1 a consumer always spends 40 of his income on good x and

Reference no: EM13375299

1. A consumer always spends 40% of his income on good x and the remainder on good y. The Price elasticity of the demand for both z and y will be unity. True or false?

1. Lynn's income is £2000 and she is risk averse. The probablity someone sliping on her stairs is 1/8, If this happen, she be sued for 1;1000 and will bas e to pay that amount- She can Purchase insuranen at a price of £0.30 per Pound of coverage.

(a) Show the contingent commodity framework with consumption if riot sued on the horizontal axis and consumption if sued on Yerticnt axe and illustrate Lyrme's situation before an accident occurs.

(b) Show in your graph how the equilibrium amount of insurance coverage is determined.

(c) Show in your graph how the equilibrium amount of insurance coverage is determined if the probability of someone slipping increases to 1/4, but the premium is unchanged.

3. Consider two individuals M and F who must split 20 units of good X and 10 units of good Y. Suppose we can represent M's preferences
with the utility function

U_M = X²_L Y_M

and F's preferences with the utility function

U_F = Min{X_F,2Y_F}

where X_M and X_F indicate their X consumption, while Y_M and Y_F indicate their Y consumption. Assume that M and F's initial endowments are X_M = 8 X_F = 12, Y_M = 7, and Y_F = 3.

(a) Derive the marnal rate of substitution for M.
(U) Interprgt F's utility function..
(c) Find and graph the contract curve.
(d) What is the ratio of the price of X to the pride Y in competitive equilibrium?

Reference no: EM13375299

Questions Cloud

Suppose that a new law requires every firm to provide its : suppose that a new law requires every firm to provide its workers with free parking spaces. these spaces are worth 200

The circular flow diagram is model of how the economy works : the circular flow diagram is model of how the economy works. explain how the model would change if the following events

The hhi for automobiles is 2350 for sporting goods is 161 : the hhi for automobiles is 2350 for sporting goods is 161 for batteries is 2883 and for jewelry is 81. which of these

Question 1the difference between game trees and decision : question 1the difference between game trees and decision trees isselect onea. that game trees are not useful in

1 a consumer always spends 40 of his income on good x and : 1. a consumer always spends 40 of his income on good x and the remainderon good y. the price elasticity of the demand

Victory company uses weighted-average process costing to : victory company uses weighted-average process costing to account for its production costs. direct labor is added evenly

Suppose that the carnival and the circus have both come to : suppose that the carnival and the circus have both come to town and are both o?ering free admission. you have 6 free

A contract isa a binding agreementnbspb an agreement : a contract isa a binding agreementnbspb an agreement creating an obligationnbspc an agreement that creates enforceable

The founding fathers crafted a purposeful tension between : the founding fathers crafted a purposeful tension between each branch of government and between the powers exercised by

User Account

All Pages