Economics: Numerical Practice, Group C Bank and Model Question Sets

Step 1 — TR = P \times Q; Step 2 — AR = \frac{TR}{Q} (= the price); Step 3 — MR = TR of this row − TR of the previous row.

Answer. AR always equals the price; MR falls faster than AR because the price cut applies to all the units sold; TR rises to a maximum of Rs. 30 where MR = 0 and falls after that where MR is negative.

TC = TFC + TVC; AFC = \frac{TFC}{Q}; AVC = \frac{TVC}{Q}; ATC = \frac{TC}{Q}; MC = TC of this row − TC of the previous row.

Answer. AFC falls throughout from Rs. 60 to Rs. 10. ATC falls to a minimum of Rs. 47.50 at 4 units and then rises. MC is lowest (Rs. 26) at 3 units and cuts ATC between 4 and 5 units, exactly where ATC turns upwards.

Step 1 — Percentage change in quantity = \frac{10}{40} \times 100 = 25\%; percentage change in price = \frac{-2}{10} \times 100 = -20\%. Step 2 — E_d = \frac{25}{-20} = 1.25 (absolute value). Since E_d > 1, demand is relatively elastic. Step 3 — At equilibrium 100 - 2P = 20 + 2P, so 80 = 4P and P = Rs.\ 20. Step 4 — Q = 100 - 2(20) = 60 units; check with supply: 20 + 2(20) = 60. ✔ Answer. (a) E_d = 1.25, elastic. (b) Equilibrium price Rs. 20, quantity 60 units.

Answer. Stage I: the 1st to the 3rd worker (MP rising). Stage II: the 4th to the 6th (MP falling but positive, TP still rising; AP maximum at the 4th where MP = AP). Stage III: from the 8th worker (MP negative, TP falling). The producer should operate in stage II.

Step 1 — TR = PQ = (120 - 3Q)Q = 120Q - 3Q^2. Step 2 — MR = \frac{dTR}{dQ} = 120 - 6Q. Step 3 — Set MC = MR: 30 = 120 - 6Q, so 6Q = 90 and Q = 15 units. Step 4 — P = 120 - 3(15) = Rs.\ 75. Step 5 — Profit = (P - ATC) \times Q = (75 - 45) \times 15 = Rs.\ 450. Answer. (a) MR = 120 - 6Q; (b) 15 units; (c) Rs. 75; (d) Rs. 450. Note the price is Rs. 75 while marginal cost is Rs. 30 — the exercise of monopoly power, possible only because entry is blocked.

Step 1 — VMP = MP \times Price = MP \times 40.

Answer. 4 workers, where the value of the marginal product equals the wage. Beyond that, each extra worker adds less to revenue than to cost.

Step 1 — Deficit = 15{,}00{,}000 - 12{,}00{,}000 = Rs.\ 3{,}00{,}000 million. Step 2 — Tax share = \frac{10{,}20{,}000}{12{,}00{,}000} \times 100 = 85\%. Step 3 — Deficit as a share of expenditure = \frac{3{,}00{,}000}{15{,}00{,}000} \times 100 = 20\%. Step 4 — Capital expenditure of Rs. 9,00,000 million is three times the deficit, so the borrowing is more than covered by development spending — the right use of a deficit. Answer. Deficit Rs. 3,00,000 million; tax 85 % of revenue; deficit 20 % of expenditure; and the borrowing is fully covered by capital spending.

Step 1 — Opportunity cost of one unit of cloth: Nepal = \frac{80}{40} = 2 units of rice; India = \frac{100}{60} = 1.67 units of rice. Step 2 — India gives up less rice per unit of cloth, so India specialises in cloth; Nepal's relative disadvantage is smallest in rice (it gives up 0.5 cloth per unit of rice against India's 0.6), so Nepal specialises in rice. Step 3 — Terms of trade = \frac{145}{125} \times 100 = 116. Step 4 — Since 116 is above 100, the terms of trade are favourable — the same exports now buy 16 per cent more imports than in the base year. Answer. (a) India cloth, Nepal rice. (b) Terms of trade 116, favourable.

Step 1 — Balance of trade = 1{,}200 - 4{,}000 = -2{,}800 (a deficit of Rs. 2,800 billion). Step 2 — Current account = -2{,}800 + (800 - 400) - 300 + 5{,}200 = +2{,}500 billion. Step 3 — Capital account = 900 - 200 + 300 = +1{,}000 billion. Step 4 — Overall balance = 2{,}500 + 1{,}000 = +3{,}500 billion, which appears as an increase in the foreign exchange reserves. Answer. Balance of trade −2,800; current account +2,500; overall balance +3,500 billion. This is the Nepali pattern: a large trade deficit turned into a current account surplus by remittance.

