...MRSKom = 3. Keya can offer one orange to Apu for 3 mangoes and 3 mangoes can give her the same satisfaction as before and the exchange make her better off than before, because she has 1 more mango left. This means the initial situation was not Pareto efficient. Answer no. 06 Suppose in the initial resource allocation, MRSAom = 4 and MRTom = 3. Apu can reduce mango production by 3 units and gain 1 unit of orange. He can exchange 1 orange for 3 units of mangoes and can improve his situation because he gains 1 unit of orange in the process. This again implies that the initial allocation was not Pareto efficient. Answer no. 07 We need government intervention even if the First Fundamental Theorem of welfare economics is satisfied because the initial allocation of resources can lead to a point on the grand utility possibility curve, which sustains a very unequal distribution of income and puts the economy on a lower social indifference curve. The government can change the initial allocation of resources such that the distribution of income can be made socially desirable without affecting the Pareto efficiency condition. Answer no. 08 The situation in which price becomes greater than marginal cost, as in a monopoly market, cannot be Pareto efficient because marginal valuation of the consumer for the commodity as expressed by MRS exceeds MRT and in this situation the society’s total welfare can be increased by increasing the production of the commodity. Answer no. 09 Markets...
Words: 1052 - Pages: 5
...list of Frequently Used Symbols and Notation A text such as Intermediate Financial Theory is, by nature, relatively notation intensive. We have adopted a strategy to minimize the notational burden within each individual chapter at the cost of being, at times, inconsistent in our use of symbols across chapters. We list here a set of symbols regularly used with their specific meaning. At times, however, we have found it more practical to use some of the listed symbols to represent a different concept. In other instances, clarity required making the symbolic representation more precise (e.g., by being more specific as to the time dimension of an interest rate). Roman Alphabet a Amount invested in the risky asset; in Chapter 14, fraction of wealth invested in the risky asset or portfolio AT Transpose of the matrix (or vector)A c Consumption; in Chapter 14 only, consumption is represented by C, while c represents ln C ck Consumption of agent k in state of nature θ θ CE Certainty equivalent CA Price of an American call option CE Price of a European call option d Dividend rate or amount ∆ Number of shares in the replicating portfolio (Chapter xx E The expectations operator ek Endowment of agent k in state of nature θ θ f Futures position (Chapter 16); pf Price of a futures contract (Chapter 16) F, G Cumulative distribution functions associated with densities: f, g Probability density functions K The strike or exercise price of an option K(˜) Kurtosis of the random variable x x ˜ L A lottery...
Words: 166919 - Pages: 668
...In Islam there is no conflict between matter and soul, as there is no separation between economy and religion. Although Islamic economics is young in comparison with conventional economics, its characteristics, value and essence are appreciated by Muslims and the non-Muslims. The over-arching values of Islamic economics lie in the principle that it is an economic strategy that can achieve unity and harmony between the material and the spiritual life of the people. To ensure the true well-being of all individuals, irrespective of their sex, age, race, religion and wealth, Islamic economics does not seek to abolish private property, a practice done by communism, nor does it prevent individuals from serving their self-interest. It recognizes the role of the market forces in the efficient allocation of resources. It seeks to promote brotherhood, socio-economic justice and well-being of all through an integrated role of moral values, market mechanism and good governance. The differences between conventional and Islamic economics are as listed below. 1. The Role of Moral Values While conventional economics generally considers the behavior, tastes and preferences of individuals as given, Islamic economics does not do so. It places great emphasis on individual and social reforms through moral uplift. This is purportedly to be the purpose for which God’s messengers have come to this world. Moral uplift aims at changing the behavior, tastes and preferences of the individuals, and...
Words: 1258 - Pages: 6
...Our company’s merged to avoid the bankruptcy, a Pareto Efficient outcome. Given we essentially had a negative bargaining zone (dispute context), as total resources I was owed and needed immediately, were less than Sandy could pay, integrative bargaining provided full disclosure and an optimal solution. Power is evident from the ability to force bankruptcy based on my contract rights, however, in court this power would prove useless if Sandy went bankrupt. Sandy has the power to declare bankruptcy and the right to argue rights due to Fawn’s actions. It was necessary to put aside a heated power and rights debate, to achieve our interests. We agreed bankruptcy was not an option, so became completely honest. A merger allowed us to maximize gains for both parties and even increase the ‘pie’. Together we can make profits from investments and carpeting. Furthermore, with combined resources, I can make all future investments and benefit from any carpeting work. This is a source of competitive advantage. I was also pleased with the level of cooperation from Sandy, who did not complain about Fawn. This developed trust, which clearly did not exist, lending us to a merger. I invited criticism and advice on this to develop the solution and relationship. By doing a merger, trust became implied, thereby disclosing all relevant information (and knowing whether one of us lied prior) to reach the Pareto Efficient equilibrium. With such collaboration, I was pleased with the ability to...
