Microeconomics

Topics: Game theory, Nash equilibrium, Utility, Market failure, Externality / Pages: 10 (2420 words) / Published: Aug 24th, 2013
Section A a. Explain the concept of dominant strategy equilibrium. 1. http://tuvalu.santafe.edu/~jkchoi/game4.pdf 2. http://econweb.umd.edu/~borowitz/dominant_strategy_equilibrium.pdf

b. Discuss the concept of Nash equilibrium. 1.http://www.economics.utoronto.ca/osborne/igt/nash.pdf

2. http://www.columbia.edu/~rs328/NashEquilibrium.pdf

c. Is every dominant strategy equilibrium a Nash equilibrium? 1. http://economics.fundamentalfinance.com/game-theory/nash-equilibrium.php

d. What do you understand by subgame-perfect equilibrium? 1. http://faculty.apec.umn.edu/thurley/documents/APEC8991/Notes/Fall2010/SubgamePerfectEquilibrium.pdf

2. http://www.cs.tau.ac.il/~canetti/f09-materials/f09-scribe9.pdf

3. http://www.econ.ucla.edu/iobara/SPE201B.pdf

2)

a. What is indirect utility function? 1. http://www.princeton.edu/~dixitak/Teaching/MicroHighCalculus/Notes&Slides/Lec04.pdf 2. http://www.econ.hku.hk/~wsuen/teaching/micro/dual.html

b. Given a direct utility function, how will you derive the indirect utility function? 1.

c. Explain Roy’s identity.

Section B
3) Derive the elasticity of substitution for the Cobb-Douglas production function q ’ f (K, L) ’ AKaL1−a
4) What is meant by externalities? How can the problem of externalities be solved? Explain the Coase’s
Theorem.
5) Explain Arrow’s Impossibility Theorem, giving the various assumptions.
6) What is meant by asymmetric information? In what way does the presence of asymmetric information lead to a departure from the usual competitive equilibrium? Explain the relation among moral hazard, adverse selection and signaling, giving suitable examples.
7) What do you understand by actuarially fair insurance? Do you agree with the proposition that a riskaverse person will optimally buy full insurance if the insurance is actuarially fair? Give reasons in support of your answer.

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