Economics 2023 Paper I 50 marks 150 words Compulsory Examine

Q1

Answer the following questions in about 150 words each: (a) Examine the role of price elasticity of demand in determining the price set by a discriminating monopolist. (10 marks) (b) Explain the backward bending supply curve of labour as a choice between income and leisure. (10 marks) (c) Explain the major differences between classical and Keynesian macroeconomics. (10 marks) (d) What is meant by internal rate of return in the theory of investment? What is its importance in deciding whether to accept investment project? (10 marks) (e) Explain why it is considered difficult for open market operations to affect both the availability and cost of credit at the same time. (10 marks)

हिंदी में प्रश्न पढ़ें

निम्नलिखित प्रत्येक प्रश्न का उत्तर लगभग 150 शब्दों में दीजिए : (a) एक विभेदात्मक एकाधिकारी द्वारा कीमत-निर्धारण में माँग की कीमत-लोच की भूमिका का परीक्षण कीजिए। (10 अंक) (b) आय एवं अवकाश के बीच चुनाव के संदर्भ में, पीछे की ओर झुके हुए श्रम के पूर्ति वक्र की व्याख्या कीजिए। (10 अंक) (c) प्रतिष्ठित एवं कैंजीय समष्टि अर्थशास्त्र की प्रमुख भिन्नताओं की व्याख्या कीजिए। (10 अंक) (d) निवेश-सिद्धान्त के अन्तर्गत आन्तरिक-प्रतिफल-दर का क्या अर्थ है? किसी निवेश परियोजना को स्वीकार करना है, यह निर्णय लेने में इसका क्या महत्व है? (10 अंक) (e) समझाइए कि खुले बाजार की क्रियाओं के द्वारा साख की उपलब्धता एवं लागत दोनों को एक ही समय पर प्रभावित करना क्यों कठिन माना जाता है? (10 अंक)

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Directive word: Examine

This question asks you to examine. The directive word signals the depth of analysis expected, the structure of your answer, and the weight of evidence you must bring.

See our UPSC directive words guide for a full breakdown of how to respond to each command word.

How this answer will be evaluated

Approach

The directive 'examine' for part (a) requires critical analysis of how elasticity shapes price discrimination, while secondary directives 'explain' for parts (b), (c), (e) and 'what is meant by' for part (d) demand clear conceptual exposition. Allocate approximately 30 words per sub-part (150 words each), spending roughly 3 minutes per part in the examination setting. Structure each answer with a precise definition, followed by the core mechanism, and conclude with a brief implication or limitation.

Key points expected

(a) Price discrimination: higher prices in inelastic markets, lower in elastic markets; MR=MC condition; consumer surplus extraction via third-degree discrimination
(b) Backward bending supply: substitution effect dominates at lower wages, income effect dominates beyond threshold wage; leisure as a normal good
(c) Classical vs Keynesian: Say's Law vs effective demand, wage-price flexibility vs rigidity, laissez-faire vs state intervention, full employment equilibrium vs underemployment equilibrium
(d) IRR definition: discount rate equating NPV to zero; decision rule (accept if IRR > cost of capital); limitations with multiple IRRs and mutually exclusive projects
(e) Open market operations dilemma: availability channel (quantitative, credit creation) vs cost channel (interest rate, price of credit); liquidity trap and interest rate floor constraints

Evaluation rubric

Dimension	Weight	Max marks	Excellent	Average	Poor
Concept correctness	25%	12.5	Precisely defines third-degree price discrimination with elasticity-based pricing (a); correctly identifies the wage threshold where income effect reverses supply slope (b); accurately contrasts classical full-employment assumption with Keynesian demand deficiency (c); defines IRR as the root of NPV equation and states the acceptance criterion (d); distinguishes between quantitative and price effects of monetary operations (e)	Defines concepts broadly but confuses first/second/third degree discrimination or misstates the wage threshold; lists some classical-Keynesian differences without theoretical depth; describes IRR loosely without the NPV=zero condition; mentions OMO without clarifying the tension between channels	Fundamental errors: treats price discrimination as cost-based, ignores income-substitution effects entirely, conflates classical and neoclassical synthesis, defines IRR as simple return on investment, describes OMO as affecting only one variable
Diagram / model	20%	10	For (a): separate demand curves with different elasticities and profit-maximizing prices; for (b): backward-bending supply curve with indifference curve-budget line tangency; for (c): AS-AD framework showing vertical vs horizontal AS; for (d): NPV profile crossing zero; for (e): LM curve liquidity trap segment	Draws basic diagrams for 2-3 parts but omits key features like the kink in labour supply or the liquidity trap horizontal segment; labels axes correctly but explanations incomplete	Missing diagrams for most parts; incorrect axes (e.g., price on horizontal axis); draws upward-sloping labour supply throughout; shows only one AS curve for classical-Keynesian comparison
Quantitative reasoning	15%	7.5	For (a): states MR=P(1-1/\|e\|) and shows inverse elasticity pricing; for (d): illustrates IRR calculation with hypothetical cash flows or compares IRR vs NPV decision conflicts; mentions numerical threshold conditions where applicable	Mentions elasticity formula without application; describes IRR calculation procedure without numerical illustration; qualitative treatment of quantitative concepts	No quantitative content; avoids all formulas and numerical relationships; purely verbal treatment where mathematics is essential
Indian / empirical examples	20%	10	Cites Indian railway passenger fares (elasticity-based discrimination) or pharmaceutical pricing (a); references NREGA wage effects on labour supply or female workforce participation (b); mentions India's post-1991 shift from planning to market orientation bridging classical-Keynesian divide (c); cites NHAI project evaluation or PSU capital budgeting (d); references RBI's liquidity adjustment facility operations and corridor system (e)	Generic examples without Indian specificity (e.g., 'electricity pricing' without mentioning state discoms); mentions India in passing without substantive application	No empirical examples; purely theoretical treatment; examples from unrelated contexts or incorrect attribution
Policy implication	20%	10	For (a): regulatory concerns about consumer welfare and antitrust; for (b): optimal taxation and work incentive policies; for (c): relevance for countercyclical fiscal policy in India; for (d): limitations of IRR for public sector project ranking; for (e): need for complementary quantitative easing when OMO ineffective	States obvious implications without depth; mentions policy relevance without connecting to specific Indian institutional context	No policy discussion; misses that (c) directly concerns macroeconomic management, (e) concerns monetary policy transmission

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