Answer all the given problems. Section A to be answered in around 500 words each and Section B to be answered in around 300 words each.
problem 1: Describe the concept of Nash equilibrium. How is it related to:
a) Dominant strategy equilibrium and
b) Sub-game perfection.
problem 2: What is indirect utility function? How will you derive an indirect utility function from a direct utility function? describe Roy’s identity.
problem 3: Derive the elasticity of substitution for the Cobb-Douglas production function q = f (K, L) = AKaLb
problem 4: What are the recommendations of Coase to solve the problem of the externalities?
problem 5: Describe Arrow’s Impossibility Theorem.
problem 6: Discuss the concept of asymmetric information. Describe the relation among moral hazard, adverse selection and signaling, giving appropriate illustrations.
problem 7: Do you agree with the proposition that a risk-averse person will optimally buy full insurance if the insurance is actuarially fair? Provide reasons in support of your answer.