MEC-001 Micro Economic Theory in English Solved Assignment 2018-2019

MEC-001 Solved Assignment 2018-19

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MEC-001/101: MICROECONOMIC ANALYSIS
Assignment (TMA)
Course Code: MEC-001/101
Assignment Code: MEC-001/101/AST/2018-19
Maximum Marks: 100

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Note: Answer all the questions. While questions in Section A carry 20 marks each (to be
answered in about 700 words each) those in Section B carry 12 marks each (to be answered
in about 500 words each).
SECTION-A
1. (a) Explain with the help of diagram how does consumer attain equilibrium given the
utility function U (x, y),the budget constraint Px X + Py Y < M where x and y are the
two goods and Px and Py are the prices of good x and good y respectively and M is the
income of the consumer.
(b) With the help of diagram, State the relationship between the compensated and the
uncompensated demand curve in terms of normal and inferior goods.
2. (a) Explain with example the concept of a Homogeneous production function.
Given a production function
q = AL0.5K
0.8
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.
SECTION-B
3. Using appropriate diagrams, explain each of the three conditions for Pareto optimality
satisfied by a perfectly competitive economy. What are the implications of the First
Fundamental Theorem of Welfare Economics for social policy?
4
4. (a) Explain the concept of a Perfect Bayesian equilibrium?
(b) What is the Bayesian Nash equilibrium? How is it different from Perfect Bayesian
equilibrium?
5. What is Kaldor’s compensation principle? How is it different from Hick’s compensation
principle?
6. (a) Define the concept of Pooling Equilibrium in relation to the Insurance market with
Asymmetric information. Is this equilibrium feasible?
(b) While modelling Insurance markets in presence of asymmetric information, a
Separating equilibrium is often preferred instead of a Pooling equilibrium.” Justify the
statement. Under what conditions, a separating equilibrium may also not exist?
7. At equilibrium, among the three market forms, viz. Perfect competition, Monopoly and
Monopolistic competition, which market form(s) result in the maximum aggregate output
and the minimum market price? Give reasons with illustration.

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