Ly O5\\>\"2 Morne Slizlie CM [This question paper contains 16 printed pages] Your Roll No. 2 seeseroecessescesescees * SI. No. of Q. Paper : 7495 Ic Unique Paper Code : 12271301 Name of the Course : B.A.(Hons.) Economics CBCS Name of the Paper : Intermediate Microeconomics - I Semester : TI Time : 3 Hours Maximum Marks : 75 Instructions for Candidates : qéienfat & fer fete: (a) Write your Roll No. on the top immediately on receipt of this question paper. 3a OS-Ta H oTT S oe ket at oe sya Vat aa fers (b) Answer may be written either in English or in Hindi; but the same medium should be used throughout the paper. ya yews aT Tat ash ar feet feet cap art F afta, afar at sar we a aT F am afer PTO:7495 (c) The question paper is divided into two Sections. 7 we set-aa a avst F fanfsa &1 (d) Attempt five questions in all, selecting three questions from Section-A and two questions from Section-B. ae Wea oe ae @, di ae ars-a & wet a at @es-— FI (e) Use of simple calculator is permitted. ararr dargaer Howitt ot orate 8 Section-A Te it ST 1. (a) Consumer’s consumption bundle is described by (x,,x,). His money income is 7100 and price of good 1 (p,) is $10 and price of good 2 (p,) is =10. spire ar soit asa (x,x,) art aff fer onar & 1 see ARH sq 100 % @ ste aeq 1 at tract (p,) 10 % & sie ae 2a ara (p,) 10 % 21 (i) How does his budget constraint change when government gives lump- sum subsidy of %50 regardless his consumption behaviour ? 1 2 (ii) (iii) 7495 Seer ase vier BA aac ona B ? FI OA SAP SRIPT aearere BY eat oe nee Saeger est Beh I How does his original budget constraint change when the government gives subsidy of % 5 per unit on good 1. . 1 SH Yet ase ofeskr ba saat oper B ? Se ORK TY 1 We S @ aft gang at afeast ait &1 Compare his utility levels in case (i) and (ii) if his utility function is u(x,,x,) ie XX). 3 af Seer sear wert u(x,,x,) = xx, 8 at Rafe @) ste (i) F sas Soar et st gear FT! (b) A consumer always consumes one unit of good X with 2 units of good Y. Srila Ba ay Xa ww gas S arr ag Y at @ gagat or sodht ae 81 (i) Write her utility function. 1 Saar Sehr wert fers 3 P.ZO-7495 {c) (a) (ii) If price of good X is %5 and price of good Y is 710. He has to spend all his money income of 200 on goods X and Y only. Find the optimal consumption of X and Y. Illustrate diagrammatically. 4 Se ae X a Hat Sk @ sh ae Y at sad 10% 81 sata ort aah ort 200% at farm aeg X sit aeg YUC ad ou @1 ag Xscik ag YF geet sat ar vet amt fer art aatga 1 What do assumptions of monotonicity and convex ty imply about the shape of indifference curves ? Does the utility function u(x,y) = x + y? satisfy these assumptions ? 29 arerter sie serctarar at araanstt a Sahar act at oni & at F sar Pteared 3 2? a sata wert ulxy) = x + y? Arai at dg wear & ? A consumer consumes two goods X and Y and her preferences are described by the utility function u(x,y) = jx + y. The consumer’s money income is M. Price of good X is p, and price of Y is p,. 4 7495 ue sri a age X sik Y at saat aur & sfx seat atta soaifier wea u(xy) = Jx + y; art aia &1 soins AB or M 81 eg Xat saa p, sie Y =o STAT p, e1 (i) Derive the inverse demand function for goods X and Y. 4 ag Xo Y & fee Amt oe Bat safer (ii) Graph the Engel curves for goods X and x. 2 ag Xsit Y & fem dre am eifec (b) Price and consumption of three goods in 2015 and 2017 are given as under : a [2017 | aois_| 2097 cj Me :7495 Calculate the Laspeyres quantity index and. show consumer is better off or worse of in 2017 as compared to 2015. = 2015 ait 2017 4 dtm aeget at atrdt sit saat at Penge far var @ : f CE EE eee Ee eed at [avis | 2017 [aos [a0i7| 10 15 100 110 5 20 50 80 15 10 150 120 (c) aaa & ae gavin st wT at sit feart fe sake 2017 4 2015 at gat F Feat a aca F1 Draw and explain the shape of indifference curves when (i) one of the two goods is a neutral good, (ii) one of the two goods is a bad and (iii) consumer has a satiation point. 