(IGNOU) MEC 101 Important Questions with Answers English Medium- MEC 101, or Microeconomic Analysis, is a core course in the Master of Arts (Economics) program offered by Indira Gandhi National Open University (IGNOU). It focuses on the behavior of individual economic agents, such as consumers and firms, and how their decisions interact to determine prices, quantities, and resource allocation in an economy.
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Course Structure
- Block 1: Consumer Behaviour: This block focuses on individual decision-making, including utility theory, demand theory, consumer equilibrium, and market failure.
- Block 2: Producer Behaviour: This block delves into firm-level decision-making, covering production theory, cost analysis, market structures (perfect competition, monopoly, oligopoly, etc.), and pricing strategies.
- Block 3: Price and Output Determination: This block explores how equilibrium prices and quantities are determined in different market structures, including supply and demand analysis, comparative statics, and market efficiency.
- Block 4: General Equilibrium: This block introduces the concept of general equilibrium, where all markets simultaneously clear and prices are mutually consistent across the entire economy.
- Block 5: Welfare Economics: This block examines the efficiency and equity implications of market outcomes, focusing on welfare theorems, social justice, and policy interventions.
- Block 6: Economics of Uncertainty: This block explores decision-making under uncertainty, including risk aversion, expected utility theory, and game theory.
- Block 7 & 8: Non-Cooperative Game Theory: These blocks delve deeper into game theory, analyzing strategic interactions between individuals and firms in various scenarios, including Nash equilibrium, prisoner’s dilemma, and other strategic games.
1. What are the assumptions of cardinal utility theory?
(IGNOU) MEC 101 Important Questions with Answers English Medium- Cardinal utility theory is an economic theory that suggests that utility, or satisfaction, derived from consuming goods and services can be measured and expressed numerically. While this theory has been influential in the history of economic thought, it has certain assumptions that are important to understand. Keep in mind that these assumptions may be debated or challenged by different economists, and alternative theories, such as ordinal utility theory, have been proposed as well.
- Measurability of Utility: The cardinal utility theory assumes that utility can be measured and expressed in cardinal numbers, allowing for comparisons of the level of satisfaction between individuals and across different goods and services. MEC 101 Important Questions with Answers
- Interpersonal Comparisons: Cardinal utility theory assumes that utility can be compared between different individuals. This implies that one can say, for example, that person A receives twice as much utility from consuming a good as person B.
- Consistency in Preferences: The theory assumes that an individual’s preferences are consistent and can be ranked in a clear and stable order. This means that if an individual prefers bundle X to bundle Y and Y to Z, then they must also prefer X to Z. (IGNOU) MEC 101 Important Questions with Answers English Medium
- Utility Maximization: Individuals are assumed to make consumption choices in a way that maximizes their total utility, given their budget constraints. This assumes rational decision-making by individuals.
- Cardinal Measurement of Marginal Utility: Cardinal utility theory suggests that the marginal utility of a good or service can be measured and that individuals make decisions based on comparing marginal utilities and prices.
These assumptions have been subject to criticism and debate within the field of economics. One of the main critiques led to the development of ordinal utility theory, which abandons the idea of measuring utility in cardinal numbers and instead focuses on the ordinal ranking of preferences. In ordinal utility theory, it is recognized that while individuals can rank their preferences, assigning specific numerical values to utility is unnecessary and may be problematic.
2. Consider the utility function U (x) = log (x), let px = 2 and ~ 5. Derive the consumer equilibrium and check the second order condition
3. Defme indifference curve in one sentence. What are measured in the axes of the figure to draw an indifference curve?
4. What do you mean by ‘consumer equilibrium ? State the conditions which are necessarily to be satisfied for consumer’s equilibrium.
5. In the general equilibrium setting, what is the relation between the prices of goods and the prices of factors ?
6. What do you mean by social welfare function ? Critically evaluate the compensation criteria.
7. What do you understand by the term ‘Market failure’ ? Explain with illustration how does imperfect competition result in market failure.
8. Given a quasi-linear utility function U = 2 JE + y, calculate the slope of the curve for such a function
9. Under which market form, does selling cost form a considerable feature ? Explain with the help of a diagram the process of attaining equilibrium in the presence of selling cost.
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10. What is an income compensated demand curve ? How does it differ from the ordinary demand curve ?
11. Explain the two fundamental welfare theorems.
12. Explain whether the individual ordering of social states can be made according to Arrow’s impossibility theorem
13. Explain the vNM expected utility theory.
14. What do you mean by market failure ? What are its causes ?
15. What are the two principles of justice as mentioned by the philosopher Rawls ?
16. Briefly discuss the concept of Bayesian Nash equilibrium.
17. Discuss the Spence model of job market signalling.
18. What are the assumptions of cardinal utility theory?
19. Define compensated demand curve in one sentence. What are measured in the axes of the figure to draw a compensated demand curve in Hicksian approach?
20. What is the sign of the slope of the compensated demand curve? Can the compensated demand curve take positive slope?