further details

Subject:AccountingPrice:9.82 Bought3

Share With

further details.

Suppose that electricity is generated by burning coal, and that the mining, processing, and burning of coal have considerable environmental and health costs associated that are not reflected in the market price. Suppose that the market demand for electricity can be represented by the equation QD = 14 - 0.2P (or P = 70 - 5QD), 

 

a.         Show the demand (marginal benefit) and supply (private marginal cost) curves on a diagram. Make sure to label your axes, curves, and intercepts.

b.         Use algebra to solve for the private equilibrium price and quantity, and show the equilibrium price and quantity on your diagram.

c.         Suppose that the external cost associated with producing one kilowatt hour (kwh) of electricity is $0.25. What is the equation for the social marginal cost curve? Add the social marginal cost curve to your diagram.

d.         Use algebra to solve for the socially optimal price and quantity consumed of electricity. Explain.

e.         What excise tax would have to be set in order to get electricity-producing firms to produce the socially optimal level of output? What would be the burden of this tax on consumers and producers?

 

 

Suppose that the government runs a balanced fully-funded social security system in
which each young resident household contributes a fraction 0 < < 1 of their wages in
period t that is invested to provide them with benets when old (wtrt+1 are then the
benets received by the old in period t + 1). Assume   

a) Characterize saving behavior by solving the individual's problem of optimal in-
tertemporal allocation of resources. How does saving dier for residents and immigrants?
Find the capital accumulation equation that gives kt+1 as a function of kt (where k is
capital per worker). Find the level of capital per worker in steady state. Why do we
impose the restriction <  
1+  ?
Assume that the economy is initially in the steady state. Now unexpectedly a pan-
demic hits the world

 

Assume that the government decides to keep the social security tax at initial level ,
and that parameters are such that the economy is always dynamically ecient. Note that
to solve what follows you have to consider the general equilibrium eects that the change
in the  ow of immigrants has on wages and the interest rate.
b) What is the eect of the shock on capital accumulation in the  rst period (compared
to capital accumulation in the previous steady state)? And on the new steady state?
Explain (if you prefer not to do the math you can explain in words what is the intuition).
c) Are the initial old better o? What is the eect on the disposable income of the
rst young generation of residents. Explain.

 

The constitution of Bahnanas grants the prime minister the authority of choosing xd and xh.
His preferences over policy bundles (xd,xh) are represented by the Cobb-Douglas utility function:
u (xd,xh) = 1000
μ
x
1
2
d x
1
2h
¶
. (1)
1

 

