Hum 277

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L-1/T-2/EEE Date: 12/09/2021

BANGLADESH UNIVERSITY OF ENGINEERING AND TECHNOLOGY, DHAKA
L-1/T-2 B.Sc. Engineering Examination, January 2021
Sub: HUM 277 (Fundamentals of Economics)
Full Marks: 210 Time: 21/2 Hours
The Figures in the margin indicate full marks
USE SEPARATE SCRIPTS FOR EACH SECTION
There are 04 page(s) in this question paper.
SECTION – A
There are FOUR questions in this section. Answer any THREE
All the symbols have their usual meanings
Assume reasonable values for missing data.
1. (a) Assume that Gross Domestic Product (GDP)/Total output (Y) is 6,000. 20
Consumption (C) is given by the equation C = 600 + 0.6(Y – T) where T is the
tax. Investment (I) is given by the equation I = 2,000 – 100r, where r is the real
rate of interest, in percent. Taxes (T) are 500, and government spending (G) is
also 500. What are the equilibrium values of C, I, and r?
(b) Assume that the consumption function is given by C = 150 + 0.85(Y – T) 15

and the tax function is given by T = t0 + t1Y where C = Consumption,
Y = Total output/income, t0 = Autonomous/fixed tax and t1 = Tax rate. If t0
increases by 1 unit, then explain whether consumption will be increased or
decreased, and how much?
2. (a) Suppose your aunt received a salary of Tk 60,000 in 1999. This would have 20
bought much more than a salary of Tk 60,000 in 2020. Estimate the purchasing
power of that Tk 60,000 in 2020 takas using Consumer Price Index (CPI) in the
following table:
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Year CPI
1999 129
2020 235
(b) Does inflation impose costs on the economy? Explain the problems with 15
anticipated inflation and unanticipated inflation.
3. (a) Assume Consumption (C) is given by the equation C = 500 + 0.6(Y – T). 20
Taxes (T) are equal to 600. Government spending is equal to 1,000. Investment
is given by the equation I = 2,160 – 100r, where r = the real interest rate = 13
percent. In this case, what is the equilibrium Gross Domestic Product
(GDP)/Total output (Y)/Total income? How does the equilibrium income
change if government designs and executes expansionary fiscal policy? Show
graphically and mathematically.
(b) The money market is in equilibrium when the supply of money (Ms) equals 15
the demand for money (Md). Given Ms = 350 and Md = 650 – 150r, where r is
the real rate of interest, in percent. Calculate the equilibrium interest rate. How
does the equilibrium interest rate alter if Bangladesh Bank (Central Bank of
Bangladesh) takes contractionary monetary policy (by changing the money
supply)? What is the effect of this policy on the Bangladesh economy? Explain
graphically and mathematically.
4. 1 (10)
(a) Prove that MR = P (1 ─ ). Where MR = Marginal Revenue, P = Price
e
and e = Price Elasticity of Demand.
(b) Why is there no unique supply curve for the monopolist derived from his (15)
marginal cost curve. Explain graphically.
(c) Explain the short run equilibrium of a firm under monopoly. (10)
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SECTION – B
There are FOUR questions in this section. Answer any THREE
All the symbols have their usual meanings
Assume reasonable values for missing data.
5. a) Define demand function. What are the main determinants of supply? (15)
b) What are the exceptions of law of demand? Explain. (10)
c) From the following demand function, make a hypothetical demand schedule (10)
and plot the curve.
6. a) What is an indifference curve? Define budget line and budget set. (15)
b) Explain consumer’s equilibrium with the help of budget line and indifference (10)
curve.
c) From the following budget line and the utility function, calculate the amount (10)
of two commodities that maximizes satisfaction. What is the maximum amount
of satisfaction?
2500= 20X + 30Y

U = 300 X0.6Y0.7
7. a) Define fixed cost and variable cost. From the following cost function, find (10)
the AC, AVC, AFC and MC function. Calculate the amount of output when
MC and AVC and AC will be minimum,
b) How would you derive the long run average cost (LAC) curve of a firm from (10)
its short run average cost curves? Explain graphically.
c) A manufacturer has a fixed cost of $80,000 and a variable cost of $3per unit (15)
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made and sold. Selling price is $7 per unit.
i) Find the revenue, cost and profit functions using q for the
number of units.
ii) Compute profit if 15000 units are made and sold.
iii) Compute profit if 1500 units are made and sold.
iv) Find the break-even quantity.
v) Construct the break-even chart. Label the cost and revenue lines,
the fixed cost line, and the break-even point
8. a) Define Income elasticity of demand and price elasticity of demand. (10)

b) Show that price elasticity of demand varies from zero to infinity along any (15)
straight- line demand curve. Explain graphically
c) From the following table calculate elasticity of demand if you move from (10)
point B to C and explain what you understand from the result.
POINT Px Qy
A 500 120
B 600 150
C 700 180

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=1 =

L-1/T-2/EEE Date: 12/09/2021

(b) Assume that the consumption function is given by C = 150 + 0.85(Y – T) 15

2500= 20X + 30Y

made and sold. Selling price is $7 per unit.

ii) Compute profit if 15000 units are made and sold.

iii) Compute profit if 1500 units are made and sold.

iv) Find the break-even quantity.

8. a) Define Income elasticity of demand and price elasticity of demand. (10)

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