Discuss the approaches adopted by Pigou and Pareto for analyzing the problem of welfare economics.
Pigou in the book " The Economics of Welfare" (1932) coined the concept of social indicators (economic) well-being. He introduced the quality of life indicators - environmental conditions, recreation, access to education, public order, health care and more. He believed that the optimum well-being is possible only if state interventions in the process of resources usage and income distribution and emphasized that economic prosperity is is not interchangeable
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Explain Arrow’s Impossibility Theorem.
. Consider the pay-off matrix of a game given below:
|
Player1 | Player 2 | ||
|
| I | O | |
| A | 1,1 | 3,3 | |
| N | 2,4 | 4,2 | |
(a) Find all the Nash equilibrium of this game. Which player(s), if any, would have a dominant strategy?
(b) Suppose that player 1 moves first by choosing either A or N. Players 2 observe player 1’s action and then choose I or, O. For every action combination, the
player’s pay-offs are the same as in the above pay-off matrix. Draw a tree of this new game. How many strategies does player 1 have and what are they? Find all the sub-game perfect equilibria of this game.
Consider the pay-off matrix of a game given below:
Discuss the approaches adopted by Pigou and Pareto for analyzing the problem of welfare economics.
Assume that there are four firms supplying a homogenous product. They have identical
cost functions given by C(Q) =40 Q. If the demand curve for the industry is given by
, find the equilibrium industry output if the producers are Cournot
competitors. What would be the resultant market price? What are the profits of each
firm?
Discuss the approaches adopted by Pigou and Pareto for analyzing the problem of welfare economics.
Write short notes on any two of the following:
(a) Envelope theorem
(b) Hidden information
(c) Actuarially Fair Premium