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    11 views25 pages

    Market Failure and Regulations

    Uploaded by

    narendra pandey

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
    Flag for inappropriate content
    Download as pdf
    of 25
    Explain the concept of risk and uncertainty. What a Salvatore me to a de probability of each of digging for oil in a have a 60% chance of findin; Risk can be measured with th the help of probability distribut variation. In general, the greate also plays a significa finty refers to a situation where ihe events are unknown, the out gn probabilities to the possit to Sahatore,” Unce to a decision cach specific outcome there are a number of possible outcomes but the ‘outcome is not known, Therefore, we cannot associate for uncertainty ie. uncertainty cannot be measured ty distribution, For example, the same oil company area, The company knows that it is not know the ‘Scanned with CamScanner Entry of new produese Entry of foreign compet Interest rate fluctuation Or, (Or, explain the relationship Utility is the want satisfying capaci person wants brea Pies also has utility. An investor inv more money as money has utility. Preference ‘he additional unit of money obtained { i to take risk and some others want to the utility derived from # investment. Some people wan! 50 e due to the different utility derived from the additional unit of m ‘The relationship between risk and utility is explained by the various ‘and preference towards risk. On the basis of risk preference, there types of individuals: 1 RiskAverter 2. Risk Seeker Risk Averter/Risk Avoider A risk-averter is the one who prefers less risk; given a choice Jess risky investments with identical expected money returns, he’ In the fi is upW Cr shows from p by 20 less risky investment. The utility curve for a risk averter is upward sloping I utility of money decreases with the increase ‘of money increases at a diminishing rate for a ‘Scanned with CamScanner \ _ Sn ‘Scanned with CamScanner i expe 8 a ‘Ato post B ‘money income all by Rs00 from 7 A Rs.100 loss in eG a R100 gain would & are less araaee to a rupee of mon me. gained and will place an Pts sk of loss, Risk Indtferent erent, face with the same st estenent is equally peferabie 0 eo curve for risk neural is upward Scanned with CamScanner See question Nod and 2. “2. What is meant by isk aversion, risk, sbaking and fak neutrality? How are these ‘Concepts related To the individual uy uncton of money incom? Explain. etn any ata lctont How don tent pron ine mt eee on the other hand, are more ‘measured in terms of theit ize of their staff the extent of lure; reputation, ete. That is, the imizing his or her own benefits ~ 2. Highwages The ownes can provide wages that are above the aulbriam wages ‘this employees This act as an incentive forthe workers anda worker who ‘ems an aboveeuilibrium wage ies ily o shirk because, if hes caught and fre, he might not beable to find another igh paying ob ‘3. Delayed payment firms can delay part of the workers compensation, sof the ‘worker is caught shirking then lage faction of their due payment = deducted as a. penalty. This can induce worker not to shisk on thr responsiblity. 4. Mutual tst and cooperation: Above all when there exist a relationship of mutual trast and co-operation between the principle and agent then the ‘agent wil less likely be engaged in any sciviy that has a cost to the principal Given of fem AE(A)= FIXUP spectre ee revenue offirmB: E()= PX. FP% sxpectedittal S925 x18-+05%2=55 oth the fs is ena we need cae he z is re of | quote es ccs ah et RS peor "standard deviation feta or im A) [feo { Scanned with CamScanner Scanned with CamScanner EER arses cont TU Soir Scanned with CamScanner | What is the effect of price control policy in equilibrium and market efficiency? Explain. : “a. These price control policies take asa form of price celling or maximum price and price floor or minimum price and these price control policies creates ‘a. Price ceiling It is the maximum price fixed by the government on the sale of particalar goods or services, No produces are allowed legally to charge Price Figher than the price ceiling. Usually the price ceiling ies below the tcjilibium price and thas creates the problem of scarcity because market ct can eam Rs. 100,000 in the ‘determined price sometimes can be unaffordable for consumers. So the ‘of oss. The probably of guns ‘ ‘ain is 2, then calculate the Expect foi game. The increase lecrease in uilty from the Scanned with CamScanner ‘Scanned with CamScanner ‘Scanned with CamScanner a com 1 Sn nol a socially desirable lerproducton, ‘ccclogy ile 2 ‘oocepoly i, Fo Scanned with CamScanner the market, not for cost individuals by offering them recognition for their creatiy ‘of material reward for their inventions. Scanned with CamScanner Scanned with CamScanner ial abatement cost function represents the costs of reducing, in by one more unit. Ths s shown in the figure below: OF benefit to society is ‘o private frm since the Scanned with CamScanner quota of QQ; amounts fixed then rice would seo Abecs (domestic output plus imports) equals ttl demand ta pre

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