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The Smiths have two sons, Nate and Tim, who both go to college. Their parents give both boys an allowance for food and textbooks. (For simplicity, assume Nate and Tim have identical preferences between food and textbooks and that both are normal goods). Nate attends the University of Tennessee and Tim attends Berkeley (where food prices are higher). Both boys buy their textbooks from an online store with free shipping and no tax.
a) Using indifference curves and budget constraints show the choices of Nate and Tim if the Smiths give both boys the same monthly allowance. (use a graph for each person, but make sure the graphs can be compared, same scale)
b) The Smiths realize that Berkeley is more expensive than Knoxville and want both boys to be equally well off. Show in your diagram how the Smiths should compensate Tim.
c) Explain how your answer relates to the income and substitution effects of a price change from Knoxville food prices to Berkeley food prices.
Atlantis is a small, isolated island in the South Atlantic. The inhabitants grow potatoes and catch fresh fish. The accompanying table shows the maximum annual output combinations of potatoes and fish that can be produced.
Suppose there is an increase in risk aversion by wealth holders in the sense that, other things equal, they want to hold more of their wealth in money (bank deposits) and less in securities.
Karen earns $75,000 in the current period and will earn $75,000 in the future. Assuming that these are the only two periods, and that banks in her country borrow and lend at an interest rate r = 0, draw her inter-temporal budget constraint.
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Compare and contrast the strengths and weaknesses of today's Federal Reserve operating procedures and monetary decision making policy.
A firm has offices in London and New York. Fractional units of labor can be employed in each location (as part-timers can be hired) and the headquarters could be in either city.
For each of the following events, state whether the aggregate demand curve would increase, decrease, or stay the same.
What elasticity of demand did the Village Administrator seem to assume here in his prediction for 1970- 1971? Compute the approximate elasticity of demand (round off, two decimal places is close enough).
What are the macro and micro problems? What systems are affected structural, psychosocial, technical, managerial, goals?
Maggie's utility function is and her income is $5000. Then her MRS at generic bundle (x1, x2) is 50-0.25x1. Commodity 2 is a composite good, and hence its price is unity.
Life insurance companies require applicants to submit to a physical examination as proof of insurability prior to issuing standard life insurance policies.
Suppose that natural real GDP is constant. For every 1 percent increase in the rate of inflation above its expected level, firms are willing to increase real GDP by 2 percent.
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