Compare views of :

1. Adam Smith's Invisible hands,

2. David Ricardo’s Diminishing returns

3. Alfred Marshall’s model of supply and demand

With graphs and expanded explanation

A country is closed. It has no government sector, and its aggregate price levels and interest rates are fixed. Furthermore, the marginal propensity to consume is constant and the country's consumption function is as follows: C = 200 + 0.75YD, where YD is disposable income and C is consumption. Assume that planned investment equals 75.

1. If this country's income increased by $10,000, consumption would increase by:

2. Write the AE equation: AE = ____ + ____ YD

3. When real GDP equals $900 unplanned inventory investment is:

4. What is the income–expenditure equilibrium for this country?

5. Holding everything else constant, what is the change to the income-expenditure equilibrium if aggregate wealth decreases by $100?

6. Holding everything else constant, what is the change to the income-expenditure equilibrium if taxes increase by 100? (hint: think about how the change in taxes reduces consumption).

Suppose there are two consumers, A and B.

The utility functions of each consumer are given by:

U_A(X,Y) = X²Y
U_B(X,Y) = X*Y

Therefore:

• For consumer A: MU_X = 2XY; MU_Y = X²
• For consumer B: MU_X = Y; MU_Y = X

The initial endowments are:

A: X = 120; Y = 6
B: X = 30; Y = 14

a) (20 points) Suppose the price of Y, P_Y = 1. Calculate the price of X, P_X that will lead to a competitive equilibrium.

b) (8 points) How much of each good does each consumer demand in equilibrium?

Consumer A's Demand for X:
Consumer A's Demand for Y
Consumer B's demand for X
Consumer B's demand for Y

c) (4 points) What is the marginal rate of substitution for consumer A at the competitive equilibrium?

Two receipts of $1,200 each are desired at the end of years 6 and 8. To make these receipts possible, three EOY payments $200, $300, and $400 amounts will be deposited in a bank at the end of years 2, 4, and 6. The bank’s interest rate (i) is 12% per year compounded semi-annually (every half year).

1. Generate the cash follow

2. Determine the future value of this cash flow at year 8.

1. State the profit-maximizing conditions (rules) under perfect competition in the short-run.

2. State the profit-maximizing conditions (rules) under perfect competition in the long-run, explain why perfect competition suggests market efficiency? What about market fairness, equality, social justice, and all other social goals?

The market for a product is defined by the following demand and supply curves:

Qd=26-0.1P

Qs=-10+0.3P

Assume that an ad valorem tax of 50 per cent (i.e. t=0.5) is placed on the product.

   (a) On the diagram you have drawn in (i), add the new supply curve reflecting the impact of the ad valorem tax.

   (b) Derive mathematically the new equilibrium consumer and producer prices and quantity.

   (c) Find the amount of tax revenue gained by the government

Consider the tourism industry in a large city. The market for tours is perfectly competitive in the city. Firms have no fixed costs, and all firms have the same cost structure. The daily cost of providing tours for any given firm is listed in the table below.

What we know about the market demand for tours is given in the table below.

A law passed by the city requires the price of tours to be in integers (whole numbers), and people cannot buy fractions of a tour. In a long-run equilibrium in the tourism market, there would be _______________     tour companies providing tours, the equilibrium price will be $________   , and each tour company will provide____________     tours daily.

The historical growth of a steady-state economy would appear on a graph as...

1. Linear growth

2. Logistic growth

3. Exponential growth

4. Exponential decline

5. Logistic decline

13. The concept of a steady-state economy would involve all of the following except…

1. Limits on material consumption

2. Meeting basic needs such as food, housing, and medical care

3. Growth in services, arts, communications, and education

4. Compulsory population control

5. Maintenance of ecosystem functions

Which one of the following statements about the Global Environmental Facility is false?

1. A principle of the GEF is that the incremental costs of environmental protection should be borne by the global community

2. The GEF provides grants rather than loans

3. Pairing GEF grants with World Bank loans can risk increasing resource exploitation

4. GEF funding includes projects related to climate change and biodiversity loss

5. The GEF is administered by the U.S. Environmental Protection Agency

An airline is considering two types of engine systems for use in its planes. Each has the same life and the same maintenance and repair record. SYSTEM A costs $92,000 and uses 28,000 gallons of fuel per 1,100 hours of operation at the average load encountered in passenger service. SYSTEM B costs $184,000 and uses 21,000 gallons of fuel per 1,100 hours of operation at the same level. Both engine systems have three-year lives. Each system's salvage value is 10.5% of its initial investment. If jet fuel currently costs $2.6 a gallon and fuel consumption is expected to increase at the rate of 6% per year because of degrading engine efficiency, which engine system should the firm install? Assume 2,600 hours of operation per year and a MARR of 8.3%. Use the annual equivalent cost criterion. What is the annual equivalent cost of the preferred engine?

What are some of the biggest issues faced by Western Europe's Welfare States, and why have they been able to endure?

Profitability Analysis
(Reference: Peters, Timmerhaus, West in Plant Design and Economics for Chemical Engineers 5^th Ed.)

Problem 8 – 8

In the design of a chemical plant, the following expenditures and revenues are estimated after the plant has achieved its desired production rate:

• Total Capital Investment $ 10, 000, 000
• Working Capital $ 1, 000, 000
• Annual Sales $ 8, 000, 000 / yr.
• Annual Expenditures $ 2, 000, 000 / yr.

Assuming straight-line depreciation over a 10 – year project analysis period and with MACRS depreciation for 8 – yr. class life.

Develop a spreadsheet (similar to that in the Cost and Evaluation template) and calculate over an estimated life of 10 years. determine

1. The return on the investment after taxes
2. The payback period

pg. 354 (Peters, Timmerhaus, West in Plant Design and Economics for Chemical Engineers 5^th Ed.)