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A simple model of search. Consider an agent who lives two periods. He is unemployed at the beginning of the first period and has a wage offer of w. If he accepts the wage offer w, he will work forever at that wage. If he rejects the offer, he receives an unemployment benefit of 4 dollars this period and he gets to draw a new offer next period. There are only two possible offers with equal probability next period: one wage offer of 8 dollars, and another offer of 24 dollars. The worker’s objective is to maximize the sum of expected discounted earnings. The discount factor β is 0.5. (a) How much would the agent value today a dollar tomorrow? (Hint: use the concept of discount factor). (b) What is the expected value of the potential offers? (c) What is the value for the worker if he accepts the current offer w? (d) What is the value for the worker if he rejects the current w? (e) What is his reservation wage? (f) Suppose he gets an offer of 16 dollars, would he accept or reject the offer? (g) Suppose he gets an offer of 6 dollars, would he accept or reject the offer? (h) Suppose that the government increases the unemployment benefit to 6 dollars. What would happen to this agent’s reservation wage? Prove your claim.
Fair weather helps produce the best crop of peanuts in a decade. Which determinant of cumulative demand causes the change
The market supply curve slopes upward because:
Suppose that demand for a product is Q=140-6P and supply is Q=2P-20. Furthermore, suppose that the marginal external damage of consuming this product is $4 per unit. Does it result in under consumption? Or over consumption? How many more or less unit..
Explain why, when the price of good changes, the price elasticity of demand is likely to be higher or lower as a longer period of time elapses. Consider as an example the OPEC oil price increases in the 1970s.
Illustrate what is the reorder point for part if the reorder point is expressed in terms of the inventory on hand rather than the inventory position.
Describe the differences between shortages and scarcity. In answering this question you should think difference between the short run and the long run in economic analysis.
Decide whether each scenario would lead to upward or downward pressure on the equilibrium price for each good in bold font.
Compute the utility and MRS of C and F prior to exchange. Based on these MRS values, can C and F gain from exchange? If so, briefly explain how they would exchange.
In the country of Dagobah, the velocity of money is constant. Real GDP grows by 3 percent per year, the money stock grows by 8 percent per year, and the nominal interest rate is 9 percent. What is: The growth rate of nominal GDP? The inflation rate? ..
Illustrate what is the maximum price of capital at which the firm will still make nonnegative profits.
Consider an economy in which people wish to hold bank checking deposits worth a total of 5 million goods and currency worth 2 million goods in every period. In addition there is a stock of unintermediated capital worth 10 million goods. Fiat money is..
Why are you taking this class. Explain. Did you read and understand syllabus requirements for this class. What is labour productivity.
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