Question

VI. Answer any two of the following questions in fifteen sentences each.
21. Write a short note on centrally planned economy.
22. Explain the indifference map with a diagram.
23. Briefly explain the budget set with the help of a diagram.
24. Explain Isoquant with help of the diagram.

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Answer 1

Answer:

• What is a centrally planned economy explain?

What is a centrally planned economy explain?A centrally planned economy, also known as a command economy, is an economic system in which a central authority, such as a government, makes economic decisions regarding the manufacturing and the distribution of products.

• Indifference map refers to a set of indifference curves. An indifference curve which is to the right and above another shows a higher level of satisfaction to the consumer. Here, IC3 shows higher level of satisfaction than IC2. Thus, the indifference curve relates to a higher level of income of the consumer.

• What is budget set with diagram?The budget line can be defined as a set of combinations of two commodities that can be purchased if whole of a given income is spent on them and its slope is equal to the negative of the price ratio. Budget Space: It should be carefully understood that the budget equation PxX + PyY = M or Y = M/Py– Px/Py .

• An isoquant map is a set of isoquants, each of which shows the maximum output that can be achieved for any set of inputs. An isoquant map is an alternative way of describing a production function, just as an indifference map is a way of describing a utility function.

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Answer 2

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21 ) A centrally planned economy, also known as a command economy, is an economic system in which a central authority, such as a government, makes economic decisions regarding the manufacturing and the distribution of products.

22 ) Indifference map refers to a set of indifference curves. An indifference curve which is to the right and above another shows a higher level of satisfaction to the consumer. Here, IC3 shows higher level of satisfaction than IC2. Thus, the indifference curve relates to a higher level of income of the consumer.

23 ) The budget set is the collection of products that the consumer can buy with is income at the prevailing market prices. The budget set is also known as opportunity set. It includes all the bundles (all possible combination of two goods) which the consumer can purchase with his given level of income.

• The budget equation can be written as follows: P1X1 + P2 X2 ≤ M. Consider, for example, a consumer who has Rs.20 and suppose both the goods are priced at Rs.5 and are available only in integral units. The bundles that this consumer can afford to buy are (0,0), (0,1), (0,2), (0,3), (0,4), (1,0), (1,1), (1,2), (1,3), (2,0), (2,1), (2,2), (3,0), (3,1) and (4,0). Among these bundles, (0,4), (1,3), (2,0), (2,2), (3,1) and (4,0) cost exactly Rs.20 and all the other bundles cost less than Rs.20. If both the goods are perfectly divisible, the consumer’s budget set would consist of all bundles (x1, x2) such that x1 and x2 are any numbers greater than or equal to 0 and P1X1 + P2 X2≤ M.

• The budget set can be represented in a diagram as follows: Quantity of bananas is measured along the horizontal axis and quantity of mangoes is measured along the vertical axis. Any point in the diagram represents a bundle of the two goods. The budget set consists of all points on or below the straight line having the equation P1X1 + P2 X2≤ M.Read more on Sarthaks.com - https://www.sarthaks.com/633146/briefly-explain-the-budget-set-with-the-help-of-a-diagram.

24 ) An isoquant map is a set of isoquants, each of which shows the maximum output that can be achieved for any set of inputs. An isoquant map is an alternative way of describing a production function, just as an indifference map is a way of describing a utility function.