MEC

MASTER OF ARTS
(ECONOMICS)

ASSIGNMENTS 2009-10
For MEC First Year Courses
(For July 2009 and January 2010 Sessions)

School of Social Sciences

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 Indira Gandhi National Open University
Maidan Garhi, New Delhi-110 068
Dear Student,

For the first year of the MA (Economics) programme there are five compulsory courses. You
will have to do one Tutor Marked Assignment (TMA) for each course. The assignment is
compulsory for successfully completing a course. The assignment for a course covers all the
units of the concerned course.
It is important that you write the answers to all the assignment questions in your own words.
Your answers should be in the range of word-limit set for a particular question. In the case of
numerical questions word limits do not apply.

Submission: For July 2009 session you need to submit the completed assignment to the
Coordinator of your Study Centre by March 31, 2010 and for January 2010 session by
September 30, 2010 for being eligible to appear in the term end examination. If possible,
keep a photocopy of the assignments with you. The Study Centre will have to return the
assignments to you after they are evaluated.

GUIDELINES FOR DOING ASSIGNMENTS

Before attempting the assignments please read the detailed instructions provided in the
Programme Guide sent to you separately.
You will find it useful to keep the following points in mind while writing the assignments:
a) Planning: Read the assignments carefully, go through the Units on which they are
based. Make some points regarding each question and then rearrange them in a logical
order.
b) Organisation: Be a little selective and analytic before drawing up a rough outline of
your answer. In an essay-type question, give adequate attention to your introduction
and conclusion. The introduction must offer your brief interpretation of the question
and how you propose to develop it. The conclusion must summarise your response to
the question.
Make sure that your answer:
 is logical and coherent;
 has clear connections between sentences and paragraphs, and
 is written correctly giving adequate consideration to your expression, style and
presentation.

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 MEC-001: MICRO ECONOMIC THEORY
Assignment (TMA)

Course Code: MEC-001

Assignment Code: MEC-001/AST/2009-10
Maximum Marks: 100

Note: Answer all the questions. While questions in Section A carry 20 marks each,
those of Section B carry 12 marks each.

Section A

1. (a) Discuss the significance of the concept of conjectural variation in Cournot, Bertrand
and Stackelberg Models of duopoly markets.

(b) If the demand function is given by P = 100 – 0.5(q 1 + q 2) and the cost functions of the
two firms are C1 = 5q1 and C2 = 0.5q22 respectively then find the equilibrium quantity
and price charged by the firms if (a) firm 1 is the leader; (b) firm 2 is the leader.

2. (a) State and prove Walras’ Law.

i i
(b) An economy has two persons (1 and 2). They consume two goods x1 and x2 where i
denotes commodity consumed. The initial endowments of these consumers are given
i i
as w1 and w2 , and they have identical preference. Compute the equilibrium of the
consumers from
( ) (x )
0.6 0.4
Max x1i i
2

Subject to P1 x1 + P2 x2 = Pw
1 1 + P2 w2 where endowments of the agents are given as,
i i i i

Agent 1: w1 = 7, w2 = 5
1 1

Agent 2: w1 = 3, w2 = 7
2 2

�5�
(Ans. Hint: P = �
1, �;
�9�
{ ( x , x ) , ( x , x ) } = { ( 5.87, 7.04 ) , ( 4.13, 4.96 ) }
1
1
1
2
2
1
2
2

Section B

3. (a) What do you mean by mixed strategy in game theory solutions? Take an example and
show the steps you would like to follow to derive a mixed strategy solution of a game.

(b) Find the mixed strategy solution to the following game:

Two good friends, Dolly and John, who like movie and cricket respectively are planning to
spend an afternoon together. The payoff matrix constructed on the basis of their response to a
particular plan is summarized below:

Dolly’s action

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 Movie Cricket
John’s Movie (2, 3) (0, 0)
action Cricket (1, 2) (3, 1)

[Ans. Hint: Get two Pure-strategy NE[(M, M), (C,C)] and the mixed strategy
��1 3 ��3 1 � �
NE �� , �� , , � �with John playing movie with probability 0.25 and Dolly
��4 4 ��4 4 � �
playing cricket with probability 0.75]

4. What do you mean by social welfare function? Explain different approaches to it.

5. Suppose there are two goods and consumption in year one is C1 and consumption in year
two is C2. Endowments in the two years are given as m 1 = 100 and m2 = 100. If the
( )
interest rate is r = 10% and the utility function is U ( C1 , C2 ) = C1 , C2 , determine
0.75 0.25

how much the consumer plans to spend in each year and how much she borrows or lends
in the first year.
(Ans.: Borrows Rs. 43.18)

6.(a) What do you mean by asymmetric information? How lemon’s problem is associated
with it? Discuss the major insight gained through this problem.

