1)Explain the significance of the Prisoner's Dilemma, and how the model might be used to explain some forms of competition when there is uncertainty. 2)Explain the similarities and differences between Keynes' theory of consumption and Friedman's Permanent Income Hypothesis. 3)explain why the Marginal Rate of Substitution is equal to the price ratio for all goods, and its significance. 4)Briefly compare and contrast various models of how duopolists compete. 5)Explain whether the Efficient Market Hypothesis is a helpful theory, and why or why not. 6)Explain why financial theory rests on the mean and variance approach to the risk/return relationship. 7)Describe how Fisher and Modigliani helped explain our pattern of savings throughout our lifetime.

You have asked multiple questions. We will answer one question for you. If u want any specific question to be answered, then specify it or post that question alone. 3.According to the theory of consumer behaviour, in a two good world a consumer consumes a good up-to the point where, marginal utility derived per dollar is same for all goods, implying MUx/Px = MUy/Py, where, MUx and MUy are the marginal utitlity derived from the consumption of good X and good Y respectively. Rearranging the equation, MUx/MUy = Px/Py. Marginal rate of substitution (MRS) refers to the amount of one good a consumer gives up in order to increase consumption of the other good by one unit in such a way that the initial level of satisfaction (given the utility function) of the consumer remains the same. Mathematically,MRSXY=MUxMUy. Given the indifference curve of the consumer is convex to the origin, in order to increase the consumption good X by one unit the consumer needs to give up MRSXY units of good Y. Therefore, slope of the indifference curve is,MRSXY=MUxMUy. The absolute value of the slope of the budget line is given by, PxPy. Therefore, consumer equilibrium occurs at, MUxMUy=PxPy, i.e. the highest attainable indifference curve is tangent to the budget line.

Answered: explain why the Marginal Rate of…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Explain the significance of the Prisoner's Dilemma, and how the model might be used to explain some forms of competition when there is uncertainty.

Explain the similarities and differences between Keynes' theory of consumption and Friedman's Permanent Income Hypothesis.

explain why the Marginal Rate of Substitution is equal to the price ratio for all goods, and its significance.

Briefly compare and contrast various models of how duopolists compete.

Explain whether the Efficient Market Hypothesis is a helpful theory, and why or why not.

Explain why financial theory rests on the mean and variance approach to the risk/return relationship.

Describe how Fisher and Modigliani helped explain our pattern of savings throughout our lifetime.

Definition Definition Degree to which financial markets incorporate all available information into the prices of assets. In a more efficient market, the prices reflect the available information more than that in a weak efficient market. It is difficult for investors to outperform the market in a strong efficient market. This is because all the available information is already discounted in the asset's price. However, in a weak-form efficiency, the market does not reflect all information in the asset's price. As a result, it becomes easier to generate better returns in a weak form or an inefficient market.

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