________ and hatchback car is a ____________ good.
11. Consider two demand functions (for good x in two markets 1 & 2) given by P1  100  x and
P2  100  0.5 x . At any given price, which market is going to have higher price elasticity of demand.
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12. The surplus caused by a binding price floor is smallest when supply is _______ and demand is
___________.
13. In case of Giffen good ____________effect dominates the________________effect.
14. According to income effect, as interest increases, savings __________.
15. Budget constraint shape will be___________ in case of bulk buying discounts or price penalties for
buying “too much”.
16. If commodity X is a neutral (given on the horizontal axis) and Y a normal good (given on vertical
axis), the shape of indifference curve will be ______________.
17. The price of tapes is $10 and the price of CD’s is $15. Philip has a budget of $100 and has already
purchased 3 tapes. He thus has $70 more to spend on additional tapes and CD’s. What is the slope of
his budget line, if his remaining expenditure is made on 1 tape and 4 CD’s. [tapes-horizontal axis &
CDs-vertical axis]
18. Calculate MRS for the given utility function, U(x,y) = (x2 – y2)1/2
19. Which of the following statements regarding Price Ceiling are true?
(i)
Price ceiling always result in decrease in consumer surplus
(ii)
Price ceiling always result in increase in consumer surplus
(iii)
Price ceiling always result in decrease in producer surplus
(iv)
Price ceiling always result in increase in producer surplus
(v)
Price ceiling always result in dead weight loss.
a) (ii), (iii) & (v)
b) (ii) & (iii)
c) (iii) & (v)
d) (v)
e) None of the given options
20. In all markets, elasticity of supply is a positive number. (True/False)
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