Scarcity is the root cause for all Economic problems. Do you agree? Elaborate.

(b) Consider a consumer who has to choose between two normal goods A and B. Initially his income is Rs 10, and the per unit price of good A and good B is Rs 2 and Rs 3, respectively. Now, assume income of the consumer increases to Rs 20, the price of good A rises to Rs 3 and that of good B rises to Rs 4.50. What will be the impact of this change on the demand of the two goods?

(c) What could bring a leftward shift in the production possibility curve?

Using appropriate diagrams discuss the rationale behind rationing system for allocation of scarce resources? What are the consequences associated with the rationing system?

 Differentiate between

(i) Internal Economies and Internal Diseconomies of Scale. 
(ii) Public good and Merit good 

 (a) Consider a consumer earning income M and facing a choice between two commodities X and Y available at price PX and PY, respectively. Using appropriate diagrams with plotting good X and Y on the horizontal and vertical axis, respectively, bifurcate the price effect into substitution and income effect in case the price of good Y increases from PY to PY’ and the fact that both the commodities are normal goods. 

(b)The income elasticities of demand of two goods, X and Y are + 3.0 and − 0.2, respectively. Assuming income rises by 5 per cent. What will be the respective change in the quantities demanded of good X and good Y?