Question A.1 (Word Limit: 500 words) Consider an economy with a single physical commodity and uncertainty & = {(R$), uh, eh) : h = H}, where S denotes a (finite) set of states and H a set of individuals. This economy is endowed with an S x J asset structure A where rank(A) = S. (i) Provide a definition of Pareto optimality for this economy. (ii) Prove that an equilibrium in this economy is (Pareto) optimal. (iii) Suppose that the government intervenes in asset markets (e.g. by introduc- ing taxes on asset payoffs) and changes the asse structure to a new one B, where rank(B) = S. Explain carefully the effect of this policy on the real and financial parts of the economy. =

Question A.1 (Word Limit: 500 words) Consider an economy with a single physical commodity and uncertainty & = {(R$), uh, eh) : h = H}, where S denotes a (finite) set of states and H a set of individuals. This economy is endowed with an S x J asset structure A where rank(A) = S. (i) Provide a definition of Pareto optimality for this economy. (ii) Prove that an equilibrium in this economy is (Pareto) optimal. (iii) Suppose that the government intervenes in asset markets (e.g. by introduc- ing taxes on asset payoffs) and changes the asse structure to a new one B, where rank(B) = S. Explain carefully the effect of this policy on the real and financial parts of the economy. =

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

Question Two A. Based on the knowledge you have acquired in project design and implementation, and based on any community project of your choice, use indifference curves and budget concept to illustrate your understanding of consumer equilibrium. B. A two commodity market model is defined by the following. Qdl = 24 - P1 + ½ P2; Qd2 = 10 P1 - P2 : Qs1 = -72 + 4P1 ; Qs2 = - 18 + 4P2 Determine the equilibrium prices and quantities for the two commodities and the price elasticity of demand and cross elasticity for both markets and interpret your coefficients.
1) Kenya's minimum wage is Kshs 850 per hour. Imagine you are a policymaker and you must vote whether it be raised, lowered, or abolished. What will you decide? Why? Show how your decision will look when graphed. 2) Two commodity market model is defined by the following. Qd, = 24 - P, + 0.5P;; Qd, = 10 P, - P2; Qs, = -7.5 + 4P,; Qs, = - 18 + 4P, Determine the equilibrium prices and quantities for the two commodities and the price elasticity of demand and cross elasticity for both markets and interpret your coefficients. b. Kenya's minimum wage is Kshs 850 per hour. Imagine you are a policymaker and you must vote whether it be raised, lowered, or abolished. What will you decide? Why? Show how your decision will look when graphed.
a) A planner in a small, open economy has a utility function U = x1x2 and production takes place according to the production functions Y1 = 10L, – 0.5L? Y2 10L2 – L3 The world prices of the goods are p1 10 and P2 5. The total amount of labour available in the economy is 5 units. (i) Formulate the Lagrange equation. (ii) Write down the Karush-Khun-Tucker conditions. (iii) Determine a possible solution. b) Let aggregate national income be given by Y; = C; + It + G; Where C, I and G are consumption, investment and government expenditure. Assume that consumption is given by C = mY; %3D Investment is given by I; = i + «(Y¢-1– Y;-2) %3D And government expenditure declines over time according to G¢ = Go(1 – 8)*, 0 < 8 < 1 Where 8 is the exogenous rate of decline of government expenditure (i) Derive the linear second order difference equation. (ii) Solve the difference equation.
Given the following demand and supply functions for the cobweb model, find theintertemporal equilibrium price and determine whether the equilibrium is stable.
Consider the following one-period model. Assume that the consumption good is produced by a linear technology: Y = zND where Y is the output of the con- sumption good, z is the exogenous total factor productivity, ND is the labour hours. Government has to finance its expenditures, G, using a lump-sum tax, T, on the rep- resentative consumer. There is no other tax in the economy. The firm is owned by the representative consumer who is endowed with h hours of time she can allocate between work, NS and leisure, l. Preferences of the representative consumer are: U (c, l) = α ln c + (1 − α) ln l (1) where 0 < α < 1 is a parameter. (a) Write down the definition of a competitive equilibrium for the above economy 1 (b) Solve for the leisure, l, the consumption, c, employment, N, wage rate, w, lump-sum tax, T , and output, Y in equilibrium. (c) Solve for the optimal allocation of leisure, l, the consumption, c, employment, N, output, Y . Contrast these quantities with those…
Consider an exchange economy with two investors, A and B, and one physical good. Investor, i, lives for two periods, and has lifetime utility given by U(c,c) = log(c)+ Blog(c{) Be(0,1) i={4, B} where c is consumption of the good of investor i in period t= {0, 1}. Their endowments are given by y ={y°•y?} where the first component in the endowment vector denotes the investor's endowment of the physical good in period 0, and the second component denotes the investor's endowment of the good in period 1. Importantly, the physical good is non-storable. Each investor may be willing to trade some of period 0 endowment in order to enhance consumption in period 1, or vice versa. Market structure: In period 0, investors can trade in the physical good (or equivalently, trade claims to the physical good), as well as buy and sell “futures" (i.e., promises to deliver one unit of the good in period 1). In period 1, there are no more transactions except that investors execute their promises. Use values…
Statement 1 (S1): Complementarities increase the incentives for other agents to take similar actions. Statement 2 (S2): Complementarities occur when agents or sectors, their resources and capacities play respective assigned roles in a coordinated, well planned process of development. * True, True True, False False, True False, False S1: Multiple equilibria is a condition in which more than one equilibrium exists. S2: These equilibria sometimes may be ranked, in the sense that one is preferred over another, but the unaided market will not move the economy to the preferred outcome. * True, True True, False False, True False, False
Consider a two-period small open economy populated by households and firms with a single good each period. The preferences of the representative household are described by the utility function u(c₁c₂) = (₁₂)² where c₁ and c₂ denote consumption in periods 1 and 2, respectively. In period 1, the household receives an endowment of q₁ = 1. In period 2, the household receives profits, denoted by ₂, from the firms it owns. In period 1, the household has access to financial markets where they can borrow or lend at the interest rate r = 10%. The household has a zero asset holding position in period 1. Let the budget constraint in the first period be c₁ + bh = 9₁, with b denoting assets purchased in the first period. Firms borrow in period 1 from the international financial market to invest in physical capital and to produce final goods in period 2. Denote by d₁ the amount of debt taken by the firm in period 1. The production technology in period 2 is given by Q₂ = 410.5, where Q₂ and 1₁ denote…
please help solve this question
The assumption of the Baumol model implies that production in the public sector exhibits constant returns to scale. True or false, and explain
Q4) Africa region's economies are severely affected by the global crisis. Policy makers across the region have been challenged with the responsibility to provide appropriate policies to address the current economic challenges. You are required using the SWAN MODEL. developed by Trevor Swan (1956) to model the Australia economy during the great depression as a guiding instrument for Africa's decision makers.
Consider the free market model involving the quantities of a product bought and sold, Q, at price P, as follows: Q = a1 + a2P, where a1 < 0, a2 > 0, and Q = b1 + b2P, where b1 > 0, b2 < 0. (i) Identify which of the above equations is the market demand, and which is the market supply, Curves, and explain the reasons for your choices. (ii) For the specific model: Q = -15P+2200 and Q = -800+10P, solve for the market equilibrium price (P*), and quantities (Q*) outcomes. (iii) Sketch a graphical representation of this market model. (Must label ALL intercepts and slopes clearly on your graphs).