consider the result suggesting that a consumer prefers to be subject to a lump-sum tax over an excise tax when they end up raising the same tax…
September 3, 2020
Sarah’s utilities from consumption of two goods, hummus and falafel, are shown in the table below. Sarah’s daily income is $23 and she spends her entire income on these two goods. Assume the price of hummus (PH) is $2 and the price of falafel (PF) is $5. Ounces of Hummus Total Utility from Hummus MUH MUH/PH Pieces of falafel Total Utility from falafel MUF MUF/PF 1 10 1 20 2 18 2 35 3 24 3 45 4 28 4 50 5 30 5 52 a. Fill in the columns. (4 marks) b. What is Sarah’s equilibrium consumption of hummus and falafel? What is her marginal utility per dollar spent on each good? (2 marks) c. If Sarah’s income increases to $30, what will be her new equilibrium consumption of hummus and falafel be? What will the marginal utility per dollar spent on each good be? (2 marks) d. For Sarah, is hummusSarah’s utilities from consumption of two goods, hummus and falafel, are shown in the table below. Sarah’s daily income is $23 and she spends her entire income on these two goods. Assume the price of hummus (PH) is $2 and the price of falafel (PF) is $5. Ounces of Hummus Total Utility from Hummus MUH MUH/PH Pieces of falafel Total Utility from falafel MUF MUF/PF 1 10 1 20 2 18 2 35 3 24 3 45 4 28 4 50 5 30 5 52 a. Fill in the columns. (4 marks) b. What is Sarah’s equilibrium consumption of hummus and falafel? What is her marginal utility per dollar spent on each good? (2 marks) c. If Sarah’s income increases to $30, what will be her new equilibrium consumption of hummus and falafel be? What will the marginal utility per dollar spent on each good be? (2 marks) d. For Sarah, is hummus a normal or inferior good? How about falafel – is it a normal or inferior a normal or inferior good? How about falafel – is it a normal or inferior
September 3, 2020

9. Suppose the nominal interest rate is 3 percent, the cost of going to the ATM is $1.50, you have a 12 percent probability of having your cash lost or stolen, and you spend $5 each day.

a. What is your total cost of holding cash as a function of the number of days between trips to the ATM?

b. How often will you go to the ATM to minimize your costs?

10. Suppose you have a 20 percent probability of having your cash lost or stolen, and you spend $25 each day. Your total cost of holding cash is (182.50/T) + (3.75 × T).

a. What is your cost of going to the ATM?

b. What is the nominal interest rate?

c. How often will you go to the ATM to minimize your costs?

KM
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