1. When the price of a normal good falls, the substitution effect contributes to a(n) _______ in the quantity demanded and the income effect _______ the substitution effect.

2. The law of diminishing marginal returns assumes that

Use the below data to estimate the price elasticity of demand for retail gasoline using a log-linear model to identify how different factors may impact the price elasticity of demand for gasoline:

) Consider a Bertrand duopoly where ?? , ?? and ??(?? ) = ??? are quantity, price and total cost, respectively, for firm ? ∈ {1,2} where ? > 0. Assume neither firm has a capacity constraint.

a. Derive the equilibrium quantities and prices if the products are undifferentiated.

b. Derive the equilibrium quantities and prices if the products are differentiated such that residual inverse demand for firm ? is ?? = ?? − ???? + ???? given the price charged by firm ? ≠ ? where ?? , ?? and ?? are positive constants.

1) Which of the following is a not a key assumption of the Keynesian school of macroeconomics?

Select one:

A. Prices and wages are relatively inflexible

B. Expectations are relatively slow to adjust

C. Demand management can be used to smooth the business cycle

D. The main role of government policy should be to remove impediments to free markets

2) The idea that some economic changes are difficult to reverse is called:

Select one:

A. Stagflation

B. Deflation

C. The expectations-augmented Phillips curve

D. Hysteresis

If we were to try to implement the economic concept of sustainability, we would face some important sources of uncertainty. Describe these areas of uncertainty and how they might limit our ability to implement sustainable policies.

Why was the U.S. sulfur dioxide allowance trading program widely considered to be a success? In your answer, be sure to discuss the policy’s environmental performance, cost-effectiveness in comparison to other potential policies, compliance and enforcement, and distributional implications.

In many third world countries, foreign investors are concerned about whether the country’s government and firms will repay their debts. As a result, foreign purchases of domestic assets depend not just on the domestic interest rate (r) but also on the government’s budget deficit (G − T). Specifically, a higher budget deficit reduces foreign purchases of domestic assets. Suppose the government in such an economy reduces government purchases . Assume that exchange rates are floating.

a. What happens to output, consumption and investment?

b. Can you tell what happens to the net capital outflow, net exports and exchange rate?

a) Explain what is meant by the “Prisoner’s Dilemma” game. Do players have a dominant strategy in this game?
b) Create an example of a pay-off matrix for such a game
c) Will the Nash equilibrium of this game result in the socially optimal outcome? Explain why/why not.

Assume that no banks hold excess reserves and the public holds no currency (which implies that ER = C = 0). If a bank sells a $100,000 security to the FED, explain what happens to this bank (Bank A) and two additional steps (or two additional banks, Bank B and Bank C) in the deposit expansion process assuming a 10% reserve requirement. Put differently, what will be the change in deposits for the first bank (ΔDA), the second bank (ΔDB), and the third bank (ΔDC)?

You matched with someone who seemed to be pretty on Tinder/Bumble, you asked them over to your place for a date. You meet, and they don’t turn out to be as attractive as their pictures made them look. You still proceeded with the date even though you usually do not go out with someone like that (personality wise). Which psychological bias explains your behavior, how is it different than what traditional economics would say?

Consider the uncovered interest-parity condition (UIP) using nominal interest rates.

a. What happens to the exchange rate if the foreign country lowers its nominal interest rates through expansionary monetary policy? How would that be reflected in the UIP curve graphically? Assume that the economy has a flexible exchange rate.

b. What needs to happen if a country has a fixed exchange rate system and the foreign country lowers 1 its nominal interest rate through expansionary policy? (Note that a fixed exchange rate system implies that the nominal exchange rate is held constant and if credible, should also equal the expected exchange rate!) How would this be reflected graphically? Discuss the UIP curve alone, without using the IS-MP graph.

Economics

A firm develops a new consumable good with no other firms currently in the market and has the following cost curves:

a) What could be the determinants of market power for a firm like this? Is there a typical determinant of market power that would not apply in this case?

b) What is the price and quantity the firm will trade at? What is the profit? (Draw the areas using the graph above as the starting point)

c) How would these results change if the firm behaved as if it had no market power? (Draw the areas using the graph above as the starting point)

d) Since the average total cost decreases (until the intersection with the MC curve) beyond the correct point in (b) why does the firm not produce additional units?

The firm receives feedback from its customers that they want a more affordable option. In response to this they release a new 6 pack version which is sold at a per unit price of between the prices in (b) and (c). It is assumed that anyone who can afford to purchase the smaller quantity of the good will also buy the 6 pack.

e) What degree of price discrimination is this likely to represent?

f) How do you predict total, producer and consumer surplus to change? Why? Using the diagram, show the new areas of surplus.

In 1990, the town of Ham Harbor had a more-or-less free market in taxi services. Any respectable firm could provide taxi service as long as the drivers and cabs satisfied certain safety standards. Let us suppose that the constant marginal cost per trip of a taxi ride is $5, and that the average taxi has a capacity of 20 trips per day. Let the demand function for taxi rides be given by D(P)1200 − 20P where demand is measured in rides per day, and price is measured in dollars. Assume that the industry is perfectly competitive. • What is the competitive equilibrium price per ride? What is the equilibrium number of rides per day? How many taxicabs will there be in equilibrium? • In 1995 costs had not changed, but the demand curve for taxicab rides had become D(P) = 1220 − 20P. If the taxi operated every day, what was the profit per taxicab license per year? • If the interest rate was 10% and costs, demand, and the number of licenses were expected to remain constant forever, what would be the market price of a taxicab license?

Suppose a hypothetical country known as the “Wonderland” has a civilian working-age population of 2.5 million people and of these about 4/5th of them are in the civilian labor force and ½ million people are unemployed. a) What is the labor force participation rate? b) What is the unemployment rate? c) If some desperate workers join the labor force lately, does the unemployment rate increase or decrease? Why?