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Consider the expanding input variety model of Section 13.1.
(a) Suppose that a benevolent government has access only to research subsidies, which can be financed by lump-sum taxes. Can these subsidies be chosen to ensure that the equilibrium growth rate is the same as the Pareto optimal growth rate? Can they be used to replicate the Pareto optimal equilibrium path? Would it be desirable for the government to use subsidies to achieve the Pareto optimal growth rate (from the viewpoint of maximizing social welfare at time t = 0)?
(b) Suppose that the government now has access only to subsidies to machines, which can again be financed by lump-sum taxes. Can these be chosen to induce the Pareto optimal growth rate? Can they be used to replicate the Pareto optimal equilibrium path?
(c) Will the combination of subsidies to machines and subsidies to research be better than either of these two policies by themselves?
The following information shows labor productivity (output per day) in the countries of Alpha and Beta: Alpha 3 computers 15 shirts Beta 2 computers 6 shirts Answer these questions: (a) Which country has a comparative advantage in the production of c..
The demand for Wanderlust Travel Services (X) is estimated to be Qx = 22,000 - 2.5Px + 4Py - 1M + 1.5Ax, where Ax represents the amount of advertising spent on X and the other variables have their usual interpretations. Suppose the price of good X..
A grocery store notices that the cross-price elasticity between ice cream and chocolate syrup is -.3. The store is advertising a sale with ice cream prices reduced by 20%. By how much (what percentage) should they expect chocolate syrup sales to i..
Before the income is spent, it can either be kept in money or bonds. Money yields no interest. Bonds yield a yearly interest of 4%, but a transaction fee of 18 has to be payed each time bonds are sold. Use the Baumol-Tobin model of money demand to ..
Germany consumers have $50 in income "their gross domestice product". They spend $35 on consumer goods "$25 on Germany goods and $10 on imports", they save $8, and pay $7 in taxes. The government collects $7 in taxes and spends $10 on locally-made..
The government of Micronia finances its purchases of goods and services with what type of revenue?
By studying, Will can produce a higher grade, Gw, on an upcoming economics exam. His production function depends on the number of hours he studies marginal analysis problems, A, and the number of hours he studies supply
Determine the optimal number of employees
A local video store estimates their average customer's demand per year is Q = 7 - 2P, and knows the marginal cost of each rental is 50 cents. How much should the store charge for each rental if it engages in optimal two-part pricing
Suppose that Saudi Arabia lets other members of OPEC sell all the oil they want at the existing price which the Saudis set and other members accept. The daily world demand for OPEC oil is given by:P = 88 2Q
What sort of training and skill development do you think you will need in your chosen career path to keep up with innovations?
Consider the market for soft drinks. You know that the demand curve in this market contains the points (Q, P) = (100,000, $1.00) and (50,000, $2.00). How big an excise tax will the government need to implement in order to reduce consumption to 50,0..
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