Economics Answers

(a) show the slope of IS curve depends on interest elasticity of investment demand and marginal prosperity of consume and save.

(b) consider the following numerical version of IS-LM model:

C=500+0.75Y^d

T=20%

I=400-2000r

Ms=500

Md=0.5Y-8000r

G=600

1. find the equation for the IS curve and explain its economic rationale.
2. find the equation for the LM curve and explainits economic rationale.

1.

Identify some of the questions you might have about the overall environmental industry trends (political, economic, social, technological, environmental, and legal, or others). You might include questions such as “What affects demand?” or “Who is likely to travel the most in the next five years?” “How are fuel prices determined” or “How can fuel efficiency be improved?”, for instance.

a. Identify at least one question for each of the environmental factors (political, economic, social, technological, environmental, and legal).

b. For at least one of the questions, hypothesize the answers to it, and identify where you might go to evaluate resources. For instance, if you asked a question regarding what affects demand, you might hypothesize that personal income could be a factor, and you might conclude that evaluating the overall U.S. economy or household income from data on the Bureau of Economic Analysis site could be valuable information.

Suppose you are on a three-day trip to Rome (from Monday to Wednesday) and during your stay you decide to consume only Waffle and Ravioli (measured on the horizontal and vertical axes respectively). You have a given amount of money (some constant) to spend on each of the three days. Suppose that the price of Waffle rises between Monday and Tuesday. If your optimum points of consumption on Monday and Tuesday are respectively called M and T, such that M to the left of T, what does it say about both the commodities? Illustrate your answer using an appropriate diagram

Sanjana loves to read books(B) and likes to watch movies(M) as well. She derives double the satisfaction from reading a book than watching a movie. Her utility function is as follows

U(B, M) = 2B + M

Where B and M are the number of books and movies respectively.

a. Explain the shape of the indifference curve using diagrams. [3 MARKS, Word limit: 200]

b. The income available with her is INR60. And price of movie ticket is INR 10 and that of a book is INR 15. Will she spend her entire budget and why? What will be her consumption, explain why? [4 MARKS, Word limit: 300] 

Sanjana loves to read books(B) and likes to watch movies(M) as well. She derives double the satisfaction from reading a book than watching a movie. Her utility function is as follows

U(B, M) = 2B + M

Where B and M are the number of books and movies respectively.

a. Explain the shape of the indifference curve using diagrams. [ Word limit: 200]

b. The income available with her is INR60. And price of movie ticket is INR 10 and that of a book is INR 15. Will she spend her entire budget and why? What will be her consumption, explain why? [Word limit: 300] 

Q2. Suppose you are on a three-day trip to Rome (from Monday to Wednesday) and during your stay you decide to consume only Waffle and Ravioli (measured on the horizontal and vertical axes respectively). You have a given amount of money (some constant) to spend on each of the three days. Suppose that the price of Waffle rises between Monday and Tuesday. If your optimum points of consumption on Monday and Tuesday are respectively called M and T, such that M to the left of T, what does it say about both the commodities? Illustrate your answer using an appropriate diagram

A factory building is located in an area subject to occasional flooding by a nearby river. You have been

brought in as a consultant to determine whether flood proofing of the building is economically justified.

The alternatives are as follows:

A. Do nothing. Damage in a moderate flood is $10,000 and in a severe flood, $25,000.

B. Alter the factory building at a cost of $15,000 to withstand moderate flooding without damage

and to withstand severe flooding with $10,000 damages.

C. Alter the factory building at a cost of $20,000 to withstand a severe flood without damage.

In any year the probability of flooding is as follows: 0.70, no flooding of the river; 0.20, moderate flooding;

and 0.10, severe flooding. If interest is 15% and a 15-year analysis period is used, what do you

recommend?

Two instructors announced that they “grade on the curve,” that is, give a fixed percentage of each of

the various letter grades to each of their classes. Their curves are as follows:

If a random student came to you and said that his object was to enroll in the class in which he could

expect the higher grade point average, which instructor would you recommend?

Annual savings due to an energy efficiency project have a most likely value of $30,000. The high

estimate of $40,000 has a probability of 0.2, and the low estimate of $20,000 has a probability of 0.30.

What is the expected value for the annual savings?

A project has a life of 10 years, and no salvage value. The firm uses an interest rate of 12% to evaluate

engineering projects. The project has an uncertain first cost and net revenue.

What is the joint probability distribution for first cost and net revenue?