Tag: Economics – Others

(i) Use OLS to estimate a model explaining colgpa using hsgpa, actmth, and acteng as independent variables. (Note: Use only observations where there is no missing data.)
The estimated equation is: colgpaˆ = β0 + β1 hsgpa + β2 actmth + β3 acteng
True or False: β1ˆ and β2ˆ are statistically significant at the 5% significance level against the two-sided alternative, but β3ˆ is not.
True
False
(ii) One standard deviation increase in hsgpa, that is about 0.343, (holding actmth and acteng fixed) the college GPA at the beginning of semester on average by approximately ____ points. The actmth would have to by approximately ____ standard deviations to change colgpaˆ by the same amount as one more standard deviation in hsgpa.
(iii) In terms of the parameters, which of the following is the null hypothesis in a test stating that actmth and acteng have the same effect (in the population) on colgpa?
H0: β2 ≠ β3
H0: β2 = β3
H0: β2 = 0, β3 = 0
H0: β2 ≠ 0, β3 ≠ 0
Suppose that θ = β2 − β3. Which of the following is the correct regression functional form that directly gives the t statistic for testing the null hypothesis that actmth and acteng have the same effect (in the population) on colgpa against a two-sided alternative?
colgpa = β0 + β1 hsgpa + θ actmth + β3 (actmth + acteng) + u
colgpa = β0 + β1 hsgpa + θ actmth + β3 actmth + acteng + u
colgpa = β0 + β1 hsgpa + β2 (actmth + acteng) + θ acteng + u
colgpa = β0 + β1 hsgpa + β2 actmth + acteng + θ acteng + u
colgpa = β0 + β1 hsgpa + θ actmth + β3 (actmth − acteng) + u
colgpa = β0 + β1 hsgpa + θ actmth + β3 actmth − acteng + u
colgpa = β0 + β1 hsgpa − θ actmth − β3 (actmth − acteng) + u
colgpa = β0 + β1 hsgpa − θ actmth − β3 actmth − acteng + u
Create a new variable actsm = actmth + acteng, and use OLS to estimate the following model:
colgpa = β0 + β1 hsgpa + θ actmth + β3 actsm + u
Estimated equation: colgpaˆ = β0ˆ + β1ˆ hsgpa + θˆ actmth + β3ˆ actsm
At the 5% significance level, you ____ the null hypothesis that actmth and acteng have the same effect (in the population) on colgpa against a two-sided alternative because the p-value of ____ is ____ than 0.05.
(iv) Suppose the college admissions officer wants you to use only the data from hsgpa, actmth, and acteng to develop a model that explains at least 50% of the variation in colgpa. It is enough to use only hsgpa, actmth, and acteng to obtain a model that explains more than 50% of the variation in colgpa.
True
False

1. Market Failure ____
2. Externality ____
3. Negative Externality ____
4. Positive Externality ____
5. Marginal Social Costs (MSC) ____
6. Marginal Social Benefits(MSB) ____
7. Socially Optimal Amount (Output) ____
8. Internalizing Externalities ____
9. Coase Theorem ___
10. Rivalrous in Consumption ___
11. Public Good ___
12. Nonrivalrous in Consumption ___
13. Excludable ___
14. Non-excludable ___
15. Free Rider ___
16. Asymmetric Information ___
17. Adverse Selection ___
18. Moral Hazard
Column “C”
____A. A good whose consumption by one person doesn’t reduce its consumption by another person, that is, it is nonrivalrous in consumption but the same good can be excludable or nonexcludable.
____B. Information that either the buyer or the seller in a market exchange has & the other does not have.
____C. Anyone who receives the benefits of a good without paying for it.
____D. A side effect of an action that affects the well-being of third parties.
____E. A phenomenon in which the parties on one side of the market, who have information not known to others , self-select in a way that adversely affects the parties on the other side of the market.
____F. The condition when an individual’s or group’s actions impose a cost (adverse side effect) on others.
____G. A condition that exists when one party to a transaction changes his or her behavior in a way that is hidden from and costly to the other party.
____H. The sum of marginal private costs (MPC) and marginal external costs (MEC).
____I. A characteristic of a good whereby it is impossible, or prohibitively costly, to exclude someone from receiving its benefits after it has been produced.
____J. A situation in which the market does not provide the ideal or optimal amount of a good.
____K. The condition when an individual’s or group’s actions cause a benefit (beneficial side effect) for others.
____L. An amount that takes into account & adjusts for all benefits (external & private) & all costs (external & private); the amount at which MSB = MSC. Sometimes referred to as “efficient amount”.
____M. An externality is internalized if the persons or group that generated the externality incorporate into their own private or

