Madras School of Economics (MSE)
Chennai, Tamil Nadu
//
~mentl 'y
Subject: Microeconomics I
For Batch: AE, EE, AQF 2024-26 (Seme.5ter 1)
Date: 24.09.2024 Total marks: 20 Time: Ihour 30mins
Questions
Section A: Answer any two questions (2x5marks)
1. What are the properties of Dph(p, u)? Also, interpret them.
2. Explain the importance of Kuhn-Tucker conditions. State the Kuhn-tucker conditions
r maximization.
onsider the utility function U= x 0•7 y 0•3, and solve for the optimum values of x, y.
lso, find the marginal utility of wealth, indirect utility function and the expenditure
function. - -p
Consider the expenditure function of the consumer: e(p, ~) = Px 2 py 2 u. Find the
fl following: (i) Find the Hicksian demand functions; (ii) Find the Indirect utility function;
(iii) Find the Walrasian demand functions.
Section B: Answer all the questions (1 x 10 marks)
Answer true or false and Justify your answer.
5. Slutsky compensated law of demand is superior than Hicksian law of demand.
6. Continuity is a necessary and sufficient axiom for rational preferences.
7. Consumer preferences can be derived from a single indifference set.
8. Kuhn-Tucker conditions are necessary and sufficient 1st order conditions for constraint
optimization.
9. The expenditure function is convex in prices.
Fill in the spaces.
10. _ _ _ _ _ confinns diminishing marginal rate of substitution.
11. The expenditure function is homogenous of degree _ _ _ _ ___, and the indirect
utility function is homogeneous of degree _ _ _ __
12. Locally Non-Satiated Preferences eliminates ______
13. If the price of good I increases (good I being a normal good), the hicksian demand
curve will - - - - - -
14. Utility functions derived from Leontief preferences implies _______
<All the Best>
Madras School of Economics (MSE)
Chennai, Tamil Nadu
Assessment. 2
Subject: Microeconomics I
For Batch: AE, EE, AQF 2024-26 (Semester l)
Date: 14.11.2024 Total marks: IO Time: 45mins
Questions
Note: Answer only three questions from Section 1 and one question from Section 2 and answer the
whole question ofyour choice.
Section 1 (3x2 marks)
1. State the optimal conditions for Cost minimization problem (interior and boundary
solutions). 'Cost Minimization Problem is !he necessary and sufficient condition for
Profit Maximization Problem' Justify.
2. When is a production vector y E Y efficient?
]· How convex produ~tion sets and non-convex production sets differ from each other?
Show the production possibilities when the firm has sunk cost.
•k Derive the 'Law of Supply' from Axiom of Revealed Preference.
-
5. How is SARP diffort:ni. frum \VARP?
Section 2 (4 marks)
6. Derive the Equivalent Variation and Compensating variation for a normal good. When
does Marshallian Consumer Surplus (measured by area vari~tion) becomes close to
compensating variation?
or
"-''-U'l"l'Uer a firm in the short-run has the supply function:
q = 2L½ ; where, L = labor input, p = price of output, w == wage
Use the Hotelling's Lemma to find the indirect supply function q(p,w) and
conditional labor demand.
-(ii). How is Shepar~'s Lemma different fron~ Hotelling's Lemma?
----------------------------------A 11 the best--------------------------------
Af.) '°vt-Uf DJ2=>
\
MADRAS SCHOOL OF ECONOMICS
POST GRADUATE PROGRAMMES IN
ACTUARIAL ECONOMICS / APPLIED QUANTITATIVE FINANCE I
ENVIRONMENTAL ECONOMICS/ FINANCIAL ECONOMICS/ GENERAL ECONOMICS
[2024-26]
SEMESTER ONE [AUGUST- DECEMBER, 2024]
REGULAR END TERM EXAMINATION, DECEMBER 2024
Course Name MICROECONOMICS I Course Code AE0I/EE0I/OF0I
Duration: 2 Hours Maximum Marks: 60
Part - A (IO x I = IO Marks)
Answer ALL Questions
State whether the statements are true or false. Justify your answer.