(b) What do you mean by incentive compatibility and participation constraints that are
associated with a market with asymmetric information?

7. Answer the following as directed:

a) State the meaning of compensated demand curve. When can it take positive
slope?

b) Write a translog cost function and show the condition in which it will be
homogenous of degree 1.

c) Discuss the meaning of Envelope Theorem relating it to Hotelling Lemma.

d) Consider an indirect utility function g = a – v12v2. Derive the demand functions

for good I and good II and thus derive the direct utility function.

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 MEC-002: MACROECONOMIC ANALYSIS
Tutor Marked Assignment

Course Code: MEC-002

Assignment Code: MEC-002/AST/2009-10
Maximum Marks: 100

Note: Answer all the questions. While questions in Section A carry 20 marks each (to
be answered in about 500 words each) those in Section B carry 12 marks each (to be
answered in about 300 words each). In the case of numerical questions word limits do
not apply.

Section A
1. Explain the condition under which a steady state is realized in the Solow model.
When does an economy reach a golden rule steady state?
2. In the long run there is no trade off between inflation and unemployment. Substantiate
with appropriate theory.

Section B
3. In practice it is observed that producers do not change nominal prices even when money
supply increases. How do the New Keynesian and New Classical economists explain such
nominal rigidities?
4. Empirical studies based on cross sectional data show that average propensity to consume
(APC) is greater than marginal propensity to consume (MPC). On the other hand time
series data shows that APC = MPC. How does the permanent income hypothesis
reconcile this puzzle?
5. Under flexible exchange rate how does the economy maintain internal and external
balances? Explain through IS-LM curves.
6. Explain the role of money in the overlapping generations model.
7. Write short notes on
a) Search theory of unemployment
b) Real business cycle

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 MEC-003: QUANTITATIVE METHODS
Assignment (TMA)

Course Code: MEC-003

Asst. Code: MEC-003/TMA/2009-10
Total Marks:100

Note: Answer all the questions. While questions in Section A carry 20 marks each,
those of Section B carry 12 marks each.

Section A

1. (i) When would you like to convert a primal problem into its dual format?
Discuss steps you will follow in completing the task.

(ii) Solve the following maximization problem:

maximise 10 x1 + 10 x2 + 20 x3 + 20 x4

subject to
12 x1 + 8 x2 + 6 x3 + 4 x4 �210
3 x1 + 6 x2 + 12 x3 + 24 x4 �210
x1 , x2 , x3 , x4 �0

Ans.: [ x ] = [ 1 0 0 1 5 0]

2. (i) Discuss the importance of Hawkins-Simon conditions in input-output analysis.

�1 -0.5 0 �
� �
(ii) A three sector input-output matrix [I-A] is given as: �-0.2 1 -0.5�
�
�-0.4 0 1 �
�

with labor coefficients (per unit of output) as 0.4, 0.7, 1.2, if the household demand
for the outputs of the 3 sectors is 1000, 5000 and 4000, determine the level of output
and employment. If the wage rate is Rs. 10 per labor day, find the equilibrium prices.

Section B

3. (i) The following table gives the number of aircraft accidents that occur during the
various days of the week. Find whether the accidents are uniformly distributed over
the week.

Days: Sun Mon Tue Wed Thurs Fri Sat

No. of Accidents 14 16 8 12 11 9 14

(Given: The value of c 2 significant at 5, 6, 7 df are respectively 11.07, 12.59, 14.07 at

the 5% level of significance)

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 (ii) What is the difference between probability mass function and probability density
function? What are the properties that p.d.f. or p.m.f. must satisfy?

4. i) When would you like to make use of a Poisson distribution? Give reasons in
support of your answer.
ii) List the characteristics of a good estimator. If x 1, x2, … , xn is a random
1 n 2
sample from a normal population N (μ, 1) , then show that x = �x i , is an
n i=1
2
unbiased estimator of μ + 1.

5. i) Discuss the features of c 2 , t and f distributions.

ii) The weights (in lb.) of 10 boys before they are subjected to a change of diet
and after a lapse of six months are recorded below:

Before: 109, 112, 98, 114, 102, 97, 88, 101, 89, and 91.
After: 115, 120, 99, 117, 105, 98, 91, 99, 93, and 89.

Test whether there has been any significant gain in weight as a result of the
change in diet. Justify the level of significance you have chosen for the test.

