+1-415-315-9853

info@mywordsolution.com

## Economics

 Basic Economics Macroeconomics Microeconomics Business Economics Econometrics International Economics Managerial Economics Game Theory Public Economics

Problem1) Oil Markets Displayed below is the price of one barrel of (WTI) oil over the past few decades. A barrel of oil can be thought of as an asset because it is storable.

For the sake of simplicity, suppose that this is the only asset via which the infinitely-lived representative consumer can accumulate wealth.

Denote by wtit-1 the quantity of barrels owned by the consumer at the start of period t; denote by Swtit the nominal price during period t of one barrel of oil; as usual, let 0 < β < 1 stand for the consumer’s one-period-ahead discount factor, Pt stands for the period-t nominal price of consumption, and Yt stands for period-t nominal income. Finally, the period-t utility function of the consumer is

u(ct, d.wtit)

in which 0t-1 (you can think of this as heat for the oven or for the house, etc.)
Thus, the consumer’s lifetime utility function starting from the beginning of period zero is

t=0βu(ct, d.wtit)

a. Using the notation above, construct the period-t budget constraint of the consumer, and provide a ONE-SENTENCE economic comparison of this budget constraint to that in our study of stock-market pricing..

b. Based on your budget constraint in part a above and the lifetime utility function, construct the Lagrangian for the consumer’s optimization AND compute the FOCs for ct ct+1, and wtit.

c. Based on the FOCs you obtained in part b above, compute the period-t oil price. That is, construct the expression

Swtit
(the “…” that appears on the right-hand-side is for you to construct).

d. You can see in the graph displayed above that oil prices have overall been much higher over the past decade than before. Provide a brief explanation that is just based on how the d term in the utility function may have changed over the years. Your explanation should be stated in both mathematical terms AND in economic terms (that is, the economic explanation should not simply be a verbal restatement of the mathematics).

Macroeconomics, Economics

• Category:- Macroeconomics
• Reference No.:- M93579

Have any Question?

## Related Questions in Macroeconomics

### Macroeconomic assignmentsubmit answers to all the following

Macroeconomic Assignment Submit answers to all the following questions. Be sure to explain your reasoning clearly and fully and use diagrams where appropriate. The questions are applied and analytical. They can only be a ...

### Take the following information as given for a small

Take the following information as given for a small, imaginary economy: - When income is \$10,000, consumption spending is \$6,500 - When income is \$11,000, consumption spending is \$7,300 Then, the multiplier for this econ ...

### Suppose that central high school has preferences that can

Suppose that Central High School has preferences that can be represented by the utilityfunctionU(C,X) =CX2. Let us try to determine how the various plans described inthe previous problem will affect the amount that C.H.S ...

### 1 how does the financial aspect of an organization

1. How does the financial aspect of an organization influence decision making and the outcome? 2. What are the advantages and disadvantages of a firm's use of power purchasing parity? Provide an example. 3. Interview one ...

### Suppose ralph and ed have the only store that sells toilet

Suppose Ralph and Ed have the only store that sells toilet bowls in northern Maine. Their nearest competitor is 211 miles away, and these two men have a reputation for producing high-quality toilet bowls. Graphically ill ...

### You work for a technology firm that offers a very generous

You work for a technology firm that offers a very generous employee stock purchase program as a benefit; you can but as much stock as you want and your employer will pay half the price. This means that the stock price wo ...

### 1 what does the assumption of2 what does the assumption of

1) What does the assumption of 2) What does the assumption of constant velocity imply?

### The solow model has become the most popular framework used

The Solow model has become the most popular framework used to understand economic growth in the long run. The model, like all other models, has strengths and weaknesses. In this discussion I want you to look at the histo ...

### 1 how does the financial aspect of an organization

1. How does the financial aspect of an organization influence decision making and the outcome? 2. What are the advantages and disadvantages of a firm's use of power purchasing parity? Provide an example. 3. Interview one ...

### Douglas fur is a small manufacturer of fake-fur boots it is

Douglas fur is a small manufacturer of fake-fur boots. It is one of many firms selling fake-fur boots. The following table shows its total cost of production Quantity of boots (pairs per hour) Total cost (dollar per hour ...

• 13,132 Experts

## Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

### WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

### Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

### Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

### Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

### Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro