Value of the house 500,000. You are using a 30-year mortgage. Also, you are putting down 20%. (Please show your work)
You have two options:
Which option should you choose? (calculate the present value of future savings)
Abman Spring 2023
Econ 456 – Problem Set 2
Instructions
Answer the following practice questions. For full credit, you must show your work when asked. Partial credit may be given for incorrect answers with sensible work. You must upload your files to Canvas. Late assignments will receive no credit.
Questions
1. Suppose you run a small oil well on the Western slope of Colorado. Your production is very small relative to that of the world and thus your production decisions do not impact the world price of oil. You have a stock of 1,200 barrels of crude underground which you can extract. Your annual marginal cost of extraction is equal to c∗q and for each barrel produced, you can sell it for $P (which is equal in both years unless explicitly stated otherwise). You must allocate production (extraction) across two years (0, 1). Assume r = 0.2 for all parts.
(a) If P = 100 and c = 0.25, will your resource constraint bind? Show your work.
(b) If P = 100 and c = 0.25, what are your optimal extraction quantities in both years?
(c) Find the present value of your two years of profits under these conditions. War and Price Volatility
(d) If a war in the middle east doubles the price (such that P = 200) before you choose q0 and q1, what are your optimal extraction quantities in each year?
(e) Find the present value of your two years of profits under the price of $200.
(g) If this war occurred after you had chosen q0 (such that P0 = 125 but P1 = 200) and you had NOT anticipated the event (it is too late to change q0 and you had incorrectly assumed P1 would also be 125), what quantities would you have chosen for q0 and q1?
Technological Advancement
(h) Suppose a technology company develops a cheaper way to get extract oil such that c = .1 instead of 0.25. If this technology is available to you before you make your extraction decisions and the price is $100 per barrel. What are your optimal extraction quantities?
(i) How much more profit do you make in year 0 with this new technology compared to the profit made in year zero in part (b)?
(j) Suppose you heard that the company was working on the new technology. It is not available to you in period 0, but might be available in period 1. If you believe that the probability the new technology will be available to you in period 1 is 0.6 and the probability it is not available (and you use the old technology) is 0.4. If P = 150 for both years, what do you choose for q0?
Three years of extraction
(k) Now suppose you can extract for three years instead of two. If P = 100 and c = .25 for all periods, what are your optimal quantities, q0, q1, and q2?
(l) Now suppose the price increases to P = 150 for all three years. What are your optimal quantities, q0, q1 and q2?
(m) Suppose you are a monopolist, you produce the only oil that can be consumed in Western Colorado. The annual demand for oil in this area is QD = 800 − P . If c = .25 what are your profit maximizing quantities q0 and q1 and how much total profit do you make?
2. A new material used for cans has recently been discovered, campanilium. The metal can be extracted and sold at a price of $2 per ton and the demand for the metal is QD = 10 − P . Importantly, used campanilium can be recycled and the supply curve of recycled campanilium is QSR = 1 2 P + 1.
(a) Graph the demand for campanilium, the supply of recycled campanilium and of all campanilium sold. What fraction of this is recycled campanilium?
(b) Suppose the government imposes a tax of $1 per ton on newly extracted campanilium. Find the new equilibrium total quantity. With the tax, what is the fraction of campanilium supplied from recycled sources
Globalization is the process of the world becoming more connected. Like any process that involves economic choices, it has positive and negative consequences.
China is one of the world’s fastest-growing economies, and it has experienced many consequences as the result of globalization. One severe consequence has been a sharp increase in air pollution.
In an informative essay, describe the effects of globalization on air pollution in China’s largest cities.
Use outside research to gather anecdotes and data to help you demonstrate your findings. Be sure to cite your sources on a Works Cited page.
DO A RESEARCH ON HOW GOVERNMENT REGULATIONS WILL AFFECT THE MACROECONOMIC STABILITY OF THE UK BANKING INDUSTRY.
Find an article that discuss various economic impacts imposed by covid-19 and respond the following question.
Read the article, ‘Hitlers’ War and the German Economy: A Reinterpretation
R. J. Overy.
Discuss the one of the following questions
1. How was Hitler’s economy policies successful in improving German economy?
2. How did Hitler war affect German economy?
Elaborate on the current situation of inflation and unemployment in the US, and as the result, what are the fiscal and monetary policies in the US?
Give an example of applying macroeconomic principles to a real-world situation(s)
Research an article regarding how Artificial Intelligence systems are going to change acquisition and fulfillment in the future. As your topic might be very new, use the web or the library. Note that you need to make sure to support your position on what will change in the future.
Read the articles below about the topic.
You need to make sure to identify the author’s point of view, and the bias of the author. Remember to include a link to the article.
Write a two-page paper, plus the title page and a reference page.
Problem Set #6
General Instructions:
Y = $40,000 Real GDP = Income
T = $6,000 Net tax collections
Spr = $1,000 + 0.15*(Y-T) + 1,000*r Private saving function; r = real interest rate
I = $5,600 – 2,000*r Total investment function
G = $6,800 Government purchases
Look carefully at the equations for private saving and total investment. Note that investment is a decreasing function of the real interest rate. That is, as the rate of interest increases, the level of desired investment (i.e. the demand for loanable funds) decreases. Also, private saving is an increasing function of both the real rate of interest and disposable income (Y–T).
The parameter 0.15 in the saving equation, which is multiplied by disposable income, is called the marginal propensity to save (MPS) and tells us how much extra saving is generated by an increase in disposable income.
Note that in this model, a reduction in investment in the economy does not change long run GDP. Here the level of GDP was given exogenously; that is, the model cannot explain changes in GDP. However, our simple model here makes predictions about changes in the composition of GDP.
The answers to the following questions are included in Ch.15.
1. Listen to Friday, March 10th news from the announcement of unemployment rate for March 2023. This official news needs to come from the US Bureau of Labor Statistics. (1 pt.)
2.
3. The Bureau of Labor Statistics does not count discouraged workers as unemployed. Suppose discouraged workers were counted as unemployed.
4. Even if an economy experiences full-employment, does it mean that in the economy, everyone has a job? why or why not? (1 pt.)
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