KY
Practice Questions
Section A PGP 2021-23
1. Let us assume that the demand and supply functions of a particular firm are Q=(30-
P)/3 and Q=P/2 respectively. What will be the market equilibrium?
Ans: Demand function: Q = (30- P)/3
Supply function: Q = P/2
At the market equilibrium, Demand = Supply
Therefore, P=12 & Q=6
2. Suppose the Govt of India cuts personal income tax rates from 30 percent to 20
percent. How would this affect the market for air conditioners?
Ans: Cutting personal income tax rate from 30% to 20% directly increases the income of
all consumers who pay income tax. This could increase purchasing power of consumers
and lead to increase in demand for air conditioners.
3. Suppose that a new study shows that water coolers can prevent Covid-19 infections
due to effective air recycling. How would this affect the market for air conditioners?
Ans: If water coolers can prevent Covid-19 infections then demand for water cooler will
go up and this could lower demand for its other substitutes such as air conditioners.
Therefore, the demand for air conditioners could reduce.
Practice Questions
Section A PGP 2021-23
1. Let us assume that the demand and supply functions of a particular firm are Q=(30-
P)/3 and Q=P/2 respectively. What will be the market equilibrium?
Ans: Demand function: Q = (30- P)/3
Supply function: Q = P/2
At the market equilibrium, Demand = Supply
Therefore, P=12 & Q=6
2. Suppose the Govt of India cuts personal income tax rates from 30 percent to 20
percent. How would this affect the market for air conditioners?
Ans: Cutting personal income tax rate from 30% to 20% directly increases the income of
all consumers who pay income tax. This could increase purchasing power of consumers
and lead to increase in demand for air conditioners.
3. Suppose that a new study shows that water coolers can prevent Covid-19 infections
due to effective air recycling. How would this affect the market for air conditioners?
Ans: If water coolers can prevent Covid-19 infections then demand for water cooler will
go up and this could lower demand for its other substitutes such as air conditioners.
Therefore, the demand for air conditioners could reduce.
