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Justin has the utility function U = xy, with the marginal utilities MUx = y and MUy = x. The price of x is $2, the price of y is py, and his income is 40. When he maximizes utility subject to his budget constraint, he purchases 5 units of y.
a) What must be the price of y and the amount of x consumed? (1 marks).
b) Prove that this allocation follows the equi-marginal principle (2 marks).
c) What would be the new bundles of x, y if Px was $3 (2 marks).
with a 10% increase in the price of a dairy products , the number of units supply rises from 20 to 25 . Determine the price elasticity of supply . state whether the supply for the product is elastic or inelastic .
Suppose an economy produces only two goods: Apples and Bananas in both Year 1 and Year 2. Is it possible for the Real GDP of this country to increase between Year 1 and Year 2, while the nominal GDP decreases or remains the same?
If your answer is yes, construct a numerical example demonstrating this using Year 1 as the base year. Use the table below to construct your example and show all relevant calculations.
Suppose that the real money demand function is 𝐿(𝑌, 𝑟 + 𝜋 𝑒 = 0.3𝑌 𝑟 + 𝜋 𝑒 Where Y is real output, r is the real interest rate, and πe is the expected rate of inflation. Real output is constant over time at Y = 1500. The real interest rate is fixed in the goods market at r = 0.5 per year. (a) Suppose that the nominal money supply is growing at the rate of 10% per year and that this growth rate is expected to persist for ever. Currently, the nominal money supply is M = 400. What are the values of the real money supply and the current price level? (Hint: What is the value of the expected inflation rate that enters the money demand function?). (10) (b) Suppose that the nominal money supply is M = 400. The Bank of Namibia announces that from now on the nominal money supply will grow at the rate of 5% per year. If everyone believes this announcement, and if all markets are in equilibrium, what are the values of real money supply and the current price level? (10)
If consumers respond to a car dealer’s 10 percent price cut by increasing the number of
cars demanded by 20 percent, we would conclude that
Given that Rumbi’s budget line is 25 = 4Qcake + Qtea and the price of tea is R10. what is Rumbi's income and the price of cake ?
a) What does an IED of 2.3 mean? b) What does a CED of -0.5 mean?
c)You are the owner of a multinational corporation. You produce insulin for diabetic patients and black markers among the wide range of products that you produce. If you had to raise your revenue from selling insulin and black markers, what would you do? Why?
When Samia’s monthly income increased from 13000 taka to 20000 taka, she decreased her demand for rice by 10%. Calculate her income elasticity of demand for rice using point elasticity method. Comment on it.
A packet of cigarettes costs 20 taka and the PED of cigarettes is currently 0.4.
a) The government wants to reduce smoking by 20%. Using calculations determine by how much should the government raise the price?
b) Generally, teenagers tend to have a higher PED for cigarettes than adults. Briefly explain why?
On Tuesday, the price and quantity demanded of bananas were 10 taka per banana and 100 bananas, respectively. The previous Saturday, the price and quantity demanded were 6 taka per banana and 150 bananas, respectively.
a) Use the midpoint method to find the PED.
b) What will happen to the producer’s revenue if the price now rises? Why?
c) Which effect is stronger on the revenue? Price effect, quantity effect or neither?
Consider a Salop circle model. There are a unit mass of consumers
uniformly spread along the circumference of a circle with length 1. The consumer gets a utility of consumption equal to U(t, T) 2 21t where t is the product purchased and tis the customer's most preferred product. Each customer has an outside option of buying from none of the firms and consuming a substitute instead for a total surplus (utility minus cost) of 1. There is a fixed cost of entering the industry equal to 25.
a. (10 points) How many firms choose to enter the industry? Where do they locate? What price do they charge?
b. (10 points) Would social welfare be improved if there were more or fewer firms? Find the optimal number of firms from a social welfare perspective.