Step 1 — Agriculture = \frac{1{,}320}{6{,}000} \times 100 = 22\%. Step 2 — Trade deficit = 1{,}500 - 300 = Rs.\ 1{,}200 billion. Step 3 — Remittance share = \frac{1{,}500}{6{,}000} \times 100 = 25\%. Step 4 — Remittance as a multiple of exports = \frac{1{,}500}{300} = 5 times. Step 5 — Cross-check: the trade deficit of Rs. 1,200 billion is smaller than the remittance of Rs. 1,500 billion, which is why the current account still ends in surplus. Answer. Agriculture 22 % of GDP; trade deficit Rs. 1,200 billion; remittance 25 % of GDP and five times merchandise exports.

\bar{X} = \frac{\Sigma fX}{\Sigma f} = \frac{1{,}220}{40} = 30.5. Answer. The mean is 30.5.

Step 1 — Take A = 35, the mid-value of 30–40, and i = 10.

Step 2 — Mean = 35 + \frac{-20}{60} \times 10 = 35 - 3.33 = 31.67 marks. Step 3 — Median: N/2 = 30 falls in 30–40 (c.f. 26 → 44), so Median = 30 + \frac{30-26}{18} \times 10 = 32.22 marks. Step 4 — Q_1: N/4 = 15 falls in 20–30 (c.f. 12 → 26), so Q_1 = 20 + \frac{15-12}{14} \times 10 = 22.14 marks. Step 5 — Q_3: 3N/4 = 45 falls in 40–50 (c.f. 44 → 54), so Q_3 = 40 + \frac{45-44}{10} \times 10 = 41.00 marks. Step 6 — Mode: modal class 30–40 with f_1 = 18, f_0 = 14, f_2 = 10; Mode = 30 + \frac{18-14}{2(18)-14-10} \times 10 = 30 + 3.33 = 33.33 marks. Step 7 — Verification: 3\ Median - 2\ Mean = 3(32.22) - 2(31.67) = 96.66 - 63.34 = 33.32, which agrees with the computed mode. Answer. Mean 31.67; median 32.22; Q_1 22.14; Q_3 41.00; mode 33.33. Since Mean < Median < Mode, the distribution is negatively skewed. The inter-quartile range is 41.00 - 22.14 = 18.86 marks.

1. Statement of the law (a short-run law with one factor fixed); the three stages with a table of TP, MP and AP — stage I increasing returns (MP rising, AP rising and below MP), stage II diminishing returns (MP falling but positive, AP maximum where MP = AP, TP still rising), stage III negative returns (MP negative, TP falling); the reasons — under-use of the fixed factor and specialisation in stage I, full use of the fixed factor in stage II, mutual obstruction in stage III; and the conclusion that the producer should operate in stage II.

2. Perfect competition: the industry's demand and supply fix the price, which the firm takes; the firm's equilibrium is where MC = P = MR with MC rising; if P > ATC there is abnormal profit, which attracts new firms, pushes the industry supply curve right and the price down to the minimum of ATC, leaving only normal profit; if P < AVC the firm shuts down. Monopoly: the firm faces the whole downward-sloping demand curve; it equates MC with MR to fix output, then reads the price off the AR curve; the price is above MC and above the competitive price, and the output is smaller. Comparison: lower output and higher price under monopoly, with abnormal profit persisting because entry is blocked, and a deadweight loss to the consumer.

3. Socialist-oriented economy (2): a mixed economy with a socialist orientation resting on three sectors — public, private and cooperative — directed to reducing poverty, inequality and unemployment. Bases (3): the three-pillar structure with private property protected and cooperatives promoted; social justice and equality; the welfare role of the state in basic education, basic health and social security; public welfare preferred to private profit, with ceilings permitted on land and productive assets; lawful private enterprise with social responsibility; a planned, self-reliant and independent economy; and cooperative-friendly development. Features, problems and prospects (3): as set out in unit 4 of the companion textbook — agrarian base, low per capita income and productivity, a growing service sector and remittance, a low rate of capital formation, landlocked and transit-dependent trade, uneven development; poverty, unemployment, low productivity, capital deficiency, a weak industrial base, poor infrastructure, a chronic trade deficit, brain drain and instability; and the prospects of hydropower, tourism, agricultural modernisation, remittance-financed enterprise and the demographic dividend.

