Search & Filtering
What is an advantage of the market economic system?
A) It aims for equality of income.
B) It ensures the provision of defence and law and order.
C) It gives an incentive to produce.
D) It reduces pollution and congestion.
utility function is u(x,y) = 6x^.5+y , and his budget constraint is px*x +y = m,
m=30
px=2
py = 1.
a.What is his original highest utility
level?
Now px has decreased to 1, m and py do not change.
b.What is his new maximum utility level?
Assume there is consumer, his utility function is u(x,y) =8*x^0.5+y , and his budget constraint is px*x +y = m, which implies py = 1.
a.Please derive the Marshallian demand function of x.
b.Please derive the indirect utility function.
c.Please derive the expenditure function.
12. The many identical residents of Whoville love drinking Zlurp. Each resident has the following willingness to pay for the tasty refreshment: /3
First Bottle
$5
Fourth Bottle
$2
Second Bottle
$4
Fifth Bottle
$1
Third Bottle
$3
Further Bottles
$0
a. The cost of producing Zlurp is $1.50, and the competitive suppliers sell it at this price. (The supply curve is horizontal.) How many bottles will each Whovillian consume? What is each person’s consumer surplus?
b. Producing Zlurp creates pollution. Each bottle has an external cost of $1. Taking this additional cost into account, what is total surplus per person in the allocation you described in part (a)?
c. Cindy Lou Who, one of the residents of Whoville, decides on her own to reduce her consumption of Zlurp by one bottle. What happens to Cindy’s welfare (her consumer surplus minus the cost of pollution she experiences)? How does Cindy’s decision affect total surplus in Whoville?
7. Give an example of a negative externality and a positive externality. Explain why market outcomes are inefficient in the presence of externalities. /1
8. Give an example of a private solution to an externality. What is the Coase theorem? Why are private economic actors sometimes unable to solve the problems caused by an externality? /1
9. List some of the ways that the problems caused by externalities can be solved without government intervention. /1
10. Imagine that you are a nonsmoker sharing a room with a smoker. According to the Coase theorem, what determines whether your roommate smokes in the room? Is this outcome efficient? How do you and your roommate reach this solution? /2
11. Even if the externality issue is resolved using a private solution (Coase), can you think of other issues or problems that would stem from the situation? (For example, how do you determine to whom to give rights?) /2
6. Most Canadian dairy farmers oppose free trade, and most Canadian lumber producers support it. For simplicity, assume that Canada is a small country in the markets for both milk and lumber, and that without free trade Canada would not trade these goods internationally. (Both of these assumptions are false, but they do not affect the qualitative responses to the following questions.) /4
a. Based on who opposes and who supports free trade, do you think the world milk price is above or below the Canadian no-trade milk price? Do you think the world lumber price is above or below the Canadian no-trade lumber price? Now analyze the welfare consequences of free trade for both markets.
b. Considering both markets together, would free trade make Canadian producers as a group better off or worse off? Would it make Canadian consumers as a group better off or worse off? Does it make Canada as a whole better off or worse off?
1. The country Autarka does not allow international trade. In Autarka, you can buy a wool suit for 100 grams of gold. Meanwhile, in neighboring countries, you can buy the same suit for 60 grams of gold. If Autarka were to allow free trade, would it import or export suits? Why? /1
2. What does the domestic price that prevails without international trade tell us about a nation’s comparative advantage? /1
3. When does a country become an exporter of a good? An importer? /1
4. Describe what a tariff is and describe its economic effects. /1
5. List five arguments often given to support trade restrictions. How do economists respond to these arguments? /2
