econ j

1.2 In this problem we revisit the voting game we saw in class. Let's recall the main features of the problem. There are two candidates, each of whom chooses one of ten political positions. The voters are equally distributed across these ten positions, so there is 10 percent of the electorate in each position. Voters vote for the candidate whose position is closest to theirs. If the two candidates are equidistant from a given position, the voters at that position split their votes equally. The aim of the candidates is to maximize their percentage of the total vote. In class we showed that position 1 is strictly dominated by position 2 for both candidates. However, position 1 is itself strictly dominated by other strategies. For example, position 1 is strictly dominated by position 3. Find some other position (other than 3) that strictly dominates position 1.

In the problems that follow we will review the notion of mixed strategy in several games. In particular, we will revisit the notion of expected payoff and illustrate the role that mixing can have on the iterative process of elimination of strictly dominated strategies.

In the goods-and-services market actual inventories have started to rise above optimal inventories. What could have happened to autonomous money demand to bring this about? Explain and diagrammatically represent your answer. In doing so, be sure to explain and diagrammatically represent what happens to the rate of interest, investment, and Y. In explaining what happens to Y, be sure to fully explain the equilibrium process in the simple Keynesian model.

Question 1

Let an individual's utility function be given as u(x1, x2) = 2 x1 x2 . a) Compute the Marginal Rate of Substitution. b) Initially, the individual consumes bundle (x1 = 100, x2 = 12.5). Then, the individual's consumption of the first good is cut to x 0 1 = 50. What is the new level of consumption of good 2, x 0 2 , that the individual needs to consume in order to reach the same utility level as before? c) Given the prices p1 = 1 and p2 = 2 for the first and the second good, respectively, and a budget of m = 100, what is the best consumer choice? d) Find the individual's general demand function for good 2. e) If the price for the first good rises to p 0 1 = 50, how much less of good 2 will the individual conusme? f) Assuming the demand function for good 1 is x1(p1) = 1 2 m p1 , what is the inverse demand funtion, and what is the own-price elasticity of demand for good 1! g) Assuming the demand function for good 1 is x1(p1) = 1 2 m p1 , show mathematically that the good is not inferior.

Question 3

The demand function is given by x = A p with x giving the demand, p the price and a and as positive parameters. a) Derive the price elasticity of demand, . What is the economic meaning of the price elasticity of demand? What is elastic, what is inelastic demand? b) Denote revenues as a function of demand x and price p. How do revenues change as a reaction to an increase of the price, if demand is inelastic? c) Is the good in focus a Giffen good? Explain your answer both verbally and analytically.

You work for firm XYZ situated in Britain, and your boss has become concerned about the current economic environment, especially as it is related to the different types of exposures that your firm may face in the near future. You are asked to provide a report, which evaluates how your firm is exposed, the risk management implications for your firm, and possible hedging strategies. You are also required to provide a recommendation for what your firm should do.

Information about Firm XYZ:

1. The firm imports high quality wool to Britain from foreign suppliers located in Australia and the New Zealand.

2. The firm exports Jewellery to USA from Britain.

3. The firm exports designer clothes from Britain to Australia, New Zealand and Singapore.

4. The firm has a payment of 8,000,000 AUD due in 3 months to their supplier in Australia, a payment of 6,000,000 NZD due in 2 months to their supplier in New Zealand.

5. The firm is due to receive 9,000,000 AUD from their customer in Australia in 2 months, 4,000,000NZD from their customer in New Zealand in 2 months, 700,000 SGD from their customer in Singapore in 1 months, and 9,000,000 USD from their customer in USA in 2 months

6. The firm is concerned with the impacts of the potential high inflation rate due to the recent expansionary monetary policy globally in their exporting and importing business

Hedging outcome (10 marks) Marks will be awarded based on your calculation and evaluation of the outcome if the company's exposure is hedged using the proposed strategies as well as the outcome if the company's exposure is not hedged.

In a perfectly competitive market, the price of the good equals its marginal cost because

a) that is the price that the Government will allow producers to sell at

B) Price is less than marginal revenue

C) that is the price that allows firms to maximize profits

d price is greater than marginal revenue

Clear my choice

Question 2

The requirement for profit maximization under perfect competition is

A) Marginal Revenue should be greater than marginal cost

B) Average revenue should be equal to price.

C) Marginal revenue should be less than marginal cost

D) Marginal revenue should be equal to marginal cost

Question 3

In the long run, a perfectly competitive firm will always have

A) Positive above normal profits

B) negative above normal profits

C) zero above normal profits

D) Either a profit or a loss

Clear my choice

Question 4

If marginal revenue is greater than marginal cost, increasing output will

A) have no impact on profits

B) All of the above

C) reduce profits

D) Increase profits

Question 5

A monopolist's marginal revenue curve is always

A) above its demand curve

B) below its demand curve

C) the same as its demand curve

D) upward sloping