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Examination - 2025 BGSP-A-GNM
GENERAL ECONOMICS
Paper - I
Time Allowed : Three Hours Maximum Marks : 200
Question Paper Specific Instructions
Please read each of the following instructions carefully before attempting
questions:
There are THIRTEEN questions divided under THREE sections.
The ONLY question in Section A is compulsory.
In Section B, FIVE out of SEVEN questions are to be attempted.
In Section C, THREE out of FIVE questions are to be attempted.
Candidates should attempt questions/parts as per the instructions given in the sections.
The number of marks carried by ൦ question /part is indicated against it.
Candidates are required to write clear, legible and concise answers.
Attempts of questions shall be counted in sequential order. Unless struck off, attempt of a
question shall be counted even if attempted partly.
Any page or portion of the page left blank in the Question-cum-Answer (|! QCA) Booklet must
be clearly struck off.
Answers must be written in ENGLISH only.
BOSP-A-GNM 1
01. Answer all the following seven parts :
(a)
(b)
(૦)
(6)
(6)
(0)
(8)
BGSP-A-GNM
SECTION A
(Compulsory Section)
Define MRS (Marginal Rate of Substitution). Calculate MRS for a utility
function U = १९१] :
Specify the Cobb-Douglas production function taking two inputs in
producing one output. Interpret the parameters used in this function.
Comment on the role of conjectural variations in the determination of
oligopoly equilibrium.
“Rent is not the income of a particular factor of production but merely an
aspect of income of any factor of production.” Discuss.
State and explain the Coase theorem.
Write down the economic meaning of a first order derivative of a
short-run production function. Interpret the situation where one second
order derivative of that function is zero.
Explain why adjusted R? is important for testing the goodness of fit of a
regression model.
5x7=35
5
Answer any five out of the following seven questions :
Q2. (a)
(b)
९३. (a)
(b)
(b)
(૦)
౧5. (a)
(0)
BGSP-A-GNM
SECTION B
How can an ordinary demand function be derived in a two-commodity
framework ? Show that the ordinary demand function is homogeneous of
degree zero with respect to all prices and income.
A consumer is observed to purchase x = 10, y = 5 at prices P, = 1 and
Py = 3. The consumer is also observed to purchase x = 9, y = 3 at P, = 2,
بط = 2. Is the behaviour of the consumer consistent with axioms of
revealed preference ?
How do you construct the long-run average cost curve from short-run
average cost curves ? Explain why an average cost curve is U-shaped
under variable returns to scale.
Derive the necessary and sufficient conditions for a firm’s equilibrium in
producing a good by using two inputs at a given cost. Illustrate your
answer graphically.
Explain the concepts of horizontal, vertical and conglomerate merger of
firms with suitable examples. Discuss one objective briefly in each case.
“Asymmetric information does not cause an efficiency problem, but it
does have equity implications.” Discuss critically.
What do you mean by free rider problem ? Explain how the free rider
problem makes the private provision of public goods inefficient.
Why is an input demand called a derived demand ? Explain graphically
how factor prices are determined when the product market is a monopoly
and the factor market is perfectly competitive.
Critically examine the Marxian theory of distribution and explain how it
differs from Kaldor’s theory of distribution.