You have just been promoted to the rank of lead engineer in your company
You have already identified and determined the economic life of Machine A to be five years by assuming a 20% interest rate. The annual equivalent total cost corresponding to the economic life is R4250.
Another manufacturer of Machine B has contacted your company. Machine B, which has the same capacity as that of Machine A, is priced at R7800. The maintenance cost of Machine B is estimated at R1500 for the first year and an equal yearly increment of R250 thereafter.
If the money is worth 20% per year, which Machine would you advise your company to purchase and why?
Note:
Assume that the scrap value of each of the machines is zero at any year.

Trade offsWhich of the following are trade-offs faced by a family deciding whether to buy a new car? Check all that apply.
A newer model offers better protection and functions but is more expensive than an older model.
The vehicle is available in several colors.
The same vehicle model is available at various car dealerships.
Which of the following are trade-offs faced by a member of Congress deciding how much to spend on national parks? Check all that apply.
Money spent on national parks benefits park visitors, but alternatively the money could be spent on highways to benefit drivers.
National parks are essential to protecting wildlife from extinction.
Dog ownership will surge as a result of better national parks.
Which of the following are trade-offs faced by a company president deciding whether to open a new factory? Check all that apply.
The firm is currently making profits.
The president has been with the company for 20 years.
The firm can either open a new factory or expand its current factory.
Which of the following are trade-offs faced by a professor deciding how much time to spend preparing for class? Check all that apply.
The more the professor prepares, the better the lectures, but the less free time the professor can enjoy doing something else.
The professor has taught the same subject for 4 years.
The better the lecture, the better the professor’s chances of tenure, but time spent preparing the lecture decreases the time the professor has available to work on research.
Which of the following are trade-offs faced by a recent college graduate deciding whether to go to graduate school? Check all that apply.
If she goes to graduate school, she won’t be able to spend as much time with her family.
Taking out more student loans means she may not able to purchase the new car she needs.
Graduate school means fewer years of on-the-job experience.
Which of the following are trade-offs faced by a single parent with small children deciding whether to take a job. Check all that apply.
The single parent has been divorced for two years.
Working prevents parents from attending their children’s sporting events.
Childcare is expensive for working parents, but it promotes social skills in small children.

7. Application: Elasticity and hotel rooms
The following graph input tool shows the daily demand for hotel rooms at the Triple Sevens Hotel and Casino in Las Vegas, Nevada. To help the management better understand the market, an economist identified three primary factors that affect the demand for rooms each night. These d factors, along with the values corresponding to the initial demand curve, are shown in the following table and alongside the graph input tool. Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly.
Graph Input Tool — Market for Triple Sevens’s Hotel Rooms
Price (Dollars per room)
Quantity Demanded (Hotel rooms per night)
300
200
Demand Factors
Average Income (Thousands of dollars)
Airfare from JFK to LAS (Dollars per round trip)
Room Rate at Exhilaration (Dollars per night)
For each of the following scenarios, begin by assuming that all demand factors are set to their original values and that Triple Sevens is charging $300 per room per night.
If average household income increases by 25%, from $40,000 to $50,000 per year, the quantity of rooms demanded at the Triple Sevens from rooms per night to rooms per night. Therefore, the income elasticity of demand is _ , meaning that hotel rooms at the Triple Sevens are
If the price of a room at the Exhilaration were to decrease by 20%, from $250 to $200, while all other demand factors remain at their initial values, the quantity of rooms demanded at the Triple Sevens from rooms per night to rooms per night. Because the cross-price elasticity of demand is – , hotel rooms at the Triple Sevens and hotel rooms at the Exhilaration are
Triple Sevens is debating decreasing the price of its rooms to $275 per night. Under the initial demand conditions, you can see that this would cause its total revenue to. Decreasing the price will always have this effect on revenue when Triple Sevens is operating on the portion of its demand curve.

