Economics: Private and Public Choice
16th Edition
ISBN: 9781337642224
Author: James D. Gwartney; Richard L. Stroup; Russell S. Sobel
Publisher: Cengage Learning US
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Chapter 27, Problem 10CQ
To determine
Rate of time preference and benefit from present.
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6. Joe and Sam wish to complete the Auckland marathon. They each have the following two
options: (a) training for the marathon at time 1 (utility=0) and completing the marathon at
time 2 (utility=16); and (b) going to the beach at time 1 (utility=8} and not completing the
marathon at time 2 (utility=0).
a. Joe discounts the future exponentially. His & =3/4.
1. From the point of view of time 0: What is his utility of a? What is his utility of
b?
it. From the point of view of time 1: What is his utility of a? What is his utility of
b?
b. Sam discounts the future hyperbolically. His B=1/4 and his 6 = 1.
i. From the point of view of time 0: What is his utility of a? What is his utility of
b?
ii. From the point of view of time 1: What is his utility of a? What is his utility of
b?
C.
Who will not complete the marathon? Why?
d. Who will complete the marathon? Why?
Solve only if ? sure. Solve fast . handwritten answer also appreciated for fast answering.
Many clothing stores purchased new fashions from clothing manufacturers back in the Fall, expecting to sell new fashions to consumers this Spring. Because of the pandemic, however, people are not shopping for new clothing fashions as much as the clothing retailers had expected. So these stores have on hand lots of new clothing, just sitting on their shelves, going unsold. The question for these retailers is what to do with this clothing. One option is to hang on to it and hope to sell it to consumers next year. Another option is to sell the clothing now to so-called “deep discount retailers” such as Beall’s, Marshall’s, T.J. Maxx, and Ross Dress for Less. The problem with selling to deep discount stores is that the clothing retailers will probably receive less money than they paid to get the clothing from the manufacturers.
Explain whether it makes good economic sense for clothing retailers to sell their unsold clothing to deep discounters for less than they paid for it. Identify the…
Chapter 27 Solutions
Economics: Private and Public Choice
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- 3. Which lottery payout scheme is better? Suppose you win a raffle held at a minor league baseball game and are given the choice between two different ways to be paid. You can either accept the money in a lump sum immediately or in a series of payments over time. If you choose the lump sum payout, you receive $3,000 today. If you choose to collect payments over time, you receive three payments: $1,000 today, $1,000 1 year from today, and $1,000 2 years from today. At an interest rate of 6% per year, the winner would be better off accepting the value. , since that choice has the greater present O The lump sum is always better. The payments over time are always better. O It will depend on the interest rate; advise her to get a calculator. O None of these answers is good advice. At an interest rate of 10% per year, the winner would be better off accepting A couple years after you win the raffle, you and your friend are back at the same event. This time, your friend gets lucky and wins the…arrow_forward4. Marvin is given a number of choices between various lotteries where the possible outcomes include a vacation, a motorbike, a pair of shoes and a round of applause, or X = {v,m, s, a}. It is known that, according to Marvin's preferences, v > m > s > a. In addition, he claims he would be indifferent between the motorbike and a lottery that results in a vacation with probability 0.4 and a pair of shoes with probability 0.6, and he would furthermore be indifferent between a pair of shoes and a lottery that results in a motorbike with probability 0.5 and a round of applause with probability 0.5. Marvin has a utility function u: X → R (in other words u maps each element in X to a real number) and he in an expected utility maximiser (in other words his preferences conform to the axioms G1 to G6). 4.1. Assuming Marvin's claims about indifference are correct, derive u(m) and u(s) in terms of u(v) and u(a). 4.2. Von Neumann-Morgenstern utility functions are only unique up to positive affine…arrow_forwardHelena earns $2000 this year and will earn $1500 the next year. The interest rate between each year is 10%. She wants to consume the same quantity each year. She wants to have spent all her money by the end of year 2. Warning: each question does build on each other How much would she save? How much would she consume? If she wins the lottery during the first year, raising her earnings to $10000 this year, how much would she save, how much would she consume? If she now wants to consume twice as much in year 1 as she does in year 2, how much would she save, how much would she consume? If she now has no preferences about her consumption, but she wants to save $5000 in year 1 (to buy a new car in year 2), how much would she consume in year 1 and year2?arrow_forward
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