The discussion forum this week involves Business Method Patents. First, in your view, what should the standard be for a business method patent? Second, please include a discussion of whether you think that Amazon should be able to patent the One-Click method of ordering goods AND whether you think Facebook should be able to patent a process that “dynamically provides a news feed about a user of a social network.”

Briefly explain the two sources of consumer welfare increase in the Krugmanís model of monopolistic competition when markets integrate

The private marginal benefit associated with a product’s consumption is PMB = 350 − 4Q and the private marginal cost associated with its production is PMC = 6Q. Furthermore, the marginal external damage associated with this good’s production is MD = 4Q.

a. What is the market price and quantity? (6 points) b. What is the social optimum price and quantity?

b. To correct the externality, the government decides to impose a tax of T per unit sold. What tax T should it set to achieve the social optimum?

Two firms compete under Cournot competition with constant marginal costs c1 = 2 and c2 = 4. The market demand is P=18-Q .

a) Compute the market share of each firm, the market price, and the total quantity produced in the market.

b) [CHALLENGING] You later hear that the marginal cost of firm 2 increased, and realize that the market price is now P = 9. What is the new marginal cost c2 ?

please also show how to find the |df/dt|, L, M AMD LOCAL TRUNCATION ERRROR, GLOBAL ERROR

Business Cycle

We have learned that a competitive market always experience business cycles in the short run. The output fluctuate around the upward trend, creating four period: recovery(from trough to trend), expansion(from trend to peak), contraction(from peak to trend) and recession(from trend to trough) .

The cycle is usually self enforcing, when we are in the expansion, asset price goes higher and higher, so as the value of the collateral, people become optimistic and inclined to engage in the more risky activity. The high leveraged speculation was fueled by the 'shadow banking system' which generally refers to those unregulated institution or entity conducting financial activity without oversight. The shadow banks usually could attract swarm of investors since they provide higher return than traditional banking system. As a famous saying goes 'When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you've got to get up and dance.'

The MBS(mortgaged backed security) is considered as shadow banks before the 2008's financial crises. Banks could accelerate their debt-loan cycle by securitize their mortgage and sell to investors. In the process banks transfer their liability to the investor, this create the moral hazard since bank takes no risk to provide MBS. At the beginning the extra liquidity it provides benefit both creditor and debtor. Credible borrowers get loans from MBS investors otherwise bank may lack the liquidity to provide. Things go wrong when banks securitizing the loans from those borrowers who is likely to default, the so called sub mortgage.

In order to sell them off, they bundled the low profile submortgage together with high profile mortgage, create the so called CMO(Collateralized Mortgage Obligations) to get a good score from the rating agency like S&P and Moody's. On the one hand, rising housing prices made mortgages look like fail-proof investments, enticing investors to buy CMOs.

On the other, insurance companies like AIG selling CDS(credit default swaps) to investors, which act like insurance contracts on on those CMOs and MBSs. Investors thus could hedge the default risk of CMOs and MBSs by buying CDS.

The business cycle reach the tipping point as the collapse of the shadow bank system, liquidity shrink, more and more sub-mortgage default leading to the collapse of AIG. The defaulted CMOs and MBSs holding by the investment banks can not compensated by the CDS anymore. Leading to the collapse of Merrill Lynch and Lehman Brothers and the subsequent Financial Crises.

(a) Draw a graph of output to indicate the business cyclical behavior.
(b) Draw the trend along with the output
(c) Label the four period on your graph.
(d) What factors other than credit boom could cause the business cycle?

Explain the tools of the Federal Reserve Bank for the exercise of Monetary Policy.

Reference: 11th edition Financial Markets and Institutions by Jeff Madura, Chapters 4 and 5

Explain why these misconceptions are not true:

• Most economies function on their Production possibilities curve.

• Savings lowers economic activity.

• Government budget debt and deficit mean the same thing.

• Decisions made in Washington D.C. have little impact on the economy.

• Government spending stimulates demand but will not affect inflation.

• The government can never shut down.

A chemical factory and fishery are located on the same lake. Suppose the chemical factory has the property right to use the lake, and that its pollution is reducing the number of fish in the lake which directly harms the fishery. The marginal damage function is given by MD = 5E and the marginal abatement function is given by MAC = 1000-5E. Emissions are in units per month and costs are in dollars per unit of emission. How much would the fishery need to offer the factory per month to reduce emissions to the socially efficient level? How much better off would this make the fishery compared to a situation where the factory does not reduce any emissions? How much better off would the factory be if it accepts the fishery’s offer and reduces its emissions to the socially efficient level?

1) Fill in the blanks: Fishery will offer to pay $_______ making the fishery better off by $_______.. The factory will be better off by$______.

Roemer’s approach to equality of opportunity is based on characteristics, while the mobility approach is based on how incomes or social status differ across generations. Do you think that these approaches are at odds with each other, or are they complementary? Explain your position. Your explanation should include some details of what the approaches measure and how they do so.

Give example of a factor-price distortion in LDCs? Explain how it impacts their economic growth.

Louis C.K. and other comedians try to subvert the Ticketmaster monopoly, there will be changes to the market for standup tickets. You will draw and explain this market conversion. In your first graph, begin with a market that is in monopoly as dominated by Ticketmaster. Depict the price and quantity (e.g. you’ll need a MR curve, a demand curve, MC/supply curve, and any consumer and producer surplus and deadweight loss). Then, in the next graph, depict the market as it becomes perfectly competitive. Depict how price and quantity change (e.g. this graph should display the monopoly price and quantity, then you should show the competitive price and quantity for comparison, as well as the new areas of consumer and producer surplus and deadweight loss). Make sure you’re clear on the graph and in your answer about what happens to price and quantity as the monopoly market is converted to perfect competition by Louis C.K.’s action (e.g. what increases, what decreases?). Also, make sure you make a clear statement about changes in efficiency (e.g. how consumer surplus, producer surplus, total surplus, and deadweight loss change)

Use the following information about an economy that produces only two types of products, organic food products and beverages. Calculate the following for the years 2015, 2016 and 2017, unless otherwise requested:

1. the nominal GDP
2. the real GDP using 2015 as the base year
3. the GDP deflator
4. the annual percentage change in nominal GDP for 2016 and 2017
5. the annual percentage change in real GDP for 2016 and 2017
6. the inflation using the GDP deflator for 2016 and 2017 (percentage

change in GDP deflator)

change in GDP deflator)

Can a player play a weakly dominated action at a Nash equilibrium? If yes, give an example. If no, explain why.