Words: 975 - Pages: 4
...FACTORS WHY SOME STUDENTS IN MSU-IIT DON’T KNOW ABOUT ECONOMICS ______________________ A Research Proposal Presented to the Department of Business Economics College of Business Administration and Accountancy MSU-Iligan Institute of Technology ______________________ In Partial Fulfilment of the requirements for the Course Economics 102 Econometrics _____________________ Jaycris C. Arquion August 2013 Ignorance in Economics Subject is not offered in the course taken courses that offers economics subject lack of interest promotional activity of the subject CHAPTER 1 Introduction CHAPTER 2 Review of Related Literature This study discusses the factors why people do not know economics. The researcher gathered the related literatures that are considerably helpful in conducting this study. This chapter encompasses the following categories which are mainly the economics and its meaning, the benefits of knowing economics and reasons why people are oblivious about economics. Economics and its Meaning People of today’s generation are only aware of economics as an activity in which only supply and demand of a certain product is concerned. According to Robbins (2013), Economics is the study of given ends and scarce means. It is the science which studies the human behavior as a relationship between given ends and scarce means which have alternative uses. In connection to this, Economics is all about making choices. Meanwhile, Caplan and Henderson...
Words: 842 - Pages: 4
...THE INVISIBLE HAND AT WORK Self-Test Problems 1. Governments sometimes restrict free trade with import quotas, rather than tariffs. Under a quota, foreign goods come into the home country without tariffs, but the quantity allowed to enter is limited. Redraw Application Figure 2, which is in this chapter's Application The Case for Free Trade (in the section Competition and Welfare). Use your diagram to answer the following questions. a. If a government sets a quota to restrict total imports to q3 − q2 units—what they would have been under the tariff—what impact would this have on the product price for home-country consumers and producers? Explain. b. Under a quota system, the government issues import licenses giving the holder the right to import one unit of the good. How much revenue can the government earn if it sells all q3 − q2 licenses to the highest bidder? Illustrate your answer on your diagram. c. What impact does this quota system have on home-country welfare? Who gains, who loses, and by how much? Illustrate your answer on your diagram. d. Which is a better way to restrict free trade—quotas or tariffs? Is the welfare loss under this quota system larger or smaller than the loss under a tariff with identical effects on import volume? Explain your answer. Answer: a. The supply curve shifts out, horizontally, by the amount of the quota, to Sdomestic + quota. This has no impact on price, compared to the tariff. The price remains[pic]with the...
Words: 2769 - Pages: 12
...MBA608 BUSINESS ECONOMICS ASSIGNMENT 1 Microeconomics (100 marks) Answer the following four questions. (Each question carries 25 marks) Question 1: Since the recent Great Recession of 2007-2009, there has been increasing disillusionment with the free market system. Critically analyze the view that the free market system is the best and only realistic alternative for determining the allocation of resources in an economy. Question 2: Evaluate the economic efficiency of different market structures and their effect on consumers. (To answer this question, you must first explain what economic efficiency is and distinguish between the different types of market structures. Question 3: Examine the effects on businesses and the economy of government intervention in labor markets through the use of minimum wage laws and regulations that make it more difficult to lay off workers. In your answer, cite specific examples of such laws and regulations in a country or countries of your choice. Question 4: Examine the possible anticompetitive effects of mergers and acquisitions and evaluate the effectiveness of existing regulations aimed to reduce anticompetitive practices. (For this answer, you may choose to evaluate existing regulations in your country or area. If your country does not have such regulations, you should identify and evaluate the regulations used by other countries in the European Union or the USA.) Page 1...
