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Question 3:
a. Discuss the assumptions of the Fisher’s Intertemporal Choice Model
b. Using Fisher's Intertemporal Choice model, consider the following scenario:
i. Suppose Milo earns $1,750 in the first period and $2,500 in the second period. If he consumes $1,200 in the first period and $1,550 in the second period, what is the interest rate?
ii. Now if Milo’s consumption changes to $1,800 in the first period and $2,000 in the second period, what is the new interest rate?
c. Graphically depict and explain the Consumer’s optimum in the Fisher’s Intertemporal Choice Model.
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- Please indicate whether the statement is true, false, or uncertain for each of the following two statements, and explain why. If the statement has two parts, or partly true and partly wrong, explain both. The evaluation of your answer focuses on the quality of your explanation. Given the following information: A fundamental feature of a market economy is that no consumer is forced to buy a specific number of units of a product—each consumer is free to decide not to buy if the consumer thinks that the price is too high. Statement to evaluate: This fundamental feature substantially weakens the economic case for the government to regulate the price charged by a monopoly for its product. [In your answer, assume that there are no externalities from this product, and there is no asymmetric information.]Suppose Bill is on a low-carbohydrate diet. He can eat only three foods: Rice Krispies, cottage cheese, and popcorn. The marginal utilities for each food are tabulated below. Bill is allowed only 167 grams of carbohydrates daily. Rice Krispies, cottage cheese, and popcorn provide 25, 6, and 10 grams of carbohydrates per cup, respectively. Referring to the accompanying table, respond to the following questions: Please check the image provided for the table.Suppose you are given the following information for a particular individualconsuming two goods, a and b: Pa = $5, Pb = $6, MUa = 100, MUb = 200, and income (m) = $200.a) Sketch the budget set. What is the slope of the Budget Line? What are maximal possibleconsumptions of a and b?b) What is the MRSab for the two goods?c) Is this person maximizing her utility? How can you tell?d) Should she consume more of good a or of b? Explain.e) Why can’t you tell what her optimal bundle is? Explain.
- Clancy is buying salad and pizza for a company lunch. Suppose that a bowl of salad costs $5.00, and a slice of pizza costs $3.00. Let E be the amount in dollars that Clancy spends on salad and pizza. If Clancy buys S bowls of salad and P slices of pizza, then the total amount of money he spends (E) can be represented by the equation Now rearrange the equation you wrote above so that P is written in terms of E and S. The quantity of pizza he buys can be represented by the equation Suppose Clancy has $30.00 to spend on salad and pizza; that is, E = $30.00. Complete the following table with the values of S or P that make the equation true. Hint: To complete the first row, determine the number of pizza slices Clancy can purchase with $30.00, when the number of salad bowls he purchases is 0. Pizza Budget Salad (Dollars) (Bowls) (Slices) 30.00 0 30.00 3 30.00 02nd attempt See Hint A consumer faces a tradeoff between labor (L) and leisure (R). She consumes a composite good (C). When the consumer works, she earns an hourly wage of $15.00, and she spends a maximum of 24 hours on labor and leisure, but she chooses to work 10.00 hours. Whatever time she does not spend working, she spends on leisure. She starts with an initial endowment of 11.00 units of the composite good, which she can buy and sell freely at a market price of $4.00. Given this information, what is the consumer's real wage? $ 1941. Consider a two-period model in which you work and save in the initial period (period 0) and live off savings and the interest from savings in retirement (period 1). Suppose that income in period 0 is $250,000, income in period 1 is $0, and the interest rate is 50%. a. Draw the budget line. b. Draw an indifference curve consistent with a person whose preferences causes them to equalize their consumption in period 0 and period 1. c. Savings are $_ d. Draw the after-tax budget line if a personal income tax is introduced with a marginal tax rate of t= 40%. e. Suppose that preferences are such that after tax consumption is equalized in period 0 and period 1. On the diagram show after-tax savings. Сі ($x 1,000) 450 400 350 300 250 200 150 100 50 25 50 75 100 125 150 175 200 225 250 275 300 325 350 Со ($ x 1,000)
