The principles used in the given case. Concept Introduction: Principles of Individual Choice: “Choice is necessary because resources are scarce”- Resources are always scarce in respect to its use, a single resource can be put to various alternative uses. Therefore, one has to choose between the various uses. “The true cost of something is its opportunity cost ”- The value of any commodity is derived from the forgone cost to get that particular commodity. “How much is the decision at the margin”- The choice of having something depends on the benefits one receive from that choice. “People usually exploit opportunities to make them better off”- People are always fond of alternative incentive, which can make them in better situation as compared to the previous situation. “ Gains from trade ”- Individual always gain from trade by selling the product in which they are specialized and purchasing the product in which they are comparatively less specialized. “Market moves towards equilibrium”- Market always tries to settle down at a point where no individual is comparatively better off in changing his choice. “Resources should be used efficiently to achieve society’s goals”- Resources should be used in such a way that will not make any better off by making the other individual worse off. “Markets usually lead to efficiency”- People always look for the opportunity, which can make them better off without making any other person worse off, this leads to efficiency in the market. “When markets don’t achieve efficiency, government intervention can improve society’s welfare”- Government intervention is required when the market do not correct itself. “One person’s spending is another person’s income”- The economy will always go on because a person earns only when the other person spends. “Overall spending sometimes gets out of line with the economy’s productive capacity”- The economy can face inflation at the time when spending of whole economy raises all together. “Government policies can change spending”- Various fiscal and monetary policies of government are used to correct the situation of the economy and adjust the spending.

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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.

Chapter 1, Problem 1P

To determine

The principles used in the given case.

Concept Introduction:

Principles of Individual Choice:

“Choice is necessary because resources are scarce”- Resources are always scarce in respect to its use, a single resource can be put to various alternative uses. Therefore, one has to choose between the various uses.

“The true cost of something is its opportunity cost”- The value of any commodity is derived from the forgone cost to get that particular commodity.

“How much is the decision at the margin”- The choice of having something depends on the benefits one receive from that choice.

“People usually exploit opportunities to make them better off”- People are always fond of alternative incentive, which can make them in better situation as compared to the previous situation.

“Gains from trade”- Individual always gain from trade by selling the product in which they are specialized and purchasing the product in which they are comparatively less specialized.

“Market moves towards equilibrium”- Market always tries to settle down at a point where no individual is comparatively better off in changing his choice.

“Resources should be used efficiently to achieve society’s goals”- Resources should be used in such a way that will not make any better off by making the other individual worse off.

“Markets usually lead to efficiency”- People always look for the opportunity, which can make them better off without making any other person worse off, this leads to efficiency in the market.

“When markets don’t achieve efficiency, government intervention can improve society’s welfare”- Government intervention is required when the market do not correct itself.

“One person’s spending is another person’s income”- The economy will always go on because a person earns only when the other person spends.

“Overall spending sometimes gets out of line with the economy’s productive capacity”- The economy can face inflation at the time when spending of whole economy raises all together.

“Government policies can change spending”- Various fiscal and monetary policies of government are used to correct the situation of the economy and adjust the spending.

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Problem 2. If the consumer preference can be represented by a CES function with δ = 0.5, i.e. u(x, y) = x0.5 + y0.5. Let the prices and income be (px, py, w). 1. Set up the Lagrangian expression.2. Take the first-order conditions.3. Substitute into budget constraint to derive the optimal consumption bundles.

1. A town relies on four different sources for its non-drinking water needs: dam water, reclaimed water, rain water, and desalinated water. The different sources carry different risks and costs. For instance, desalinated water is fully reliable due to abundant sea water, but it is more expensive than other options. Reclaimed water also has relatively lower risk than rain or dam water since a certain amount can be obtained, even during the dry. season, by the treatment of daily generated waste water. Using any of the four options requires an investment in that resource. The return on a particular water source is defined as the amount of water generated by the source per dollar of investment in it. The expected returns and standard deviations of those returns for the four water sources are described in the following table: Water resource Expected return St. Deviation Dam water 2.7481 0.2732 Reclaimed water 1.6005 0.0330 Rain water 0.5477 0.2865 Desalinated water 0.3277 0.0000 Higher…

