Microeconomics Answers

Write short notes on the following.
a) Ineffectiveness of fiscal policy under flexible exchange rate
b) Nominal rigidity in wage rate and prices

Suppose that player 1 moves first by choosing either A or N. Players 2 observe
player 1’s action and then choose I or, O. For every action combination, the
4
player’s pay-offs are the same as in the above pay-off matrix. Draw a tree of this
new game. How many strategies does player 1 have and what are they? Find all the
sub-game perfect equilibria of this game.

Consider a perfectly competitive exchange economy with no production, and two different goods 1 and 2. Let p1 and p 2 be the prices of the· goods. The economy is populated by two people A and B. A's initial endowment of the two goods is given by (w1,w2), and B's initial endowment is (w3,w4) A can choose any bundle (x1,x2) and B can choose any bundle(x3,x4). In this pure exchange economy write out the conditions for a Walrasian equilibrium. Show that for such an economy for any equilibrium set of prices that the absolute price level is indeterminate.

The input coefficient matrix P for an economy is given by P = [ 0.0 0.3 0.3 0.3 0.1 0.1 0.2 0.4 0.0] and the final demand vector D = [180 20 90] Find the output levels.

envelope theorem

Consider the overlapping generation model where each member lives for two time period 't' and 't+1'. Assume that individual work in time period 't' and earn wage, while they do not work in time period 't'+1' and survive on interest income. Explain the impact of an increase in interest rate on consumption for time period 't'.

Profit-maximizing firms employ factors of production such that the marginal products per dollar spent on each factor are
a.equalized
b.maximized
c.minimized

a firm's demand function for good x is estimated as follows ; Qx = 1800 - 1/4Px + 1/8 Py -1/3Pz + 1/5Y where Qx represents quantity demanded of goods x , Px is price of good x , Py is price of good y, Pz is price of good z & Y is income. Explain whether good Y & Z are substitute or complements of good X

discuss why entrepreneur might want to change the price elasticity of demand for their products and consider the extent which is achievable.

explain using elasticity of demand why a train company might introduce a policy of raising fairs at busy travel time and lowering fairs at less busy travel times

Suppose that Billy's preferences over baskets containing milk (good x), and coffee (good
y ), are described by the utility function U(x; y ) = xy +2x. Billy's corresponding marginal
utilities are, MUx = y + 2 and MUy = x:
Use Px to represent the price of milk, Py to represent the price of coffee, and I to represent
Billy's income.
Question 1: Derive Sally’s demand for coffee as a function of the variables Px, Py and I. (i.e. Do NOT use the numerical values for Px, Py and I, from question 1.) For the purposes of this question you should assume an interior optimum.
Question 2: Derive Sally’s demand for milk as a function of the variables Px, Py and I. (i.e. Do NOT use the numerical values for Px, Py and I, from question 1.) For the purposes of this question you should assume an interior optimum.