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MASTER OF ARTS
V)
(ECONOMICS)
r Term-End Examination
December, 2014
SECTION - A
MEC-001 1 P.T.O.
2. Suppose there are two types of used cars : good
and bad. A good car if it is known to be good, is
worth Rs. 3000 to a buyer and Rs. 2500 to a seller.
You are told that the supply of cars in that market
is fixed and possible buyers are infinite. A bad
car, on the other hand, is worth Rs. 2000 to a
buyer and Rs. 1000 to the seller. There are as
twice many bad cars as good cars.
(a) What would be the prices of bad cars and
good cars, if there was perfect
information ?
(b) What would be the price of used car if
neither buyer nor seller knew whether a
particular car was good one or bad one and
all agents are risk neutral ?
(c) Assume buyers cannot tell if a car is good
or bad. Which would be the market price
for used cars and how many good cars
would be offered ?
(d) Consider that there are two good cars to
every bad car; but buyers cannot tell if a
car is good or bad. Which would be the
market price for used cars and how many
good cars would be offered ?
MEC-001 2
SECTION - B
MEC-001 3 P.T.O.
8. Suppose 10 people live on street and that each of
them is willing to pay Rs. 2 for each extra dustbin,
regardless of the number of dustbins provided. If
the cost of providing dustbins is given by C (x) = x2,
what is the pareto efficient number of dustbins to
provide ?
Player 2
I 0
Player 1 A
1,1 3,3
N 2, 4 4, 2
MEC-001 4
(b) John drives to work every day and has to
spend money to pass through the toll gate.
He thought of devising a way to evade
payment. However, he knows that there is
1
a probability of being caught at the gate
4
in a given day if he cheats and the cost to be
incurred by him towards payment of fine is
Rs. 36. If his daily income is Rs. 100, what
is the maximum amount he will be willing
to pay for one day at the toll gate ?
MEC-001 5 P.T.O.
7r.1.7.-001
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MEC-001 6
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MEC-001 7 P.T.O.
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t : Q = 3200 1600P
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MEC-001 8
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MEC-001 9 P.T.O.
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MEC-001 10
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MEC-001 11