This question applies to parts 1-10. It contains drop-down multiple choice and numerical questions. Consider a world in which there are only two dates: 0 and 1. At date 1 there are three possible states of nature: a good weather state (G), a fair weather state (F), and a bad weather state (8). The state at date zero is known. There is one non-storable consumption good, apples. There is one representative consumer in the economy. The endowment of apples at time 0, is 2. At time 1 the endowment of apples is state-dependent. The physical probabilities, and state-dependent endowments, e, of the states at time 1 are given in the table: 3) Compute the equilibrium traded quantity of the fair weather atomic (Arrow-Debreu) security: 0 The expected utility is given by u(co) + B[cu(cc) + pu(cp) + Bu(CB)], where the instantaneous utility function is: u(e) = ln(c) (natural logarithm). The consumer's time discount factor. B. is 0.95. Note: round your answers to 2 decimal places if necessary. 1) At least how many different securities is required for this market to be complete? 3 For the rest of this question, consider Arrow-Debreu securities are available. 2) Compute the equilibrium r weather state price: 0.285 4) Compute the equilibrium quantity consumed in the bad weather state: 1 State Probability Endowment 0.4 4 G F 2 B 1 0.3 ✔ 5) In this Arrow-Debreu economy, maximization of expected utility reflects the assumption of: agents are selfish Mark 1.00 out of 1.00 6) To solve for the Arrow-Debreu equilibrium, we need to do the following EXCEPT: find the first-order-condition for asset prices 7) The agent in this economy is risk-averse 8) The stochastic discount factor of the good weather state is less than 0.95 9) Assume now that the instantaneous utility is u (c) = 10c and all other parameters remain the same. Compute the discount factor: 0.95 10) Assume again that the instantaneous utility is u (e) = 10c and all other parameters remain the same. Compute the risk premium of the good weather atomic (Arrow-Debreu) security: 0
This question applies to parts 1-10. It contains drop-down multiple choice and numerical questions. Consider a world in which there are only two dates: 0 and 1. At date 1 there are three possible states of nature: a good weather state (G), a fair weather state (F), and a bad weather state (8). The state at date zero is known. There is one non-storable consumption good, apples. There is one representative consumer in the economy. The endowment of apples at time 0, is 2. At time 1 the endowment of apples is state-dependent. The physical probabilities, and state-dependent endowments, e, of the states at time 1 are given in the table: 3) Compute the equilibrium traded quantity of the fair weather atomic (Arrow-Debreu) security: 0 The expected utility is given by u(co) + B[cu(cc) + pu(cp) + Bu(CB)], where the instantaneous utility function is: u(e) = ln(c) (natural logarithm). The consumer's time discount factor. B. is 0.95. Note: round your answers to 2 decimal places if necessary. 1) At least how many different securities is required for this market to be complete? 3 For the rest of this question, consider Arrow-Debreu securities are available. 2) Compute the equilibrium r weather state price: 0.285 4) Compute the equilibrium quantity consumed in the bad weather state: 1 State Probability Endowment 0.4 4 G F 2 B 1 0.3 ✔ 5) In this Arrow-Debreu economy, maximization of expected utility reflects the assumption of: agents are selfish Mark 1.00 out of 1.00 6) To solve for the Arrow-Debreu equilibrium, we need to do the following EXCEPT: find the first-order-condition for asset prices 7) The agent in this economy is risk-averse 8) The stochastic discount factor of the good weather state is less than 0.95 9) Assume now that the instantaneous utility is u (c) = 10c and all other parameters remain the same. Compute the discount factor: 0.95 10) Assume again that the instantaneous utility is u (e) = 10c and all other parameters remain the same. Compute the risk premium of the good weather atomic (Arrow-Debreu) security: 0
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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![This question applies to parts 1-10. It contains drop-down multiple choice and numerical questions.
