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- Exercise 3 An individual lives two periods, 0 and 1. The income is 14,000 in period 0 and 5,000 in period 1. The individual's marginal utility is: K- Co in period 0 and d8(K – C1) in period 1, where C is the consumption in period 0, C1 the consumption in period 1 and d a discount rate. K is a constant (higher than the consumption in each period). Suppose that the person can save or borrow from the bank from period 0 to period 1 with a 25% interest rate. Set the discount rate & to 0.8. a) How much will the individual consume in the two periods? How much will she save? b) A National Insurance scheme (pension system) is established. The individual must pay 4,500 in period 0 and receives the same amount with interests in addition to her income in period 1. What will the consumption and savings be in the two periods if the National Insurance scheme uses the same interest rate as the bank?5. Suppose that the representative consumer's pref- erences change, in that his or her marginal rate of substitution of leisure for consumption in- creases for any quantities of consumption and leisure. (a) Explain what this change in preferences means in more intuitive language. (b) What effects does this have on the equilib- rium real wage, hours worked, output, and consumption? (c) Do you think that preference shifts like this might explain why economies experience recessions (periods when output is low)? Explain why or why not, with reference to the key business cycle facts in Chapter 3.Consider the relationship y = f(x). In this relationship: %3D Oa. y is called the independent variable and x is called the dependent variable. O b. y is called the range and x is called the domain. O c. yis called the dependent variable and x is called the independent variable. O d. y is called the domain and x is called the range.
- Consider the lottery that assigns a probability r of obtaining a level of consumption CH and a probability 1-T of obtaining a low level of consumption cL an individual facing such a lottery with utility function u(c) that has the properties that more is better (that is, a strictly positive marginal utility of consumption at all levels of c) and diminishing marginal utility of consumption, u"(c) CL. Consider du(c) for the first derivative of the utility function with respect to dc d²u(c) dc2 du' (c) consumption and u"(c) which is also the derivative of the first derivative of the utility function). to be the second derivative of the utility function dcwhich is the most preferred level of individual’s choice for public expenditure relating it with individual’s utility dependence, by considering three different groups? also draw the graph and intrepret it.3. The followoring shoes Whe produclion Pessibilities frontiers (PPF5) i of individuais A and Bbse. praducdion ob brand and apdes pur day: PPF indu. B Kpples PPp ob Indv. A Biread Apples Bread 12 24 18 12 12 36 24 Witkout specialigalion and trede , indv. A produas send consumes 12 units of Bread and 12 uits of apples, while indu.B produes and consumes 3 6 units ob bruad aud 18 uriks op apples. a) Calculate opporturity Cests of bread and apples for eindv. A and B; and indicate if they have any comparative advantages in production 4 broad aud apples. ) Suppose they agra ti speialige and àrade ; then woho spei alyjes cohat and ahat woould be the new tarms of éxchange ?" on ) I Lustrate a situalioi where both individuals are toetter off abler speialization and trade .
- Pls help me with this homework, this is multiple choice qeuestion…Pls answer in 7-8 sentence only…in simple words. Q-1) Which of the following events would lead to to shift a household consumption function upawards? A) The rate of interest falls. B) The rate of interest rise. C) The household head decide to go back to school D) because old current wealth Falls as the stock market declines E) The household gets new information t that lead them to expect they will be laid off next year.Pls help with thsi question Consider an Individual who buys films (F) and books (B) with the following utility function:?(?, ?) = 5? + 2?This individual also has the following incomes (m) and prices (pF and pB):? = $50, ?f= $5, ?b= $10Given the above:1) Draw the utility functions for utility levels of 10 and 20. Draw these with films on the x-axis and books on the y-axis. 2) What is the MRS for these utility functions? Assume that films remain on the x-axis andbooks remain on the y-axis. 3) What is the consumption bundle that delivers the highest level of utility that is alsoaffordable?Which type of correlation does the scatter diagram show? A. Weak negative correlation B. Strong positive correlation C. Strong negative correlation D. Weak positive correlation O E. No correlation O O O O
- On a given evening, J. P. enjoys the consumption of cigars (c) and brandy (b) according tothe functionU(c, b) = 20c− c²+ 18b − 3b²a. How many cigars and glasses of brandy does he consume during an evening? (Cost isno object to J. P.)b. Lately, however, J. P. has been advised by his doctors that he should limit the sum ofglasses of brandy and cigars consumed to 5. How many glasses of brandy and cigarswill he consume under these circumstances?2. Gorgeousleny purchased a combination of 15 breads and 5 juices with her income of P150 and price of bread is P6 and price of juice is P12. She proudly showed this to her mom, and to her dismay her mom said that she likes more juices than bread since its summer season. While on her way home she lost the receipt, but fortunately she can still receive store credit based from the total value of products. While approaching the customer service representative , she thought of this what if she sticks with her original plan of buying bread alone with no juice and vice versa. At the moment all juices in the store is 50% off. Draw the graph showing the budget constraints arise from endowments. a. ) Measure the qty. of bread on the vertical axis and the qty. of juice on the horizontal axis. Label both graph with its corresponding points, pt. A for bread and point B for juice. the combination of bread and juice label it as point C. b.) For both graph, What is the slope from point C to point B?…2. Supose that a consumer has utility function U with U (₁,22) = x1426, where ₁ and ₂ are demand of commodity 1 and 2. Suppose that the price of commodity 1 and 2 is $3 and $5, respectively. This consumer has money m = 12 to spend and wants to maximize utility with constraint the money. (a) Write the Lagrangian function. (b) Find the critical point using first order condition. (c) Find the Hessian matrix to check whether the critical point is maximiser or minimiser. (d) Find the maximum utility.