[This question paper contains 16 printed pages.
Your Roll No........
Sr. No. of Question Paper : 507 G
Unique Paper Code 2272102301
Name of the Paper Intermediate Microeconomics-I:
Behavioural Foundations of
Market Interactions
Name of the Course : B.A. (Hons) Economics
(NEP-UGCF-2022)
Semester/Annual : III
Duration : 3 Hours Maximum Marks : 90
Instructions for Candidates
1. Write your RollNo. on the top immediately on receipt
of this question paper.
2. The question paper is divided into two sections:
Section A and Section B.
3. Answer any three questions from Section A £nd
any two questions from Section B.
4. Use of simple calculator is permitted.
5. Answers may be written either in English or Hindi;
but the same medium should be used throughout the
paper.
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2.
3.
4.
SECTION - A
1. (a) Let utility function of a consumer be given by
U(x,y) = xy + x, where X and Y are the two
goods
(i) Is marginal rate of substitution diminishing?
(ii) Are marginal utilities of both goods X and
Ydiminishing?
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(b) Let Mr. Ramesh have an income of1000, which
he can spend on two goods X and Y. Let price of
good X be 80 for the first two units and then it
is 60 for the subsequent units. Let price of
good Y be 50 regardless of how many units
bought. Write the equation of the budget line and
draw it.
(c) Find the equation of the price offer curve and
demand curve for the following utility function :
U=min(3x, 2y). Let income of the consumer be
M, price of goodX is P, and price of good Y be
P, Also draw both the curves.
(d) Draw indifference maps for the following utility.
functions. Also indicate the preference direction
(i) U(x, y) = x
(ii) U(x,y) = -X - y (5x4)
xy + x aT G4T SIGT , GEÍ X r Y T
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Hj G6 HUT AA ifv: U= min(3x, 2y)i
P,
(i) U(x, y) = x
(ii) U(x, y) =-x - y
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2. (a) Usinga diagram illustrate how a flat tax on income
would make the consumer better off as well as
bring more revenue for the government compared
to a two-bracket progressive income tax. (6)
(b) Let Miss Mary earn an income of 2000 this month
and 2200 next month. Her utility function is
U(C,C,) = C,C, where C, denotes the value of
consumption this month and C, denotes the value
of consumption next month. Let interest rate be
5%. Would Miss Mary borrow, lend or doneither?
What happens if interest rate rises to 12%? In
which case is the utility higher? (10),.
(c) Willan increase in overtime wage rate
necessarily
lead to an increase in labor supply? Show using a
diagram. (4)
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UCC,) = C,C, , HEÍ C, HHEH TYT
(7)
3. (a) Suppose a consumer consume two goods X and
Y. The utility function is :
U(x,y) = 2Vx +y. Let price of X be T0.50, price
of Y be 1 and income is 10.
(i) Find initial equilibrium of the consumer.
(ii) Find the new equilibrium if price/of X falls
to 0.20.
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decompose the
(ii) Using Hicksian technique
and income
price effect into substitution
effects.
variation in the
(iv) Calculate the compensating
above case.
(8)
(b) Let two utility functions be given as
U(x, y) = xy
U(x,y) = exy + 5
(6)
Do they represent same preferences?
Kaldor's varíant of
(c) Using a diagram, show the
decomposition of price effect if price of x falls
and x is a normal good. (6)
U(x,y) = 2x +y. HGy te X hI H 0.50 ,
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(ü) f XI H 0.20 a fR GGT , 4
U(x, y) = xy
U(x,y) = eXy + 5
4. Let utility function be U(x) = x, where x denotes
income level. The consumer faces the following
scenario: he can earn ?100 with a probability of 0.4
and 600 with a probability of 0.2
(i) Using only the utility function show that the
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he is a risk lover.
preferences show
utility equivalent
expected utility and
(ii) Calculate confirm he is a risk
Do they
of the income.
lover?
Certainty equivalent of his income.
(ii) Calculate
Give the equation showing the risk premium of
(iv)
the consumer.
and Certainty
(v) Represent Risk Premium
Equivalent for a risk loving consumer in a
diagram.
Absolute
(vi) Calculate Arrow-Pratt Coefficient of
Risk Aversion and interpret it. (3.5x5+2.5)
8 0.4 t HMGT HT 100 4 HhI , 3tt 0.2
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SECTION - B
5. (a) For a multiple output producing firm, the inverse
production function, with one input x and two
outputs y, and y, is given as :
X = y + y,2 + yy2
() Given two vectors of output(2.4) and (4,2),
prove that the inverse production function
is strictly convex.
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(ii) Check the monotonicity of the inverse
production function.
(ii) Suppose the firm now decides to produce
only one output such that the inverse 2
production function takes the form/ = y² X=y
a_suming x > 1. Find the firm's input
demand function when unit price of the
output is p=5. (3,2,6)
(b) Using an example explain if it is possible for a
production function to exhibit diminishing rate of
substitution and decreasing returns to scale at the
same time. (4)
X = y, t y,+ y,y2
(i) MrSC à tft (2.4) tt (4,2) fey
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(iüü)
6. (a) The production function of afirm producing mobile
phone covers is given as:
q = (klß + 73)3
- Here k is the amount of capital employed and is
the amount of labor hours employed and q is total
output. The wage rate is w 1 per hour and
rental cost of capital is v = {4 per unit.
(i) Does this production function exhibit IRS,
CRS or DRS?
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factor demands and
(11) Derive the conditional
function
use them to find the long-run cost
for this firm.
(ii) Detive and draw the firm's long run supply
Curve.
(iv) Suppose the firm is creating noise pollution.
If the government is deciding whether to
impose alumpsum tax of T on the firm
or to impose a fine, t per unit of output,
which will have more impact on the output
of the firm? (1,4,3,2)
(b) What is the difference between input demand and
conditional input demand? Explain using graphs.
(5)
q =(k3 + 33
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(iv)
7. (a) Consider a profit-maximizing firm with the
production function given as :
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capital (k) are
The factor prices of labor (/) and
Assume
w,=160 and nd w, = 200 respectively.
unit in the
that amount of capital is fixed at 1
short run.
(i) Derive the short-run cost function.
(ii) Find the short-run supply curve of the firm,
(iii) What will be the loss of the firm if it
decides to discontinue production?
(iv) If both the inputs become variable, then
'using a graph, show the long run supply of
this firm. Also shade the profit of the firm
at a particular per unit output price P*.
(2,5,1,4)
(b) "The long-run cost curve is the envelope of all the
short-run curves". Explain this statement with the
help of a graph. (3)
q= kl41/3
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(iv) (ii) AH
()
fad t
yt
qhHT
(k)
16
BIT
? hG
H
shN:
W,=?160
