microeconomics

The Government Sponsored Enterprises (GSEs) play a key role in the U.S. mortgage finance system. The public mission of the GSEs is to support homeownership. In practice, this is partly achieved by the GSEs purchasing residential mortgages that are originated by banks and other financial institutions. However, the GSEs require that these mortgages must meet certain risk standards such as: "we will not purchase any mortgage with a credit score below 620."

a. Briefly explain how the GSEs influence mortgage credit supply. b. Let's assume that are a U.S.-based borrower and that you have a credit score of 621. In terms of risk, what does the credit score represent in general? C. Given your credit score of 621, it seems much more likely that your local banker will be able to originate-and-sell your mortgage to a GSE. How might this ability-to-sell affect the incentives of your local banker to evaluate potential borrowers such as yourself? Explain. d.Given your new credit score of 619, does your local banker have different incentives when it comes to evaluating your loan application? Explain.

Please read the assigned material that is available on Canvas and think about how you would answer the discussion questions below. Objectives: a) Understand how RFID works b) Evaluate the economics of RFID (business value) c) Recognize the challenges in adopting technology on a large-scale. d) Evaluate risks associated with technology projects & how to mitigate those risks Context: Radio frequency identification (RFID) technology offers powerful enhancements to a firm's ability to track materials through the supply chain and has been marketed as the ultimate tool for managing physical and information flow in retail supply chains. When we cover Supply Chain transformation in Week 4, we will discuss various flows in the supply chainRFID allows synchronization of material and information flow. Among the many potential benefits of RFID technology are reduced shrink, increased product availability, and higher labor productivity. RFID may set the foundation for future retail stores where RFID may be used at item level and may truly create a check-out-less retail store with smart shelf and smart cart. METRO Group, the world's third-largest retailer, headquartered in Germany has to make some strategic decision on how to proceed with RFID. (Note - Wal-Mart is also making aggressive push to use RFID as wellsee optional reading). Material to read in writing this case: 1. HBS Case: RFID at the METRO Group, 606053-PDF-ENG. 2. The optional reading on Walmart (Measuring the Impact of RFID On Out of Stocks) 3. You can search for videos on how RFID works 4. You can search for videos of smart carts from Safeway and Amazon Go stores Your case write-up should address the following questions (please add any tables or charts to your appendix, if you do calculations using Excel). 1. Which of the three options do you recommend that Mierdorf and Wolfram propose to the RFID steering committee on December 13? Please justify your recommendations based on an ROI analysis. I. Expand the scope of the current pallet-level RFID rollout. II. Move to case-level RFID with the manufacturers currently engaged in the pallet-level rollout. III. Stop the expansion of RFID efforts and focus on traditional process improvement opportunities. 2. Identify strategic and operational benefits of RFID rollout.

3. Evaluate the costs and benefits of implementing RFID at the pallet level and at the case level. In your analysis, use the benefits listed in Exhibit 8/9 of the case and any other benefits mentioned in the case. Quantify the total savings that Metro would realize from full-scale implementation of RFID (for both pallet-level and case-level implementations). 4. If you find no compelling economic reason to pursue RFID at this time, how would your findings change the consideration of METRO's future store initiative? Please use the following assumptions in developing your ROI: 1. Evaluation period is 10 years. 2. Assume RFID will be implemented in all Extra stores (436) and 10 distribution centers. Each Extra store will need one RFID portal and two RFID readers, while distribution centers need 2 portals and 5 readers. (You don't need printers since manufacturers will put RFID tags). 3. Software cost is TWO times the cost of hardware. Annual maintenance cost is 20% of initial software cost. (these are approximations - software cost is not given in the case) 4. Assume savings from productivity will grow at 5% for the first five years. Assume shrink will continue to reduce at additional 5% each year for the first five years. (this reduction in shrink is 5% higher than previous year's reduction). 5. Assume straight-line depreciation for both hardware and software (we will assume initial software cost is fully capitalized - but in practice this may be different). The costs are fully depreciated in five years. 6. Make any appropriate assumptions for missing information. Only assume conservative values when you find different sets of assumptions.

1. (55 points) Egbert consumes only axes (X) and mead (Y ). His utility function is U = XY , his income is I and the prices of axes and mead are pXand pY respectively. (a) What is Egbert's demand for for axes and mead? (Show all the steps.) (b) What is Egbert's indirect utility function? (c) What is Egbert's compensated demand for axes and mead? (d) What are the numerical values for (b),(c) and (d) if I = 24, pX= 1, pY= 2? (e) Now the price of mead rises to pY= 3. What income would Egbert need to be able to reach his old utility level at the new prices? (f) If he had this income, what quantities of each good would he consume at the new prices? (g) Given his actual income, how much of each good will Egbert consume at the new prices? (h) What is the income effect of this price change? (i) What is the substitution effect of this price change? (j) Show the Slutsky equation holds for this price change. (k) What loss in welfare (in $) does Egbert suffer due to the price change? Give three different possibilities.

2. (5 points) In class I showed the effect on an isoquant of Hicks-neutral technological progress - redraw this diagram. Show (either on the same diagram or a second one) the effect of labor-saving technological progress. Make clear (on the diagram and with some text) what the difference is between the effects of the two types of technological progress.

1. (55 points) Egbert consumes only axes (X) and mead (Y ). His utility function is U = XY , his income is I and the prices of axes and mead are pXand pY respectively. (a) What is Egbert's demand for for axes and mead? (Show all the steps.) (b) What is Egbert's indirect utility function? (c) What is Egbert's compensated demand for axes and mead? (d) What are the numerical values for (b),(c) and (d) if I = 24, pX= 1, pY= 2? (e) Now the price of mead rises to pY= 3. What income would Egbert need to be able to reach his old utility level at the new prices? (f) If he had this income, what quantities of each good would he consume at the new prices? (g) Given his actual income, how much of each good will Egbert consume at the new prices? (h) What is the income effect of this price change? (i) What is the substitution effect of this price change? (j) Show the Slutsky equation holds for this price change. (k) What loss in welfare (in $) does Egbert suffer due to the price change? Give three different possibilities.