Equilibrium price and quantity consumed in this generation

Assignment Help Business Economics

Reference no: EM131171862

We can modify the inter-period allocation model to deal with the issue of intergenerational allocation of resources. Suppose a generation is thirty-five years, and we are concerned with only two generations. Demand and supply functions for oil in the present generation are given by: Demand: Qd = 200 – 5P or P = 40 – 0.2Qd Supply: Qs = 5P or P = 0.2Qs

Draw a demand and supply graph showing the equilibrium price and quantity consumed in this generation in the absence of any consideration of the future. Now draw a graph showing the marginal net benefits from consumption in this period at all levels of consumption up to the equilibrium level. Express the net benefit (benefit minus cost) algebraically.

Suppose that the net benefit function is expected to be the same for the next generation. But there is a discount rate (interest rate) of 4 percent per annum, which for thirty-five years works out to (1.04)35, which is approximately equal to 4. Total oil supply for both generations is limited to 100 units. Calculate the efficient allocation of resources between the two generations and show this graphically.

What is marginal user cost for this efficient allocation? If you include this user cost in your original supply and demand graph, what is the new equilibrium? If the demand curve is the same in the second generation, what will the price and quantity consumed in that period be? ? How would the answers differ if we used a zero discount rate? What can you conclude from this example about the general problem of allocation of resources over long periods?

Reference no: EM131171862

Questions Cloud

Analyze a health or nursing profession public policy issue : Analyze a health or nursing profession public policy issue that impacts a group of people and requires a policy change. Analyze how your values impact your position on the public policy issue.

Analyze different ways of financing the health care system : Analyze the cost associated with implementing ACA and its impact on access to health care access for different demographic groups. Provide a rationale for your response.

Three levers of behavioral control : What are the benefits of having the proper balance among the three levers of behavioral control: culture, rewards and incentives, and boundaries? The value of effective strategic control systems in strategy implementation.

Develop an operational plan that ensures the objectives : Working within the parameters of a business plan provided by your assessor (Fosse Commercial Contractors), you are to develop an operational plan that ensures the objectives and strategies outlined are met by work teams

Equilibrium price and quantity consumed in this generation : We can modify the inter-period allocation model to deal with the issue of intergenerational allocation of resources. Suppose a generation is thirty-five years, and we are concerned with only two generations. Draw a demand and supply graph showing the..

Franchising attractive or unattractive : Franchising is common, sometimes even dominant, in certain industries. Yet in some fields, successful franchising is rare. Discuss what industry characteristics make franchising attractive or unattractive.

What does your text state about the recommended sample sizes : The Joint Commission encourages accredited healthcare organizations to use sampling to measure performance, where appropriate. Because they are statistically significant and simple to apply, what does your text state about the recommended sample ..

How significantly were global stock markets affected : Evaluate each financial crisis in terms of its impact on the international financial markets. How significantly were global stock markets affected? How did the major currencies react during each crisis?

User Account

All Pages