Exercise #1. (a) For this question you could have proceeded in different ways:
One way. Maximize a Cobb-Douglas utility function subject to the budget line:
max
xm,xc
¡
x0.1
m x0.9
c
¢
subject to 400 = xc + xm.
First substitute the budget line in the utility function by replacing one of the variables, say
xc, to get
max
xm
h
x0.1
m (400 − xm)0.9
i
.
The Þrst-order condition for this maximization problem is
0.1x0.1−1
m (400 − xm)0.9 − 0.9x0.1
m (400 − xm)0.9−1 = 0.
This can be simpliÞed to yield:
0.1x−1
m = 0.9 (400 − xm)−1 .
Further simpliÞcation yields:
0.1 (400 − xm) = 0.9xm ⇒ x∗m = 40.
Plugging this number in the equation for the budget line we get
x∗c = 400 − x∗m = 360.
See Figure 1 for the graph.
Another way. Another way to go is to recognize that Cobb-Douglas preferences satisfy all the
assumptions we have mentioned in class (no boundary solutions, no kinks in indifference
curves, convexity) that are necessary and sufficient for the optimal behavior of the consumer
to be captured by the equality between the MRS and (minus) the price ratio
MRS (x∗m,x∗c ) = −
pm
pc
.
Notice that this condition is equivalent to the Þrst-order condition derived in the previous
point. The marginal rate of substitution between xm and xc is just
MRS (xm,xc) = −
0.1
0.9
xc
xm
.
1
The ratio of the prices is just 1. Thus, at the optimal point:
−
0.1
0.9
xc
xm
= −1.
Now you can replace the budget line into this expression to get rid of one of the variables.
For example, by replacing xc we get
0.1
0.9
(400 − xm)
xm
= 1.
Rearranging:
0.1 (400 − xm) = 0.9xm ⇒ x∗m = 40.
Plugging this number in the equation for the budget line we get
x∗c = 400 − x∗m = 360.
See Figure 1 for the graph.
(b) The equation for the budget line is
0.5xm + xc = 400if xm ≤ 50,
xm + xc = 425if xm > 50.
It is possible to Þnd this line by means of the following argument. If Anna does not buy any
milk, then she can spend $400 on other things. The point (0,400) is therefore a point on the budget
line. For each gallon of milk that Anna buys to a maximum of 50, she pays only 50 cents. If she
consumes 50 gallons of milk, she pays $25 for them, and she is left with $375 to spend on the
composite good. In other words, the point (50,375) is also a point on the budget line. In addition,
all of the points on the line connecting (0,400) and (50,375) are on the budget line. The slope of
this line segment is -1/2: for each extra gallon of milk, Anna has to reduce her expenditures on
other things by 50 cents.
Once Anna reaches the point (50,375), the slope of her budget line changes to -1 (i.e. the slope
of the budget line in part (a)). This is because Anna does not receive discounts on gallons of milk
beyond the 50-th. Finally, if Anna spends all her income on milk, she can buy 425 gallons of milk:
in this case, Anna spends $25 for the Þrst 50 gallons, and the remaining $375 for the other 375
gallons (since the price is $1 after the 50-th gallon). All the points on the line connecting (50,375)
and (425,0) are therefore on the budget line. The coordinates of the kink point are (50,375).
See Figure 2 for the graph.
(c) We need to show how to compute a compensating variation. The compensating variation is
the amount of money - call it cv - that must be given to Anna after the price increase so that her
utility is the same as before the price increase.
When the milk price is $1 her utility is given by (see point a):
u (40,360) = 400.13600.9.
2
To compute Annas utility when the milk price is $2 and she receives the transfer cv, we must Þnd
how much milk and composite good she buys in those circumstances. In other words, we need to
solve the optimization problem
max
xm,xc
¡
x0.1
m x0.9
c
¢
subject to 400 + cv = 2xm + xc.
The optimal amounts x∗c (cv) and x∗m (cv) that Anna chooses of course depend on cv. Her utility
will also depend on cv:
u (x∗m (cv) ,x∗c (cv)) = (x∗m (cv))0.1 (x∗c (cv))0.9 .
Now, to Þnd cv set
u (40,360) = u (x∗m (cv) ,x∗c (cv)) .
This is one equation in one unknown (cv), which can be solved for cv.
Exercise #2. (a) Beer is an ordinary good because its demand increases when its price
decreases.
(b) Beer is a substitute for wine because as the price of wine goes up, demand for beer increases.
(c) The relative price of a gallon of beer in terms of bottles of wine is
pb
pw
=
$15
$10
= 1.5.
(d) The demand function for beer is:
xb = 110 − 2pb.
To plot the demand curve we need to compute the inverse demand function:
pb = 55 −
1
2
xb.
See Figure 2 for a plot of this function. The loss in consumers surplus is given by the sum of the
shaded areas of the rectangle and the triangle in Þgure 2: the area of the rectangle is 70(5) = 350.
The area of the triangle is given by (80 − 70)5/2 = 25. Summing up these two areas we get that
the loss in consumers surplus is $375.
(e) The rectangular subregion represents the loss of surplus on the gallons that John now buys
at a higher price. The triangular subregion represents the loss in surplus due to the fact that John
reduces his demand for beer after the price increase.
Exercise #3. (a) TRUE. See Figure 3. In this Þgure, and in this discussion I am assuming
that the tax revenues are kept the same across these two tax experiments [If tax revenues were
not the same of course this statement could easily be proved false.] The intuition here is that,
when preferences are of the perfect complement type, the indifference curves display a kink at the
bundle where the consumer is making the optimal choice. Thus, there is no tangency between the
3
budget line and the marginal rate of substitution at the optimal point. This tangency condition
was responsible for the loss in consumers utility in the example we saw in class where indifference
curves were smooth. In that example, from the tangency condition
MRS (x1,x2) = −
p1 + t
p2
we could see that the presence of the tax gave incentives to the consumer to decrease his consumption
of good 1 with respect to the situation where income was taxed. When income is taxed the
optimality condition reads:
MRS (x1,x2) = −
p1
p2
and the tax does not distort the consumers choice between the two goods.
(b) FALSE. All our assumptions on preferences cannot rule out the existence of Giffen goods,
i.e., goods whose demand increase as their price increases.
(c) FALSE. The marginal rate of substitution measures the rate at which the consumer, and
not the market, is willing to substitute one good for the other.
(d) FALSE. An indifference curve represents the collection of all bundles among which the
consumer is indifferent.
(e) FALSE. A lump sum subsidy to a consumer does not affect the relative price of the goods
the consumer is buying. Therefore it does not affect the optimality condition MRS = −p1/p2.
However, it does affect the consumers behavior because after the subsidy the consumer is going to
buy more of at least one of the goods under consideration (because he has more money to spend,
or some food coupons as in the Food Stamp program).
4

 

Read Case 5-1: Netflix on pages 181-182. Complete one of the following for your original post. Responses to peers can include additional examples from personal experience, additional support for choices, or questions about choices.