2,2,1 serine a6 Gifee six aren aie aa (i) a aegeit FA up aes aeg B, (ii) at age Fa ow go aq @ ik (iii) HH | Ta we TF aftr fig &1 6 3. 7495 (a) If a consumer’s utility function is u(x,y) = x? + y? and his money income is 7400. has to spend on only two goods X and Y, the price of X is 720. Using diagrams : SP Sar sr SeAPaT HAT ulx,y) = x? + y? & ote sash Ak ora 400% & ot aaa AT age X sie Y a ae a 8, xX at ara 20% &1 artat a scart ara BT; (i) Find the optimal choice when price of Y (p,) is 725. great faact Gt wa Y st ara (p) 25% 21 2 (ii) Find the optimal choice when price of Y (p,) is 716. 2 gee fared Uist oa Y tt ta (p,) 16% 1 : (iii) Calculate substitution and income effects for the good Y when p, decreases from 25 to 16. 2 ag Y % fam sfreros sit ora sare at _ TH Bt FA p,, 25 A yeHx 16 St sit er ; 7 P.O;7495 (b) “As wage rates increase, supply of labor may (c 4. (a) increase or decrease. But, when ‘overtime’ wage rate increases, labor supply always increase”. Explain with suitable diagrams. 4 “moat at att # af S arr sr at oft are or ait a aad 21 aa ofattad art way a amet at A aha } arr ar fet H ate afe eet 81 ster fer } arr wrens | What is Hicksian compensated demand curve ? Why does the utility remain the same at every point of this compensated demand curve in contrast to ordinary demand curve ? 5 ferret ar afte Ait ae aor ® ? aren der am % faatt ge afagen dit am % ax fig Te Seif cH WAM Fit edt B ? Suppose that a consumer has the utility function u(c,, c,)=c, c,; where c, is consumption in period 1 and ¢c, is consumption in period 2. His income is 71,000 in period 1 and 71,200 in the period 2. He can borrow and lend at the market rate of interest. If the objective is to optimize utility by choice of consumption over time. 8 7495 AM wife fe ce soe } oe seaftcr "RIT ulc,, c,)=c,c, 8 Het c, erase 1 4 sort & six casa 2 F oo 21 saat ora wra-aaft 1 F 1,000% six ara-srafe 2 F 1,200% 81 ae ast St ATT at Ue Gere A aan & ohx sare F aa FI af staa wa } area Soren waters STANT wae (i) Determine whether the consumer would need to borrow or lend money if rate of interest is 20% and there is no inflation. 2 aft amt ax 20% & site garenia Aci & at Pata at fe sei st sae a a sax a at snagaact & a att (ii) How his choice of consumption over time will change when rate of interest increases to 40% and there is no inflation. 2 wat Sat at at 40% aH aS oh Ae AE aarehe set At B a ae S arr Saar at Saat aig HA sacri ? 9 P.T2O:7495 (iii) Calculate the substitution effect, ordinary income effect and endowment income effect of change in the rate of interest on c,. 4 co, amt at 4 oRada & vfeenct ae, MINT sry wa sit gewAe are ware at ToT BAST (b) An individual has three investment options X, Y and Z; (i) return from option X is of % 1,000 with certainty, (ii) return from option Y is %1,500 with the probability 1/3 and %600 with probability 2/3 and (iii) return from. option Z is 1,000 with the probability 1/4 and return of 1,000 with probability 3/4. Calculate the expected return of these investment options. 2 up aft & ura fae & dis fase x, Y ote Ze; () X fect & Racca F are 1,000 oma Ref fad &, (ii) faerea Y @ 1/3 nena B ae 1,500% ste 2/3 wean & ae 600% Ref at deraar ® six (iii) FaeT ZF 1/4 sifrepat H Art 1,000 % site 3/4 airenar & are 1,000% Ret at dara 1 gt Fraser freaeat at attra Ret at wert wt! 10 5. 7495 (c) Graphically explain any one method of managing risk other than insurance. 5 Peat oH vere & det S svar ster seert & Pett sft GH 7 St oer aie Section -B ams -_ (a) Let a production function be f(L,K) = (LV? + K’/?)