NTA UGC NET/JRF Exam, Dec. 2020/June 2021 Economics

Some methods that can help improve welfare in the presence of externalities
(1) Regulation- The public often turns to governments to pass legislation and regulations to curb the negative effects of externalities. eg. include environmental regulations and health related legislation.
(2) Taxation:- Governments can discourage negative externalities by taxing goods and services that generate spillover costs.
(3) Property rights:- Assigning property rights can help improve welfare in the presence of externalities.
(4) Bargaining- Permitting bargaining can help improve welfare in the presence of externalities.
(5) Pigovian taxes can help improve welfare in the presence of externalities.

The Neoclassical growth theory is an economic model of growth that outlines how a steady economic growth rate results when three economic forces come into play: labor, capital, and technology.

The simplest and most popular version of the Neoclassical growth Model is the solow-swan growth model. meade's model is also part of neoclassical theory of growth model.

This model shows how the simplest form of a classical economic system would behave during equilibrium growth. It also defines the effect of population growth, capital accumulation, and technological progress on determining a country's national income.

(1) Harrod-Neutral Technical Progress definition:-
It implies that any technological improvement increases the efficiency of labor in such a way that the output per worker rises while keeping the capital output ratio constant, provided the level of technology is the only charging factor.

(2) Hicks view on Neutral Technical Progress: Hicks, neutrality is "An invention which raises the marginal productivity of labour and capital in same proportion." Thus a technical change is neutral if the ratio of marginal product of capital to that of labour remains unchanged at constant capital labour ratio.

It is possible for technical progress to be both Hicksneutral and Harrod-neutral if the production function has constant unit elasticity of substitution, i.e.

The term money illusion was first coined by American economist Irving Fisher in his book "stabilizing the Dollor". Fisher later wrote an entire book dedicated to the topic in 1928, titled "The Money Illusion".

Welfare economics is a branch of economics that studies the social desirability of economic situations. It uses microeconomic techniques to evaluate the well-being of society as a whole. welfare economics illustrates a number of concepts, including

1. Pareto optimality:- This is when resources are allocated in a way that no one's welfare can be improved without harming someone else.

2. Trade- off between work and leisure:- welfare economists assume that leisure is more enjoyable than work, which is necessary but less enjoyable

3. Impacts on policy measures: welfare economics suggests that only policy measures that affect individual welfare should be included.

4. Social welfare functions these functions are used to rank resource allocations based on their social welfare. They typically include measures of equity and economic efficiency.

5. Space of Capability:- This refers to the effective freedoms people have to achieve meaningful goals.

6. Functioning's: These are valued state and actions, such as being educated, healthy, and participating in the community.
7. Capabilities and functioning's these are essential to well-being.

The Cobb-Douglas production function has several properties, including:

• Constant returns to scale: The Cobb-Douglas production function exhibits constant returns to scale

• Homogeneous of degree: The Cobb-Douglas function is homogeneous of degree (b+C). This means that multiplying inputs X & Y by an amount K will alter the effort by the production (k) b+c.

• Strictly convex: The Cobb-Douglas function is a strictly convex function which means that the minimum for Cobb-Douglas function is a unique absolute minimum.

• Linearly homogeneous: The Cobb-Douglas production function is a linearly homogeneous function.

• Downward sloping curves:- The curves representing average and marginal productivity of inputs are downward sloping.

• Elasticity of factor substitution; The elasticity of factors substitution of the C.D production function is equal to unity.

The Cobb-Douglas production function is a simplified way to calculate the impact of changes in inputs, efficiencies, and yields of production activity.

The bank rate is a direct instrument of Credit Control:
The bank rate is the interest rate at which a central bank, like the Reserve Bank of India (RBI), leads money to commercial banks.

•  The bank rate is a quantitative credit control measure that affects the money supply in the economy

• Raising the bank rate makes it more expensive for banks to borrow money, which increases interest rates for customers.

This discourages borrowing and spending, which reduces the money supply and controls inflation.
• Lowering the bank rate: makes it cheaper for banks to borrow money, which lowers interest rates for customers. This stimulates economic activity.

A tariff which maximizes a country's welfare, trading off improvement in the terms of trade against restriction of trade quantities. For a small economy which cannot affect world prices in the markets in which it trades, the optimum tariff is zero.

The environmental kuznets curve (EkC) is a hypothesized relationship between environmental quality and economic development various indicators of environmental degradation tend to get worse as modern economic growth occurs until average income reaches a certain point over the course of development.

• Correct statement for EKC

A. The relationship between income and environmental damages take the shape of an inverted
D. EKC hypothesis intends to represent a long term relationship between economic growth and pollution.