Answer at least one of the Case Questions. Include support, definitions, and specific examples from the case. (Check previous posts to avoid redundancy and ensure all questions are answered.)
Conduct a SWOT analysis identifying at least 2 factors for each quadrant or create a BCG matrix identifying one item for at least three of the quadrants. Be sure to support your choices.
Conduct online research and report back with the latest on Netflix. Topics can include current news related to future plans, new product offerings, new management, expansions, how COVID 19 has impacted them, etc. Be sure to site your source(s). Minimum,

 

oject 1

This project will enable you to demonstrate skill and underpinning knowledge, and produce end products suitable for use in the work place. (If you are not working you will need to discuss, with your assessor, how you can address this as a simulation or possibly how you can address it in terms of a company for which you have previously worked.)

You must develop a business plan.

The plan must be clearly articulated and formatted in such a way that makes it acceptable to the business organisation. It must contain all of the necessary elements and must be informed by accurate, current, relevant and useful data/ information. Graphs, charts, tables etc can be used and any information that is relevant but not necessarily required for inclusion in the plan can be included in an appendix.

The plan could apply to the business as a whole; specific aspects of the business, or to a proposed new venture.

Submit, to your assessor, the completed business plan, relevant risk and cost-benefit analyses and brief answers to the following questions:

What concepts and ideas were considered?
How did you identify the resources that would be required to support plan?
What personnel would be involved in the planning process?
What data/ information did you use when formulating the plan?
With whom did you consult and why did you consult with these people?
From what sources did you gather data/ information?
How did you verify the currency, reliability and usefulness of the data/ information you collected?
How will the plan benefit the business?
How will you communicate this plan to other personnel in the business and how will you ensure that they support the plan?
Will the plan make any differences to the skills and competencies required by employees; and if it does, what action will you take?
How will the plan contribute to continuous improvement?
a business plan that you have written
data you have collected and analysed for contribution to a business plan
organisational performance reports that are mapped against planned business objectives
the results of SWOT or other research and planning activities
market research that you have undertaken
a portfolio of evidence showing a range of business planning activities in which you were involved, and their outcomes
third party workplace reports of on-the-job performance—to show that you are able to effectively develop and implement business plans

 

