Problems Set 4 (2)

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2026

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Economics

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Feb 20, 2024

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ECO 202 Problems Set 4 Dr. Constantine Alfred-Ockiya 1.Suppose you expect to receive a $10,000 bonus from your employer in two years upon completing your college degree. If the interest rate is 5%, what is the present value of the $10,000? Present Value=Future Value divided by 1+interest times years PV=FV/(1+interest)# of years PV= 10,000/(1+0.05)2 PV=$9070.30 2. The Table below shows the prices and supply and demand for flu shots in millions. Not taking into account the benefits from flu shots, what are the equilibrium price and quantity from flu shots? Now suppose that every flu shot generates $10.00 in external benefits (from others being likely to get sick). Show how this positive externality affect the curve (draw a new curve on the graph). Taking into account external benefits, what would be the new equilibrium price and quantity of the flu shot? Price ( in $) Demand , Flu shots (in millions) Supply, Flu Shots( in millions) 10 8.0 2.0 20 4.0 6.5 30 3.5 3.5 40 4.5 6.5 50 3.0 7.0 60 2.0 8.0 Without taking into account the benefits of the flu shots the equilibrium price is $35 and the equilibrium quantity is 5. After supposing that every flu shot generates @10.00 in external benefits the new equilibrium price is $45 and the quantity is 7

3. Suppose that the wage rate is $16 per hour and the price of the product is $ 2.0. Values for output and labor are in units per hours, as given below: Quantity ( Q) Labor ( L) 0 0 20 1 35 2 47 3 57 4 65 5 70 6

A. Find the profit-maximizing quantity of labor ( Hint: Extend the table about and calculate MPl and MRPl first and go from there). Profit maximum quantity of labor Is 4 because the MPRL is equal to 16 at the labor of 4. B. Suppose the price of the product remains at $ 2.00 but that of the wage rate increases to $21.00. Find the new profit maximizing quantity of labor. MPL= Wage/ Price of product MPL= 21.00/2.00 MPL=10.5

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The new profit maximizing quantity of labor would equal 3 4. The market interest rate is 5 % and is expected to stay at that level. Consumers can borrow and lend all they want at this rate. Explain your choice in each of the following situations: A. Would you prefer a $ 500 gift today or a $540 gift next year? I would prefer the 540 gift next year at the 5% interest rate because it is greater than the 500 at 5% interest rate. B. Would you prefer a $100 gift now or a $500 loan without interest for 4 years? I would prefer the $100 gift over the loan without interest for 4 years. This is because although the 500 is a greater amount it is a loan while the 100 is a gift. C. Would you prefer a $350 rebate on a $8,000 car or one year of financing for the full price of the car at 0 % interest? I would prefer the $350 rebate because its 0 interest. D. You have just won a million dollar lottery and will receive $ 50,000 a year for the nest 20 years. How much is this worth to you today? This would be worth a lot to me

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