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1.Consider a consumer with a utility function of u(x1, x2) = 5x1 + x2 defined over the quantities of two goods (x1 is the quantity of good 1 and 22 is the quantity of good 2). The prices of these goods are p1 (for good 1) and p2 (for good 2). good 1 and her If the prices of the two goods are equal (i.e., P1 = P2), then the consumer will spend her entire income on income-offer curve will be Finally, the Engel curve for good 1 will be assume the horizontal axis represents the amount of good 1 and the vertical axis represents the amount of good 2) Choose one: O A. a parabola starting at the origin. O B. a line through the origin with a slope of p1. OC. a line through the origin with a slope of p1 + P2. O D. an L-shaped function with the corners along the 45 degree line.
be a vertical line along we for the good 2 as 2) axis the 45 degree line (the line la start where gir 11 = 22) rough th a horizontal line along a rough th the good 1 a ped fun, axis ec
ho gin. a horizontal pla start line along the good 1 rough th axis a parabola a slc rough th starting at a slc ned fun the origin cor
2.Bayes Theorem 7. Assume that you are the manager of a Tile company. The tile company has two production facilities, one in Ohio and one in Virginia. 60% of the tiles are produced in Ohio and 40% in Virginia. A study has determined that on average 5% of the tiles produced in Ohio and 10% of the tiles produced in Virginia are defective and unusable (conditional probabilities). Your goal is to allocate the cost of replacing the tiles fairly between the two plants (round to 2 decimals). a. What percentage of the cost should be covered by the plant in Virginia? b. What percentage of the cost should be covered by the plant in Ohio? C. Which plant should pay the majority of the cost?
3.There are two variables, PATENTS (Number of patent applications filed, in thousands ) and R_D (Research/Development expenditures, billions of 1992 dollars) Which variable makes sense as the dependent variable?
Population Y intercept Population Slope Coefficient Independent Variable Random Error term Dependent Variable Y; = B. +,X; + & Linear component Random Error component.
4.Explain general situations where compounding is induced by growth, inflation, or deflation.
1.If the price of the two goods are equal i.e P1 = P2 , then the consumer will spend her entire income on Good-1 and her income offer curve will be Horizontal axis represents the amount of good-1.
The equation of Engel curve shows the relationship between money income and quantity. Engel curve for good-1 will be - A line through the origin with a slope of P1. ( I.e optionB
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2. let events A and B be the following:
A: the tile manufactured in ohio
B: the tile manufactured in virginia
let 'd' denotes the defectives.
A B
% of production 60 40
% of defectives 5 10
a) using baye's theorem ( conditional probability)
P(B/d)=(P(B)*P(d/B))/(P(A)*P(d/A)+(P(B)*P(d/A))
given P(A)= 60/100, P(B)=40/100, P(d/A)=5/100, P(d/B)=10/100
therefore substituting in the above eqation we get P(B/d)=0.9302325581
thus the percentage of cost covered by plant viriginia= 93.02
b) similarly calculate the percentage of cost incurred by the plant in ohio
c) make a comparison between the above two answers to get which plant should pay the majority cost.
3.There are two variables patents (No. of patent application filed in thousands) and R&D (research and development expenditure in billions of 1992 dollars).
R&D activity is the basis for the production of innovation that, in its turn, drives economic growth. The innovative process is made up of R&D investments, the input of the process, and the innovation, the output. The most common measure of the innovation output is the number of patents.
So, in simple words, R&D is the input and patents are the output.
Therefore, patent is the dependent variable.
As more will be the population, more resources will be there for R&D and resulting output which is Patents, will be more.
Some explanations and research findings on R&D and Patent relationship :
The traditional direction of causality in the R&D-patents relationship (hereafter R&D - patents) assumes that patents are the natural output of the R&D activity in the sense that more investment in R&D will result in more innovations and patenting (Jaffe, 1986; Griliches, 1990). The empirical literature, performed on cross-sectional data, confirmed a strong and highly significant (contemporaneous) correlation between R&D inputs and different patent measures across firms: the greater the R&D investments, the greater the patents (Pakes and Griliches 1980; Hall et al. 1986; Griliches 1988; Beneito 2006).
4.
Inflation vs. Deflation: An Overview
Inflation occurs when the prices of goods and services rise, while deflation occurs when those prices decrease. The balance between these two economic conditions, opposite sides of the same coin, is delicate and an economy can quickly swing from one condition to the other. Central banks keep a keen eye on the levels of price changes and act to stem deflation or inflation by conducting monetary policy, such as setting interest rates.
What Is Inflation?
Effect of Inflation on Investment
Inflation : Decompound Interest
While many people may understand compound interest, very few appreciate the decompounding effect of inflation on their money. What compound interest gives, inflation takes away. To put it another way, inflation is effectively the reverse – it’s like decompound interest. Since each year’s inflation occurs on top of the previous year’s inflation, it means that the effect of inflation on investment is just like that of compound interest.
Decompounding Effect of Inflation
DEFLATION
Deflation is a fall in the overall level of prices in an economy and an increase in the purchasing power of the currency. It can be driven by an increase in productivity and the abundance of goods and services, by a decrease in total or aggregate demand, or by a decrease in the supply of money and credit.
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