..Answer all.,
Suppose that in Milwaukee the cost of operating a fishing boat is $4,000 per month. Suppose that if x fish boats operate in the bay, the total monthly revenue from fishing boats is 2,000 (12 x - x^2) .
If there are no restrictions on entry and new boats can come into the lake, what is the number of boats who enter the industry? Explain your answer.
How much are profits for each firm? Why? Explain your answer.
If the number of boats that operate the lake is regulated to maximize total profits, what is the number of boats in the industry? Explain your answer.
How much are profits? Why? Explain your answer.
An individual begins her working life at date twith no non-human wealth. Her labour income grows at rate 9 per year. assumed to be 3% (or 0.03) per annum: thus her income in year t + j is y\"; = yt(1 + 9)}. Her income is received at the end of each year so that the present value of income received in year t + j is L(1::I+1' where r is the constant real rate of interest assumed to be 5% (0.05) per annum. Assume an innite planning horizon and assume that she consumes her permanent inoome. Calculate the ratio of consumption to income at the start of her working life. Briey discuss why her consumption will initially be substantially greater than her income. Consider a two-period economy that has at the beginning of period 1 external wealth of 100. GDP in both periods is 120. The interest rate in periods 1 and 2 is 10 percent. In period 1, the country runs a current account decit of 5 percent of GDP. At the end of period 2, the external wealth must be equal to zero. 1. Find the level of the trade balance in period 1, the level of the current account balance in period 1, and the country's external wealth at the beginning of period 2. 2. Is the country living beyond its means? To answer this question, nd the country's current account balance in period 2 and the associated trade balance in period 2. Is this value for the trade balance feasible? [Hint: Keep in mind that since expenditures cannot be negative, the trade balance cannot exceed GDP]. 3. Now assume that in period 1, the country runs instead a much larger current account decit of 10 percent of GDP. Find the country's external wealth at the end of period 1. Is the country living beyond its means? If so, why? 4. What is the maximum current account decit (as a share of GDP) that this country can have at time 1 and still live within its means? Use the following graphs to answer question 35. RGDP Short-Run Trend Long-Run Trend A C D Time 35. The short run trend is known as: A. The cattle cycle B. The water cycle C. The business cycle D. The division of labor 36. A recession is defined as: A. A long and severe depression B. An increase in unemployment C. Two consecutive months of falling GOP D. An increase in the National Debt to GOP ratio E. Two consecutive quarters of falling Real GDP 37. A depression is defined as; A. Two consecutive quarters of falling Real GDP B. An increase in the National Debt to GDP ratio C. Two consecutive months of falling GOP D. An increase in unemployment E. A long and severe recession 38. In the Long-Run, the growth rate in the U.S. economy is about: A. 0%% B. 39% C. 8% D. 15% E. 25% 39. Real business cycle theory states that an economic downturn would most likely be caused by: A. A sudden, sharp fall in consumer spending B. A sudden, sharp increase in the price of oil C. Good weather and good crop yields D. The invention of the internetQUESTION 1 [10 marks] The following is a simplified hypothetical example of the value added method of calculating GDP. Use the information given and show how the value added method is used to calculate GDP. According to this example, how much value added do the books contribute to the GDP, and explain why that specific figure? 50 (a) A forester chops down 100 trees and sells them @ N$100 each to the Paper and Pulp Factory, (b) The Paper and Pulp Factory processes these trees into paper and sells the paper @ N$15 000 to the printers. 500 10O (c) The printers go to press and sell the 300 books they print @ N$80 each to CNA. 500 150 (d) CNA sells the 300 books @ N$120 each to consumers. HINT: The best way to answer this question is in table format.Consider market for masks. Not everyone values the mask equally: marginal private benet is 100 Q and marginal private costs are given by 20 (per Q). Given that wearing masks will help reduce spread of virus, marginal benet to others is MTBO : 50 (per Q). o a. Draw the marginal private benet (MPB) marginal social benet (MSB), marginal private cost (MPG), and marginal social cost (MSG) curves on a graph. labeling clearly the axes and intercepts. Pay close attention to what is on the Xaxis and yaxis. 7 ' o b. What is the equilibrium amount of masks? What is the elcient level? 0 c. What is the deadweight loss (DWL) caused by the externality? Shade in the area of the DWL on the graph from part (a). What is the welfare gain from moving to the efcient level of Q? o d. For which good is a market absent in this case? Government solution: Suppose the government steps in and decides to correct the externality by subsi dizing masks. o e. Suggest a Pigouvian tax that would induce the eicient consumption. What is the optimal tax rate per unit, and how much subsidy is needed? Market solution: The Coase theorem states that \"the efcient outcome should occur regardless of which party has the property rights,\" implying that the market can potentially solve externalities by itself (no need for the government to step in!). o f. Interpret the Coase theorem in the context of this question. What are ways in which the Coase theorem could fail? Give some examples in the context of this
