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1. Suppose that two goods are perfect complements. If the price of good 1 changes what part of the change in demand is due to the substitution effect and what is due to income effect? 2. In 2007 many households fixed their mortgage rates for the duration of the mortgage. Early in 2008 the nominal interest rate elsewhere increased so that those who stayed with the floating mortgage rate face now higher interest rates on their mortgage. Suppose the inflation rate stayed fixed. Show on an intertemporal consumption space graph how this increased the well being of those who has fixed their mortgage rates. 3. A murder has been committed. The only clue is a grocery receipt left at the scene by the murderer. The receipt shows that 20 bags of chips selling for $2 a bag and 10 six-packs of pop selling for $6 per six-pack were bought on that day. There are two suspects: Colonel Mustard and Miss Scarlet. On searching their apartments, you find suspects's grocery bills for the previous week. Las week chips were $3 a bag and pop was $5 a six-pack. Colonel Mustard bought 20 bags of chips and 13 packs of pop at those prices. Miss Scarlet bought 30 bags of chips and 7 packs of pop at those prices. Supposing that these people have convex and smooth indifference curves, can any of these people be the murderer? Hint: think in terms of Giffen/ordinary and income inferior/normal goods. 4. You are born with no tangible assets. You live for three periods out of which you work for two periods and retire for one period before you die. You plan to live nothing for your heirs, and you expect your working income to be $20 000, and $60 000 in period 1 and 2. You can borrow and lend at 1% interest rate per period. a. What is the present value of your wealth at the beginning of your life? b. What is the largest constant consumption stream you can afford? c. What borrowing/lending strategy you will use to accomplish b.
Calculate the appropriate value to use for income in your analysis. Explain why you choose to use that level of income and what is the dead weight loss associated with monopoly
If nothing else changes, what happens to the price and quantity if the supply curve shifts to the right? What is the law of supply? Give two examples of how you have observed the law of supply at work.
In the summer of 1997, Congress and president agreed on budget package to balance the federal budget. The contract," signed into law by President Clinton in August as the Taxpayer Relief Act of 1997,
The details about three identical firms operating in Cournot competition are given. The demand curve with marginal revenue, profit maximization, optimum quantity, total demand and market price related questions are answered.
How does the demand curve faced by a perfectly competitive firm differ from the market demand curve in a perfectly competitive market? Explain.
Discuss short and long run expenses. For the short run discuss the relationship in cost and production theory and the idea of diminishing returns.
This question is intended to understanding of the basic Ricardian model by having you work through a problem on your own. There are two nations, Canada and United States, and two goods X and Y.
Suppose the demand function for a good is expressed as Q = 100 - 4p. If the good currently sells for $10, then the price elasticity of demand equals
Identify each as being consistent with risk averse, risk neutral or risk seeking behavior in investment project selection. Explain.
Assume that the technology of producing widgets is that every company entering the market has the same total cost curve, as follows; TC=1000+5Q+0.1Q^2
You're the manager of monopoly. A typical consumer's inverse demand function for your firm's product is P=100-2Q and your cost function is C(Q)=20Q. Find out the optimal two part pricing strategy.
Assume the Fed decides to buy $1 billion in Treasury bonds from the public. Suppose that the reserve requirement is 10%. What takes place to the interest rate and money supply?
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