4. National income (1): the market value of all final goods and services produced in a country in a year. Circular flow (3): households supply factor services and receive factor income; they spend it on the firms' output; firms receive revenue and pay the factors again; real flow and money flow run in opposite directions; saving is a leak and investment an injection, and equilibrium requires S = I. Adjustments (4): show the table for a continuous series with the mid-value, fd' and cumulative frequency columns; compute the mean by the step-deviation method, the median by L + \frac{\frac{N}{2} - c.f.}{f} \times i, and the mode by L + \frac{f_1 - f_0}{2f_1 - f_0 - f_2} \times i; then verify with Mode = 3\ Median - 2\ Mean and state whether the distribution is symmetrical, positively or negatively skewed.

1. The organised system by which the people of a country produce goods and services, distribute them and consume them to satisfy their wants with limited resources.

2. The value of the next best alternative forgone when a choice is made.

3. Under perfect competition.

4. The addition to total cost from producing one more unit: MC = \frac{\Delta TC}{\Delta Q}.

5. Other things remaining the same, when the price of a good rises the quantity demanded falls, and when the price falls the quantity demanded rises.

6. The ratio of the index of a country's export prices to the index of its import prices, multiplied by 100.

7. The balance of trade covers goods only; the balance of payments covers every transaction with the rest of the world.

8. A composite measure prepared by the UNDP combining life expectancy at birth, years of schooling and GNI per capita into a figure between 0 and 1.

9. The public, private and cooperative sectors.

10. Median = L + \frac{\frac{N}{2} - c.f.}{f} \times i.

11. Mode = 3\ Median - 2\ Mean.

1. Growth is quantitative — a rise in national income or real per capita income. Development is qualitative as well as quantitative — growth plus better health, education, nutrition, housing, employment, equality and freedom. Growth is necessary but not sufficient; give the comparison table and the example of a country that grows without developing.

2.

AR equals the price; MR falls twice as fast as AR because the price cut applies to all units sold; TR rises but by a diminishing amount. 3. Statement of the law; the table with TP, MP and AP; stage I increasing returns (MP rising), stage II diminishing returns (MP falling but positive; AP maximum where MP = AP), stage III negative returns (MP negative, TP falling); the reasons for each stage; the producer should operate in stage II. 4. Revenue: tax revenue (income tax, VAT, excise, customs, land and house tax); non-tax revenue (fees, fines, registration fees, royalties, dividends, interest, rent, foreign grants); capital receipts (internal and external borrowing). Expenditure: recurrent and capital; developmental and non-developmental, with an example of each. 5. Ricardo's theory: trade benefits a country even if it is absolutely less efficient in both goods, provided relative efficiencies differ; specialise where the opportunity cost is lower. Example: Nepal 40 cloth or 80 rice; India 60 cloth or 100 rice with the same labour — the opportunity cost of cloth is 2 rice in Nepal and 1.67 in India, so India specialises in cloth and Nepal in rice; both gain. Add the gains from trade. 6. Remittance of about a quarter of GDP is the largest single source of foreign exchange and keeps the balance of payments in surplus despite a huge trade deficit; it absorbs surplus labour; it reduces poverty because it reaches households directly; it finances consumption, education, health, housing and small business; it supports reserves and the exchange rate; workers acquire skills abroad; and it relieves pressure on land. Its risks: recruitment debt, exploitation, unsafe work, social costs at home, neglect of agriculture and brain drain. 7. Mean 31.67 marks; median 32.22 marks; mode 33.33 marks. Show the table with the mid-values and the cumulative frequencies, and each formula before substituting. 8. Definition; importance — definite presentation of facts, simplification, comparison, testing of theories, guidance of policy, forecasting; limitations — it studies groups and not individuals, deals with quantitative facts only, can be manipulated, is true only on average, depends on the quality of collection, needs trained people, and shows relations and not causes.

1. As outlined in 7.13, answer 1 — the statement of the law, the three stages with a table, the reasons for each stage, and the conclusion that production should be in stage II where the marginal product is positive and the average product is at or near its maximum.

2. As outlined in 7.13, answer 2 — the firm's equilibrium condition MC = MR with MC rising; price and output under perfect competition with the free entry that competes abnormal profit away; price and output under monopoly where the firm equates MC with MR and then reads the price off the AR curve; and the comparison of output, price, profit and consumer welfare.

3. Mean = 31.67 marks by the step-deviation method with A = 35 and i = 10; median = 32.22 marks; Q_1 = 22.14 marks; Q_3 = 41.00 marks; mode = 33.33 marks; verification 3(32.22) - 2(31.67) = 33.32, agreeing with the mode. Since Mean < Median < Mode, the distribution is negatively skewed, with a tail towards the lower marks. Always show the table with the mid-values, fd' and the cumulative frequencies; the marks are awarded for the table. Or, Explanation of the socialist-oriented economy, its three sectors, its bases under the Constitution, and the features and problems of the Nepali economy, as set out in unit 4 of the companion textbook.