[2] MEC-101

borrowing and lending at the prevailing

No. of Printed Pages : 16 MEC-101
interest rate r.

MASTER OF ARTS (ECONOMICS) (i) Compute and illustrate the

(MEC) intertemporal budget constraint for

Term-End Examination this individual. 5

December, 2021 (ii) Write the Lagrangian function for this

MEC-101 : MICROECONOMIC ANALYSIS
problem along with the first order
Time : 3 Hours Maximum Marks : 100 conditions. 5

Note : Answer questions from each Section as per

(b) Discuss the concept of dynamic stability
instructions given.
with the help of a Cobweb model. 10

Section—I
2. (a) What is meant by a Principal-Agent
Note : Answer any two questions from this Section.
problem ? 5

20 each
(b) Consider an individual with the following
1. (a) Consider an individual living for two periods von Neumann-Morgenstern utility function
1 and 2 consuming X1 and X2 in those
U(X)  X , where X stands for amount of
respective periods. His utility function is
money. Comment upon attitude towards
given by U  U(X1 , X 2 ) . This individual
risk of such an individual with the help of
earns Y1 and Y2 in periods 1 and 2
respectively. Also he has the choice of a diagram. 5

P. T. O.
 [3] MEC-101 [4] MEC-101

(c) Now, suppose this individual plays a game 4. Differentiate between the following : 5 each
of tossing a coin where he wins ` 2 if head
(i) Partial equilibrium and General
turns up and nothing if tail turns up. On
equilibrium framework
the basis of the given information, find :
(ii) Cardinal and Ordinal theory of utility
(i) The expected value of the game. 4
(iii) Signalling and Screening as solutions to
(ii) The risk premium this person will be
problem of asymmetric information
willing to pay to avoid the risk
associated with the game. 6 (iv) Cooperative and Non-cooperative game
theory models
3. Consider a consumer’s preferences over goods x
and y given by the utility function : Section—II

U( x, y )  x  y1 Note : Answer any five questions from this

Section. 5×12=60
Let the budget constraint be px x  p y y  M ,

where p x is the price of good x, p y the price of 5. (a) Discuss a general form of a Cobb-Douglas

good y and let consumer’s income be given production function. 4

by M. (b) Consider a production function Q  f (L) ,
(a) Derive the indirect utility function. 5 where Q represents the output and L is the
(b) Express the utility maximisation problem factor of production. Let w be the per unit
as the expenditure minimisation problem price of factor L and p be the per unit price
and compute the compensated demand of output Q. Using the Envelope theorem,
functions. 10 determine the supply function and the
(c) Also determine the expenditure function. 5 factor demand function. 8

P. T. O.
 [5] MEC-101 [6] MEC-101

6. (a) What is the Bayesian-Nash equilibrium, 9. Consider the following game :

and how is it different from perfect
Bayesian equilibrium ? 6

(b) What are the requirements of a perfect

Bayesian equilibrium ? 6

7. Using appropriate diagrams, compare and

contrast the inefficiencies associated with the
negative and the positive externalities. 12
(a) Determine the sub-game(s) of the above
8. (a) Differentiate between the Cournot and the game. 4
Bertrand model of Oligopoly. 6 (b) Find all the Nash equilibria of this game. 4
(b) Consider an industry with two firms 1 and (c) Find the sub-game perfect equilibrium of
2, each producing output Q1 and Q2, the above game. Can we make use of the
respectively and facing the industry backward induction method to find the
demand given by P = 140 – Q, where P is sub-game perfect equilibrium ? 4

the market price and Q represents the 10. (a) What is meant by a social welfare function ?
total industry output, that is Q = Q1 + Q2. 6
Assume that each faces a marginal cost of (b) Using a Bergson-Samuelson social welfare
` 20 per unit with no fixed costs. Solve for function and a grand utility possibility
the Cournot equilibrium in such an frontier (GUPF), discuss the concept of a
industry. 6 social optimum. 6

P. T. O.
 [7] MEC-101 [8] MEC-101

11. Write short notes on the following : 3×4=12

MEC-101
(a) Moral hazard

(b) Excess capacity associated with

monopolistic competition

(c) Contract curve

(d) Second degree price discrimination

2021

-101

P. T. O.
 [9] MEC-101 [ 10 ] MEC-101

X1 X2

U  U(X1 , X 2 )

Y1

U(X)  X
Y2
X
r

(i)
]

(head)

(ii)
` (tail)

(i)

P. T. O.
 [ 11 ] MEC-101 [ 12 ] MEC-101

(ii) (i)

(ii)

(iii) (asymmetric)

y (screening)

U( x, y )  x  y1 (iv)

px x  p y y  M px &II
x py y ]

M
5×12=60

Q  f (L) ]

Q L

P. T. O.
 [ 13 ] MEC-101 [ 14 ] MEC-101

w p P  140  Q ] P

(envelop) Q

Q  Q1  Q 2

` 20

Q1 Q2

P. T. O.
 [ 15 ] MEC-101 [ 16 ] MEC-101

(social optimum)

3×4=12

MEC–101

P. T. O.