General Economics (Paper I) 2016 Question Paper

other 6 Pages

Indian Statistical Service

General Economics

Contributed by

Mohanlal Sant

' ~ r\ - ^
-r:u 10
A-GSE-P-FDA
GENERAL ECONOMICS
Paper I
Time Allowed : Three Hours Maximum Marks : 200
INSTRUCTIONS
Please read each of the following instructions carefully
before attempting the questions :
There are FOURTEEN questions divided under THREE sections.
The ONLY question in Section A is compulsory.
In Section B, SIX out of SEVEN questions are to be attempted.
In Section C, FOUR out of SIX questions are to be attempted.
Candidates should attempt questions I parts as per the
instructions given in the Section.
The number of marks carried by a question /part is indicated
against it.
All parts and sub-parts of a question are to be attempted together
in the answer book.
Attempts of questions shall be counted in sequential order. Unless
struck off, attempt of a question shall be counted even if
attempted partly.
Any page or portion of the page left blank in the answer book
must be clearly struck off.
Candidates are required to write clear, legible and concise
answers and to adhere to word limits wherever indicated. Failure
to adhere to word limits may be penalized.
Answers must be written in ENGLISH only.
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SECTION A
(Compulsory Section)
Answer all of the following six parts in about 100 words
each : 5x6=30
1. (a) Define substitution effect. Separate income
effect from substitution effect for a fall in the
price of a Giffen type good using a suitable
diagram. 5
(b) Show that if the consumer is free from money
illusion, the demand function is homogeneous
of degree zero. 5
(c) Give the different views of equity and use
utility possibility frontier to show that
efficiency does not necessarily imply equity. 5
(d) State the assumptions of Classical Linear
Regression Model. Why are the regressors (X)
assumed to be non-stochastic in repeated
samples ? 5
(e) For the Cobb-Douglas production function
Q = ALaK^ (where symbols have usual
meaning), calculate the input elasticities of
output and also derive an expression for the
expansion path of the firm. 5
(f) Define level of significance. How is this level
decided for a given problem ? Can we take it as
2% or 6% ? Explain. 5
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[Contd.]
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Answer any six out of the following seven questions in about
200 words each : 15x6=90
2. Derive the demand functions from the utility function
U = f (qp q2, ... qn) subject to budget constraint
y = Pi^i + P2Q2 + + pn% ^ demand function
for a commodity i (i = 1, 2, ... n) is homogeneous of
degree zero in prices and income, then show that the
sum of own and cross price elasticities of demand for
the commodity equals its income elasticity of demand
with negative sign. 15
3. Show that, “If the second order condition is satisfied,
every point of tangency between an isoquant and an
isocost line is the solution of both a constrained
maximum and a constrained minimum.” 15
4. Distinguish between point estimation and interval
estimation of a population parameter. State the small
sample properties of a good estimator. 15
5. (a) Derive the long run supply function under
perfect competition when there are external
economies or external diseconomies. 7
(b) Consider an industry represented by two
competitive firms with the total cost functions
as follows :
= axq2 + bqxq
C2 = a2^l + bq2q
where qx + q2 = q and ax > 0, a2 > 0.
Derive the aggregate supply function of the
industry when there are (i) external economies
(b < 0), and (ii) external diseconomies (b > 0). 8
w SECTION B
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6. Consider a duopoly with product differentiation in
which the demand and cost functions are
q1 = 88 - 4pj + 2p2
C1 = lOqj
and q2 = 56 + 2px - 4p2
^2 = ®^2
for firms I & II respectively.
Derive the price reaction functions for each firm on the
assumption that each maximises its profits with
respect to its own price. Determine the equilibrium
values of price, quantity and profit for each firm. 15
7. “Pareto optimal allocation is contingent upon the
assumption that there are no external effects on
consumption and production.” Examine what happens
if there are external effects. 15
8. What is stationarity in a time series analysis ? Show
that a random work model is non-stationary. Discuss
the Dickey-Fuller test for stationarity. 15
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SECTION C
Answer any four of the following six questions in about
300 words each : 20x4=80
9. (a) Distinguish between a cooperative and
a non-cooperative game. 5
(b) In a non-cooperative game, find
(i) saddle point in a pure strategy game 5
(ii) maximum expected pay-off in a mixed
strategy game 5
(iii) solution of a sequential game in an
‘extensive form’ 5
10. (a) Define heteroscedasticity. 5
(b) Explain:
(i) Consequences of heteroscedasticity on
OLS estimates 5
(ii) Detection of heteroscedasticity in a model 5
(iii) Estimation procedure in the presence of
heteroscedasticity 5
11. Given the Classical Linear Regression model with
usual assumptions
Yi = Po + P l V Ui i = 2,... n
(a) Examine the goodness of fit of the model using
ANOVA. 10
— 2
(b) If the value of R is low, how can it be
improved ? 10
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12. Distinguish between basic feasible solution, feasible ^
solution and optimal solution of a Linear
Programming Problem (LPP). Solve the following LPP
graphically: 20
Maximize Y = qj + 2q2
subject to q1 + 3q2 < 18
qi + q2 < 8
2qx + q2 < 14
Ql> q2 ^ 0
13. Examine the situation of market-equilibrium when;
(a) supply and demand are not equal at a
non-negative price-quantity combination. 10
(b) supply and demand are equal at more than one
non-negative price-quantity combination. 10
14. How is distributional inequality of various kinds
measured with the help of income as a resource ?
Name some common inequality measures and state
their properties. 20
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