4. The Lewis model is considered to be a "classical" model of development because: a. The productivity of labour in the modern sector is higher than that in the traditional sector. b. The supply of labour in the economy is determined by a labour-leisure choice. c. There is unlimited supply of labour available for the modern sector at a given wage rate. d. All of the above. 5. If a country grows at 6 per cent annually for a period of three years, the head-count rate of poverty a. will fall by 18 per cent b. will fall by 6 per cent c. may rise, fall or remain the same d. will fall by more than 18 per cent 6. The Human Development Index constructed by the UNDP is based on the a. Basic needs approach b. Chronic poverty approach c. Capability approach d. Dependency theory Answer questions 7 and 8 based on the following passage: Markets are superb coordination mechanisms in harmonizing numerous non-cooperative interactions and in disciplining inefficiency and rewarding high value performance. But when incentives and control rights are misaligned (on account, say, of initial asset ownership differences constraining contractual opportunities), and there are important strategic complementarities in long-term investment decisions, markets fail to coordinate efficiently. The implications of 'imperfections' in, and sometimes the non-existence of, credit and insurance markets are severe for the poor, sharply reducing a society's potential for productive investment, innovation, and human resource development. The state can provide leadership for (and put selective incentives and pressure on) individuals interacting cooperatively in situations where non-cooperative interactions are inefficient. But the state officials may have neither the information nor the motivation to carry out this role; they may be inept or corrupt, and the political accountability mechanisms are often much too weak to discipline them. In the context of these pervasive market and government failures it is often pointed out that a local community organization, if it has stable membership and well-developed mechanisms of transmitting private information and enforcing social norms among its members, has the potential to provide sometimes more efficient coordination than either the state or the market. But community organizations 'fail' too when they are 'captured' by elite (or sectarian) interests, or are hamstrung by the secession of the rich and the talented from local communities, and they may face covariate risks and costs of small scale. [from Institutional Economics of Development: Some General Reflections by Pranab Bardhan in in T. Besley and R. Jayaraman (eds.), Institutional Microeconomics of Development, MIT Press, 2010.] 7. According to the author, which allocative mechanism is free from the risk of coordination failure? a. Market b. State c. Community d. None of the above 8. Which of the following is not a source of government failure? a. Inadequate information b. Lack of private incentive for public action c. Externalities d. Weak accountability 9. A consumer's utility function is given by U=3x+y for two goods x and y. Per-unit price of x and y are Rupees 30 each. The total income of the consumer is Rupees 900. The equilibrium consumption bundle (x,y) of the consumer will be: a. (30,0) b. (0, 30) c. (15,15) d. None of the above 10. Mr. X's total wealth next year, including his factory, is estimated to be Rupees 6,00,000. There is a 20 per cent chance that an accident in the factory, valued at Rupees 3,00,000, will completely ruin it next year. Mr. X's expected wealth next year, if he does not purchase hazard insurance for his factory is likely to be: a. Rupees 6,00,000 b. Rupees 5,20,000 c. Rupees 5,40,000 d. None of the above 11. Consider a competitive industry where the market demand is given by P = 50-Q. The marginal cost function is simply MC= Q. If the government imposes a tax of 10 rupees per unit of production of this good, the equilibrium market price will go up by: a. zero rupees b. 10 rupees c. 20 rupees d. 5 rupees 12. Two kinds of consumers exist for a product Z in a market. One kind of consumer has an intense liking for the product, with an inverse demand curve of P=20-Q, where P is price of Z and Q is the quantity of Z. The other type of consumer has a less intense liking for the product and has an inverse demand P=5-(1/2)*Q. Suppose that there are only two consumers in the market, one of each type. The market demand curve for Z will be: a. Q=p for all price levels p. b. Q=30-3P for all price levels ?5 and Q=20-P for p5 c. Q=15-3P for all price levels ?5 and Q=20-P for p>5. d. Q=30-3P for all price levels ?5 and Q=20-P for p>5 13. Consider a Leontief production function Q = Min (K/2, L/3). Price of K is 3 and price of L is 2. If the firm intends to produce 40 units, the cost minimizing K,L combination will be: a. (30,40) b. (20,30) c. (80,120) d. (120,80) 14. The production function of a monopolist firm is given by Q=10L-0.5L2, where L is labour input and Q is output. If the demand curve is P(Q)= 50-0.5Q, what is the marginal revenue product of labour curve? a. 500+150L-15L2 b. 500-150L+15L2-0.5L3 c. 50-Q d. None of the above