Reference no: EM133031923

1. Suppose that fixing 300 feet of Hwy 50 costs $1M (in present value) if you start it today. Set up and solve the equation to find the PVC savings of delaying it by 3 years @ 10% discount rate.

2. Maui Wowie Canabis, a new Sacramento dispensary, has a net benefit of $10 million this year that is expected to grow at 2% per year forever. Maui Wowie uses a discount rate of 7%. What is Maui Wowie Cannabis's company worth?

3. East Lawn Memorial Park Cemetery (at Folsom Blvd. and 43rd Street) is considering a new grave digging machine that costs $500,000 for a three-year lease. As a result, East Lawn expects revenue to increase $210,000 in Year 1, $237,000 in Year 2, and $265,000 in Year 3. The rate of return on another project is 6%.

a) Set up the problem b) What is the net present value of the East Lawn Digger?

4. Who should be included in the definition of society when one considers equity and efficiency? Why?

5. Describe a problem that requires a numerical comparison of two mutually exclusive projects that have two different life expectancies. Then set up the solution mathematically without calculating the final numerical results.

3. How would you define poverty? How would you determine whether a particular family is poor? Is the test you have proposed an absolute or a relative test?

4. Why does the failure to adjust the poverty line for regional differences in living costs lead to an understatement of poverty in some states and an overstatement of poverty in others?

5. The text argues that welfare recipients could achieve higher levels of satisfaction if they received cash rather than in-kind aid. Use the same argument to make a case that gifts given at Christmas should be in cash rather than specific items. Why do you suppose they usually are not?

Suppose an individual consumes two goods - X and Y, which are substitutes such that consumer is willing to trade 2 units of X for one unit of Y (that is, two units of X give the same utility as one unit of Y).

If Px = $5 and Py = $6, and the income of the individual is $600, then what is the consumption bundle that will maximize the utility of the individual? Show the calculation/intuition behind your answer. Also draw the corresponding indifference curves and budget lines that demonstrate your answer.

What is the new optimal bundle if price of good X falls to $2 per unit? Indicate this equilibrium on a new graph (with the corresponding indifference curve and budget line).

For the answer in part (b) please show the corresponding substitution and income effects on a graph. Also discuss the associated calculation/intuition.

Assume the conditions in (a) with one difference - the individual now considers the two goods to be perfect complements (instead of substitutes), that is, the consumer use the goods X and Y in a 1:1 ratio (akin to the right shoe-left shoe example). What is the new optimal bundle of the consumer? Explain your answer using both a graph, and mathematical/economic intuition.