Exercise #1. Anna consumes two goods: milk (measured in gallons) and a composite good
(measured in dollars). Let xm represent the gallons of milk that Anna consumes in a given month
and let xc represent her expenditures on the composite good in a given month. Annas preferences
over consumption bundles (xm,xc) are summarized by the utility function:
u (xm,xc) = x0.1
m x0.9
c .
Annas monthly income is $400. Let pm denote the dollar price of a gallon of milk.
(a) [10 pts.] Suppose that pm = $1. What is Annas optimal consumption bundle? Show
your work. Illustrate your answer with a neat and clear diagram showing Annas budget line and
indifference curves. Label the points at which the budget line intersects the axes and identify the
optimal bundle.
(b) [10 pts.] Suppose now that the local grocery store where Anna regularly shops decides to
introduce a discount on milk. SpeciÞcally, for each gallon of milk that Anna buys, the grocery store
reduces its price from $1 per gallon to $0.50 per gallon, up to a maximum number of 50 gallons
of milk per month. If Anna buys more than 50 gallons she has to pay the regular price on every
gallon beyond the 50-th. In a neat and clear diagram, graph Annas budget line. Label the points
at which the budget line intersects the axes and determine the coordinates of the kink point.
(c) [15 pts.] Suppose now that the price of milk is again pm = $1 (there are no discounts
anymore). Due to a shortage of milk, the price of milk increases from $1 to $2. Describe how to
compute the extra income that must be given to Anna in order to compensate her for this increase
in the price of milk (i.e., the compensating variation) [Here you are not asked to compute this
amount. Simply show which steps you would take to compute it.]
Exercise #2. John has the following demand function for beer
xb = m− 2pb + pw
where xb denotes the gallons of beer he demands per month, pb is the dollar price of a gallon of
beer, pw is the dollar price of a bottle of wine, and m denotes Johns income.
(a) [5 pts.] Is beer an ordinary good in this case? Motivate your answer. [Notice: no credit
will be given to yes/no type of answers. In order to get credit you need to explain your answer.]
1
(b) [5 pts.] Is beer a substitute for wine in this case? Motivate your answer. [Notice: no credit
will be given to yes/no type of answers. In order to get credit you need to explain your answer.]
(c) [5 pts.] Suppose that the price of a bottle of wine is pw = $10, and the price of a gallon of
beer is pb = $15. What is the relative price of a gallon of beer in terms of bottles of wine?
(d) [10 pts.] Suppose that m = $100 and that pw = $10. Compute the loss in Johns
consumer surplus that occurs when the price of a gallon of beer increases from $15 to $20. Support
your analysis with a graph representing Johns demand curve and his loss in consumers surplus.
[Remember that to draw a demand curve you need to place pb on the y-axis and xb on the x-axis.]
(e) [10 pts.] From point (d) you can see that the loss in consumers surplus can be decom-
posed into two subregions, whose shapes are respectively rectangular and triangular. How can you
interpret each of these two subregions?
Exercise #3. Consider the following statements and say whether they are true or false and
why. To get credit you should provide a clear justiÞcation for your answers.
(a) [10 pts.] If two goods are perfect complements the consumer will be just as well off facing
a quantity tax as an income tax.
(b) [5 pts.] If the price of one good increases the demand for that good always decreases.
(c) [5 pts.] The marginal rate of substitution measures the rate at which the market is willing
to substitute one good for the other.
(e) [5 pts.] An indifference curve represents the collection of all bundles that a consumer can
buy.
(f) [5 pts.] BydeÞnition, a lump sum subsidy to a consumer does not affect his/her consumption
behavior.

