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EC202 - MID SEMESTER Test 1 2020

This document provides instructions for an assignment in EC202 - Intermediate Microeconomics. It is worth 50 marks or 30% of the coursework. [Section A] contains 3 short answer questions related to perfect competition, the Edgeworth box model of general equilibrium, and how OPEC operates during the COVID-19 crisis. [Section B] requires students to choose 3 out of 6 essay questions to answer, each worth 10 marks. The assignment replaces the mid-semester test and covers key microeconomic concepts like markets, utility maximization, and firm profit maximization.

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Mithlesh Prasad
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222 views2 pages

EC202 - MID SEMESTER Test 1 2020

This document provides instructions for an assignment in EC202 - Intermediate Microeconomics. It is worth 50 marks or 30% of the coursework. [Section A] contains 3 short answer questions related to perfect competition, the Edgeworth box model of general equilibrium, and how OPEC operates during the COVID-19 crisis. [Section B] requires students to choose 3 out of 6 essay questions to answer, each worth 10 marks. The assignment replaces the mid-semester test and covers key microeconomic concepts like markets, utility maximization, and firm profit maximization.

Uploaded by

Mithlesh Prasad
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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EC202 – Intermediate Microeconomics

Instructions
This assignment replaces your Mid Semester Test and is worth 50 marks
Or 30% of coursework

Section A – Problem Based Questions [16 marks]

Question 1 - Markets: Perfect Competition. (8 marks)


Assume that a perfectly competitive, constant cost industry is in a long run equilibrium with 20
firms. Each firm is producing 150 units of output which it sells at the price of $20 per unit; out of
this amount each firm is paying $4 tax per unit of the output. The government decides to abolish
the tax.

a) Explain what would happen in the short run to the equilibrium price and industry output;
number of firms in the industry; output and profit of each firm. Illustrate on diagrams for the
market and a particular firm (4.marks)
b) Explain what would happen in the long run to the equilibrium price and industry output;
number of firms in the industry; output and profit of each firm. Illustrate on diagrams for the
market and a particular firm. (4 marks)

Question 2 - General Equilibrium: Efficiency in the Edgeworth box.


Xiao Ping and James always eats miso soup and sushi in exact proportions – one miso per two
sushi. They throw away any extra soup or sushi as it would not give them any pleasure. Once,
they were stuck in the office together for hours, marking students' assignments. Xiao Ping had 2
miso soups and 10 sushi with him; James had 4 miso and 4 sushi. (For the purpose of this
question, assume that miso and sushi can be divided into little pieces so one-half miso or one-
hundredth of sushi makes sense)

a) Draw the Edgeworth box for Xiao Ping and James. Please put Xiao Ping at the origin and
James 'upside down'; put sushi on the horizontal axis and miso on vertical. Show their
endowment point.
( 4 marks)

b) Show all Pareto optimal allocations of miso and sushi between Xiao Ping and James in the
Edgeworth Box. Please note that this question is a bit tricky, though not difficult. Draw a bunch
of indifference curves and look for tangencies (4 marks)
Question 3

Explain in your own words how a cartel like OPEC operates especially during this COVID 19
crisis ( 4 marks)
.

Section B Essays ( 30 marks )

Attempt ONLY 3 essays from the list below ( Each is worth 10 marks)

1.Does the maximization of utility imply happiness? Discuss


2 What is more important in deciding a best bundle: preferences or constraints? Discuss
3.Does the maximization of utility imply happiness? Explain
4.Do firms really maximize profit? Discuss
5“The opportunity cost of leisure is not labor but rather hell.” Argue for or against this
6. Is competition a process or a market structure? Discuss

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