Consider two countries, Canada (Home) and US (Foreign). In 2018, Canada experienced relatively slow output growth ( 2% ), whereas US had relatively robust output growth (4.2%). Suppose the Bank of Canada allowed the money supply to grow by 2% each year, whereas the Federal Reserve (Fed), the US central bank, chose to maintain relatively high money growth of 10% per year. For the following questions, use the simple monetary model (where L is constant).
A. What is the inflation rate in Canada? In US? What is the expected rate of depreciation/appreciation in the Canadian dollar relative to the US dollar?
B. Suppose the Fed increases the money growth rate from 10% to 12%. If nothing in Canada changes, what is the new inflation rate in US?
C. Using time series diagrams, illustrate how this increase in the money growth rate affects the US money supply, interest rate, prices, real money supply, and exchange rate E$//C$ over time. (Plot each variable on the vertical axis and time on the horizontal axis.)
D. Suppose the Fed wants to maintain an exchange rate peg with the Canadian dollar. What money growth rate would Fed have to choose to keep the value of the US dollar fixed relative to the Canadian dollar?
E. Suppose the Fed sought to implement policy that would cause the US dollar to appreciate relative to the Canadian dollar. What ranges of the money growth rate (assuming positive values) would allow the Fed to achieve this objective?
F. Next, consider the general monetary model, in which L is no longer assumed constant and money demand is inversely related to the nominal interest rate. In addition to the scenario described in the beginning of the question, the bank deposits in Canada pay 3% interest. Suppose the Fed increases the money growth rate from 10% to 12% and the inflation rate rises proportionately (one for one) with this increase. Using time series diagrams, illustrate how this increase in the money growth rate affects the US money supply, interest rate, prices, real money supply, and exchange rate E$/C$ over time. (Plot each variable on the vertical axis and time on the horizontal axis.).
*******NOTES: ONLY PART F*******

From California to New York, legislative bodies across the United States are considering eliminating or reducing the surcharges that banks impose on noncustomers, who make $10 million in withdrawals from other banks’ ATM machines. On average, noncustomers earn a wage of $26 per hour and pay ATM fees of $3.00 per transaction. It is estimated that banks would be willing to maintain services for 4 million transactions at $0.75 per transaction, while noncustomers would attempt to conduct 16 million transactions at that price. Estimates suggest that, for every 1 million gap between the desired and available transactions, a typical consumer will have to spend an extra minute traveling to another machine to withdraw cash.
Based on this information, what would be the nonpecuniary cost of legislation that would place a $0.75 cap on the fees banks can charge for noncustomer transactions? (Instructions: Round your answer to the nearest penny (two decimal places).)
What would be the full economic price of this legislation?
Problem 02-18 (algo)

Instructions: Proide answers and solve the following questions or exercises usingmaterials presented in the course.23.4The Acme Paper Co lowers its price of envelopes (1,000 count) from S6.00to SS,40, If its sales increase by 20 percent following the price decrease,what is the elasticity coefticient? What will happen to TR (Total Revenue)given this pice decrease? Asa manager, what will be your decisionregarding the proposed price change?
A company that sells consumer electronics products has manufacturingfacilities in Mexico, Taiwan, and Canada. The average hourly wage, output,and annual overhead cost for cach site are as follows:
Item Hourly wage rate Output per person Fixed overhead cost
Mexico SI.50 10 SI50,000
Taiwan S3.00 I8 S90,000
Canada S6.00 A Winery plans to expand to a new production facility. Based on informationprovided by the accounting department, the company estimates fixed costs ofS250,000 per year and average variable costs of20AVC = $10 + $0.01QSI10,000
Given these figures, is the firm currently allocating its productionresources optimally? If not, what should it do? (Note: consideroutput per person as a proxy for marginal product.)
Suppose the fim wants to consolidate all its manufacturing into onefacility. As a manager, where should it be located? Explain.where AVC is the average variable cost (in dollars) and Q is output measuredin cases of output per year:Estimate total cost (TC) and average total cost (ATC) for the coming yearat a projected volume of 4,000 cases.
A profit-maximizing firm in a competitive market is currently producing 100units of output. It has average revenue of SI0, average total cost of S8, andfixed cost of $200.
An increase in worker productivity because of greater experience orlearning during the course of the year resulted in a substantial costsaving for the comnpany. Estimate the effect of learning on theaverage total cost if the actual total cost was $522,500 at an actualvolume of 5,000 cases. As a manager, what will be your decisionregarding the projected expansion to a new production facility?
What is its profit (), marginal cost (MC), and average variable cost(AVC)?
Is the current output of the firm the eficient scale of production(MES)? Is it more or less than 100 units? Explain. As a manager,what will be your decision regarding production scale?

