Explain the following attachments
MICROECONOMICS Section II Planning time-10 minutes Writing time-50 minutes Directions: You have 50 minutes to answer all three of the following questions. It is suggested that you spend approximately half your time on the first question and divide the remaining time equally between the next two questions. In answering the questions, you should emphasize the line of reasoning that generated your results; it is not enough to list the results of your analysis. Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must have all axes and curves clearly labeled and must show directional changes. Use a pen with black or dark blue ink. 1. Callahan's Orchard grows apples and operates in a constant-cost, perfectly competitive apple industry. Callahan's Orchard is currently in long-run equilibrium. (a) Draw correctly labeled side-by-side graphs for the apple market and Callahan's Orchard, and show each of the following. (i) Market output and price, labeled as "Q," and "Py", respectively (ii) Callahan's output and price, labeled as "Q," and "P,", respectively (b) Now assume that the government provides farm support to apple growers by granting an annual lump-sum subsidy to all apple growers. Indicate the effect the subsidy would have on each of the following in the short run. (i) Callahan's quantity of output. Explain. (ii) Callahan's profit (iii) The number of firms in the industry (c) Indicate how each of the following will change in the long run as a result of the lump-sum subsidy. (i) The number of firms in the industry. Explain. (ii) Price (iii) Industry outputQuestion 2 1. Using the Mundell-Fleming open economy model, briefly explain the effects of the following policies on the economy. Draw the relevant diagram in each case. ii) An expansionary fiscal policy under a flexible exchange rate when capital is perfectly immobile. (7 marks) An expansionary fiscal policy under a flexible exchange rate when capital is perfectly mobile. (6marks) b) Use the open economy IS-LM model to contrast the predicted implications for the exchange rate in a country with a floating exchange rate and international capital flows of the following (derive your answers graphically): i) Expansionary fiscal policy and (6 marks) ii) Expansionary monetary policy (6 marks)Hedonic scenario 2: This is the same setup with 100 identical people sorted across several neighborhoods. The price in A is always zero, as usual in our setup, and the price in other neighborhoods is equal to the number who live there. The utility function is U = aEQ + 13862 P. Now your task is to infer a and ,8 from the prices. Table 2: default Neighborhood EQ SQ P A 0 O 0 B 1 1 4 C 2 4 12 D 3 4 14 E 4 '3? 12 14. What is a, or is there insufcient information? (2 points) 15. What is [3, or is there insufcient information? (2 points) 16. What is SQ in neighborhood E? (1 point)