(D Ifwe have,~;;:: y and x;;:: z, then we can say y;;::z, according to the weak axiom of
revealed preference. -
2,. Cost Minimization Problem and Expenditure Minimization Problem are similar.
3. At competitive equilibrium p* 1
E (Minimarginal cost (0),Maximarginal utility[(O))
4. Pareto optimal conditions are parallel to the competitive equilibrium conditions.
5. Indifference curves inside a simplex are non-parallel and straight lines.
(9 Giffen goods has negative own substitution effects.
7., Sunk cost and set-up cost are the same.
(!) Pareto optimality guarantee equitable allocation.
9. Reduced lotteries are simple lotteries.
I0. At competitive equilibrium, the economic allocation and price are independent of the
distribution of endowments and ownerships shares.
P.T.O
w~ .yC!-\~'l---
c1'}
Part- B (5 x 10 = 50 Marks)
c~-
Answer Any Five Questions
@ i ) . Consider the firm has the following production function with two inputs (z,, z,) > 0
II
,
r and single output q :
f(z,.z,) = ~2:!.•-5 + 2:1, 0•5/ .
Given, that input prices are normalized at I. Find the optimal output, optimal inputs and
I
market price (Q) of the firm. t,
,.,;;f:, .,., -1- ~ ,,) 5.r--1?
l ~ons ider the following e_:penditure function !n (xv x2) E ~~ :
~ e(p u) = Pi74pl/4u '-';.v~
I
J
(a)
(b)
'
Find the Hicksian demand functions.
1 2
L-)
~~c.-e.,,~
Find the indirect utility function, and verify Roy's ickntity.
(5+5 Marks)
Ai~(i). Using Cobb-douglas utility function for two commodity bundle (xi, x ) E
I -
\./
2 ~t
f (xi, x 2) = xf xf, where o.+p= l; can you show that Utility Maximization Problem (UMP)
is the dual of Expenditure Minimization Problem (EMP).
_{ii). 'The Slutsky equation is also known as the fundamental equation ofconsumer theory.'
Justify it with the help of both normal and inferior goods.
(3+7 Marks)
'!ith increasing returns to scats, there is no solution to the PMP' Explain.
You have been given the following partial information about a consumer's
I
)
The consumer consµr:ies only 2 goods in a peripd of 2 years. ( I
~ \ \ I
Year l Year 2
r
/'.
' ' ' . , ·,
I Good l 50 50 60 1 50
f
I Good 2 50 50 y 40
-
With the help of WARP, find the range ofy 1 where you can say that the behaviour of the
consumer is inconsistent.
(5+5 Marks)
2
---------
14. (i). Why is assuming quasilinear preferences important for Partial Equilibrium Analysis?
State the assumptions and conditions for equilibrium considering two-good quasi-linear
model.
(ii). Consider an imposition of a new consumer tax by the government of the amount t?O
~
for each unit of good I consumed. What will be the effect of prices paid by the consumers
and received by the producers of a marginal increase in the tax?
(iii). Explain the two fundamental theorems in the partial equilibrium context.
(4+4+2 Marks)
15. (i). What are the impact of a tax imposed on the demand side (comparative statics) on the
short-run competitive equilibrium as compared to its impact on the long-run competitive
equilibrium? Explain with diagram.
&onsider you are playing a bet with your friend where you have equal probability of
winning and losing. If you win, you will get tl00, and if you lose you will have to give
t90 to your friend. Will you play the bet? Give reasons. If it's not a fair bet, how do you
suggest to correct it?
(7+3 Marks)
~ i ) . Consider a decision-maker•, concave utility function is given as:
u(c) = {c, where, c~0 represents her wealth
Her initial wealth is t400 and, she has a game of tossing a coin with equal probability of
winning n2s and losing t300. Find and plot with the help of a diagram, the following
(a) expected utility from the lottery.
(b) certainty equivalent amount of wealth.
(c) amount of wealth in excess at which he is indifferent with playing the bet.
(d) coefficient of absolute risk aversion and coefficient of relative risk aversion
(no need to plot)
(ii). Explain briefly the two axioms for satisfying the preference over lotteries.
(8+2 Marks)
e,2V Write short notes on any four topics:
(i) Free entry
(ii) Lexicographic preferences
P.T.O
3
I
