Problems from DSE Papers

[Chhavi Sharma]

I was not able to solve the following questions from Consumer Theory from the papers:
2004 OPTION A:Q. 14;  
2005 OPTION A:Q. 14, 15;
2007 OPTION A:Q. 37

[Amit Goyal]

Solutions are posted. If you still cannot get to the solution, i would like to see your work to tell you what is wrong with the approach.

[Sonakshi]

Can you tell me how to solve Q 14 of 2004?

[aastha]

@ sonakshi

q 14 : 2004   initial x=5 and y = 5/3... thus initial utility U=x.y=25/3.
                   after the removal of water subsidy , since the price of water rises to 2 and the consumer wants to achieve the same utility(hicksian) the new income should be : U=(m/2px)(m/2py) , , here px = 2 and py = 3
 therefore solving this we get m^2 = 200 ,
new income m= sq rt 200
change in income = sq rt 200 - original income (10)..which is equal to the lumpsum subsidy ...
 hence ans is d...

i hope it helped :)

[sonudelhi]

@ chhavi 2007,37

Let y1=w1,y2=w2

if she borrows now then c1>y1,then her consumption in second month is
        c2=y2-(1+r)(c1-y1)
if she saves now then c1<y1,in this case her consumption in second month is
        c2=y2+(1+r)(y1-c1)

whether she borrows or saves, second period consumption is given by
     c2=y2-(1+r)(c1-y1),.....now substitute this value of c2 in utility functiom
max U

dU/dc2=0.......FOC

c1*=y1+[(1+del)y2-(1+r)y1]/(2+del)(1+r)

she will borrow iff (1+del)y2-(1+r)y1>0


so ans is C




         

[ritu]

oh thanx sonu...even i was stuck on this:)

[aastha]

@sonu delhi


i guess there is a typing error on ur part .. q 37
max u

dU/dc1.. = 0 FOC instead of c2 .....

[sonudelhi]

yeah astha it is du/dc1=0   FOC

thanks