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This past week, Davish’s Qwik Oil Change Shop did less oil changes than in past weeks. Given this information, regression to mean infers that the Davish’s shop:
A. has had worse weeks, but Davish does not remember when.
B. will probably sell more oil changes this week.
C. will most likely have to close.
D. should not be doing oil changes.
Effluent is negatively effecting the quality of a river that makes up the border between two states. This means:
A. the individual states can easily reach a solution to the problem.
B. the problem is best addressed through federal regulation.
C. state courts can provide adequate remedies.
D. the effluent ceases to be an externality.
The Environmental Protection Agency has removed limits on how much sulfur can be contained in diesel fuel. The regulation change will decrease diesel fuel by $0.25. As a result of the change what will happen to quantity in the market for diesel fuel?
A. remain the same.
B. increase.
C. decrease.
D. decrease only if diesel fuel is a normal good.
a) Assume KBL Limited and Richet International are multinational firms that are weighing-in the option of simultaneously entering the Ghanaian market for the first time. If neither enters, both earn a payoff of zero. If both enter, they both lose 300. If one firm enters, it gains 150 while the other earns zero. i)Set up the payoff matrix for this game and determine if any Nash equilibria exist. (5 marks) ii)Can you predict the outcome of this game? (3marks) iii) What is the outcome of game if KBL gets to decide first? Explain you answer (5 marks)
Suppose a t-shirt shop decides to decrease the price of their most popular shirt by 10%. Their sales increase from 200 shirts per day to 220 shirts per day as a result.
Calculate PED and determine if demand for their shirt is elastic, inelastic or unit elastic.
In the world of electronics overtime people realized the immense use of having a personal laptop. And at the same time the technology has improved significantly in last decade. In fact the technological improvement has surpassed the increase in willingness and ability to purchase a laptop. Given this piece of information, what in your opinion happened to the equilibrium price and quantity in market for personal laptop? Draw a diagram and explain your answer.
Suppose the demand for cigarettes is Q = 15 - 0.5P and the supply of cigarettes is Q = P - 3, where P is the price per pack of cigarettes. Suppose the government imposes a cigarette tax of $3 per pack.
(a) What is the price paid by producers?
(b) What is the price faced by consumers?
(c) What is the government revenue from the tax?
(d) What is the total dollar amount of tax revenue that is ultimately paid by consumers (i.e. consumers' tax burden)?
(e) What is the excess burden of the tax?
Eve insures her car with flood damage. The probability of a flood is 5%. The car is valued 𝐿 = $20,000 and her income is 𝑚 = $100,000. Let 𝑐𝑦 denote her consumption in case of a flood, where she must buy a new car for the same price, and 𝑐𝑛 her consumption if there is no flood. Her utility function for both states 𝑐 = 𝑐𝑛,𝑐𝑦 is 𝑈(𝑐) = √𝑐. [25%]
a. From the simple utility function, construct the von Neumann-Morgenstern utility function (𝑐𝑛,𝑐𝑦) for the two states with their given probabilities.
b. How much insurance Eve would buy if the insurance price is unfair? Briefly explain without solving the consumption problem.
c. If the insurance price is fair, what is Eve’s rational consumption under uncertainty? Make appropriate assumptions and explain your answer.
d. Assume that the probability of a flood is now 2%. Explain the change in Eve’s budget constraint and her consumption in both states if the insurance industry is perfectly competitive.
Question 3
Claire consumes 𝑐1 and 𝑐2 in period 1 and period 2 respectively, and her
intertemporal utility function is 𝑈(𝑐 , 𝑐 ) = 2𝑐2𝑐2. Her income in period 1 is 𝑚 = 1212 1
$1,500 and period 2 is 𝑚2 = $2,000. Assume that the interest rate is 10% for both borrowing and saving. [25%]
a. Find the intertemporal budget constraint for Claire.
b. Find the optimal consumption.
c. Assume now that the interest rate for saving is only 5%. Find the new
intertemporal budget constraint.
d. Would Claire be better off at the new interest rate in (c)? Discuss.
If Veronica Vaughn spends all of her daily income on cigarettes
and Yoo-Hoo, she can afford 10 packs of cigarettes and 10 bottles of Yoo-Hoo.
She can also afford 6 packs of cigarettes and 22 bottles of Yoo-Hoo.
(a) What is the relative price of cigarettes in terms of bottles of Yoo-Hoo (what is the ratio of prices)?
(B) Exactly how much income does Veronica earn in one week if the price if
cigarettes are $6? Write a budget equation for Veronica that is a function
of the packs of cigarettes, C, and the number of bottles of Yoo-Hoo, Y.
(c) Draw Veronica’s daily budget set with packs of cigarettes on the x-axis
and bottles of Yoo-Hoo on the y-axis.
(d) Now suppose the price of cigarettes falls by $1 and the price of Yoo-Hoo
rises by $1. If Veronica was consuming 5 packs of cigarettes and 30
bottles of Yoo-Hoo prior to the price changes, how much must her income
rise under the new prices in order for her to just afford the old bundle,
(5,30)? Draw this new budget line.
