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Worked Examples and Case Studies

This page works through complete, solved examples. Each one states a scenario, shows the full method step by step, gives the answer, and ends with the limitation you should mention in an exam. Read the solution once, then cover it and try to reproduce the steps yourself.

How to Use These​

For every worked example, practise the same discipline you will need in the exam:

  1. Identify what is being asked (a price, a quantity, a rate, a direction of change).
  2. Write down the relevant formula or relationship before plugging in numbers.
  3. Show the working, keep units, and state the answer in a full sentence.
  4. Add one line on the assumption or limitation behind the result.

Part 1: Microeconomics​

Example 1.1 — Market Equilibrium​

Scenario. In a competitive market for wheat, demand is Qd = 100 − 2P and supply is Qs = 10 + 4P, where P is the price in rupees per kg and Q is in thousand kg.

Find. The equilibrium price and quantity.

Method. At equilibrium, quantity demanded equals quantity supplied, so set Qd = Qs.

100 − 2P = 10 + 4P
100 − 10 = 4P + 2P
90 = 6P
P = 15

Substitute P = 15 back into either equation:

Qd = 100 − 2(15) = 100 − 30 = 70

Answer. Equilibrium price is Rs 15 per kg and equilibrium quantity is 70 thousand kg. (Check: Qs = 10 + 4(15) = 70, which matches.)

Limitation. This assumes a single competitive market with no government intervention, taxes, or shifts in the underlying curves.

Example 1.2 — Price Elasticity of Demand​

Scenario. When the price of a cinema ticket rises from Rs 200 to Rs 240, weekly sales fall from 500 to 400 tickets.

Find. The price elasticity of demand and whether revenue rises or falls.

Method. Price elasticity of demand = (percentage change in quantity) ÷ (percentage change in price).

% change in quantity = (400 − 500) / 500 = −20%
% change in price     = (240 − 200) / 200 = +20%
Elasticity = −20% / +20% = −1

Answer. Elasticity is −1 (unit elastic in this range). Because demand is unit elastic, total revenue is roughly unchanged: it was 200 × 500 = Rs 1,00,000 and is now 240 × 400 = Rs 96,000 — a very small fall, consistent with elasticity close to unity.

Limitation. The point method and the midpoint method give slightly different values; always state which you used. Elasticity also varies along a straight-line demand curve, so this figure applies only to this price range.

Example 1.3 — Effect of an Indirect Tax​

Scenario. A government places a Rs 6 per-unit tax on the sellers of a good. Before the tax, equilibrium price was Rs 30. After the tax, the price paid by buyers rises to Rs 34.

Find. How the Rs 6 tax burden is split between buyers and sellers.

Method. Compare the new buyer price with the old equilibrium price.

Buyer's share  = 34 − 30 = Rs 4 per unit
Seller's share = 6 − 4   = Rs 2 per unit

Answer. Buyers bear Rs 4 and sellers bear Rs 2 of the Rs 6 tax. Buyers carry the larger share, which tells us demand is less elastic than supply in this market — the more inelastic side of the market pays more of the tax.

Limitation. Whether the tax is levied legally on buyers or sellers does not change this economic incidence; the split is determined by relative elasticities, not by who writes the cheque.

Part 2: Macroeconomics​

Example 2.1 — Computing GDP by the Expenditure Method​

Scenario. For an economy in a year (figures in Rs crore): Private consumption (C) = 4,000; Investment (I) = 1,200; Government spending (G) = 900; Exports (X) = 600; Imports (M) = 500.

Find. GDP at market prices using the expenditure method.

Method. GDP = C + I + G + (X − M).

GDP = 4,000 + 1,200 + 900 + (600 − 500)
    = 4,000 + 1,200 + 900 + 100
    = 6,200

Answer. GDP at market prices is Rs 6,200 crore.

Limitation. This is nominal GDP at market prices. To judge real growth you must deflate by a price index, and to reach national income you must adjust for depreciation, net indirect taxes, and net factor income from abroad.

Example 2.2 — The Investment Multiplier​

Scenario. In a simple closed economy, the marginal propensity to consume (MPC) is 0.8. Autonomous investment rises by Rs 500 crore.

Find. The size of the multiplier and the total change in equilibrium income.

Method. Multiplier k = 1 ÷ (1 − MPC).

k = 1 / (1 − 0.8) = 1 / 0.2 = 5
Change in income = k × change in investment = 5 × 500 = 2,500

Answer. The multiplier is 5, so national income rises by Rs 2,500 crore.