? and Let F(L,K) = [f labour and K is ee [f (L,K)P. Here L is e {(L,K)= (LY? + K1/2)2 en ial =[f(K)P 81 set Lar & ate 2 \ Y (i) Does {(L,K) exhibit constant returns to scale, decreasing returns to scale or increasing returns to scale ? 2 bi {(L,K) SF} Ree gfemer tar ase oft ar tart & wea ofa water & ? (ii) Does F(L,K) exhibit constant returns to scale, decreasing returns to scale or increasing returns to scale ? 2 11 P.T.O.7495 =a F(L,K) aA & Rae ofewea, wr % asa ofreat a Vas | sea ofercet sate & ? (iii) What does this functional transformation teach you about the shape of isoquants and RTS (returns to scale) ? 2 qe wera vRadat sraat arses ast at orp oft RTS (Gay % sf ) HS at 4 ar Rear & ? | “(b) Let f(L,K) = K+L+2/(KL) , here L is labour and K is capital. afe £(L,K) = K+L+2 /(KL), 4et Ly 8 ot K ut &1 (i) Deriving the slope of isoquants test for the convexity /concavity of the curves. 3 WA-SNe aH BH SAM BH ala Het SU, Sater sadaca at iret ase (ii) Compute the cross partial derivatives and comment. 2 fe ses stapes At eT wt at feoreft aafsre 12 (c) (a) 7495 Let q = KL?-L* q > 0, where q is quantity of output, K = units of capital and L = units of labour. Sketch the AP, and MP, curves carefully noting, slope and convexity/ concavity. 4 aft q = KL?- 198; q > 0, sei q Sores AT Arr 8, K = ft st goed sik L = 3H at Raga Si Set SNC ae Ht Setaaca/ Aaa TAT at ear F tad et araarigde AP, six MP, ant & Ret aaa Let total cost be given by C = qw’/?v1/? (there qis output, wis price of labour and vis rental price of capital.); are aa art C = qw'?v'?? art a mt 81 (set q Sees at Arar 8, w 2q at atte cer v Ot & fea at arr 2); (i) Use Shephard’s Lemma to arrive at the contingent demand function for labour and capital with ‘w’ as wage rate and ‘’ as rental cost of capital. 2 sass Ta st ST He Bt aA six get & fee art at aaa w (asta ait ax) ote Sei at fea are vB arr aerate att wart Peat ks P.T.O.- 7495 (ii) Use these contingent demand functions to arrive at the production function, 4 BF eerie Hi ert a waht aA BT (b) Discuss the following properties of total cost Soares ert Panes function : 2,2 St ama ert tt Prafefaea fatercnsit st aet aii : (i) Total cost is non decreasing in output and input prices. Soret Fgh ote omer atat F afer Be arrest at at wet ect B) (ii) Total cost is concave in input prices. art bt ardt A ae arma adler 31 (c) Letq= (L+K)” ° (where q is quantity of output, K = units of capital and L = units of labour). af& gq = (L+K)'? (et q seem at art 2, Ke (i) Sotto gargat six L = sr at eaazeit 3) 1 Derive the input demand function (contingent) for labour. 2 a & fee arma APT ert ( afeasie) aiet alfere 1 14 (ii) 7495 Use the input demand (contingent) so derived to arrive at the total cost function. 3 area ora Hitt (afeasie) ar Soar Heer Bt ae ara tert Prefat BiisTe | 7. (a) Let demand function be q = ap®; where q is output and p is price of output. afe aft Gert q= ap’; Wet q Set at APT wa p serena arart BI (i) (ii) (iii) What is the economic interpretation of b ? Verify using the demand curve. 2 bat sufi area sar & ? APT ap aT saat axe Be ent Ht! When is MR positive and/or negative ? Relate this to’b’. 3 MR oa oars sieyar see B ? seat ba daft HT! Ifa firm is maximizing its profit, where will it produce ? Explain in terms of elasticity of demand. 3 af ap ot oot are at ofteat FT wa &, dae wet Sores HEH ? AT A ara & dest A area! 15 P.T,O:7495 (b) Let’ q=AK?/5L?/5; (where q is quantity of output, K = units of capital and L = units of labour). Derive the input demand function in terms of price of output (P), price of labour (w) and price of capital (v). t Y6 are AKL2/5; et q sae at at &, K = Soft ot gaat ait L = am af sargat 8)1 sere asa (p), aH At Aart (w) ot ei at arra-(v) & det A one at Ge aret afr 16 3000