*Thursday 11th February*
Economics Paper III & II (Objective & Essay)
2.00pm – 5.00pm
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NOTE YOU ARE TO ANSWERS 5 QUESTIONS ONLY!
1 FROM SECTION A AND 4 FROM SECTION B
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*(NO5i)* Public corporation means an entity that is created by the state to carry out public missions and services. In order to carry out these public missions and services, a public corporation participates in activities or provides services that are also provided by private enterprise
(i)Autonomy: Public corporation is an autonomous set up. Therefore it enjoys considerable independence and flexibility in its operations. Initiatives can be taken to tap opportunities and to improve efficiency.
(ii) Protection of public interest: Public corporations can formulate and implement policies which promote public welfare. Policies of the corporation are subject to ministerial review and parliamentary scrutiny. Therefore it would be ensured that public interest is protected and promoted.
(iii) Red tapism minimized: In a public corporation red-tapism and bureaucratic delays are minimized to a great extent. A file need not pass through different levels of bureaucracy as in a departmental undertaking.
(iv}Speedier decisions: Since bureaucracy and red-tapism are reduced to a considerable extent in public corporations, quick decisions can be taken. Delays in decision making is avoided and therefore problems can be solved faster, opportunities can be tapped in a better manner and overall functioning of the organization is improved.
(v)Erase of raising funds: Since public corporations are government owned statutory bodies, they can raise the required funds by issuing bonds. They need not entirely depend on the government for their financial requirements.
The supply of labour is defined as the amount of labour, measured in person-hours, offered for hire during a given time-period.
(a) Participation Rate as Labour Force:
Normally the number of labourers is based on the population. How much percentage does really work.
(b) Number of Hours the Labourers is Willing to Work:
The second aspect of supply of labour is hours of work or time. Supply of labour cannot be determined without knowing that how many hours the work is done.
(c) Speed or Intensity of Work:
Speed of work controls the quantity of labour. One labour who works at a double speed completes the supply of other labourer.
(d) Efficiency or Skill of Work:
Skill of work is related with the kind of work that how much wastage is done, how many accidents are committed and many other factors are considered to know the efficiency of work.
(e) Utility Maximisation Tendency Solution:
On OM axis the utility received from market work is shown and on ON axis the utility received from non-market work is shown.
*(7i)* Stagflation is the extreme economic situation, a peculiar combination of stagnant growth and rising inflation leading to high unemployment. Generally, rising inflation is a sign of a fast-growing economy as people have more money to spend higher amounts on the same quality of goods
1. Reduced Business Revenues
Businesses must significantly reduce the prices of their products in order to stay competitive. As they reduce their prices, their revenues start to drop. Business revenues frequently fall and recover, but deflationary cycles tend to repeat themselves multiple times.
2. Wage Cutbacks & Layoffs
When revenues start to drop, companies need to find ways to reduce their expenses to meet their bottom line. They can make these cuts by reducing wages and cutting positions. Understandably, this exacerbates the cycle of inflation, as more would-be consumers have less to spend.
3. Changes in Customer Spending
The relationship between deflation and consumer spending is complex and often difficult to predict. When the economy undergoes a period of deflation, customers often take advantage of the substantially lower prices that result.
4. Reduced Stake in Investments
When the economy goes through a series of deflation, investors tend to view cash as one of their best possible investments. Investors watch their money grow simply by holding onto it. Additionally, the interest rates investors earn often decrease significantly as central banks attempt to fight deflation by reducing interest rates, which in turn reduces the amount of money they have available for spending.
5. Reduced Credit
When deflation rears its head, financial lenders quickly start to pull the plugs on many of their lending operations for a variety of reasons. First of all, as assets such as houses decline in value, customers cannot back their debt with the same collateral. In the event a borrower is unable to make their debt obligations, the lenders will be unable to recover their full investment through foreclosures or property seizures.
8i) In economics, average cost or unit cost is equal to total cost (TC) divided by the number of units of a good produced (the output Q): Average cost has strong implication to how firms will choose to price their commodities.
ii) In economics, marginal cost is the change in the total cost that arises when the quantity produced is incremented by one unit; that is, it is the cost of producing one more unit of a good. in cost.
(iii) The Total Cost is the actual cost incurred in the production of a given level of output. In other words, the total expenses (cost) incurred, both explicit and implicit, on the resources to obtain a certain level of output is called the total cost.
(iv) An explicit cost is a direct payment made to others in the course of running a business, such as wage, rent and materials, as opposed to implicit costs, where no actual payment is made.
A tax is a mandatory fee or financial charge levied by any government on an individual or an organization to collect revenue for public works providing the best facilities and infrastructure. The collected fund is then used to fund different public expenditure programs.
(i)Fairnessor equity: It means that everybody should pay a fair share of taxes.
(ii) Simplicity: It means that taxpayers can avoid a maze of taxes, forms and filing requirements.
(iii) Adequacy: It means that taxes must provide enough revenue to meet the basic needs of society.
(iv) Transparency: It means that taxpayers and leaders can easily find information about the tax system and how tax money is used.
A perfect market is market that is structured to have no anomalies that would otherwise interfere with the best prices being obtained.
(a) There are many buyers and sellers in the market.
(b) Each company makes a similar product.
(c) Buyers and sellers have access to perfect information about price.
(d) There are no transaction costs.
(e) There are no barriers to entry into or exit from the market
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*Thursday 11th February*