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Assume that a person considers carrots (X) and peas (Y) to be normal goods and has convex preferences. a. (10 pts) Design an indifference curve-budget line diagram showing the substitution and income effects created when the price of carrots increases. In your diagram, place carrots on the horizontal axis and peas on the vertical axis. b. (4 pts) How can you tell from your diagram that carrots and peas are normal goods? Explain. c. (4 pts) In your diagram, what happened to the quantity of peas when the price of carrots increased? Does this person view these two goods as substitutes or complements? (Note: answers may vary.)
What is the point, based on the Equimarginal Rule, which has equal marginal benefit (or the closest) for the two purchases?
If there are zero transaction costs, firms prefer to hire employees over independent contractors. Employees shirking on the job is an example of moral hazard. Tournament compensation theory predicts that the pay for a CEO is set at a level equal to t..
Joseph Farms, Inc. is a small firm in the agricultural industry. They have asked you to help them complete the limited data they have gathered in an effort to enable effective decision-making. Explain the MC=MR Rule. Describe the market structures to..
If prices of x and y are doubled while the income remains the same, the budget constraint:
The conventional wisdom has been that inflation is bad for the economy. If our inflation is running higher than our trading partners' inflation, according to this argument, our growth slows and jobs are lost. Explain how the mechanism described here ..
Suppose that an unpopular president was leaving office, and a very popular candidate was elected, and this significantly increased the public's confidence in the future of the economy. Using the aggregate demand/aggregate supply model, elucidate t..
Explain the events below using supply and demand. At a restaurant that does not take reservations, people arriving at 7:30 normally have to wait for an hour, but some people arriving at that time give money to the hostess and are promptly seated.
Use a short-run Phillips curve to Explicate why the inflation rate may decrease over the course of 2009. Under Illustrate what circumstances might the inflation rate not decrease during 2009.
Assume an initial exchange rate where $1 = €1. An American company sells $10 million in goods to a German firm. The American company will receive less than $10 million in revenues if (assume no transactions to prevent exchange rate risk):
Adopting NPV>0 projects is in the set of things that we know matter. Give a careful explanation as to why adopting NPV>0 projects is consistent with the goal of the firm.
Illustrate what is the maximum amount by which funds provide can be increased as a result of bank A's new loan
The president of a growing engineering firm wishes to give each of 20 employees a holiday bonus. How much needs to be deposited each month for a year at a 12% nominal rate, compounded monthly, so that each employee will receive a $2,500 bonus?
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