... Chapter 1: Preliminaries
New CPI 198 0 63.1 Real price of milk 198 0 $2 .98
198 5 82.3 198 5 $2.58
199 0 100 199 0 $1 .99
199 5 116.6 199 5 $1.38
2000 131.8 2000 $1 .91
2001 135.6 2001 $2.43
d. ... butter in 198 0 dollars. Has the real price
increased/decreased/stayed the same since 198 0?
Real price of butter in year X =
CPI
198 0
CPI
year X
*nominal price in year X
.
198 0...
...
E
p
97
=
P
Q
ΔQ
ΔP
=
4.11
820
(−85.7) =−0.43
E
p
98
=
P
Q
ΔQ
ΔP
=
3.76
850
(−85.7) =−0.38
E
p
AVE
=
P
97
+ P
98
2
Q
97
+ Q
98
2
ΔQ
ΔP
=
3 .93 5
835
(−85.7) =−0.40.
To derive the demand curve for roasted coffee Q=a-bP, note that ... 0.6Q
e
=0.6(154 4-1 76P) =92 6. 4-1 05.6P. Graphically,
export demand has pivoted inwards as illustrated in figure 2.5a below.
Total demand be...
... Meredith would have to spend in 199 5
versus 199 0 if she consumed the same amounts of food and clothing in 199 5 as she did in
199 0. That is, the Laspeyres index for 199 5 (L) is given by:
L = 100 ... (2/3)734.8 = 4 89. 9.
In 199 5, the bundle of 734.8 food and 4 89. 9 clothing would cost $ 293 9.60 and Meredith
would still get 360,000 in utility.
We can now calculate the ideal index...
... P
2
Q
2
- P
1
Q
1
Δ
TR
cc
= (1.1P
1
)(0.8Q
1
) - P
1
Q
1
= -0 .12P
1
Q
1
, or a 12 percent decline.
For disk drives:
Δ
TR
dd
= P
2
Q
2
- P
1
Q
1
Δ
TR
dd
= (1.1P
1
)(0.9Q
1
) - P
1
Q
1
...
9. The ACME Corporation determines that at current prices the demand for its computer chips has a price
elasticity of -2 in the short run, while the price elasticity...
... (0.001)(1,000,000,000) = $1,000.
The variance is
σ
2
= (0 .99 9) (-1 ,000,000 - 1,000)
2
+ (0.001)(1,000,000,000 - 1,000)
2
, or
σ
2
= 1,000 ,99 8 ,99 9,000,000.
b. What is the most Sam is willing to ... probabilities:
σ
2
= (0.2)(125 - 80)
2
+ (0.3)(100 - 80)
2
+ (0.5)(50 - 80)
2
= $97 5.
c. What would a risk-neutral person pay to play the lottery?
A ri...
... (100)(5
0.8
)( 49
0.2
) = 7 89. 25 ⇒ MP
K
= 1 29. 03
K = 6 ⇒ q = (100)(6
0.8
)( 49
0.2
) = 91 3. 19 ⇒ MP
K
= 123 .94
K = 7 ⇒ q = (100)(7
0.8
)( 49
0.2
) = 1,033.04 ⇒ MP
K
= 1 19. 85.
For fixed ... q=8, if L=2 then
q =9. 65, and if L=3 then q=10 .93 . The marginal product of the second unit of
labor is 9. 6 5-8 =1.65 and the marginal product of the third unit of labor is...