Exam Details
| Subject | general economics | |
| Paper | paper 1 | |
| Exam / Course | indian economic service and indian statistical service examination (ies/iss) | |
| Department | ||
| Organization | union public service commission | |
| Position | ||
| Exam Date | 2014 | |
| City, State | central government, |
Question Paper
Is the following statement true or false Explain.
"If a consumer's utility function IS of the form x1^1/3 x2^1/3 she faces prices Pl and P2 and her income is then her indirect utility function is V (3P1P2)"
(b) Define complements and substitutes. In the two-commodity case, can the commodities be complements? Explain. Is your answer valid in the case of gross substitutes and complements Explain.
(c) Other things equal, what happens to consumer surplus if the price of a good falls? Why Illustrate using a demand curve.
(d) What is meant by "internalizing" an externality? How can a negative externality be internalized? What is productivity principle? How can this be achieved through market mechanism?
(f) What is Nash Equilibrium? Do all games have Nash Equilibrium Can a game have more than one equilibrium? List out the sources of monopoly power.
(h) Explain the concept of co-integration in a time series analysis.
2. Hrishita likes sandwiches and coffee Her indifference' curves are bowed-in toward the origin and do not intersect the axes. The price of a sandwich is Rs 5 and the price of a cup of coffee is Rs 3. She is spending all her income at the basket she is currently consuming, and her marginal rate of substitution of sandwiches for coffee is 2.
Is she at an optimum? If so, show why. If not, should she buy fewer sandwiches and more coffee, or the reverse? Argue in favour of your opinion.
3. The demand for good X is estimated to be Q Rs 250,000 -500P -1·5M -240PR, where M is the (average) consumer income and PR is the price of a related good Y. The values ofP, M arid PR are expected to be Rs 200, Rs 60,000 and Rs 100 respectively.
Calculate the price elasticity of demand, income elasticity of demand and cross price elasticity. Is the demand for X elastic, inelastic or e unit-elastic? How would a small increase in P affect total revenue? Is the good X normal or inferior? Are the goods X and Y substitutes or complements?
4. Assume that a monopolist sells a product with the cost function C F 20Q, where C is total cost, F is a fixed cost, and Q is the level of output. The inverse demand function is P 60 where P is the price in the market. How much profit does the firm earn when it charges the price that maximizes profit?
At what price will the firm earn zero economic profits?
5. Distinguish between Differentiation and Integration. Explain their application in economics with suitable examples.
6. There are only two firms in an industry, firm 1 an4 firm 2. The market demand curve is given by the equation P 12 q2) are the (total) cost functions facing the firms are Ci 4qi' where i 2. If firm 1 acts as a leader and firm 2 as a follower, what are the quantities that the two firms will produce in the equilibrium? What profits will they earn?
7. Consider a manufactured good whose production process generates pollution. The annual demand for the good is given by Q^d 100 -3P. The annual market supply is given by Q^s P. In both equations, P is the price in rupees per unit. For every unit of output produced, the industry emits one unit of pollution. The marginal damage from each unit of pollution is given by 2Q.
Find the equilibrium price and quantity in a market with no government intervention.
Find the socially optimal quantity of the good. What is the socially optimal market price?
8. What is autocorrelation How can we detect it How can it be removed from a single equation model?
9. Consider the production function Q (K^0.5 What is the name of this type of production function?
What is the elasticity of substitution for this production function Does this production function exhibit increasing, decreasing, or constant returns to scale?
Suppose that the production function took the form (100 K^0.5 L^0.5)^2. Does this production function exhibit increasing, decreasing or constant returns to scale?
10. Consider a two-person, two-commodity, pure-exchange, competitive economy. The. consumers' utility functions are U1 q11q12 12q1l 3q12 and U2 q21q22 8q21 9q22 respectively (where qij denotes the consumption of commodity Qj by consumer with i 1,2 and j 2). Consumer 1 has initial endowments of 8 and 30 units of Q1 and Q2 respectively; consumer 2 has 10 units of each commodity.
Determine the excess demand· function for the two consumers. Determine an equilibrium price ratio for this economy.
11. What is the problem of multicollinearity In a regression model? What is its plausibility? Explain Farrar -Glauber method to detect it. How can it be removed?
