(a) Explain the concept of a Homothetic production function. Given a production function

What is Kaldor’s compensation principle? How is it used to resolve Pareto non-comparability? How is it different from Hick's compensation principle?

(a) How would you differentiate a Static game from a Dynamic game?(b) Consider the following game.

i) Can Backward induction be applied in this game to find a solution? (ii) What will be the Subgame Perfect Nash equilibria for the given game?

Rational expectations and adaptive expectations

Permanent income hypothesis

(a) Consider an Edgeworth box that describes a two-person,two-commodity exchange scenario. Explain how trade takes place between the two individuals starting from the initial endowment position. What is the significance of the slope of the ray passing through a Pareto optimal point and the endowment point?(b) Consider a pure-exchange economy of two individuals (A and B) and two goods (X and Y). Assume both the individuals are endowed with 2 units of good X and 1 unit of good Y each. Let utility functions of individual A and B be U_A= min{X_A,Y_A} and UB= min, where X_i and Y_i for i = {A, B} represent individual i’s consumption of good X and Y respectively. Determine the aggregate excess demand functions for each good

Explain the mechanism through which internal and external balance takes place under flexible exchange rate.

Bring out the salient features of the endogenous growth theory.

From Lucas’ point of view, what are the limitations of the Keynesian model? What improvements does he suggest?

What does the Phillips curve signify? How do you reconcile the difference in the shape of the curve in the short run and the long run?

What are the implications of IS and LM curves? What are the factors on which the position and the slope of IS and LM curves depend?

Derive the conditions for steady state growth in the Solow model. What are its implications? In what respects is the golden rule different from the steady state?

Raj expects his future earnings to be worth Rs 100. If there is some unfortunate event, his expected future earnings will be Rs 25. The probability of an unfortunate event to occur is 2/3 , while that of things remaining fortunate is 1/3 . Suppose his utility function is given by U(Y) = See Answer →

Differentiate between a Hicksian and a Walrasian demand function? Do they ever intersect? Explain.

(b) Consider a Cobb-Douglas utility function

U (X,Y)= X^1/5 Y^4/5

where X and Y are the two goods that a consumer has an option to consume at per unit prices of PX and PY, respectively. Assume income of the consumer to be Rs M. Determine (a) Uncompensated demand functions for goods X and Y

(b) Compensated demand functions for goods X and Y

Explain the concept of a Homothetic production function. Given a production function

where q represents total production, L and K stands for labour and capital respectively, and A is the technology coefficient. What are the returns to scale for such a production function?

(b) “Homothetic production function includes Homogeneous production function as a special case.” Justify this statement.

What is Kaldor’s compensation principle? How is it used to resolve Pareto non-comparability? How is it different from Hick's compensation principle?

(a) How would you differentiate a Static game from a Dynamic game? (b) Consider the following game.

i) Can Backward induction be applied in this game to find a solution?

(ii) What will be the Subgame Perfect Nash equilibria for the given game?

(a) Consider an Edgeworth box that describes a two-person, two-commodity exchange scenario. Explain how trade takes place between the two individuals starting from the initial endowment position. What is the significance of the slope of the ray passing through a Pareto optimal point and the endowment point? (b) Consider a pure-exchange economy of two individuals (A and B) and two goods (X and Y). Assume both the individuals are endowed with 2 units of good X and 1 unit of good Y each.

where Xi and Yi for i = {A, B} represent individual i’s consumption of good X and Y respectively. Determine the aggregate excess demand functions for each good.

(b) Consider a market for energy drinks consisting of only one firm. The firm has a linear cost function: C(q) = 4q, where qrepresents quantity produced by the firm. The market inversedemand function is given by P(Q) = 24 − 2Q, where Qrepresents total industry output. Based on the given information answer the following:(i) What price will the firm charge? What quantity of energy drinks will the firm sell? (ii) Now suppose a secondfirm enters the market. The second firm has an identical cost function. What will be the Cournot equilibrium output for each firm?

(iii) What is the Stackelberg equilibrium output for each firm if firm 2 enters second? (iv) How much profit will each firm make in the Cournot game? How much in Stackelberg? (v) Which type of market do consumers prefer: monopoly, Cournot duopoly or Stackelberg duopoly? Why?

Consider a market for energy drinks consisting of only one firm. The firm has a linear cost function: C(q) = 4q, where q represents quantity produced by the firm. The market inverse demand function is given by P(Q) = 24 − 2Q, where Q represents total industry output. Based on the given information answer the following:

(i) What price will the firm charge? What quantity of energy drinks will the firm sell?

(ii) Now suppose a second firm enters the market. The second firm has an identical cost function. What will be the Cournot equilibrium output for each firm?

(iii) What is the Stackelberg equilibrium output for each firm if firm 2 enters second?

(iv) How much profit will each firm make in the Cournot game? How much in Stackelberg?

(v) Which type of market do consumers prefer: monopoly, Cournot duopoly or Stackelberg duopoly? Why?