EBK ECONOMICS: PRINCIPLES AND POLICY
13th Edition
ISBN: 9780100605930
Author: Blinder
Publisher: YUZU
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Chapter 25, Problem 2TY
To determine
Identify the acts that constitute investment.
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Consider the diagram:
FF (10% interest rate)
FF (78% interest rate)
Julia's 100
endowment
38
36
Julia's IC (higher utility)
Julia's IC
Julia's IC (through point F)
Julia's IC (lower utility)
56 58
Consumption now (S)
35
91
Consumption later ($)
With the use of an example, briefly explain the main difference between the ex-ante and the ex-post opportunity cost of capital. Why does this matter for the evaluation of an investment decision? In what ways can managers utilise the distinction between ex-ante and ex-post opportunity cost of capital when deciding on the firm’s strategy?
"The four factors of production are needed in an efficient market to provide goods and services at an affordable price at the right time, place and mix,"... "Missing the calibration of these factors can be disastrous for the supplier and consumer." The supplier may face higher costs of production, forcing them to charge a higher price to the consumer or risk going out of business.
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EBK ECONOMICS: PRINCIPLES AND POLICY
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- 1. Consumption and saving definitions Suppose Karen gets a sales bonus at her place of work that gives her an extra $600 of disposable income. She chooses to spend $480 and save the remaining $120. Mathematically, it must always be true that: Consumption = =arrow_forwardThe diagram depicts Marco's choice of consumptions in periods 1 and 2. He has $100 worth of grain in period 1 and no income in period 2. Marco has two choices. In scheme 1, he can sell the grain that he does not consume and lend the money at 10%. In scheme 2, he can invest the grain that he does not consume (e.g. planting as seed) for a return of 50%. Which of the following statements is correct? Consumption later, $ 150 110 60 39 0 0 FF(lend at 10%) FF (invest at 50%) B 60 68 Consumption now, $ 100 Going from scheme 1 to scheme 2, the substitution and income effects have opposite effects on period 2 consumption. Marco can do better than consumption choice B by investing all of his grain and borrowing against his period 2 output. O Marco is less impatient at B than at A. Marco can do better than consumption choice B by investing all of his grain and consuming the output in period 2.arrow_forwardProblem 2. (Equilibrium with Intertemporal Choice) Consider an intertemporal choice problem with Ambrosia and Fergus. Ambrosia is an athlete with income of 4 when young and 1 when old, i.e, w (4, 1). Fergus is a manager who earns 1 when young and 4 when old, i.e., his endowment is w = (1,4). Ambrosia and Fergus have the same utility function given by where i = A, F. %3D a) Plot the Edgeworth box and mark the point corresponding to endowments of Ambrosia and Fergus (graph).arrow_forward
- arrow_forward Question Asked Jun 23, 2020 1 views Management of Ben Services identified two groups of individuals that would be interested in the vacation package consisting of room and board and/or entertainment. The maximum amount that group 1 is willing to pay for room and board is GHC 2500 and for entertainment is GHC 500. For group 2, the maximumamount they are willing to pay for room and board is GHC 1800 and forentertainment is GHC 750. Although Ben is not able to identify members of either group, it does know that each group values the components of the package differently. Assuming there are an equal number of members in each group and that the total membership in each group is a single individual. If the marginal cost of providing the service (room and board and/or entertainment) to each group is GHC 1000. i. If AG Travel and Tour wants to charge a package price, what is the highest price it can charge? ii. What profit will AG Travel and Tour make if it…arrow_forwardAnna's investment is worth $2.5 million (decreased from $3.5 to $2.5 million) Elsa's investment is worth $2.2 million (increased from $2 to $2.2 million) For each of them write down the reference utility function (First determine the reference point (use a parameter) and derive reference utility function for each).arrow_forwardWhich of the different graphs studied would be most appropriate for the following? a. The percentage composition of the monthly budget of P55, 000 for a family of six. b. To show the annual changes in the student population of a certain university during a 10-year period beginning 1997. c. A comparison of the size of student population for 5 different universities in Metro Manila. d. Show the trend in the monthly sales of a large department store over a period of one year. e. Showing the relationship, if there is any, between poverty and criminality.arrow_forward
- Rue operates a food truck on Florida beaches, where she sells paninis and drinks, which she can sell for $8.00 and $4.00, respectively. Rue uses all of the money she makes to purchase theme park tickets, which cost $96.00, and her only other income comes from dividend payments of $32.00 from her investment portfolio. Let ?1 represent paninis, ?2 represent drinks, ? represent tickets, and ? represent dividend income. Complete Rue's budget equation: 8 ?1 + 4 ?2 + 32 = 96 ? Two of Rue's friends are coming to town,arrow_forwardAnswer in step by step with explanation. Don't use Ai and chatgpt.arrow_forwardUsing a diagram, draw the outcome of optimal choice using an indi↵erence curve and the individual’s lifetime budget constraint.arrow_forward
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