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Suppose there are two consumers, A and B, in an endowment economy. Each has preferences u=xy. The initial endowment for A is (4,16) and the initial endowment for B is (20,20). Each consumer is a price taker (Perfect competition). Let P(y)=1
a. Find the equilibrium price of good x that solves the model. show the equilibrium on an edgeworth box diagram.
b. Suppose that the government wants to impose the 'egalitarian' outcome where each person ends up with (12,18). Assume that lump-sum taxes are possible, find an income tax/transfer scheme starting from the initial endowment that generates this outcome, and show the new equilibrium in an edge worth box.
Hint: find an income tax on person B that shifts the budget constraints of each person to what whey would be to produce the egalitarian outcome. Then show that with these incomes, we can reach the desired allocation with competitive markets.
The Circular Flow diagram is model of how the economy works. Explain how the model would change if the following events ocurred:Households increase savings.
how will Kristine s consumption pattern and welfare be affected
What are the characteristics of an oligopoly? Using the concept of duopoly and the price leadership model, discuss demand and pricing strategies in an oligopolistic market structure.
Manufacturer A is starting to make Gismos at an initial production cost of $95 for the first unit and has been lowering the cost with a learning rate of 79 percent. Manufacturer B also started this year with an initial production cost of $288/unit wi..
How can a domestic producer determine whether or not it has a comparative advantage in the production of a good or service?
MOST governments say they want to encourage entrepreneurs. Yet when foreigners with ideas come knocking, they slam doors in their faces. America, surprisingly, is one of the worst offenders. It has no specific visa for foreigners who wish to create n..
Illustrate what role do fiscal and monetary policies have to lead to higher or lower budget deficits.
Assume the hospital is a monopolist with a demand function given by p = 404−2x, where p is the price of hospital care and x is the quantity of hospital care. Assume that the hospital’s cost function is given by C = 300+4x+8x 2 , where C is total cost..
You are given the following information about the market for market data for a brand of refrigerators. calculate the consumer and producer surplus in this market. Calculate the new consumer and producer surplus in this market. Calculate any deadweig..
A city manager wants to invest a sum of money in an account that pays 6% annual interest to cover the monthly operating costs of the city's water treatment plant for the next 6 years. The monthly operating costs for the plant are projected to be $19,..
The domestic supply-and-demand diagram below represents a product in which the United States does not have a comparative advantage. What impact do foreign imports have on domestic price and quantity?
You are the manager of a hamburger joint with a marginal cost of $6.00 per hamburger. The hamburger joint is a local monopoly near campus. During the day, only students eat at the joint while in the evening only the faculty members eat there. If stud..
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