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Suppose a consumer uses his income to buy food (F) and clothing (C) (note, his preferences are to not go without either). The current composite market price of food is $2.00 per unit and the current composite market price of clothing is $5.00. The consumer is currently exhausting all of his income and consuming a bundle (F,C) such that his Marginal Rate of Substitution (?C/?F = MUF/MUC) is 3.
Draw the consumer's budget constraint and indifference curve to illustrate this condition. Is the consumer maximizing his utility? If so, explain why. If not, explain why not, explain how the consumer should adjust his purchases, and illustrate the result graphically.
An important employment level is called full employment.
ll market firms must be able to answer the following three questions. How much output should we produce? What Price should we charge? If we are making a loss, should we shut down or continue to operate?
If older workers have a tax elasticity of labor supply equal to 0.20, by how much will their work activity decline when they reach the Social Security earnings test limit?
Unemployment: Suppose that there are 500 workers in the economy and the labor demand function is given by: LD = 1000 − 10 W P. Find the equilibrium real wage. Suppose that Congress institutes a minimum real wage of $40 per hour. Find the level of une..
No inflation stickiness: Suppose the classical dichotomy holds in the short run as well as in the long run. That is, suppose inflation is not sticky but rather adjusts immediately to changes in the money supply.
Eddies precision shop is insured for $700,000. The present yearly insurance premium is $1.00 per $100 of coverage. A sprinkler system with an estimated life of 20 years and no salvage value can be installed for $20,000. Eddie uses a MARR of 15 perce..
Explain why only two of the three objectives can be achieved at any point in time also they want to fix the nominal exchange rate, in order to stabilize the price level.
Let the exchange rate be defined as the number of dollars per Japanese yen. Assume there is an increase in U.S. interest rates relative to that of Japan. Would this event cause the demand for the dollar to increase or decrease relative to the demand ..
In order for price discrimination to exist
Calvin’s Barber Shops, Inc. has a monopoly on barbershop services provided on the south side of Chicago because of restrictive licensing requirements, and not because of superior operating efficiency. As a monopoly, Calvin’s provides all industry out..
Suppose a representative consumption basket of a consumer consists of 10 candies and 5 sodas. The prices of these goods for different years are given below Candies Soda 2011 $1 $2 2012 $1 $3 2013 $2 $4 For each year, compute the cost of the basket
Share 2 experiences where you experienced consumer surplus. (you paid less than you otherwise would have been willing to pay). Also share your thoughts on why the surplus happened, in other words why did you think you would pay more than you did.
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