ime : 3 hours Maximum Marks : 100 Note : Attempt questions from each section as per instructions given under each section.

Transcription

1 o. of Printed Pages : 11 MEC-001 MASTER OF ARTS (ECONOMICS) Term-End Examination December, 2013 MEC-001 : MICRO ECONOMIC ANALYSIS ime : 3 hours Maximum Marks : 100 Note : Attempt questions from each section as per instructions given under each section. SECTION - A Answer any two questions from this section : 2x20=40 Consider the following pure exchange economy. There are 2 consumers and 2 goods. Consumer 1 has an endowment of 7 units of good 1 and 3 units of good 2, (i.e, w1 = 7, 3), while consumer 2 has an endowment of 3 units of good 1 and 7 units, good 2 (w2 = 3, 7). The consumers utility functions are given by : u1 = x11 + x12 and u2 = minfx21, x 22 } where xil is consumption of good 1 by consumer i. (a) (b) Find the set of pareto optimal allocations of this economy. Find the walrasian equilibrium. IEC P.T.O.

2 2. Consider an industry with two firms. Each firm has a constant marginal cost c'(q) = O. Let the market inverse demand function be P(Q) =100 Q where Q = q1 + q2 Find : (a) The competitive equilibrium level of industry output. (b) Compute optimal choice of output in cournof equilibrium. 3. How economists utilise the concepts of efficiency and equity to analyse choice issues? Briefly explain equity-efficiency trade off. 4. (a) What do you mean by hidden information? Suggest measures to mitigate the problem of hidden information. (b) Suppose that the market has 100 people who want to buy a used car and 100 who want to sell one. Further suppose that 50 of the used cars on sale are lemons (bad) and 50 are plums (good). While the buyers know that the market is selling good and bad cars, they do not know which 50% are lemons and which are plums. The reservation price of cars are as follows : (i) Seller of a plum : Rs.2000 (ii) Seller of a lemon : Rs.1000 (iii) Buyer of a plum : Rs (iv) Buyer of a lemon : Rs.1200 (A) If a buyer doesnot know the difference between cars, how much he will be willing to pay? (B) Describe the equilibrium of the market and identify how does adverse selection happen. MEC-001 2

3 SECTION - B Answer any five questions from this section : 5x12=60 5. The marginal productivity of labour in a firm is given as MPL = A (400 L). (a) If A = 0.2 and the real wage is Rs60/- how many labour will the firm want to hire? What reason will you give for that result? (b) Suppose the wage is increased to Rs.75. How many labour will be hired? (c) Keeping the real wage at Rs.60, how many labour will the firm hire if A rises to 0.5? Interpret your result. 6. Suppose utility function of the consumer is given as u(x1, X2 ) = X1 0.5 X2 0.5 X1= consumption in period 1 X2 = consumption in period 2. The consumer lives for two periods. In period 1 her income is Rs.1000 and in period 2 she has no income. If the market rate of interest is 50%, find the optimum consumption in each period. 7. Suppose a farmer is deciding to use fertilizer or not. But there is uncertainty about the rain, which will also help the crops. Suppose that farmer's choice consists of two lotteries 1 1 Fertilizer = (50, 2 ; 10, 2) 1 1 No Fertilizer = (30, 2 ; 20, 2) If the farmer is an expected utility maximiser and has monotonic preference, what would he choose if he were (a) Risk lover (b) Risk neutral and (c) Risk averse? MEC P.T.O.

4 8. (a) What is the meaning of inefficient provision of public goods? Explain how would you relate this problem to market failure. (b) Suppose that there are two goods fish (F) and transport (T), one private and another public. There are N people in the town who use these and the utility function of the ith person is given as tii = (fi)2t. If the production possibility frontier is given as F2 + 3T2 =1800, find the pareto-optimal provision of T. 9. (a) Consider the matching pennies game : (4+8) Plays 2 Heads Tails Plays 1 Heads 1, 1 1, 1 Tails 1, 1 1, 1 Find the Nash equilibrium of the game. (b) Consider the following game : 1 L R L' R' (6,4) (5,4) (1,1) (0,0) (i) Describe the game in its normal form. (ii) Describe all the subgame perfect equilibrium of this game. MEC-001 4

5 0. The utility function is given as u = x 1/3 y2/3 where x and y are two goods. If the prices of x and y are px and py,and m is the income of the consumer (a) Derive the expenditure function E(px, py, u) (b) Given px = 2, pv = 3 and m = 200 with the above utility function, find the utility maximising bundle of x and y..1. Write short notes on the following : (a) Producer's surplus (b) Boumol's alternative theory of firm (c) Hotelling lemma (d) Second welfare theorem MEC P.T.O.

