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1.The opportunity cost of an hour of leisure is Select one: O a. your hourly wage. b. 60 minutes. c. an hour of sleep. d. an hour's worth of wear and tear on your TV, exercise equipment, etc.
2.
In the market for a particular product, the price elasticity of supply is +67 , and the price elasticity of demand is −97. At equilibrium, price is 25 (in dollars) and quantity consumed is 35 (in thousands).
(a) Assuming supply and demand are linear, reconstruct and draw the supply and demand curves. Label the intercepts.
(b) To help consumers and produces, the government subsidizes the product by $2 per unit. What are the prices paid by buyers PB and prices received by seller PS after the subsidy? What is the new equilibrium quantity? Illustrate them on the same graph.
(c) How big is the change in consumer surplus, producer surplus, government expenditure, and deadweight loss?
3.Definition 6. An allocation is in the core if no group of people could go off with their endowments and achieve an outcome that for the members of the group is Pareto superior to what the members of the group get in the given allocation. Proposition 2. A CE allocation is in the core. We leave the proof as an exercise. Exercise 15. Prove the last proposition. (Hint: Let there be k
1.The opportunity cost of an hour of leisure time is the money/wage/salary/remuneration an individual can earn per hour by doing the task/work he is into. If a person earns $50 per hour and if he decides not to work for an hour then he is giving up $50 by spending an hour of leisure time which he could have utilised to earn $50 by doing the work.
Option A will be the answer (The opportunity cost of an hour of leisure time is your hourly wage).
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B) Price elasticity of demand = 0.67
Price elasticity of demand = -0.97
Benefit of subsdiy on consumers is: [0.67 / (0.67 + 0.97)] = 0.41 which means they will get subsidy of 0.41 * $2 = $0.82 which consumers will pay price of $25 - $0.82 = $24.18
%change in price consumer pay = [(24.18 - 25) / 25] * 100 = -3.28%
%change in quantity demanded would be: Elasticity of demand * %change in price = -0.97 * -3.28% = 3.18% which means quantity demanded would be 35 * 1.0318 = 36.11
Benefit of subsidy on producers is: [0.97 / (0.67 + 0.97)] = 0.59 which means they will get subsidy of 0.59 * $2 = $1.18 which producers will receive price of $25 + $1.18 = $26.18
%change in price producers receive = [(26.18 - 25) / 25] * 100 = 4.72%
%change in quantity supplied would be: Elasticity of supply * %change in price = 0.67 * 4.72% = 3.18% which means quantity demanded would be 35 * 1.0318 = 36.11
C) Consumer surplus rise by area of portion B + F + E whose sum is 0.82 * 35 + (1/2) * (25 - 24.18) * (36.11 - 35) = 28.88
Producer surplus rise by area of portion A + C whose sum is 1.18 * 35 + (1/2) * (26.18 - 25) * (36.11 - 35) = 41.45
Government cost is area of portion A + B + C + D + E + F whose sum is 2 * 36.11 = 72.22
Deadweight loss is area of portion D whose sum is (1/2) * (36.11 - 35) * 2 = 1.11
3.The economy resources are owned collectively where as an economy with individual endowments each agents starts out with a particular share of society resources.an economy like then every allocation is Pareto efficient.we recall that an allocation is Pareto efficient if it feasible and there is Pareto efficient if it is feasible and there is no other feasible allocation that Pareto dominates it which means that each agent funds it at least as desirable and and at least on agents prefers.The only way to make someone better off is to give them more of the good ,in which case someone else will have less of the good and hence be worse off.
