isi 2012 ME II

[anon_econ]

http://economicsentrance.weebly.com/uploads/1/1/0/5/1105777/msqesq2012.pdf
Somebody plzz help me with part (b) of question 13. it's a little difficult to type it here so i've just posted the link. sorry about that!

[ritu]

hi vasudha....some days back u asked abt question 15.....i m nt sure if its correct....but do tell me hw u feel abt it...
plotting the given values  we get one variable production functions for both food and manufacturing....then for labor to get settled nd  to deprive them off the incentive to shift btwn the food and manufacturing sector,there wages should be equalised(which wud be = value of their marginal products)using....
1.  Wf=Wm  &
2. Lm+Lf=100


i got Lf=57.6 & Lm=42.35.....its strange that i got decimal values....so we can round them off nd finally get......
Lm=42,Lf=58.....


i did not take into account the land and capital costs coz we were not given info abt their hiring prices....nd its given that they are fully employed....pls tell me....is it the wrong way to solve it??

[anon_econ]

hi ritu. thanks for ur reply. i had done the same thing for this part but i'm not getting part (b) at all. in fact after reading part (b) i started having doubts about part (a) too..i dunno :(
and the same question was there in 2011 too, with an additional part- 'suggest a measure for welfare for the economy as a whole' :S :S

[ritu]

 16th question..since Ct=0.5 Yt-1 ...this means that saving function is S=Yt-Ct

ie...S=Yt-0.5Yt-1
given that Y0=100,C0==S0=I0=50

time period 1:
this means that C1=0.5*100=50
since loan is taken up for investment in this year Invstmt in year 1=50+100=150
now Y1=C1+I1=50+150=200
savings    S1=200-0.5*100=150+50=200(previous year's saving of 50 is also added)

time period 2:
C2=0.5 * 200=100
I2=50(no loan this time)
Y2=C2+I2=150
S2=150-0.5*200=50
total Saving for year 2=100+50=150(loan of 100 is deducted from total saving in beginning of year so only 100 is carried forward from previous year)...


i couldnt find equilibrium values....@amit goyal sir and vasudha......do tell me if this is right or wrong approach??

[ritu]

i think in 3rd period there will be equlibrium....coz invest ment in that year  = saving added in tnat year=50
C3=75 and Y3=125???????how u did it vasudha??????

[anon_econ]

how r u calculating savings? i mean how come u r adding last year's savings? aren't savings simply the part of current income which is not consumed?

[duck]

Hi Vasudha.. :)

for q13(b): It is a pareto optimal allocation because if you move away to any other allocation (it could be done only by changing lamba), then one person will be better off and other worse off.

Or you can think of this question as a two goods, two agents economy having cobb douglas utility function.

[anon_econ]

I don't understand y it can be done only by changing lamda..i mean say u n i r the 2 people and right now i have 1/3 of each good and u hv 2/3. now if instead i am given 1/5 of one good and 1/2 of the other (more of one, less of the other), and u get 4/5 of one and 1/2 of the other, how do i know this won't be a pareto improvement??
plzz reply duck..thanks a lot

[ritu]

oh m sry.....savings each year wud have been used in financing the investments only....right??so there is no need to add them from previous years....
are rest of the figures correct?????

[anon_econ]

well then the economy seems to be in equilibrium in year 1 itself, isnt it?

[ritu]

i think it a case of an economy thats continuously in equlibrium....becoz as u can see savings nd investment are equal in all periods!!!!!!

[anon_econ]

Hmm..i'm getting the same thing but i have serious doubts about it. Anyway thanks ritu :)

[duck]

Hi Vasudha.. :)

this is because agents are consuming some proportion(lamda) of the total endownment and you cannot change the total endownment, you can only change lamda.. :)

[anon_econ]

i'm not changing the total endowment..i'm just saying that instead of consuming lamda times the 1st good's endowment+lamda times the 2nd good's endowment, i consume lamda1 times the 1st endowment+lamda2 times the 2nd endowment, where lamda1 is different from lamda 2

[duck]

So, the only way to move away to any other allocation is to change the lamba.. :)

[anon_econ]

arre duck plz read the numerical example that i had given earlier n tell me usmein kya galat hai??

[duck]

Hi Vasudha.. :)

Suppose 2 goods and 2 agents economy:
Its given in the question:
If Agent 1's consumption: {lamda*w1 , lamba*w2}
Agent 2's consumption: {(1-lamda)*w1 , {1-lamda)*w2 }
Then, is it pareto otpimal?

Yes, because if you move away from this allocation by changing lamda then, one person is better off and other is worse off.

Your example doesnot work here.
You cannot give 1/2 of one good and 1/5 of the other. The proportion needs to be the same.

[anon_econ]

Yea the proportion is the same in the INITIAL allocation. Any alternate allocation in which the proportion is still the same can of course not increase somebody's utility w/o decreasing any1 else's, but there can be an alternate allocation in which the proportion is not the same. Y r u taking the set of possible ALTERNATE allocations to be only the ones in which the proportion is the same??
In other words, i'm saying: can somebody be made better off w/o making any1 worse off? possibly yes, if in the new allocation nobody is consuming the same proportion of each good .

[duck]

Ok let me try once more.. :)
Its given:
Agent 1's consumption: {lamda*w1 , lamba*w2}
Therefore, Uitlity of Agent 1 = (lamda)^2 *w1*w2
Set of points which are better for him can be obtained by increasing lamda.

Agent 2's consumption: {(1-lamda)*w1 , {1-lamda)*w2 }
Therefore, Uitlity of Agent 2 = (1-lamda)^2 *w1*w2
Set of points which are better for him can be obtained by decreasing lamda.

Therefore, no allocation can be reached where both are better or one is strictly better off while other is atleast as well off.
Hence, PE allocation.

Other way>
Find out the PE points of this economy by equating MRS of both individuals and you'll see that the given allocation in the question is PE.

[ritu]

if x<y+e where for all e>0,then
a.x>y
b.x<=y
c.x>0>y
d.x<0<y

i think all three relations are possible...x>y,x<y nd x=y given the fact that e can be any positive real numbr...so i think it shud be d????is it right????

2.suppose the difference btwn transactions velocity and the income velocity of circulation of money in an economy is 5 and the money value of total transactions is 6 times the money value of aggregate income..if the quantity of money in circulation is 1000 currency units,then the money value of aggregate income in currency units is??
a.1000
b.1200
c.1500
d.1800


3.find value added....final good is a utensil worth rs 100 which has been made using steel worth rs 50,wages paid are rs 10,other material purchased is for rs 10 nd depriciation is 0...???