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Microeconomics Questions and Answers

251.

Match the following :

List - IList - II
a. A double Kaldor-Hicks Test1. A. Bergson
b. Compensation Principle2. K.J. Arrow
c. Social Welfare function3. T. Scitovsky
d. Impossibility theorem4. Kaldor-Hicks

Codes : a b c d

Exam Year(s)

UGC NET - 2014,

Answer: B

The correct matching is a-3, b-4, c-1, d-2, which is the code 3 4 1 2. A double test is Scitovsky's, which requires that the Kaldor-Hicks compensation test hold in both directions. The compensation principle is the Kaldor-Hicks criterion. The social welfare function is associated with Bergson (the Bergson-Samuelson function). The impossibility theorem is Arrow's.

Every other code puts at least one of these four pairs wrongly, for example by giving the impossibility theorem to Bergson or Scitovsky.

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252.

The oligopoly model in which the businessman assumes that his competitors output are fixed and simultaneously decide how much to produce is

Exam Year(s)

UGC NET - 2014,

Answer: A

The Cournot model is the one in which each firm assumes its rival's output is fixed and decides its own output at the same time as the rival.

In Stackelberg's model one firm moves first as a leader and the other follows, so decisions are sequential, not simultaneous. Chamberlin's model deals with a small group of firms recognising their mutual dependence and tending to a joint monopoly outcome. Bertrand's model has firms choosing prices, not quantities.

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253.

According to Game Theory, if increased advertising, raises costs more than revenues and the profits of both firms decline, we have a

Exam Year(s)

UGC NET - 2014,

Answer: D

When advertising raises costs by more than it raises revenue and the profits of both firms fall, the total gain of the two is negative, which is a negative-sum game.

A zero-sum game requires one firm's gain to equal the other's loss, but here both lose. A positive-sum game would leave both better off. 'Non zero-sum' is true of this game but is too broad to be the term that names the outcome of joint losses, so the specific answer is a negative-sum game.

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254.

Arrows impossibility theorem implies

Exam Year(s)

UGC NET - 2014,

Answer: B

Arrow's impossibility theorem implies that any social decision rule must violate at least one of the requirements of rational choice (such as unrestricted domain, Pareto efficiency, independence of irrelevant alternatives and non-dictatorship).

It does not say that a rule can satisfy all requirements, which is the first option. It does not say that all requirements are always violated, as the third option puts it. The fourth option is meaningless. The theorem is about the impossibility of satisfying every condition together, so at least one must give way.

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