18x5=90
10
10
10
Q6. (a) Define externalities in the context of public goods. Explain how
externalities affect the efficiency of market outcomes. 10
(b) Explain the main features of Sen’s theory of social choice. How is it
relevant in the present situation ? 8
Q7. (a) Define feasible solution, basic feasible solution and optimal solution of
linear programming problem. Explain these concepts by taking
hypothetically, a constrained minimisation problem. 9
(b) Solve the following constrained profit maximisation problem by using
graphical method. 9
Maximise ಇ = 4x, + 3x9
subject to x, + 2x9 <8
Xx, <6
2258
স্ন], 22 > 0
౧8. (a) Define rank of a matrix. Write down the implications of the full rank
assumption of a multiple linear regression model. Why is full rank
assumption not required for a simple linear regression model ? 24+343=8
(b) Explain the concept of eigenvalues and eigenvectors associated with a
square symmetric matrix. How are these concepts used in principal
component analysis ? 5+5=10
BGSP-A-GNM 4
SECTION C
Answer any three out of the following five questions : 25x3=75
Q9. (a) Explain the meaning of Nash equilibrium in the context of firms
competing with each other with respect to price. Why is the equilibrium
stable ? Why can the firms not raise prices to the level that maximises
joint profits ? 3+3+4=10
(0) Under what condition is an economic agent called a risk averter ? State
and prove the Neumann-Morgenstern expected utility theorem. ૭--6-9
(0 Suppose that an economic agent has 4 choice options A, 22, Ag and Ay,
which follow the transitivity rule (A, is preferred to Ag, وھ is preferred
to Ag, Ag is preferred to 4) as well as Neumann-Morgenstern axioms
involving risk. Find out the expected utilities if the agent is indifferent
between :
ദ وھ and a lottery ticket with probabilities of 0-4 and 0:6 for A, and
Ay.
(ii) Ag and a lottery ticket with probabilities of 0-3 and 0:7 for Aj and
Ag.
Assume that U(A,) = 300 and U(A,) = 100. 6
۹10. (a) “A monopolist cannot increase price level indefinitely.” Explain. What
would be the price if the government wants to set a price ceiling that
maximises the monopolist’s output ? 8
(0) “The competitors will match the price reduction more closely than the
price increase.” Explain the reasons by using the kinked demand curve
model. How is the problem of prisoner’s dilemma associated with the
duopoly model ? 8
(০) Construct the compensated demand function from one utility function
17 = ११. ,رو Where 0] and 02 are the quantities of two goods, and U is the
level of utility. Explain the shape of this demand curve. What would be
the optimum expenditure function in this problem ? ୫+2+2=9
BGSP-A-GNM 5
০11. (a)
(b)
(c)
૦12. (a)
(b)
(c)
Q13. (a)
BGSP-A-GNM
Explain graphically why there is no supply curve in a monopoly market.
What is market signalling ? Distinguish between separating equilibrium
and pooling equilibrium in this context. Which equilibrium is efficient ?
Justify your answer.
Explain the pricing policy of public sector enterprises by using long-run
marginal cost based price. How is it different from public utility and rate
of return approaches ?
The following table shows the coefficient matrix of an economy
consisting of three industries, each producing for their internal use as
well as for external demand by the consumers :
Industry I II 11]
I | 0.20 | 0-25 0:10
11 0-15 0-10 0:05
111 010 0-05 0-15
(i) Interpret each row and each column of the matrix.
(11) Calculate Leontief Inverse Matrix.
(iii) | What should be the required output by each industry to meet the
external demand given by the following matrix ?
7
10
1“ = [40 50 60] 8646-46-76
Explain the role of random error in an econometric model. Differentiate
between error and residual in the context of a linear regression model.
State the Lorenz dominance principle. How is the Gini Coefficient
related to the Lorenz curve ?
Distinguish between seasonal fluctuation and cyclical fluctuation of a
time series variable. Describe a method of deseasonalisation of time
series data. Why should you deseasonalise the data in estimating linear
5
trend of a seasonal time series variable ? 34+343=9
(b)
(০)
BGSP-A-GNM
Write down the basic principles of Ordinary. Least Squares (OLS) and
Maximum Likelihood Estimates (MLE) in estimating a linear regression
model. [You can consider a regression model Y = XB + ੬ in explaining
your answer] 4.426
Explain why the presence of heteroscedasticity in a dataset creates a
problem in estimating a linear regression model. Suggest an appropriate
method of estimation if heteroscedasticity presents in the data. Why is
the problem of heteroscedasticity most likely to appear in a cross-section
data, and not in time series data ? 34+34+2=8
