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1. Suppose you live in neighborhood of 30 houses with a mean value of $50,000 (PE = $50,000 QE = 30). Your neighbor has just put new landscaping in and re-sided his home. His home improvements have made the neighborhood a better place to live for everyone and increased the value of the homes around him. The external benefit his improvements have made equals $1000.
a. What type of externality is occurring here? Using a graph, show how the free market fails at allocating the efficient quantity of homes. Label the appropriate area that shows the efficiency/inefficiency of the market. Is the market over or under producing in this situation? Explain. (Estimate a new price and quantity)
b. Would it be appropriate to use a pigovian tax or pigovian subsidy to decrease the inefficiency in the market? Explain your choice. How much would the tax/subsidy be?
Assume that a hypothetical economy with an MPC of 0.9 is experiencing severe recession. By how much would government spending have to rise to shift the aggregate demand curve rightward by $30 billion? Determine one possible combination of government ..
Consider a positive AD shock hitting the economy. Draw an AS/AD diagram and show both the short-run and long-run effects of the shock. And then, explain step by step the adjustment process after the shock, i.e. both the short run deviation from LRAS ..
Consider a homogenous good market with the following market demand curve: Two firms produce output at constant marginal cost = 10. Derive the Nash equilibrium outcome in terms of prices, outputs and the profits of the two firms under the following al..
q1. why cant money have the same value and look in every country?create a flow chart or table that describes the
What is the term premium for a 6-period bond if the interest rate on the 6-period bond today is 10 percent and 1-period interest rates are expected to rise by 2% each year from their current level of 4%?
Use several alternative discount rate values (1% to 10%) to investigate the sensitivity of the present value of net benefits of the dam in exercise (1) to the assumed value of the real discount rate. Determine the "breakeven" value of the discount ra..
Suppose the government intends the tax to reduce the consumption of some goods for example, cigarette or chewing gum. Illustrate what will determine the effectiveness of the tax in reducing consumption
If the bank compounds interest yearly, explain how much will you have in your account on January 1, 2015
If I spent all my money ($450,000) on a new house I could buy a house with 4500 square feet. I settle for a 1500 square foot house. (Each square foot costs the same.) The day after I close the deal a nearby nuclear power plant is condemned and the va..
Simon is given a free ticket to see Coldplay Saturday night. He already has a ticket to see Sting in concert that night. The Sting ticket cost Simon $50 though he would have paid as much as $80 to go to the show. Simon knows that he can easily sell t..
Illustrate what is the probability that a randomly selected hair dryer will be in working condition for more than 60 months.
In the US, realized capital gains are taxed at 15% if they are held for more than a year. Suppose instead that we include realized capital gains (those held for more than a year and less than a year) in income instead so that they are added to an ind..
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