Category: Economics

Suppose that Hungary and Luxembourg both produce boots and wheat. Hungary’s opportunity cost of producing a bushel of wheat is 5 pairs of boots while Luxembourg’s opportunity cost of producing a bushel of wheat is 11 pairs of boots. By comparing the opportunity cost of producing wheat in the two countries, you can tell that has a comparative advantage in the production of wheat and has a comparative advantage in the production of boots.
Suppose that Hungary and Luxembourg consider trading wheat and boots with each other. Hungary can gain from specialization and trade as long as it receives more than of boots for each bushel of wheat it exports to Luxembourg. Similarly, Luxembourg can gain from trade as long as it receives more than of wheat for each pair of boots it exports to Hungary.
Based on your answer to the last question, which of the following prices of trade (that is, price of wheat in terms of boots) would allow both Luxembourg and Hungary to gain from trade? Check all that apply.
8 pairs of boots per bushel of wheat
10 pairs of boots per bushel of wheat
1 pair of boots per bushel of wheat
3 pairs of boots per bushel of wheat

Question 2: Firms A and B are oligopolistic competitors setting prices.
We will model theirdecision making a simultaneous move game summarized by Table 1. Table 1: Simultaneous Move Payoffsa0<β<1. Thismeans that $1 of profit in the second round is worth βdollars to the firm deciding whatto do in the first round. Discount factors compound, so $1 of profit in the third round isworth β2 dollars to the firm in the first round. Discount factors capture the reality thatresources at a future date aren't as valuable as resources today. The firms could potentially form a tacit agreement where they both agree to play p=5every turn until something else besides p=5 is played. If someone besides p=5 is playedby either player, they then play p=1 every turn afterwards. This would result in thefollowing value for the firm: If uphold the agreement: 16+16β+16β2+16β3+dots If deviate from agreement: 21+1β+1β2+1β3+dots Total value of all payoffs if uphold the agreement: 16+16β+16β2+16β3+dots = 16+16β1-β Total value of all payoffs if deviate from agreement: 21+1β+1β2+1β3+dots = 21+β1-β What values of β will result in an equilibrium where both agree to the tacit agreementand play p=5 every turn?

Suppose that income (or labour) tax receipts for Country Z are calculated as follows:T =twLWhere:T = Total tax receipts (or revenue) from income tax (or labour tax)t = tax rate (on labour income)w = hourly wage rateL = quantity of Labour (L) suppliedFollowing one of the principal policy recommendations of Supply-Side Economics, the government of Country Z lowers the tax rate (t) on labour income from 50% to 10%.Based on this information, which of the following statements is TRUE?
Group of answer choices
Tax cuts (on labour income) increase the incentive to work, save, and invest. Expanding the workforce and the capital stock clearly can have an expansionary effect allowing the economy to grow more rapidly.
Lower taxes (on labour income) reduce the incentive to work, since they are always complemented by higher government transfer payments such as government subsidies
Tax cuts (on labour income) reduce the incentive to work, save, and invest, since people decide to reduce the quantity of labor supply; even though the quantity of labour supplied falls (or decreases), GDP grows because lower labor (income) taxes reduce incentives for wasteful employment by profit-maximizing firms.

3.
➤ How can you tell from an indifference curve whether goods are perfect substitutes or complements?
Look at the curve shape. Straight, parallel lines imply perfect substitutes with a constant marginal rate of substitution; the consumer is willing to swap goods at a fixed rate. Right-angled, L-shaped curves indicate perfect complements that must be consumed in fixed proportions. Smooth convex curves show ordinary substitutable preferences with diminishing MRS.

Storage tariks to hold a highly comosive cherncal are currenty made of materal 226. The capital irvestrment in a tank is $27,000, and its usetul life is eight years. Your company manulachres electronic components and uses the ADS for Asset Class 36.0 under MACRS to calculate depreciation deductions for these tanks. The net MV of the tanks at the end of their uselud life is zero. When a tank is four years old, it must be relined at a cost of $8,000. This cost is not depreciated and can be clamed as an expense during year four. Instead of purchasing the tarks, they can be leased. A contract for up to 20 years of storage tank sevice can be written with the Rent-All Company. If your firmi’s after tax MMRR is 14% per year, what is the greatest annual amount that you can afford to pay for lark leasing without causing purchasing to be the more econornical allemative? Your firm’s eflective income tax rate is 20% Chick the icon to vew the partal listing of depreciatie assets used in tusiness. Click the icon to vew the interest and annuity table for discrete compounding when the MMRR is 14% per vear.
The greatest annuad amount that you can aftoxd to pay is ! ◻ pround to the nearest dollax)

Approximately 14 million Americans are addicted to drugs and alcohol. The federal government estimates that these addicts cost the U.S. economy $300 billion in medical expenses and lost productivity. Despite the enormous potential market, many biotech companies have shied away from funding research and development (R&D) initiatives to find a cure for drug and alcohol addiction. Your firm Drug Abuse Sciences (DAS) – is a notable exception. It has spent $200 million to date working on a cure, but is now at a crossroads. It can either abandon its program or invest another $60 million today. Unfortunately, the firm’s opportunity cost of funds is 5 percent and it will take another five years before final approval from the Federal Drug Administration is achieved and the product is actually sold. Expected (year-end) profits from selling the drug are presented in the accompanying table. What is the net present value of the project? Instructions: Enter your response rounded to the nearest penny (two decimal places). Use a negative sign (-) where appropriate. Should DAS continue with its plan to bring the drug to market, or should it abandon the project?

His substitution effect is stronger than his income effect.
His income effect is stronger than his substitution effect.