1. Imagine a society that produces military goods and consumer goods, which we'll call "guns" and "butter." a. Draw a production possibilities frontier for guns and butter. Using the concept of opportunity cost, explain why it most likely has a bowed-out shape. b. Show a point that is impossible for the economy to achieve. Show a point that is feasible but inefficient. c. Imagine that the society has two political parties, called the Hawks (who want a strong military) and the Doves (who want a smaller military). Show a point on your production possibilities frontier that the Hawks might choose and a point the Doves might choose. d. Imagine that an aggressive neighboring country reduces the size of its military. As a result, both the Hawks and the Doves reduce their desired production of guns by the same amount. Which party would get the bigger "peace dividend," measured by the increase in butter production? Explain.

Answer 2

Question

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.

Chapter 1, Problem 1P

To determine

The principles used in the given case.

Concept Introduction:

Principles of Individual Choice:

“Choice is necessary because resources are scarce”- Resources are always scarce in respect to its use, a single resource can be put to various alternative uses. Therefore, one has to choose between the various uses.

“The true cost of something is its opportunity cost”- The value of any commodity is derived from the forgone cost to get that particular commodity.

“How much is the decision at the margin”- The choice of having something depends on the benefits one receive from that choice.

“People usually exploit opportunities to make them better off”- People are always fond of alternative incentive, which can make them in better situation as compared to the previous situation.

“Gains from trade”- Individual always gain from trade by selling the product in which they are specialized and purchasing the product in which they are comparatively less specialized.

“Market moves towards equilibrium”- Market always tries to settle down at a point where no individual is comparatively better off in changing his choice.

“Resources should be used efficiently to achieve society’s goals”- Resources should be used in such a way that will not make any better off by making the other individual worse off.

“Markets usually lead to efficiency”- People always look for the opportunity, which can make them better off without making any other person worse off, this leads to efficiency in the market.

“When markets don’t achieve efficiency, government intervention can improve society’s welfare”- Government intervention is required when the market do not correct itself.

“One person’s spending is another person’s income”- The economy will always go on because a person earns only when the other person spends.

“Overall spending sometimes gets out of line with the economy’s productive capacity”- The economy can face inflation at the time when spending of whole economy raises all together.

“Government policies can change spending”- Various fiscal and monetary policies of government are used to correct the situation of the economy and adjust the spending.

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Answer 3

Question

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.

Chapter 1, Problem 1P

To determine

The principles used in the given case.

Concept Introduction:

Principles of Individual Choice:

“Choice is necessary because resources are scarce”- Resources are always scarce in respect to its use, a single resource can be put to various alternative uses. Therefore, one has to choose between the various uses.

“The true cost of something is its opportunity cost”- The value of any commodity is derived from the forgone cost to get that particular commodity.

“How much is the decision at the margin”- The choice of having something depends on the benefits one receive from that choice.

“People usually exploit opportunities to make them better off”- People are always fond of alternative incentive, which can make them in better situation as compared to the previous situation.

“Gains from trade”- Individual always gain from trade by selling the product in which they are specialized and purchasing the product in which they are comparatively less specialized.

“Market moves towards equilibrium”- Market always tries to settle down at a point where no individual is comparatively better off in changing his choice.

“Resources should be used efficiently to achieve society’s goals”- Resources should be used in such a way that will not make any better off by making the other individual worse off.

“Markets usually lead to efficiency”- People always look for the opportunity, which can make them better off without making any other person worse off, this leads to efficiency in the market.

“When markets don’t achieve efficiency, government intervention can improve society’s welfare”- Government intervention is required when the market do not correct itself.

“One person’s spending is another person’s income”- The economy will always go on because a person earns only when the other person spends.

“Overall spending sometimes gets out of line with the economy’s productive capacity”- The economy can face inflation at the time when spending of whole economy raises all together.

“Government policies can change spending”- Various fiscal and monetary policies of government are used to correct the situation of the economy and adjust the spending.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Answer 4

Question

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.

Chapter 1, Problem 1P

To determine