IGNOU| ECONOMIC THEORY (ECO - 06)| SOLVED PAPER – (DEC - 2023)| (BDP)| ENGLISH MEDIUM
BACHELOR'S DEGREE PROGRAMME
Term-End Examination
December - 2023
ELECTIVE COURSE: COMMERCE
ECO-06
ECONOMIC THEORY
Time: 2 hours
Maximum Marks: 50
Weightage: 70%
Note: The paper contains three Sections–A, B and C.
Instructions are given in each Section along with marks.
हिंदी माध्यम: यहां क्लिक करें
Section—A
Note: Answer any two questions from this Section. 2×12=24
1. Distinguish Between the following:
(a)
Inductive and Deductive reasoning
Ans:- Here
are some other differences between inductive and deductive reasoning:-
(i)
Approach: Inductive logic uses the bottom-up approach, while deductive
logic uses the top-down approach.
(ii)
Conclusion: Inductive reasoning has probable conclusions, whereas deductive
reasoning has certain conclusions.
(iii)
Strength: Inductive arguments can be weak or strong, meaning that the
conclusion may be false even if the premises are true. If the premises are true
then the conclusions drawn through deductive reasoning cannot be wrong.
(iv)
Dependence: Inductive reasoning depends on patterns and trends, while
deductive reasoning depends on facts and rules.
(v) Flow: Inductive
reasoning flows from specific to general, whereas deductive reasoning flows
from general to specific.
For
example, "All spiders have eight legs" is a true statement.
Based on that premise, one could reasonably conclude that, because tarantulas
are spiders, they should also have eight legs. This is an example of deductive
reasoning.
(b) Micro
and Macro economics
Ans:- Microeconomics
and macroeconomics are both branches of economics that study economic behavior,
but they differ in terms of scale. Microeconomics focuses on individual and
business decisions, while macroeconomics examines the economy as a whole.
(i) Scale: Microeconomics
examines the economic behaviors of individuals, households and companies, while
macroeconomics takes a broader view of regional, national, continental or even
global economies.
(ii)
Focus: Microeconomics focuses on supply and demand, pricing and other
forces that determine price levels in the economy. Macroeconomics focuses on
issues such as national income, distribution, employment, general price level,
wealth and inflation.
(iii)
Impact: Microeconomics is influential at the individual level, while
macroeconomics focuses on larger impacts on the economy.
(iv)
Decision makers: Microeconomics studies the decisions of
individuals and business, while macroeconomics studies the decisions of
countries and governments.
(v)
Applications: Microeconomics helps in regulating prices based on the prices of
factors of production, namely land, labour, entrepreneurship and capital.
Macroeconomics is applied in the field of formulation and implementation of
economic policies, study of economic development, and international comparison.
Although
the two are very different, both influence each other.
2. Discuss the features of capitalism. How does price mechanism
work in a capitalist economy?
Ans:- Capitalism is an economic system where
private individuals and companies own and control property, and supply and
demand set prices in markets.
The main
characteristics of capitalism include:-
(i)
Personal property: Individuals and companies can own tangible
property such as land and houses and intangible property such as stocks and
bonds.
(ii)
Profit motive: Companies are motivated by the desire to earn maximum profit
(iii) Free
Market: Supply, demand and prices of products are determined by the free
market
(iv)
Freedom of enterprise: Individuals are free to make their own
economic choices without any interference
(v)
Competition: Firms are free to enter and exit the market, which maximizes
social welfare.
(vi)
Minimal government interference: Government plays minimal role
How it
works:-
(i) Supply
and demand: When demand is high and supply is low, prices start rising.
Conversely, when supply is high and demand is low, prices go down.
(ii)
Equilibrium: The goal of the price mechanism is to reach market equilibrium,
where the quantity demanded equals the quantity supplied.
(iii)
Invisible hand: The price mechanism is sometimes known as the “invisible hand”
which guides supply and demand until equilibrium is reached.
3. Explain the Law of Diminishing Marginal Utility. What are its
limitations?
Ans:- The law of diminishing marginal utility
states that as the consumption of a good or service increases, the additional
satisfaction or utility received from each unit decreases. In other words, the
more a person consumes something, the less additional satisfaction he gets from
each additional unit.
The
explanation:-
(i)
Marginal utility: The change in total utility due to the
consumption of one more unit of a good or service.
(ii)
Assumptions: The law assumes that the consumer is rational, consumption occurs
within a fixed time period, and the units of the good consumed are the same.
Limitations:-
(i) Very
small units: If the units consumed are very small the law does not apply. For
example, comparing the utility of a teaspoonful of water versus a glassful of
water.
(ii)
Unequal units: The law does not apply if the units consumed are not uniform in
size or quality.
(iii) Long
breaks: The law does not apply if the units are consumed after long
breaks.
(iv)
Mental instability: The law does not apply to people who can get
more satisfaction from each additional unit, such as drug addicts or
alcoholics.
(v)
Realistic Scenario: The law assumes that tastes, habits, fashion
and income remain constant, which is not realistic.
(vi)
Certain goods: The law does not apply to goods like television or refrigerator
where consumption may not be constant.
4. How can law of demand be used by the government in deciding
about the price policy and tax-cum subsidy policy?
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