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The U.S. government spends over $15.8 billion on its Food Stamp Program to provide millions of Americans with the means to purchase food. These stamos are redeemable for food at over 160,000 store locations throughout the nation, and they cannot be sold for cash or used to purchase non-food items. The average food stamp benefit is about $170 per month. Suppose that, in the absence of food stamps, the average consumer must divide $500 in monthly income between food and "all other goods" such that the following budget constraint holds: $500 = $10A + $5F, where A is the quantity of "all other goods" and F is the quantity of food purchased. Using the vertical axis for "all other goods", draw the consumer's budget line in the absence of food stamp program. What is the market rate of substitution between food and "all other goods"? On the same graph, show how the food stamp program alters the average consumer's budget line. Would this consumer benefit from illegally exchanging food stamps for cash? Explain.
Suppose the market for widgets can be described by the following equations: What is the equilibrium price and quantity?
Using the midpoint formula, calculate the price elasticity of demand for the following problem: Calculate the income elasticity of demand using the general formula for elasticity:
Define in general the term "internalize the externality" and explain its application in this case. Discuss a policy other than a tax or subidy that could cause individuals to internalize the externality. Explain briefly.
Suppose you want to produce WIDGETS in your country. The international price of an imported WIDGET is $50 and pays an import tariff of $10 per unit. Three inputs are needed to produce a WIDGET.
Suppose the level of autonomous expenditure, which we could call A, rises by AA. What is the effect on the level of equilibrium national income?
Assume x and y are the only two goods a person consumes. If after a rise in p x , the quantity demanded of y decreases, one could say
The questions posed are broad and open ended so be careful to allow yourself enough research and planning time.
The demand function for VCRs has been estimated to be Qv = 123 - 1.7Pt + 46 Pm - 2.1Pv -5M, where Qv is the quantity of VCRs,Pt is the price of a videocassette, pmis the price of a movie, Pv is the price of a VCR, and M is income.
Show such data graphically. Upon what specific assumptions is this production possibilities curve based? If the economy is at point C, what is the cost of one more automobile? Of one more forklift? Describe how the production possibi..
Suppose that rich countries surprisingly commit to much higher official aid, to be maintained for several decades. What would be the effect of such aid on?
Suppose the government is concerned that the going wage rate of $6 per hour for low skilled workers is too low.
Demonstrate that removing the subsidy will make consumers worse off but will nevertheless improve society's economic welfare.
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