1.
Answer the questions which follow the case.
Sugarcane is an
important cash crop grown in India. Sugarcane cultivation and development of
sugar industry runs parallel to the growth of human civilization and is as old
as agriculture. The importance and use of sugarcane and sugar in the country's
socio-economic milieu is deep rooted and immense in the current day rural
economy set up sugarcane cultivation and sugar industry has been focal point
for socio-economic development in rural areas by mobilizing rural resources
generating -employment and higher income, transportation and communication
facilities.
Government
policies affect sugarcane cultivation in a number of ways. Various policies
framed by government and micro level factors are influence sugar cultivation,
cost and income of sugarcane farmers. The cost of production has significantly
increased over a period of time and minimum support Price has not adjusted in
accordance with increased cost. Thus, sugarcane farmers in India find
themselves in a complex web of problems leading to declining profits. The
sugarcane farmers in Maharashtra had given an ultimatum to the state government
for its failure to declare better prices for the crop, failing which the
farmers said they would organise a 48-hour bandh. The Government announced the
Fair` and Remunerative Price (FRP) for sugarcane for the 2014-15 sugarcane
season. The FRP imposed a minimum support price for sugarcane at Rs.220 per
quintal.
(i)
What do you think are the
reasons for declining profits in sugarcane farming?
(ii)
Explain with a suitable diagram,
the amount of consumer and producer surplus without the imposition of minimum
support price.
(iii)
Explain what would happen to consumer and
producer surplus in the sugarcane market after the imposition of MSP.
(iv)
Will
there be any deadweight loss? Explain
2.
For each of the following
events, describe in words what happens to the supply, demand, quantity demanded
and quantity supplied in the market for new cars.
a.
The auto workers get a large
raise.
b.
A new robotic technology is
introduced in the factory.
c.
The government subsidizes bus
tickets resulting in a large reduction in the cost of a bus ticket.
d.
Real income grow and new cars
are normal good.
3.
The market for pizza has
following demand and supply.
Price |
Quantity demanded |
Quantity Supplied |
4 |
135 |
26 |
5 |
104 |
53 |
6 |
81 |
81 |
7 |
68 |
98 |
8 |
53 |
110 |
9 |
39 |
121 |
a.
Graph the demand and supply
curves. What is the equilibrium price:
b.
If the price in the market is
above the equilibrium price, what would drive the market to the equilibrium?
c.
If the price in the market is
4, what is the excess demand in the market? What would drive the market to the
equilibrium?
4.
QD=50 – 2 P + 0.5 PR and Qs = -4 + P. Here PR if the
price of a related good.
a.
What is the equilibrium price
and quantity if PR =Rs. 5?
b.
Plot the demand and supply
curve and show the equilibrium in the same plot.
c.
If govt. imposes tax on the
related good by Re.1 per unit, then how the equilibrium will change?
5.
Let the market supply and
demand curves are given by the equations
P = 40 + 4Qs and P= 100 – 2Qd. What is the
consumer and producer surplus at the equilibrium price and quantity?
6.
Explain
the effect of imposition of excise duty (unit tax) on the quantity bought and
sold of the commodity and its price. Do buyers of the commodity bear the whole
burden of the excise duty?
7.
Suppose that
in a year the excise duty on cigarettes is doubled and as a result the total
revenue from the excise duty decreases. What conclusions about price elasticity
of demand for cigarettes would you draw?
8.
Explain
the importance of the concept of cross
elasticity of demand in a) formulating proper price strategy by a firm (b) in
analyzing the degree of competition prevailing in an industry.
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