Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Business Economics Expert

Calculating Consumption and Measuring Relative Risk Aversion

Please answer and show work.

1. find out the change in consumption of goods x and y for a person with utility U(x,y)= 8(x)^0.6(y)^0.3 and income of $270 facing px = $2 and py = $3 when a tax of $1 per unit is added to the price of x. Decompose the change in consumption of x into Hicks income and substitution effects. Finally, find out and interpret the compensating and equivalent variations for this tax.

2. For U(x,y) = 0.5(x)^0.4(y)^0.6, find the Marshallian demands, the indirect utility function, the expenditure function, and the compensated demands. You must derive the functions, do NOT plug into a formula. find out the change in consumer surplus from good x that results from a change in the price of x from $10 to $5 when income is $500 and the price of y is $30.

3. A person with $10 million in wealth and utility of wealth given by U(w) = 100(w)^0.4 is considering buying fire insurance. She faces a 2% chance of suffering a $500,000 loss due to fire.

a. Show (mathematically) that her expected utility is higher when she purchases an actuarially fair insurance policy than when she faces the risk of fire with no insurance. What is the most she should consider paying?

b. After various events, this person has accumulated new wealth of W. Show what percentage, f, of her new wealth she would be willing to pay to avoid a fair gamble involving 50% of her wealth. What does the fact that f does not depend on W imply about her relative risk aversion? Verify your answer by calculating the measure of relative risk aversion.

 

Business Economics, Economics

  • Category:- Business Economics
  • Reference No.:- M927690

Have any Question? 


Related Questions in Business Economics

Assignmentmoral and ethical requirements should serve as

Assignment Moral and ethical requirements should serve as drivers which encourage a business to invest in or spend money on cybersecurity products, services, and programs. You have been invited to participate in a "light ...

Allocation and allotments please respond to the following1

"Allocation and Allotments" Please respond to the following: 1. From the first e-Activity, examine and evaluate the disparity of Georgia budget allocation for education and property tax to the various localities. Based o ...

Question 1 for the following situations calculate

Question 1 . For the following situations, calculate elasticity of demand and comment on the answer.                             When the price of commodity X was Rs. 12/-, 40 units it were demanded. When the price decre ...

1what is the production possibilities curve and how is it

1. What is the production possibilities curve and how is it useful? 2. What 4 factors contribute to determining any point in this model? 3. How would we apply this framework to the real world? 4. You are planning to expa ...

Assignmentinstructions1 select an illegal activity and

Assignment Instructions 1. Select an illegal activity and transform/mask its' true purpose with the disguise of a legitimate business operation. In other words, create a start-up business that would be viewed as a legal ...

Assessment task in this assessment students are required to

ASSESSMENT TASK: In this assessment, students are required to demonstrate their ability to apply economic principles learnt in this subject to analysing real-world business operations and evaluate how their long-run busi ...

Chapter 1 managing changeq1 figure 176 shows how bad an

Chapter 1 Managing change Q1 Figure 1.76 shows how bad an implementation can become. Action needs to be taken to prevent this kind of situation. What would you recommend should be done? Q2 You are the project manager for ...

Cite the sources used to answer this question provide the

Cite the source(s) used to answer this question. Provide the source(s) below your response and apply APA guidelines for references. 1) Class, is it possible for a business to show an accounting profit, but actually earn ...

Assignment -consider the following cobb douglas production

Assignment - Consider the following Cobb Douglas production function where Y is maize output, X 1 is labour input, and X 2 is the capital. Data for estimating this equation is given in the Table below. Y = β 0 X 1i β_1 X ...

Assignmentpart idirections please write a paper that is at

Assignment PART I Directions: Please write a paper that is at least two to three pages in length in which you address the questions below. Write your paper in APA format with at least one cited scholarly reference. Revie ...

  • 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

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