Consider a world in which there are only two dates: 0 and 1. At date 1 there are three possible states of nature: a good weather state (G), a fair weather state (F), and a bad weather state (B). The state at date zero is known. There is one non-storable consumption good, apples. There is one representative consumer in the
economy. The endowment of apples at time 0, is 2. At time 1 the endowment of apples is state-dependent. The physical probabilities, it, and state-dependent endowments, e, of the states at time 1 are given in the table:
3) Compute the equilibrium traded quantity of the fair weather atomic (Arrow-Debreu) security: 0
4) Compute the equilibrium quantity consumed in the bad weather state: 1
5) In this Arrow-Debreu economy, maximization of expected utility reflects the assumption of: agents are selfish
Mark 1.00 out of 1.00
6) To solve for the Arrow-Debreu equilibrium, we need to do the following EXCEPT: find the first-order-condition for asset prices ♦
7) The agent in this economy is
The expected utility is given by u(co) + B[Tc · u(cc) + πF · u(CF) + πB · u(CB)], where the instantaneous utility function is: u (c) = ln(c) (natural logarithm). The consumer's time discount factor, B, is 0.95.
Note: round your answers to 2 decimal places if necessary.
1) At least how many different securities is required for this market to be complete? 3
For the rest of this question, consider Arrow-Debreu securities are available.
2) Compute the equilibrium fair weather state price: 0.285
risk-averse
♦
8) The stochastic discount factor of the good weather state is
State Probability Endowment
0.4
4
0.3
0.3
less than 0.95
F
B
2
1
9) Assume now that the instantaneous utility is u (c) = 10c and all other parameters remain the same. Compute the discount factor: 0.95
10) Assume again that the instantaneous utility is u (c) = 10c and all other parameters remain the same. Compute the risk premium of the good weather atomic (Arrow-Debreu) security: 0](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F9e9c2742-b709-42fb-8629-53b27d315394%2F30d46d3f-e208-46c6-8681-1e63a3161f6d%2Fv3cz1l_processed.png&w=3840&q=75)
Transcribed Image Text:This question applies to parts 1-10. It contains drop-down multiple choice and numerical questions.
Consider a world in which there are only two dates: 0 and 1. At date 1 there are three possible states of nature: a good weather state (G), a fair weather state (F), and a bad weather state (B). The state at date zero is known. There is one non-storable consumption good, apples. There is one representative consumer in the
economy. The endowment of apples at time 0, is 2. At time 1 the endowment of apples is state-dependent. The physical probabilities, it, and state-dependent endowments, e, of the states at time 1 are given in the table:
3) Compute the equilibrium traded quantity of the fair weather atomic (Arrow-Debreu) security: 0
4) Compute the equilibrium quantity consumed in the bad weather state: 1
5) In this Arrow-Debreu economy, maximization of expected utility reflects the assumption of: agents are selfish
Mark 1.00 out of 1.00
6) To solve for the Arrow-Debreu equilibrium, we need to do the following EXCEPT: find the first-order-condition for asset prices ♦
7) The agent in this economy is
The expected utility is given by u(co) + B[Tc · u(cc) + πF · u(CF) + πB · u(CB)], where the instantaneous utility function is: u (c) = ln(c) (natural logarithm). The consumer's time discount factor, B, is 0.95.
Note: round your answers to 2 decimal places if necessary.
1) At least how many different securities is required for this market to be complete? 3
For the rest of this question, consider Arrow-Debreu securities are available.
2) Compute the equilibrium fair weather state price: 0.285
risk-averse
♦
8) The stochastic discount factor of the good weather state is
State Probability Endowment
0.4
4
0.3
0.3
less than 0.95
F
B
2
1
9) Assume now that the instantaneous utility is u (c) = 10c and all other parameters remain the same. Compute the discount factor: 0.95
10) Assume again that the instantaneous utility is u (c) = 10c and all other parameters remain the same. Compute the risk premium of the good weather atomic (Arrow-Debreu) security: 0
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