Limitation. The simple multiplier assumes spare capacity, a fixed MPC, no taxes, and no imports (which would create leakages and lower the multiplier). It also ignores time lags in the rounds of spending.

Example 2.3 — Money Creation by Commercial Banks​

Scenario. The cash reserve ratio (CRR) required of banks is 20%. The banking system receives Rs 1,000 crore of fresh primary deposits.

Find. The maximum total deposits the banking system can create.

Method. The money (credit) multiplier = 1 ÷ CRR.

Money multiplier = 1 / 0.20 = 5
Maximum total deposits = 5 × 1,000 = 5,000

Answer. The banking system can create up to Rs 5,000 crore of total deposits, of which Rs 4,000 crore is newly created credit on top of the original Rs 1,000 crore.

Limitation. This is a theoretical maximum. In practice, cash leakage out of banks, banks holding excess reserves, and weak demand for loans all reduce the actual amount created.

Example 2.4 — Reading an Inflation Rate​

Scenario. A consumer price index stands at 125 this year and was 120 last year.

Find. The rate of inflation over the year.

Method. Inflation rate = (change in index ÷ old index) × 100.

Inflation = (125 − 120) / 120 × 100 = 5 / 120 × 100 ≈ 4.17%

Answer. Inflation over the year is about 4.17%.

Limitation. A CPI covers a fixed basket, so it can overstate the cost of living when consumers substitute toward cheaper goods, and it may not reflect an individual household's actual spending pattern.

Part 3: Indian Economy — Case Studies​

Case 3.1 — Green Revolution and Regional Imbalance​

Situation. From the late 1960s, high-yielding variety seeds, chemical fertilisers, assured irrigation, and credit sharply raised foodgrain output, especially wheat, in states such as Punjab, Haryana, and western Uttar Pradesh.

Analysis. Apply the idea that technological change raises productivity but not evenly. The gains concentrated where irrigation and input access were strong, so inter-regional and inter-crop inequalities widened, and input-intensive farming raised concerns about groundwater depletion and soil health.

Takeaway. India moved from foodgrain dependence toward self-sufficiency in cereals, but the benefits were uneven across regions, crops, and farm sizes.

Limitation to note. Self-sufficiency in cereals is not the same as nutritional security; pulses and oilseeds lagged behind.

Case 3.2 — The 1991 Economic Reforms​

Situation. Facing a balance-of-payments crisis and very low foreign-exchange reserves, India in 1991 shifted policy through liberalisation, privatisation, and globalisation — reducing industrial licensing, lowering trade barriers, and opening sectors to private and foreign participation.

Analysis. Use the framework of moving from an inward-looking, heavily regulated regime toward a more market-oriented one. Delicensing let firms respond to demand, lower tariffs exposed industry to competition, and a more open capital account raised investment inflows.

Takeaway. Growth accelerated and the services sector expanded strongly, but critics point to uneven gains, pressure on some domestic industries, and jobless-growth concerns.

Limitation to note. Reforms changed the growth rate and structure of the economy, but improvements in employment and human development did not follow automatically.

Case 3.3 — Demographic Dividend​

Situation. A large share of India's population is of working age, giving a potentially favourable ratio of workers to dependants over the coming decades.

Analysis. A demographic dividend is only potential. It is realised as growth only if the working-age population is educated, skilled, healthy, and actually absorbed into productive employment. Without jobs and skills, a young population becomes a burden rather than a bonus.

Takeaway. The dividend is a window, not a guarantee; policy on education, skilling, and job creation determines whether it pays off.

Limitation to note. The dividend is time-bound — as the population ages, the favourable ratio narrows, so the window must be used while it is open.

Self-Test​

Try these before checking your notes. Work each one the way the examples above are laid out — formula first, then working, then a one-line limitation.

  1. Demand is Qd = 80 − P and supply is Qs = 2P − 10. Find equilibrium price and quantity. (Answer: P = 30, Q = 50.)
  2. A good's price falls 10% and quantity demanded rises 25%. Find the elasticity and state whether demand is elastic. (Answer: −2.5; elastic.)
  3. If MPC = 0.75, find the multiplier and the rise in income from a Rs 200 crore rise in investment. (Answer: multiplier 4; income rises Rs 800 crore.)
  4. A price index rises from 150 to 156 in a year. Find the inflation rate. (Answer: 4%.)

Reflection Questions​

  • In each numerical example, which single assumption, if dropped, would most change the answer?
  • For the Indian-economy cases, could you argue the opposite side of the "takeaway" using the same facts?
  • Which formula did you have to look up, and where in your notes does it live?