6. In a certain industrial experiment, a job was performed by 15 workmen according to a

particular method (say, Method I) and by 15 other workmen according to a second
method (Method II). The time (in minutes) taken by each workman to complete the
job is shown below:

Method I: 55, 53, 57, 55, 52, 51, 54, 54, 53, 56, 50, 54, 52, 56, 51.
Method II: 54, 53, 56, 60, 58, 55, 56, 54, 58, 57, 55, 54, 59, 52, 54.

Test if there was difference of time taken between these two methods. Justify the test
statistic you have used.

7. Answer the following as directed:

a) i) What is a Monotone Function?

ii) Use Lagrange multiplier method to find the stationary value of z if

z = x - 3 y - xy subject to x + y = 6 .

Ans: z = -19 stationary value is attained when l = -4; x = 1 and

y =5

iii) If the equation F ( x, y, z ) = 0 implicitly defines each of the three

variables as a function of other two variables, and if all the derivatives
�z� x� y
in question exist, find the value of
�x� y� z
Ans: The product of partial derivatives is equal to –1.

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(b) i) Write the Jacobian determinant if you are given the equations:
y1 = 2 x1 + 3 x2 and
y2 = 4 x12 + 12 x1 x2 + 9 x2 2

ii) Find the extreme value(s) of z = x 2 - 2 x - y 2 and determine

whether they are maximum or, minimum.

Ans: minimum value of z at x =1 and y = 0

dy
(c) i) Solve the equation - 5 y = -25 with y(0) = 6
dx
ii) Find the limits of the function
1 + x2
lim
z �� 1 + x 3

Ans: 0

1- x
(d) i) From the function f ( x ) = , find the Taylor series
1+ x
with n= 4 and x0 = -2

Ans: -63 - 98 x - 62 x - 18 x - 2 x + R4
2 3 4

ii) Given that z = x - 3 y - xy subject to x + y = 6 , use the bordered

Hessian determinant to find the minimum value of z.

Ans: H = -2

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 MEC-004: ECONOMICS OF GROWTH AND DEVELOPMENT
Assignment (TMA)

Course Code: MEC-004

Asst. Code: MEC-004 / AST/2009-2010
Maximum Marks: 100

Note: Answer all the questions. While questions in Section A carry 20 marks each (to
be answered in about 500 words each) those in Section B carry 12 marks each (to be
answered in about 300 words each). In the case of numerical questions word limits do
not apply.

Section A

1. Examine the effect of population growth in the Solow model of economic growth.
Discuss how the Solow model could be used to explain poverty traps in developing
nations.
2. Discuss Joan Robinson's model of economic growth and capital accumulation,
carefully stating the assumptions. Explain the concept of 'Golden Age' in Robinson's
model. Bring out some criticisms of the model.

Section B

3. Describe the Mankiw-Romer-Weil extension to the neoclassical model to include

human capital. Explain why diminishing returns to capital do not take place in the
AK model.

4. What are the main propositions of the Real Business Cycle model? Describe the basic
structure of a prototype Real Business Cycle model.

5. State the headcount ratio, the poverty gap ratio, the Sen Index and the Foster-Greer-
Thorbecke measures of poverty. Also, state Kuznets's hypothesis regarding the
relationship between economic growth and inequality.

6. What are the implications of globalisation for developing nations? What are the
possible pitfalls of globalisation?

7. State the basic assumptions of two-sector growth models. Compare and contrast the
Uzawa two-sector growth model with the Feldman model.

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 MEC-005: INDIAN ECONOMIC POLICY
Assignment (TMA)

Course Code: MEC-005

Assignment Code: MEC-005/AST/2009-10
Maximum Marks: 100

Note: Answer all the questions. While questions in Section A carry 20 marks each (to be
answered in about 500 words each) those in Section B carry 12 marks each (to be
answered in about 300 words each). In the case of numerical questions word limit do
not apply.

Section A

1. How are the inequalities of income measured in an economy? Examine the levels of
inequality in India. Explain the policy implications of the prevailing levels of
inequality in India.

2. Critically examine the effects of economic reforms on employment and poverty

reduction in post reform period. Identify the steps that have been initiated in 10th and
11th Five Year Plan in this regard.

Section B

3. Examine the emerging changes in the cropping pattern of Indian agriculture over time
and over region.

4. Do you think that protection of small scale industries is still justified? Give reasons in
support of your answer.

5. In the wake of economic reforms, assess the performance of various constituents of

infrastructure in India.

6. How is the World Trade Organisation (WTO) different from GATT? Critically
explain how has India benefited from the membership of the WTO?

7. Explain any three of the following.

i) Fiscal position of State Governments
ii) Government policy towards foreign capital
iii) Changes in the structure of India’s foreign trade since July 1991
iv) The impact of SEBI on the functioning of capital market in India
v) Delivery mechanism at local levels
vi) The roots and processes of Black Economy