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SECTION - A
MEC-001 1 P.T.O.
3. Consider an economy with 2 persons and 2 goods.
The utility functions of the 2 persons are
2
UA =XiA X2 ; UB =(X13 Xil23 + 5) and the initial
endowments are given to be
WA = (6, 2) and WB = (2, 6)
(a) Draw Edgeworth Box and show the initial
endowment of the economy.
(b) Find the set of Pareto efficient allocations
and show your result on the Edgeworth box.
(c) Find the competitive equilibrium of this
economy.
4. A consumer's preference over a single good x and
other goods y is represented by a utility function
u(x, y) = log x + y.
If the price of x = P and that of y = 1 and income
M>1
(a) Derive the Marshallian demand for x and
y.
(b) Derive indirect utility function.
(c) Use Slutsky equation to decompose the effect
of own price change on the demand for x
into an income and substitution effect.
SECTION - B
Answer any five questions from this section. 5x12=60
5. Discuss the approaches adopted by Pareto and
Pigou for analysing the problem of welfare
economics.
6. A consumer's utility function from consumption
in two-period horizon is U = X1X2. 6. The income
stream is given as y 1 =1000 and y2 = 648 (where
1 and 2 stands for 'today' and 'next year'
respectively). If the market rate of interest is 8%
per annum, find the values for consumption in
two periods which maximises his utility.
MEC-001 2
7. Explain how Shephard's Lemma can be used to
derive production function from the cost function.
MEC-001 3