Micro Economics & Macro Economics April 2026

Description

Micro Economics & Macro Economics

Apr 2026 Examination

 

 

Q1. A metropolitan city is planning to introduce a congestion pricing policy to reduce traffic, pollution, and fuel consumption. However, the policymakers are facing uncertainty regarding its economic impact, public acceptance, and long-term effectiveness. Since reliable historical data is limited and expert opinions vary widely, the government decides to seek inputs from a panel of experts including urban planners, economists, environmental scientists, transport authorities, and sociologists. The goal is to arrive at a well-reasoned consensus without allowing dominant individuals to influence others.

To achieve this, the policymakers adopt a structured forecasting and decision-making method that involves multiple rounds of anonymous expert consultations, controlled feedback, and gradual convergence of opinions. As a management student, explain how the Delphi Technique can be applied in this situation. Discuss the steps involved in the Delphi Technique and evaluate its usefulness in improving the quality of decision-making in complex and uncertain policy environments. (10 Marks)

Ans 1.

Introduction

Urban policymakers increasingly face complex decisions that involve economic efficiency, environmental sustainability, and social acceptance. The proposal to introduce congestion pricing in a metropolitan city reflects such a challenge, as it affects commuters, businesses, public transport systems, and environmental outcomes simultaneously. When historical data is limited and expert opinions differ, traditional forecasting tools often fail to provide reliable guidance. In such situations, a structured and systematic method of gathering expert judgment becomes essential. The Delphi Technique offers a disciplined approach to building informed consensus without the influence of hierarchy or group pressure. By applying this method, policymakers

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Q2. A garment manufacturing company in India produces cotton shirts for both domestic and export markets. Recently, the firm has experienced a rise in raw material prices due to higher cotton procurement costs, an increase in electricity tariffs, and new labour regulations that have raised wage expenses. At the same time, the government has announced tax incentives for exporters, while advancements in automated stitching technology have become available at affordable rates. These changes have created uncertainty regarding the firm’s ability and willingness to supply shirts in the market.

As a business economics student, analyze the above situation by identifying the factors affecting the supply of cotton shirts. Explain how changes in factors influence the supply decision of the firm. Support your answer with appropriate economic reasoning. (10 Marks)

Ans 2.

Introduction

In business economics, the concept of supply plays a central role in understanding how firms respond to changes in production conditions, market incentives, and government policies. For a garment manufacturing company producing cotton shirts, supply decisions are influenced by a combination of cost factors, technological developments, and regulatory interventions. The situation described reflects a typical real-world scenario where multiple forces act simultaneously, creating uncertainty in production planning and market participation. Rising input costs tend to

 

Q3(A).  In the industrial town of Riverdale, several chemical manufacturing units discharge untreated waste into a nearby river to minimise production costs. While the firms benefit from lower expenses, local residents face severe health issues, water contamination, and loss of agricultural productivity. These social costs are not reflected in the market price of the chemicals, leading to overproduction and environmental degradation.

Simultaneously, Riverdale’s health insurance market is facing instability. Insurance companies often lack complete information about the health status of individuals, whereas consumers are typically well aware of their own medical conditions. As a result, people with higher health risks are more likely to purchase insurance, while healthier individuals tend to withdraw from the market. This has caused rising premiums and reduced insurance coverage availability.

Analyze the above situation to identify the presence of market failure. Explain the reasons for market failure highlighted in the scenario with reference to externalities, asymmetric information, and adverse selection. (5 Marks)

Ans 3a.

Introduction

Market failure occurs when the free market fails to allocate resources efficiently, leading to social welfare losses. In the Riverdale scenario, both environmental damage caused by chemical factories and instability in the health insurance market highlight serious economic inefficiencies. When private firms and individuals make decisions based only on personal benefits while ignoring broader social consequences, the market outcome becomes distorted. By examining this

 

Q3(B). In the small hill town of Arunpur, only one company, AquaPure Ltd., supplies drinking water through a pipeline network laid across the town decades ago. Due to high infrastructure costs, government permissions, and ownership of the only water source in the region, no other firm has been able to enter the market. AquaPure Ltd. decides the price of water without consulting consumers and often charges higher prices during the summer months when demand increases. Consumers have no close substitute for piped drinking water and must depend entirely on this single supplier. Based on the above scenario, identify the type of market structure. Analyse the situation and explain its characteristics that are evident in the case. (5 Marks)

Ans 3b.

Introduction

The water supply situation in Arunpur reflects a market structure where a single firm dominates the entire market. When only one seller provides a product with no close substitutes and faces limited competition, market power becomes concentrated in the hands of that firm. Such conditions often lead to higher prices and reduced consumer choice. By analyzing the characteristics of this market, it becomes clear that the situation represents a monopoly structure with strong