Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Macroeconomics Expert

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.

1729_Price of oil barrel.jpg

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

Subject-personal choices paperresourcespersonal choices

SUBJECT-Personal Choices Paper Resources Personal Choices Paper Scoring Guide. The purpose of this assignment is to consider how your personal choices affect environmental health and to asses alternatives that would impr ...

Identify three similarities between glba and hipaa

Identify three similarities between GLBA and HIPAA compliance laws. Explain how GLBA and HIPAA requirements align with information security.

Research a case that has been in the news in the last few

Research a case that has been in the news in the last few years where a major security breach occurred on a wireless network. Find a case where attackers got in via the wireless network, but then penetrated farther into ...

You will read the comments of the german delegation to the

You will read the comments of the German Delegation to the Paris Peace Conference on the conditions of the peace which ended World War I. Many have argued that it was the way World War I ended which made World War II ine ...

The theory of market economies emphasizes freedom of choice

The theory of market economies emphasizes freedom of choice and limited government intervention. The classic argument for government intervention is market failure - the inability of the market economy to correct itself ...

In the automotive industry is price elasticity of demand

In the automotive industry is price elasticity of demand considered elastic or inelastic? Please explain with your own words.

Assignmentthe following are some data on the us economy

Assignment The following are some data on the U.S. economy taken from the Economic Report of the President (Links to an external site.) (you may have to use the Search tool and type in for example "Economic Report of the ...

My newest book is being considered by a publisher offering

My newest book is being considered by a publisher offering me a $100,000 advance today, plus $50,000 at the end of each of the next 2 years. What is the present value of the payments from the publisher, given my rate of ...

Defining managerial economics by reffering two economis

Defining managerial economics by reffering two economis using the positive approach. discuss by using specific example the purpose of economic analysis and use of economic models.

Macroeconomic paperthe world bank is currently advising

Macroeconomic paper The World Bank is currently advising newly industrialized countries on how to encourage growth and they have asked for your help. • Using the Internet, library, or other resources, research and briefl ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

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.

Ask Now Help with Problems, Get a Best Answer

A cola-dispensing machine is set to dispense 9 ounces of

A cola-dispensing machine is set to dispense 9 ounces of cola per cup, with a standard deviation of 1.0 ounce. The manuf

What is marketingbullwhat is marketing think back to your

What is Marketing? • "What is marketing"? Think back to your impressions before you started this class versus how you

Question -your client david smith runs a small it

QUESTION - Your client, David Smith runs a small IT consulting business specialising in computer software and techno

Inspection of a random sample of 22 aircraft showed that 15

Inspection of a random sample of 22 aircraft showed that 15 needed repairs to fix a wiring problem that might compromise

Effective hrmquestionhow can an effective hrm system help

Effective HRM Question How can an effective HRM system help facilitate the achievement of an organization's strate