5. Problems and Applications Q5 Edison owns a water pump. Because pumping large amounts of water is harder than pumping small amounts, the cost of producing a bottle of water rises as he pumps more. Here is the cost he incurs to produce each bottle of water: Cost of first bettle: $2 Cost of second boe: $4 Cost of third bottle $6 Cost of fourth bottle: $8 From this information, complete the following table by deriving Edison's supply schedule. Quantity Supplied Price More than $8 $6 to $8 $4 to $6 $2 to $4 $2 or less 3 2 1 0

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QUESTION ONE Assume the following functions are for the goods market of a hypothetical economy: (1) I= 150 – 10r; (2) C=700+0.8Yd (3) T=50+0.25Y (4) G=180 Note: Y is income and r is the interest rate a) Derive the IS aurve for this economy. b) Use appropriate scale to sketch the IS aurve is part (a) above. c) Determine and interpret the slope of the IS aurve in part a) above. d) Explain how a change in each of the following will affect the IS curve in part a) above: A balance budget increase in government expenditure of 60 units. An increase autonomous consumption to 800 units An increase in the interest sensitivity of investment to 20. An increase in the marginal propensity to save to .025. A decrease in the marginal tax rate to 0.15. i) ii) iii) iv)