Solved PYQs 32-39 of 39: Welfare Economics | IEcoS (Economic Services) Economics Paper-1 | Chapter-wise | PYQ 2021
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Question 32150 words | 10 marks
A competitive equilibrium is both Pareto efficient and equitable. Do you agree? Justify your answer.
Welfare EconomicsPareto Optimality
Question 33 | PYQ 2011500 words | 6 marks
In game theory, comment on the terms ‘maxi-min’ and ‘mini-max’.
Answer
- Maxi-min strategy is the conservative approach in which a player seeks to maximize the probability of minimum profit so that the degree of risk can be reduced. In this strategy, the player finds the minimum payoff in each strategy and among these chooses the one with the highest value (maximum). For e. g. Payoff matrix of firm I and I…
… (111 more words, 1 figure) …
Welfare EconomicsSocial Choice, Game Theory and More
Question 34 | PYQ 2015500 words | 6 marks
State and explain the Kaldor-Hicks compensation principle.
Answer
- Nicholas Kaldor was the first economist to give a welfare criterion based on compensation payments.
- According to Kaldor՚s welfare criterion, if a certain change in economic organization or policy makes some people better off and others worse off, then that change will increase social welfare if those who gain from the change would comp…
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Welfare EconomicsCompensation Principle
Question 35 | PYQ 2015500 words | 6 marks
State and explain the Kaldor-Hicks compensation principle.
Answer
- Nicholas Kaldor was the first economist to give a welfare criterion based on compensation payments. According to Kaldor՚s welfare criterion, if a certain change in economic organization or policy makes some people better off and others worse off, then that change will increase social welfare if those who gain from the change would com…
… (519 more words, 1 figure) …
Welfare EconomicsSocial Choice, Game Theory and More
Question 36 | PYQ 2017500 words | 6 marks
Explain the concept of divergence in the context of social and private welfare.
Answer
- Divergences between private and social costs and returns (benefits) are known as externalities, external effects or external economies and diseconomies. Another term is spillovers or “neighborhood effects”.
- ″ An external effect is assumed to exist whenever the production by a firm or the utility of an individual depends on some activit…
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Welfare EconomicsDivergence between Social and Private Welfare
Question 37 | PYQ 2014500 words | 6 marks
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?
Answer
Marginal damage per unit of production
Thus, without govt. intervention
a)
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Welfare EconomicsPublic Goods and Externality
Question 38 | PYQ 2016500 words | 6 marks
Distinguish between a cooperative and a non-cooperative game.
Answer
A game is cooperative if the firm (i.e.. players in the game) can arrive at an enforceable or binding contract that permits them to adopt a strategy to maximize joint profits. Suppose making of a carpet costs Rs 1000 but the buyers value it at Rs 2000. Fixation of price between Rs 1000 and 2000 per carpet will yield profits.
- In this ca…
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Welfare EconomicsSocial Choice, Game Theory and More
Question 39 | PYQ 2021500 words | 6 marks
Explain divergence between private and social cost and misallocation of resources in perfectly competitive system.
Answer
The divergences between private and social costs and returns (benefits) are known as externalities, external effects or external economies and diseconomies.
- When social benefits exceed private benefits, it is known as positive externality or external economy. If social costs exceed private costs, it is known as negative externality or …
… (457 more words, 2 figures) …
Welfare EconomicsDivergence between Social and Private Welfare