# IEcoS (Economic Services) Economics Paper-1: Questions 77 - 80 of 85

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## Question number: 77

» Quantitative Methods in Economics » Statistical and Econometric Methods » Testing of Hypothesis, Simple Non-Parametric Tests

Appeared in Year: 2016

### Describe in Detail

Define level of significance. How is this level decided for a given problem? Can we take it as or ? Explain.

### Explanation

Level of significance is defined as the maximum size of type I error, which we are prepared to risk.

It is denoted by α and is the probability of rejecting the null hypothesis.

The level of significance should be decided with careful consideration of the key factors such as the sample size, power of the test, and expected losses from Type I and II er

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## Question number: 78

» Quantitative Methods in Economics » Mathematical Methods in Economics » Linear Algebra and Linear Programming and Input-Output Model

Appeared in Year: 2016

### Describe in Detail

Define heteroscedasticity.

### Explanation

One of the important assumptions of the classical linear regression model is that the variance of each disturbance term , conditional on the chosen values of the explanatory variables, is some constant number equal to .

This is the assumption of homoscedasticity or equal (homo) spread (scedasticity), that is, equal variance. Symbolically,

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## Question number: 79

» Theory of Consumer's Demand » Indifference Curve Analysis and Utility Function

Appeared in Year: 2016

### Describe in Detail

Consider the utility function as , where and are two commodities on which the consumer spends his entire income of the month. Let the price per unit of and be Rs. 40 and Rs. 16 respectively and the monthly income of the consumer be Rs. 4,000. Find out the optimal quantities of and .

### Explanation

Eq = m of budget line; (M = income) using Lagrangian method, we get

Let it be Lagrangian multiplier

________eq. 1

________eq. 2

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## Question number: 80

» Welfare Economics » Public Goods and Externality

Appeared in Year: 2014

### Describe in Detail

Consider a manufactured good whose production process generates pollution. The annual demand for the good is given by . The annual market supply is given by . In both equations, P is the price in rupees per unit. For every unit of output produced, the industry emits one unit of pollution. The marginal damage from each unit of pollution is given by 2Q.

(a) Find the equilibrium price and quantity in a market with no government intervention.

(b) Find the socially optimal quantity of the good. What is the socially optimal market price?

### Explanation

Marginal damage per unit of production

Thus, without govt. intervention

a)

At this,

Therefore, price & Quantity = 25

b) With govt. Intervention,

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