Section A
Q1.
(a) In a two-good world, show that both the goods cannot be inferior.
(b) Calculate the elasticity of substitution for the following production function: Q = , L\rho , + K\rho , )(γ)/(\rho)
(c) Differentiate between adverse selection and moral hazards in determining pricing under incomplete information.
(d) In a two-input framework, state and prove the adding up theorem with necessary assumptions.
(e) How do you derive the aggregate demand for a private good and a public good?
(f)
Give the economic interpretations of the Lagrange Multiplier for the following constrained optimisation problems :
(i) Utility maximisation
(ii) Expenditure minimisation
(iii) Output maximisation
(iv) Cost minimisation
(g) Explain the role of the degrees of freedom in statistical inference.
