Previous Year Paper Solution | Indian Economic Service Exam 2010 | General Economics - I

Section - I

1. Attempt any five parts of the following questios. Answers to each part should be of approximatel 50 words.

Marks: 7 × 5 = 35

(a) Define consumer's surplus. Derive an expression for it using integral calculus.

(Comment for solution.)

(b) Why is short-run average cost curve U-shaped? Show that marginal cost curve intersects the average cost curve at latter's minimum point.

(Comment for solution.)

(c) Compare long-run equilibrium of the firm under perfect competition with that under monopolistic competition using suitable diagram.

(Comment for solution.)

(d) What is a social welfare function? State the underlying assumption in its formulation.

(Comment for solution.)

(e) State and explain the assumptions of two variable linear regression model.

Answer to this question is available in Q. No. General Economics - I Previous Year Paper Solution 2013. Assumption of regression and OLS are same because regression is generally done using OLS method.

(f) What is log-normal distribution? Where is it used in economic analysis?

(Comment for solution.)

Section - II

Attempt any seven of the following questions. Each answer is to be in about 150 words.

Marks: 15 × 7 = 105

2. Derive consumer's expenditure function by minimizing total expenditure; \(y = {p_1}{x_1} + {p_2}{x_2}\) subject to utility constraint \(\bar u = {q_1}{q_2}\).

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3. Draw consumer's indifference curve from revealed Preference Theory.

(Comment for solution.)

4. Separate income effect from substitution effect of a price change for a Giffen type good. Use suitable diagram.

(Comment for solution.)

5. What is elasticity of factor substitution? Give various forms of production function based on this concept.

(Comment for solution.)

6. "Asymmetric or incomplete information leads to market failure." Examine lemons' problem in the above context with the help of pricing of used cars.

(Comment for solution.)

7. What is Hicks-Kaldor criterion of compensation? What are its weaknesses? Give Scitovsky's suggestion for improvement.

(Comment for solution.)

8. Distinguish between positive and negative externalities and explain with examples. Why does government provide some goods which are not public goods?

(Comment for solution.)

9. What are type I and type II errors? Why is probability of type I error fixed in a hypothesis testing problem?

(Comment for solution.)

10. Four products A, B, C, D are to be bought to satisfy minimum requirements of calories and Vitamin (which are 18 and 10 units respectively) at minimum cost. Formulate linear programming problem using additional information given below:
Product TypeABCD
Calorie content2013
Vitamin content0314
Price per unit5101215

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Section - III

Attempt any two of the following questios, in about 500 each.

Marks: 30 × 2 = 60

11. What is Peak-load Pricing? How is it different from third degree price discrimination? Give diagrams to illustrate your answer.

(Comment for solution.)

12. Define production function. The production function for a product is given by Q = 100KL.
If price of capital (K) is $ 120 per day and that of labour (L) is $ 30 per day, what is the minimum cost of producing 400 units of output?

(Comment for solution.)


(Comment for solution.)


  1. utility constraint term appears on both LHS and RHS when we substitute the value of q1 in the equation to find q2. How did you solve this sir?

    1. I substituted the value of \({q_1}\) into the utility constraint. It already contains the utility constraint so it is like to appear on both size. It is acceptable process in mathematics which we call substitution method.