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There are two groups of individuals of equal size, each with a utility function given by U(M) = sq. root(M), where M = 100 is the initial wealth level for every individual. Each member of group 1 faces a loss of 36 with probability 0.5. Each member of group 2 faces the same loss with probability 0.1. (a) What is the maximum amount of money a member of each group would be willing to pay to insure against this loss?
(b) Assume that it is impossible to discover which individuals belong to which group. Will members of group 2 insure against this loss in a competitive insurance market, where insurance companies o¤er the same contract to everybody? (c) If insurance companies anticipate the result of part (b), what type of contract will they o¤er in a competitive insurance market? (d) Now suppose that the insurance companies have an imperfect test for identifying which individual belongs to which group. If the test says that a person belongs to a particular group, the probability that he/she really does belong to that group is p < 1. How large must p be in order to alter your answer to part (b)?
Using the 3-graph model developed in chapter 14, consider first the impact on the demand for loanable funds. If businesses respond as expected to the investment-tax credit, what will happen to the demand for loanable funds Given this, what, if any..
Utilizing a supply and demand analysis, what would placing rent controls due to the number of apartments accessible for low-income individual.
Elucidate tools are used to accomplish conscious fiscal policy.
Our economy thrives on competition. Market forces will lead company to produce the mix of goods most desired. Unforeseen events can be responded to in a rational manner.
Tom total revenue from cafe is 50000 per year, he bought a coffee machine costing $5000 an interest rate of 5 percent and $3000 is a loan from the bank which the rates is 10%
US importer needs £ 1million payment 3-months later also he sign a forward contract today. Better sign a forward contract today also not sign a forward contract today.
Determine the economy current stage in the business cycle and support your answer with an article written within the last week from popular press or blog.
Elucidate each of the folling statements using supply and demand diagrams. When a cold snap hits Florida, the price of orange juice rises in super marlets through out the country.
If the economy is currently in a long-run equilibrium and the central bank increases the money supply, what effect does this have on the aggregate price level Explain why it is important to insulate central bankers from politic..
What is the expected value of the company in one year, with and without expansion? Would the company's stockholders be better off with or without expansion? Explain. What is the expected value of the company's debt in one year, with or without expa..
Perform them following: Compute the price elasticity of demand for paint and show your calculations.
How have you responded to increases in the price of gasoline over the past few years? How would you respond if the price of gasoline doubled over the next two years? What alternatives do you have for buying gasoline? Could you change to zero con..
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