6 7117. ( at2/7mr ) iof 1T 1T fq1:11z1t, *-001 : TRIT 311tFTW rcpc tiul T: 3 "FP:4 agfw-t:i 34- :1( 1 : 91PT # 1:14):VIVIK T17*. drh - lifr ft-tt 3Tqt 3-c4l 2x20=4 1. Fc1F T TTtf-{fay cf.)- I TM4 2 ZETINT t AT 2 t I TO. 31:riffWIT LIM ff 7*M-TT Tit chl 3 7-*--r-i-Tir [ fu wl = (7, 3)]. 17:ft 31:134-4T : 1:171 32M 1=q chi it *-TiITT t 13T941-U w2 = (3, 7) Tffa4 9i CiT ztrilfi-r Lbol : u 111 +x ii2 = min {x21, x 22 },5-16 xi, ztt*it c4 t I `i ZTITIWET (a) T-Q 'lta 3liT11Z -a7ri 3Tr4a7 711c1 (b) 332 -TT -TT a ic-ticilq 7474 gild c+ I MEC-001 6

7 2. Via, 3EhTF t.r #1:Ifff c11,1cf c'(q)=0t1 (2= ch ±c12. flc-f c : fq--- d r) t : P(Q) = Q, (a) WE dcli q-i (b) t91 T=1.--q7 14 dc41q.i T 3N9.1tq '-c-1( 3. ci->1 7:11TT=E1P4 t c.bitji 3l241Tt "WM' AT t1hii m1 31-qqr-{-7311 fir f T r t? 1-14-k11 - -qqa-f t - 51 cy-4q-1 ch1 Tffk-TT oewsit c4 I 4. (a) 11:071 ii.1mit INP:r t? t. 01-)Ruf TilTA7 Tq-Frr4 is i ur TTrzr TF-7 (b) 1,11-ff (411zi c) 1.) c11:311( 11 -Ft 100 t3 no cf-wt -s-trtli 91T -1:rr9-.1-,41,11t -4W k6i 50 c0 (-V T-4- qw4ti cit3t1 c 4iitff a-{n'r 1,11 okiq.t dq 6)11 rch ch Tft *I( tvlet t1 t419-11t 141tq Afkiff t: (i) 3rd chr faclt : 2000 (ii) otici cblt r f cit : 1000 (iii) 3T-4- chik : 2400 (iv) (.4t101 chlt 1-(Thej : 1200 MEC P.T.O.

8 (A) gig 4)(11 t 3T-4. AT,A1 chlk ITT Tim rt~lflr? (B) 011:71It "k #07oiit ii ch AT f14-1*111 tle far-17 mcblk t? 14TTI- 131' lurr 1-+-t Ittw 3rR I 5x12=60 5. f* {# 4 IT :111:1td 3c-41kcil t : MPL =A (400 L). (a) A=0.2 AT ciftclicich 4t 60/- t fw-d-4 $3TW.1,(4 zfttu9t? apt chrui (b) q fq 1T 75/- t 1,11-1 (c) tirq alk-tiract, TT-q0-60t AT A TIT9' 0.5 t \TI ct,( 41 -Ert? )-WIT ilcif c1 f t : u (X1, X2) = x9/ 3x '5. X1 -ff21-1 X :1 tatz1 3T-a-W 7criT'Fr ataftrzrf c-t MEC-001 8

9 * I -5r 2m 3Tafg 3A-*-1-3Trzr T f T:t 3Tqfq za--*-1-3trzr t 1 cilar 1-;1 50% t 1 q11) F T:4 3(-1 31:11.1)-OT 3-1A1Z ch I f-*779- chl f9t4-zr r t 14)4 i zfr )k-l1 v,rcb c 4 cbi 3f9-fqqa-ar zrl. TIT T 141 fwarff ATRT ATR:zrr a-1 -q-qtfzrt d4 Trzh = (50,- 1 ;10 1) TE TAT -if (30,-2 ; 20, 2 qrq -tar 34q Pict' qrm &fr-w1 t f it ai-rptrff 7-*-kvr t q113ff trrr : (a) -1-F-aTr (b) 7)%14 (c) 71N arm 8. (a) --ii4s3iflob 4q T77 111%.TT t? atrcr TFR:Err ail cilgir chl rcv-11c1c11 A -f-*74 Nchlk \31)5 t? MEC P.T.O.

10 (b) {Clq1 (F) CWT (T) Hqizi t -cr-6--r f-14? t t*-1:ft -HR -517:1)7 4&sq N t Z9* d1-14thicll 410-I u1 =(fi)2t gj Tqt 717 tl qrq 3c41q-1 T9.TT-497 ash F2 + 3T2 = 1800 t"ciftt-0 Wf atifilsa 61411? 9. (a) #1-44 t Tfrizi WFT fq-q17 c:#) : 7:ru ii_qc-1111 trli 'ivril 1, -1-1, 1 T -1, 1 1, -1 kcr Ti-rizEr 31fWr-M7 c : (b) kcf 1:17 fq-47 ch : 1 L R 2.5 U a 2 cf.-) l (6,4) (5,4)(1,1) (0,0) MEC

11 (i) thhi-ei Izt-Ftr -4 TRv -wr fa-a-tur k I (ii) 74 Sid *Rill- 10 1:1*7 31:1-*i oiksql I 10. t 1341., x 3th y TreTTftff dliqlfritt r-t7 t :u = x1/3 y2/3 I 79-* 1c1 9114ikl: px * py t I zerlilwfr --- atrzf M t I (a) dichi th--"" E(px, py, u) Old cta I (b) '.11q Px = 234 py = 3 2TT M=200 t 371.1)7T - 1 atfliwatt ci I qio-i x, y -wr 7tzrR7 w fli? ITT Tffk.Ttu re.,-411,14fffd : (a) dc,liqer,.1 afaiwr (b) " -T 1:514 'WE oh c-lich.51faltiff (c) 'len-i.41 Miq: - NAT (d) tatzt P-)14 M4q MEC