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Government saving is defined as T- (G+TR+INT).
Here, G includes both govt. consumption and govt. investment. But ideally, we should not include investments while calculating savings.
But even if we do not separate the two components out of G, we get the same answer, i.e., both the definitions of uses-of-savings identity hold true. (The difference arises only because of some statistical discrepancies)
It would indicate that govt. investments are nil. Why does this happen?
A tannery firm established five decades before in a rural village has polluted a river used by
local people for watering, fishing, cleaning and drinking. An organization working to protect
human right verified the illegal action of the firm so that a local government can measurethe loss to farmers and take legal action accordingly. The punishment imposed by the local
government is either to relocate the firm or pay compensation to victims to internalize the
damage made so far and abate future pollution emissions to the socially optimal level of
pollution. The relocation costs the firm 100 million birr while the compensation and
abatement costs it 75 million birr. The tannery firm goes for abatement and compensation.
Should the local government implement the policy change? Why? Does the policy change
have Pareto improvement? Explain?
An exchange economy, comprising consumer 1 and 2 each with Cobb Douglas (CD) utility
function
( )
and the initial endowments of fish and wheat available for each person to trade in a given
period are:
( ) ( )
( ) ( )
a) Find the competitive equilibrium demands of person 1 and 2 for each good?
8) An exchange economy comprising consumer 1 with Symmetric Cobb Douglas (CD) utility
function and 2 with Leontief utility function
( ) and
( ) * +
and initial endowments available for each person to trade are:
( ) ( )
( ) ( )
Price of good 1,
a. Find the competitive equilibrium demands of person 1 and 2 for each good?
b. Find market clearing prices?
6) Consider technology adoption decisions of two firms. Firm A has two possible types, either
high or low costs, with associated probabilities 2/3 and 1/3. Firm A observes its own type,
but firm B cannot observe it. Graphically, firm A knows which payoff matrix firms are
playing, while firm B can only assign a probability 2/3 or1/3 to playing the left-hand (right-
hand) matrix.
Consider a lottery with two equally likely outcomes, $ 25 and $ 144, with associated utility
function of individuals A,
( ) √ and individual B,
( )
a) Determine expected utility and utility of expected value of the lottery for each
individual?
b) Define and compare certainty equivalent of individual A and B?
c) Compare risk premium of individuals A and B?
Clayra allocates P 500.00 of her weekly food budget between two goods: X and Y. Suppose Good X costs P50.00 per piece and Good Y, P100.00 per piece. Construct Clayra’s budget constraint table. And Draw her budget line.
In a country, if demand and supply of labour are equal, what does it say about employment situation?
7. What is meant by the equilibrium-relative commodity price in isolation? How is this price determined
in each nation? How does it define the nation’s
comparative advantage?
Plak Co. of Chicago has several European subsidiaries that remit earnings to it each year. Explain how appreciation of the euro (the currency used in many European countries) would affect Plak’s valuation?
