IEcoS (Economic Services) Economics Paper1: Questions 34  40 of 85
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Question number: 34
» Theory of Consumer's Demand » Cardinal Utility Analysis
Appeared in Year: 2013
Describe in Detail
Describe Von Neuman and Morgenstern utility index. Is this index unique? Explain (Section B)
Explanation
Neumann and Morgenstern gave a method of cardinally measuring expected utility from win and prizes. On the basis of such a cardinal utility index, rational decisions are made by individuals in case of risky situations. Thus, NeumannMorgenstern method seeks to construct a utility number, NM utility index of the marginal utility of money which a pe
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Question number: 35
» Theory of Production » Duality and Cost Function, Measures of Productive Efficiency of Firms
Describe in Detail
Can the threat of a price war deter entry by potential competitors? What actions might a firm take to make this threat credible? Give example. (Section C)
Explanation
Such a threat is not supposed to be credible as both the incumbent and the potential entrant know that normally, a price war will leave both worse off. Thus, the incumbent must make his or her threat of a price war believable by signaling to the potential entrant that a price war will result if entry occurs. There are a few actions that a firm migh
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Question number: 36
» Theory of Production » Laws of Return, Returns to Scale and Return to Factors of Production
Describe in Detail
Show that CobbDouglas production function , where symbols have usual meaning, exhibits constant returns to scale but diminishing returns to a factor of production.
Explanation
The sum of the exponents of L and K shows the returns to scale, since , the produce function exhibits constant returns to scale.
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Question number: 37
» Quantitative Methods in Economics » Statistical and Econometric Methods » Least Square Methods and Other Multivariate Analysis
Appeared in Year: 2013
Describe in Detail
State and explain the assumptions for applying ordinary least squares (OLS) method to two variable linear regression model:
(Section B)
Explanation
Assumptions of OLS regression
(1) The linear regression model is “linear in parameters” when the dependent variables Y is a linear function of independent variables and error term, the regression is linear in parameters and not necessarily linear in X.
(2) There is random sampling observation. The sample taken for regression model must be dr
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Question number: 38
» Theory of Value » Pricing with Incomplete Information and Moral Hazard Problems
Appeared in Year: 2013
Describe in Detail
State the causes of market failure. (Section A)
Explanation
 Market failure occurs when there is an inefficiency in the allocation of goods and services. There are many reasons for market failure. One of the major reasons is asymmetric information.
 Pareto optimality assumes that producers and consumers have perfect information but in the real world there is ignorance and uncertainty on the part of both buyers
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Question number: 39
» Theory of Distribution » MacroDistribution Theories of Ricardo, Marx, Kaldor, Kalecki
Appeared in Year: 2013
Describe in Detail
Critically examine HicksKaldor · criterion of compensation. Give Scitovsky’s improvement over this criterion. (Section B)
Explanation
According to Kaldor’s welfare criterion, if a certain charge in economic organisation or policy makes some people better off and some people worse off, then that change will increase social welfare if those who gain could compensate the losses and still be better off than before. Hicks supported this movement and looked at it as an unequivocal impr
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Question number: 40
» Quantitative Methods in Economics » Mathematical Methods in Economics » Linear Algebra and Linear Programming and InputOutput Model
Appeared in Year: 2013
Describe in Detail
Write dual of the following linear programme and solve the obtained dual graphically:
Minimize:
Subjects to:
(Section B)
Explanation
 0  1 

 1/2  0  1/4 
 0  1/2 

 1  0  1/2 
Hence the op
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