Hello, dear friend, you can consult us at any time if you have any questions, add WeChat: THEend8_
Microeconomics
Question 1
Lucy’s utility function is 2XL + GL and Melvin’s utility function is XMGM, where G is their aggregate consumption units of a public goods (i.e., G = GL + GM) and where XL and XM are their respective private consumption of good X. The total amount they have between them to spend on private goods and public goods is £28,000. They agree on a Pareto optimal allocation in which the amount that is spent on Lucy’s private consumption is £10,000. Assuming that the unit price of X and G is £1. How much do they spend on public goods? Explain your steps in reaching your answer and any relevant concepts. [Total 30 marks]
Question 2
A new digital file of lectures on the topic of intermediate microeconomics is being marketed on the Internet as a resource to prepare for the final exam. As an experiment, the marketing firm wants to direct half of Web hits to a page that advertises the lectures as a resource that provide a 90% probability of successfully passing the final exam, while the other half are directed to a page that advertises the lectures as a resource that provide a 10% probability of failing to pass the final exam. Would you expect equal numbers of sales from the two advertising approaches? Explain and use the appropriate concepts to answer the question, demonstrating your critical understanding of the relevant course material. [Total 30 marks]
Question 3
The market for used cars is shown in the figure below, where P (price in £) is represented on the vertical axis and Q (quantity of cars) is represented on the horizontal axis. D refers to Demand and S refers to Supply. The market for low quality cars (called lemons) is represented in the left hand side graph, and the market for good quality cars is represented in the right hand side graph. Answer the questions below:
a. The market for used cars is shown in the above figure. Buyers cannot tell
whether any given car is a lemon. The percent of all cars that are lemons is θ . What value of θ is necessary for all cars to be sold? [15 marks]
b. The market for used cars is shown in the above figure. Ten percent (10%) of all cars are lemons. A mechanic is offering to inspect a car for sale and certify that a car is not a lemon. If car sellers are risk neutral, what is the highest price that a car seller would pay for such a service? Who would buy this service? [15 marks]
c. The market for used cars is shown in the above figure. Buyers cannot tell
whether any given car is a lemon. For all cars offered for sale to be sold, the percent of all cars that are lemons is θ. What happens to θ if car buyers incur a £100 transaction cost when buying a used car? [10 marks] [Total 40 marks]