Microeconomics Answers

Sita expects her future earnings to be worth rs. 100. If she falls ill, her expected future earning will be rs 25. There is a belief that she may fall ill with probability of 2/3 while the probability of remaining in good health is 1/3 . Let her utility function be given as U(y)=Y1/2. Suppose that an insurance company offers to fully insure sita against loss of earnings caused by illness against an actuarially fair premium.
(a) Will sita accepts the insurance. Explain.
(b) What is the maximum amount that sita would pay for the insurance?

You find a nice condo and town home to purchase and are willing to put 10% of the purchase price down. You have a good job and strong income with limited expenses. You don't even own a car, a decision you made at the margin in order to save for the down payment. Your monthly mortgage payment will be $1200 which is more than your rent of $900. You will be charged an interest rate of 6% on a fifteen year mortgage. All things being equal in terms of a sound financial decision your _____________ on the home should exceed your cost of borrowing.

Scarcity and competition are more often than not linked together. When there's a limited number of slots and a large number of applicants, firms will use __________ to determine who gets what.

ou find a nice condo and town home to purchase and are willing to put 10% of the purchase price down. You have a good job and strong income with limited expenses. You don't even own a car, a decision you made at the margin in order to save for the down payment. Your monthly mortgage payment will be $1200 which is more than your rent of $900. You will be charged an interest rate of 6% on a fifteen year mortgage. All things being equal in terms of a sound financial decision your _____________ on the home should exceed your cost of borrowing

The following utility function marks the preferences over two goods;
U(X1,X2)=X1X2+2X1
There is no budget constraint (income is unlimited)
the prices of the two goods are p1=6 and p2 =8

A) What are the optimal quantities of each given good?

For the questions below, write what effect the listed scenarios has on the demand of the product and why.
1. Winter coat: unusually mild winter
2. Winter coat: relocate to Nepal
3. Winter coat: rock star makes it trendy to wear winter coats
4. Shorts: schools ban wearing shorts
5. Shorts: famous people wear shorts in public
6. Ski sweater: Skiing becomes more popular
7. Ski sweater: Ski sweaters are out

Consider a production process which encounters diminishing returns right away. Draw the TP curve and, directly below, derive the APL and MPL curves. Then, in another graph, show the TVC, TFC and TC curves in this case and graphically derive the AVC, ATC and MC curves. Be sure to carefully label your graphs and use light trace lines to show the coordination between the top and bottom graphs.

Imagine that to preserve the traditional way of life in small fishing villages, a government decides to impose a price floor that will guarantee all fishermen a certain price for their catch.

a. Using the demand and supply framework, predict the effects on the price, quantity demanded, and quantity supplied.

b. With the enactment of this price floor for fish, what are some of the likely unintended consequences in the market?

c. Suggest a policy other than the price floor, working within the framework of demand and supply, to make it possible for small fishing villages to continue.

Imagine that to preserve the traditional way of life in small fishing villages, a government decides to impose a price floor that will guarantee all fishermen a certain price for their catch.

You are required to include a production possibility frontier for each country in your paper. As well, you will need to answer a few questions…

What would be the production possibility frontiers for Brazil and the United States?
Without trade, the United States produces AND CONSUMES 32,500 units of clothing and 125,000 cans of soda.
Without trade, Brazil produces AND CONSUMES 50,000 units of clothing and 25,000 cans of soda.
Denote these points on each COUNTRY’s production possibility frontier.
Using what you have learned and any independent research you may conduct, which product should each country specialize in, and why?