isi 2006 me 2

[SHIKHA]

ques 1 c part:

1. (a) Suppose in year 1 economic activities in a country constitute only production of
wheat worth Rs. 750. Of this, wheat worth Rs. 150 is exported and the rest remains
unsold. Suppose further that in year 2 no production takes place, but the unsold wheat of
year 1 is sold domestically and residents of the country import shirts worth Rs. 250. Fill
in, with adequate explanation, the following chart :
Year GDP = Consumption + Investment + Export - Import
year 1
  ______=    ___________    _________  ___________ _______
year 2
______=    ___________    _________  ___________ _______...guys,what answers u getting???

[ISI agent]

Year 1 = 750 = 0 + 600 + 150 - 0
Year 2 = 0    = 250 + 0 + 0 -250

Are you getting the same?

[Dheeraj]

I'm getting this:
year 1:   750 = 0 + 600 + 150 -0
year 2:      0 = 850 - 600 + 0 -250

[phelps.phan]

Hi Dheeraj can u pls elaborate how u got 800-600 for year2.thanks

[Dheeraj]

here consumption would be 600 (wheat) + 250 (shirts) = 850
and as stock of inventory would be decreasing so Investment = -600

Note: Inventory investment is a component of gross domestic product (GDP). And the difference between goods produced (production) and goods sold (sales) in a given year is called inventory investment.

[The Villain]

Anyone...pls help me with the second qust

[Dheeraj]

Y = 10*root(L) - 2L

MPL = {5/root(L)} - 2

for optimal production, he would equate VMPL = w (wage)

(a) P*MPL = w
{5/root(L)} - 2 = w/p

Now as w = 0,

{5/root(L)} - 2 = 0
 
or L = 25/4 ....this is optimal amt of labor..but as farmer has only 4 units of labor, he would employ all of them, thus equilibrium level of output:
                  Y = 12

(b)   If govt imposes an income tax at the rate of 10%, i think there should not be any effect on output because the farmer faces no cost and all he concerns about output (price taking farmer). There is no point in reducing output.

(c)  procedure same as part (a).. but here Y = 3... So at any given price level, he will not adapt this technology.