The final exam is in-person on May 6 at 10:15AM in our usual classroom. Don’t forget that it counts for 40% of your course grade and must be completed on your own. It is open note but not open internet, so please prepare any notes/resources you intend to use beforehand. All devices must disconnected from the internet during the exam so if you are using digital notes you must have them all loaded and available before the exam begins. Any offline apps/programs/resources that are not strictly notes or information are not allowed. You (obviously) may not present the work of someone or something else as if it is your own.
Question 1: Contingent value surveys as a valuation method. Pros and cons of contingent value. Risk of over or underestimation of value with contingent value.
Question 2: Interpreting NPV (not calculating). Non-NPV considerations that factor into decision making. Comparing NPVs between competing projects. When should we proceed with a project and what can NPV tell us about it?
Question 3: Agricultural runoff as a pollutant. Characteristics of that pollutant and challenges of policy making for different characteristics of pollution. A policy suggestion for this type of pollutant and what potential drawbacks of that policy might be.
Question 4: Command and Control policies vs. Market Based and the trade offs between the two. Categories within or general examples of Command and Control policies and their pros and cons, advantages of emissions fees (taxes) compared to command and control policies.
Question 5: Pros and cons of Hedonic Pricing. Examples of when it might be an appropriate tool. Challenges of using this type of valuation.
Question 6: The role of the discount rate in environmental economic analysis. Where it is used, choice of value, interpretation of what it is capturing, etc. The meaning/implications of different values of the discount rate.
Question 7: Additionality in payment for environmental services programs. Definition of additionality. Relationship to these policies in particular. Reasons why additionality may be difficult to measure/achieve in these programs. Downsides of a lack of additionality.
Question 8: Policy implementation considerations. Wording of the Endangered Species Act and how it can create problems in implementation. Suggestions to mitigate the problems created.

Trade offs
Which of the following are trade-offs faced by a family deciding whether to buy a new car? Check all that apply.
The vehicle is available in several colors.
An increase in the family’s car payment means the family will be unable to afford a vacation.
A newer model offers better protection and functions but is more expensive than an older model.
Which of the following are trade-offs faced by a member of Congress deciding how much to spend on national parks? Check all that apply.
The president likes white flowers and wants to see more in parks.
Congress can spend either a small amount on a lot of parks or a large amount on a single national park.
Money spent on national parks benefits park visitors, but alternatively the money could be spent on highways to benefit drivers.
Which of the following are trade-offs faced by a company president deciding whether to open a new factory? Check all that apply.
The firm can either open a new factory or expand its current factory.
The firm can either open a new factory or upgrade existing equipment.
The firm can either pay out more of its profit to shareholders or earn additional profit next year by increasing production.
Which of the following are trade-offs faced by a professor deciding how much time to spend preparing for class? Check all that apply.
The professor likes the students a lot.
The better the lecture, the better the professor’s chances of tenure, but time spent preparing the lecture decreases the time the professor has available to work on research.
The professor has taught the same subject for 4 years.
Which of the following are trade-offs faced by a recent college graduate deciding whether to go to graduate school? Check all that apply.
If she goes to graduate school, she won’t be able to spend as much time with her family.
Taking out more student loans means she may not able to purchase the new car she needs.
Graduate school means fewer years of on-the-job experience.
Which of the following are trade-offs faced by a single parent with small children deciding whether to take a job. Check all that apply.
They can make more money by working, but they won’t be able to home-school their children anymore.
Working prevents parents from attending their children’s sporting events.
Childcare is expensive for working parents, but it promotes social skills in small children.