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Suppose David spends his income (I) on two goods, x and y, whose market prices are px and py, respectively. His preferences are represented by the utility function u(x, y) = lnx + 2lny (MUx = 1/x, MUy = 2/y).
a. Derive his demand functions for x and y. Are they homogeneous in income and prices?
b. Assuming I = $60 and px = $1, graph his demand curve for y.
c. Repeat part (b) for the case in which px = $2.
An engineer deposits $900 each month into a retirement account. After 30 years, the balance in the account is $1.7 million. Determine the effective annual rate of return for this account.
Two goods are complements when a decrease in the price of one good
You bought a call option with a strike price of $35. What is your total payoff on this option contract if the underlying stock is selling for $36.70 on the option expiration date? You purchased a call option with a $22.50 strike price and a call prem..
He proposed an increased in ethanol produced from corn and the stalks and leaves from corn and other grasses. Illustrate what is the likely impact of these two events on food prices in the United States.
Microeconomics is considered to be the study of scarce resources (Perloff, 2007). Here, consumers (both individuals and organizations) must make allocation decisions.
The federal funds rate is currently held in the 0-025% (zero-bound) range. Suppose the Fed suddenly announces that it will raise the target federal funds rate to 1% over the next 6 weeks. Given these effects and current macroeconomic conditions, woul..
For this exercise you will need to first build a graph to these specifications: Compute consumer, producer, and total surplus at the market equilibrium. Compute deadweight loss when the government imposes a price ceiling of $120.
You only buy apples and bananas. Your budget is such that you can purchase 3 apples and 4 bananas or 9 apples and 2 bananas. Write the equation for the budget line with bananas on the y-axis. Is that equation unique.
Analyze the effects of a tax cut in an IS-LM model. How does the tax cut shift the IS curve and the LM curve? How are equilibrium interest rate and level of income different from its original level?
You have learned that earnings functions are one of the most investigated relationships in economics. These typically relate the logarithm of earnings to a series of explanatory variables such as education, work experience, gender, race, etc. Why do ..
Should one distinguish between economist’s descriptive statements, propositions, and predictions about the world, and their statements about what policies should be adopted?
Explain how convinced are you that the new 30-gallon trash bag is the strongest such bag on the market.
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