Mphil JNU 2014 CESP Paper Discussion

[Ayushya Kaul]

Hi, I just attempted the 2014 paper.
Had a couple of doubts so I'll just open it up to discussion.

ECONOMICS_STUDIES_AND_PLANNING_FIELD_OF_STUDY_CODE_-ECOP(136).pdf

Question 4) Which of the following assumptions ensures that indifference curves drawn over two normal goods never cross?

1) Decreasing MU from higher consumption of each good
2) Positive MU from higher consumption of either good
3) Non-zero substitution possibilities between the two goods
4) Negative cross-price elasticity across the two goods

[Ayushya Kaul]

12) There are two countries- India and England; two goods- tea and textile; and one input- labour. While textile can be produced by both India and England, tea can only be grown in India. If the labour coefficient in the production of textile is lower for England than for India, what can be said about their comparative advantage?

a) India has comparative advantage in tea
b) India has an absolute advantage in textile
c) England has comparative advantage in textile
d) The comparative advantage cannot be inferred

[Ayushya Kaul]

20. Consider commodity X produced using material inputs Y and Z. When calculated in terms of import prices at India's border, the ratio of the cost of Y and Z required to produce one unit of X amounts to 0.6 price of X. On the other hand, if using the same technology, X is produced with materials produced domestically, the cost of Y and Z required to produce a unit of X is 0.5 of the price of X. If the price of X at the border is Rs. 100 and when domestically produced is Rs. 120, what is the effective rate of protection associated with X?

a) 10 %
b) 25 %
c) 50 %
d) 75 %

[Mauli]

for the 12th question shouldn't it be c).? i am not sure but i am stuck up between c and d.

[Ayushya Kaul]

But comparative advantage presumes at least production of 2 different commodities but England can only produce one.
So making deductions about comparative advantage shouldn't be possible in my opinion. Hence I'm inclined towards d).

[Mauli]

Yes , you are right it should be (d). It qualifies as an "absolute advantage"  good.

[Mauli]

For the 4th question it should be b.

[Mauli]

What is your answer for 7th question?
I am getting d. coz investment is negatively related with the increase in fixed capital.

[Ayushya Kaul]

How can question 4 be b) ?

Positive marginal utility for a good is contradictory the whole assumption of Indifference curve analysis!

[Ayushya Kaul]

The answer to 7 is a) according to Kalecki's theory of investment.
The optimum investment (k*) is finite because f'(k) falls when k exceeds a certain value.

Here, f'(k) is the Marginal Efficiency of Investment.

[Mauli]

For q 4 it would follow by transitivity.
If you draw a figure in which the indifference curves cross. Say the point of intersection of the two ICs is C .
A is a point on IC' and B is a point on IC".

The consumer would be indifferent between A and C and between C and B. So by transitivity he would be indifferent between A and B. But one of the points either A or B would have more of both goods , so positive MU would imply that he prefers that point to the other.

[Ayushya Kaul]

Well that definitely makes more sense. Thanks for helping me out on that one :) 
Any idea about the others?

On Wed, May 11, 2016 at 11:43 AM, Mauli [via Discussion forum] <[hidden email]> wrote:

For q 4 it would follow by transitivity.
If you draw a figure in which the indifference curves cross. Say the point of intersection of the two ICs is C .
A is a point on IC' and B is a point on IC".

The consumer would be indifferent between A and C and between C and B. So by transitivity he would be indifferent between A and B. But one of the points either A or B would have more of both goods , so positive MU would imply that he prefers that point to the other.

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