- Derive and plot Madeline's demand curve for Coke if she views Coke and Pepsi as perfect substitutes. (Hint: The quantity of Coke consumed where the budget line hits the Coke axis is Y/Pc, where pc is the price of Coke, pp is the price of Pepsi, and Y is income.) Use the 3-point curved line drawing tool to draw Madeline's demand curve for Coke. To simplify the analysis, assume that if the price of Coke and the price of Pepsi are equal, then Madeline, though indifferent between the two, only consumes Coke. Label this curve 'Demand'. Carefully follow the instructions above, and only draw the required objects. C Price/can of Coke Pp Y Pc Coke, Cans per yearThe one-period model with quasi-linear utility predicts that a decrease in marginal income tax rates could increase tax collection if:Group of answer choices Substitution effects dominate income effects so that the percent change in taxes is greater than the percent change in GDP Substitution effects dominate income effects so that the percent change in taxes is less than the percent change in GDP Income effect dominate substitution effects so that the percent change in taxes is less than the percent change in GDP Income effects dominate substitution effects so that the percent change in taxes is greater than the percent change in GDP2) Remember the chips and salsa economy from Lab 4? No? Well, assume that only two goods matter in this economy: "chips" and "salsa." Suppose that the consumers in this economy are indifferent, i.e. gain the same amount of utility, from the following combinations of chips and salsa (6-month consumption): Chips (in Ibs) Salsa (in quarts) 20 140 30 90 50 50 70 40 110 30 Use this information to answer the questions below Suppose that, in the year 2021, the price of a pound of chips is $1.00, and the price of a quart of a) salsa is $3.00. Find the cost-minimizing combination of chips and salsa from the table above and calculate the total expenditure necessary to purchase this bundle. b) Now suppose that, in 2022, the price of a pound of chips is $4.00 and the price of a quart of salsa is $3.00. How much would it cost to purchase the chips/salsa combination from part (a)? Find the new minimum-cost bundle using the 2022 prices. e) d) Compute the Consumer Price Index (CPI) in this economy…
- George enjoys bananas and leisure. He sleeps 8 hours per day. Of the remaining 16 hours, for each hour he works he is paid 2 bananas. He also receives 6 bananas in dividends but has to pay 6 bananas in taxes. Draw George’s budget constraint (put consumption on the vertical axis and leisure on the horizontal). Make sure to show the vertical and horizontal intercepts as well as the slope. Now suppose that George chooses to work 6 hours per day. Find how many hours o f leisure and how many bananas he will consume, and show his optimal choice on the budget line using an indifference curve. Suppose that the government uses some of the taxes to give back to George income assistance of 4 bananas. Show the impact of the measure on George’s budget constraint Use an indifference curve to show George’s new optimal allocation and explain what will happen to his consumption of bananas and leisure if both are normal goods. The graphs below shows the behaviour of consumption of durables and…Principles of Economics 1 | S1 21/22 Time left 0:5) When the price of one good increases and the price of the other good and income are held constant, the budget line Select one: shifts parallel to the original budget line so that the new budget line is farther from the origin O b. shifts parallel to the original budget line so that the new budget line is closer to the origin rotates so that the intercept is farther from the origin on the axis representing the good that has experienced an increase in price O a. O c. O d. rotates so that the intercept is closer to the origin on the axis representing the good that has experienced an increase in price Next page1. Complete the following table and answer the questions below: Units consumed Total utility Marginal utility 1 10 10 2 8. 25 4 30 5 6. 34 2. Columns 1 through 4 in the table below show the marginal utility, measured in utils, that Ricardo would get by purchasing various amounts of products A, B, C, and D. Column 5 shows the marginal utility Ricardo gets from saving. Assume that the prices of A, B, C, and D are P18, 6, 4, and 24, respectively, and that Ricardo has an income of 106. Column 1 Column 2 Column 3 Column 4 Column 5 Unit Unit Unit Unit No. of MU MU MU MU P saved MU of A of B of C of D || || || || | 1 72 1 24 1 15 1 36 1 2 54 2 15 12 2 30 2 3 45 3 12 8 3 24 3 36 4 18 2 27 5 7 5 13 5 1 18 6. 7 6. 1/2 7 15 7 7 3.5 7 4 7 1/4 8 12 8. 1 8 2 8. 1/8 a. What quantities of A, B, C, and D will Ricardo purchase in maximizing his utility? b. How many pesos will Ricardo choose to save?
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