Exercise #1. (a) For this question you could have proceeded in different ways:
One way. Maximize a Cobb-Douglas utility function subject to the budget line:
max
xm,xc
¡
x0.1
m x0.9
c
¢
subject to 400 = xc + xm.
First substitute the budget line in the utility function by replacing one of the variables, say
xc, to get
max
xm
h
x0.1
m (400 − xm)0.9
i
.
The Þrst-order condition for this maximization problem is
0.1x0.1−1
m (400 − xm)0.9 − 0.9x0.1
m (400 − xm)0.9−1 = 0.
This can be simpliÞed to yield:
0.1x−1
m = 0.9 (400 − xm)−1 .
Further simpliÞcation yields:
0.1 (400 − xm) = 0.9xm ⇒ x∗m = 40.
Plugging this number in the equation for the budget line we get
x∗c = 400 − x∗m = 360.
See Figure 1 for the graph.
Another way. Another way to go is to recognize that Cobb-Douglas preferences satisfy all the
assumptions we have mentioned in class (no boundary solutions, no kinks in indifference
curves, convexity) that are necessary and sufficient for the optimal behavior of the consumer
to be captured by the equality between the MRS and (minus) the price ratio
MRS (x∗m,x∗c ) = −
pm
pc
.
Notice that this condition is equivalent to the Þrst-order condition derived in the previous
point. The marginal rate of substitution between xm and xc is just
MRS (xm,xc) = −
0.1
0.9
xc
xm
.
1
The ratio of the prices is just 1. Thus, at the optimal point:
−
0.1
0.9
xc
xm
= −1.
Now you can replace the budget line into this expression to get rid of one of the variables.
For example, by replacing xc we get
0.1
0.9
(400 − xm)
xm
= 1.
Rearranging:
0.1 (400 − xm) = 0.9xm ⇒ x∗m = 40.
Plugging this number in the equation for the budget line we get
x∗c = 400 − x∗m = 360.
See Figure 1 for the graph.
(b) The equation for the budget line is
0.5xm + xc = 400if xm ≤ 50,
xm + xc = 425if xm > 50.
It is possible to Þnd this line by means of the following argument. If Anna does not buy any
milk, then she can spend $400 on other things. The point (0,400) is therefore a point on the budget
line. For each gallon of milk that Anna buys to a maximum of 50, she pays only 50 cents. If she
consumes 50 gallons of milk, she pays $25 for them, and she is left with $375 to spend on the
composite good. In other words, the point (50,375) is also a point on the budget line. In addition,
all of the points on the line connecting (0,400) and (50,375) are on the budget line. The slope of
this line segment is -1/2: for each extra gallon of milk, Anna has to reduce her expenditures on
other things by 50 cents.
Once Anna reaches the point (50,375), the slope of her budget line changes to -1 (i.e. the slope
of the budget line in part (a)). This is because Anna does not receive discounts on gallons of milk
beyond the 50-th. Finally, if Anna spends all her income on milk, she can buy 425 gallons of milk:
in this case, Anna spends $25 for the Þrst 50 gallons, and the remaining $375 for the other 375
gallons (since the price is $1 after the 50-th gallon). All the points on the line connecting (50,375)
and (425,0) are therefore on the budget line. The coordinates of the kink point are (50,375).
See Figure 2 for the graph.
(c) We need to show how to compute a compensating variation. The compensating variation is
the amount of money - call it cv - that must be given to Anna after the price increase so that her
utility is the same as before the price increase.
When the milk price is $1 her utility is given by (see point a):
u (40,360) = 400.13600.9.
2
To compute Annas utility when the milk price is $2 and she receives the transfer cv, we must Þnd
how much milk and composite good she buys in those circumstances. In other words, we need to
solve the optimization problem
max
xm,xc
¡
x0.1
m x0.9
c
¢
subject to 400 + cv = 2xm + xc.
The optimal amounts x∗c (cv) and x∗m (cv) that Anna chooses of course depend on cv. Her utility
will also depend on cv:
u (x∗m (cv) ,x∗c (cv)) = (x∗m (cv))0.1 (x∗c (cv))0.9 .
Now, to Þnd cv set
u (40,360) = u (x∗m (cv) ,x∗c (cv)) .
This is one equation in one unknown (cv), which can be solved for cv.
Exercise #2. (a) Beer is an ordinary good because its demand increases when its price
decreases.
(b) Beer is a substitute for wine because as the price of wine goes up, demand for beer increases.
(c) The relative price of a gallon of beer in terms of bottles of wine is
pb
pw
=
$15
$10
= 1.5.
(d) The demand function for beer is:
xb = 110 − 2pb.
To plot the demand curve we need to compute the inverse demand function:
pb = 55 −
1
2
xb.
See Figure 2 for a plot of this function. The loss in consumers surplus is given by the sum of the
shaded areas of the rectangle and the triangle in Þgure 2: the area of the rectangle is 70(5) = 350.
The area of the triangle is given by (80 − 70)5/2 = 25. Summing up these two areas we get that
the loss in consumers surplus is $375.
(e) The rectangular subregion represents the loss of surplus on the gallons that John now buys
at a higher price. The triangular subregion represents the loss in surplus due to the fact that John
reduces his demand for beer after the price increase.
Exercise #3. (a) TRUE. See Figure 3. In this Þgure, and in this discussion I am assuming
that the tax revenues are kept the same across these two tax experiments [If tax revenues were
not the same of course this statement could easily be proved false.] The intuition here is that,
when preferences are of the perfect complement type, the indifference curves display a kink at the
bundle where the consumer is making the optimal choice. Thus, there is no tangency between the
3
budget line and the marginal rate of substitution at the optimal point. This tangency condition
was responsible for the loss in consumers utility in the example we saw in class where indifference
curves were smooth. In that example, from the tangency condition
MRS (x1,x2) = −
p1 + t
p2
we could see that the presence of the tax gave incentives to the consumer to decrease his consumption
of good 1 with respect to the situation where income was taxed. When income is taxed the
optimality condition reads:
MRS (x1,x2) = −
p1
p2
and the tax does not distort the consumers choice between the two goods.
(b) FALSE. All our assumptions on preferences cannot rule out the existence of Giffen goods,
i.e., goods whose demand increase as their price increases.
(c) FALSE. The marginal rate of substitution measures the rate at which the consumer, and
not the market, is willing to substitute one good for the other.
(d) FALSE. An indifference curve represents the collection of all bundles among which the
consumer is indifferent.
(e) FALSE. A lump sum subsidy to a consumer does not affect the relative price of the goods
the consumer is buying. Therefore it does not affect the optimality condition MRS = −p1/p2.
However, it does affect the consumers behavior because after the subsidy the consumer is going to
buy more of at least one of the goods under consideration (because he has more money to spend,
or some food coupons as in the Food Stamp program)