12. What is optimization problem in economics? How does linear programming technique help in assigning optimal solution in given resource use? Explain.
"If a consumer's utility function IS of the form x1^1/3 x2^1/3 she faces prices Pl and P2 and her income is then her indirect utility function is V (3P1P2)"
(b) Define complements and substitutes. In the two-commodity case, can the commodities be complements? Explain. Is your answer valid in the case of gross substitutes and complements Explain.
(c) Other things equal, what happens to consumer surplus if the price of a good falls? Why Illustrate using a demand curve.
(d) What is meant by "internalizing" an externality? How can a negative externality be internalized? What is productivity principle? How can this be achieved through market mechanism?
(f) What is Nash Equilibrium? Do all games have Nash Equilibrium Can a game have more than one equilibrium? List out the sources of monopoly power.
(h) Explain the concept of co-integration in a time series analysis.
2. Hrishita likes sandwiches and coffee Her indifference' curves are bowed-in toward the origin and do not intersect the axes. The price of a sandwich is Rs 5 and the price of a cup of coffee is Rs 3. She is spending all her income at the basket she is currently consuming, and her marginal rate of substitution of sandwiches for coffee is 2.
Is she at an optimum? If so, show why. If not, should she buy fewer sandwiches and more coffee, or the reverse? Argue in favour of your opinion.
3. The demand for good X is estimated to be Q Rs 250,000 -500P -1·5M -240PR, where M is the (average) consumer income and PR is the price of a related good Y. The values ofP, M arid PR are expected to be Rs 200, Rs 60,000 and Rs 100 respectively.
Calculate the price elasticity of demand, income elasticity of demand and cross price elasticity. Is the demand for X elastic, inelastic or e unit-elastic? How would a small increase in P affect total revenue? Is the good X normal or inferior? Are the goods X and Y substitutes or complements?
4. Assume that a monopolist sells a product with the cost function C F 20Q, where C is total cost, F is a fixed cost, and Q is the level of output. The inverse demand function is P 60 where P is the price in the market. How much profit does the firm earn when it charges the price that maximizes profit?
At what price will the firm earn zero economic profits?
5. Distinguish between Differentiation and Integration. Explain their application in economics with suitable examples.
6. There are only two firms in an industry, firm 1 an4 firm 2. The market demand curve is given by the equation P 12 q2) are the (total) cost functions facing the firms are Ci 4qi' where i 2. If firm 1 acts as a leader and firm 2 as a follower, what are the quantities that the two firms will produce in the equilibrium? What profits will they earn?
7. Consider a manufactured good whose production process generates pollution. The annual demand for the good is given by Q^d 100 -3P. The annual market supply is given by Q^s P. In both equations, P is the price in rupees per unit. For every unit of output produced, the industry emits one unit of pollution. The marginal damage from each unit of pollution is given by 2Q.
Find the equilibrium price and quantity in a market with no government intervention.
Find the socially optimal quantity of the good. What is the socially optimal market price?
8. What is autocorrelation How can we detect it How can it be removed from a single equation model?
9. Consider the production function Q (K^0.5 What is the name of this type of production function?
What is the elasticity of substitution for this production function Does this production function exhibit increasing, decreasing, or constant returns to scale?
Suppose that the production function took the form (100 K^0.5 L^0.5)^2. Does this production function exhibit increasing, decreasing or constant returns to scale?
10. Consider a two-person, two-commodity, pure-exchange, competitive economy. The. consumers' utility functions are U1 q11q12 12q1l 3q12 and U2 q21q22 8q21 9q22 respectively (where qij denotes the consumption of commodity Qj by consumer with i 1,2 and j 2). Consumer 1 has initial endowments of 8 and 30 units of Q1 and Q2 respectively; consumer 2 has 10 units of each commodity.
Determine the excess demand· function for the two consumers. Determine an equilibrium price ratio for this economy.
11. What is the problem of multicollinearity In a regression model? What is its plausibility? Explain Farrar -Glauber method to detect it. How can it be removed?
12. What is optimization problem in economics? How does linear programming technique help in assigning optimal solution in given resource use? Explain.