Words: 347 - Pages: 2
...In Islam there is no conflict between matter and soul, as there is no separation between economy and religion. Although Islamic economics is young in comparison with conventional economics, its characteristics, value and essence are appreciated by Muslims and the non-Muslims. The over-arching values of Islamic economics lie in the principle that it is an economic strategy that can achieve unity and harmony between the material and the spiritual life of the people. To ensure the true well-being of all individuals, irrespective of their sex, age, race, religion and wealth, Islamic economics does not seek to abolish private property, a practice done by communism, nor does it prevent individuals from serving their self-interest. It recognizes the role of the market forces in the efficient allocation of resources. It seeks to promote brotherhood, socio-economic justice and well-being of all through an integrated role of moral values, market mechanism and good governance. The differences between conventional and Islamic economics are as listed below. 1. The Role of Moral Values While conventional economics generally considers the behavior, tastes and preferences of individuals as given, Islamic economics does not do so. It places great emphasis on individual and social reforms through moral uplift. This is purportedly to be the purpose for which God's messengers have come to this world. Moral uplift aims at changing the behavior, tastes and preferences of the individuals, and...
Words: 1258 - Pages: 6
...Curve (DC) represents the various levels of Marginal Benefit society gains consuming each unit of the public good. The Supply Curve (S) represents the Marginal Cost society incurs with each unit of the public good. Equilibrium occurs at three (3) units, where Marginal Benefit equal Marginal Cost at $5. At this point, there is an efficient allocation of resources. Now refer to Figure 5.4: Efficiency losses (deadweight losses) occur when quantities less than or greater than the efficient level (Q1) are produced. Efficiency loss from under-production means that resources are under-allocated (Q2). Note that at Q2, Marginal Benefit (D) is greater than Marginal Cost (S). Efficiency loss from over-production means that resources are over-allocated (as at Q3). Note that at Q3, Marginal Cost (S) is greater than Marginal Benefit (D). Therefore, the question above is a false statement. When the Marginal Benefit of a public good exceeds the Marginal Cost, that means the market is at some point where the Collective Demand Curve, DC) is higher than the Supply Curve (S). That occurs when there is an efficiency loss from under-production, meaning that there is an under-allocation of resources to that public good’s use. Think about this: When Marginal Benefit exceeds Marginal Cost, we want to consume more. Therefore, we expect that the market is providing less than the ideal amount of the good....
Words: 280 - Pages: 2
...A tax is an involuntary fee levied on producers and consumers by the government that is used to finance government activities. A land value tax is a tax that is paid by landowners to the government based on the value of the land, disregarding property and any improvements made to the land. The most efficient tax would result in the least distortion of economic decision making thereby interfering the least with the market’s efficient allocation of resources and reducing the “excess burden” on society. In this essay, we shall be first examining the economic effect of a land tax, and discuss how land tax is economically efficient. Then I will discuss how land value tax may not be the most efficient tax due to the supply elasticity of land created by government land use regulations and the existence of alternative potentially efficient tax bases. Refer to figure 1. As land is immobile and the amount of land available at any point in time is fixed, we assume the supply of land (S) is perfectly price inelastic. Demand for land use is represented by D. The rent paid by the land user to the landowner is OR, and the rental revenue earned by the owner is ORAQ on figure 1. Changes in the economic rent of land do not affect the quantity of land supplied. With the implementation of a land value tax of OT, based on the value of the land, the total rental revenue received by the landowner is reduced from ORAQ to TRAB, and the tax revenue earned by the government is OTBQ. As the supply...
Words: 1695 - Pages: 7
...niversity School Admission office/department Date: Subject: Motivation letter Dear Sir or Madam, With this letter I wish hereby wish to apply and state my motivation for entrance to the Master program in Welfare Economics at the University of XXX for the 2014/15 academic year. I appreciate this opportunity to introduce myself at your University and I perceive it as a perfect opportunity to support my application for the Master program in Welfare Economics offered by your University. With my educational background and working experience, I strongly believe that I am suitable candidate for the programme. I have chosen this University as my first choice because of valuable scholarly resources and well-known reputation of the highly qualified education of the University of XXX. Since I was young I have always had a keen interest in Economics. I began to subscribe to the periodicals dealing with current events since middle school. At the university, I focused more on the economic welfare and took some elective courses in political economy and economic theory. Through the program, I not only made a systematic study of principle of economics, but also learnt the economical analytical methods to public policy, such as Game Theory, Principal-Agent theory and Taxation theory and principles. My dissertation was in the field of public finance and policy impacts on social welfare. My research results were accepted provisionally by the relevant...
Words: 465 - Pages: 2
...‘The price mechanism can be relied upon to provide efficiency’ Discuss. The price mechanism is the phenomenon where the market forces of supply and demand interact to reach an equilibrium price and quantity such that the quantity demanded by the buyers is exactly equal to the quantity supplied by the sellers. In a free market economy, where there is no government intervention, the allocation of all resources happens through the price mechanism. Meaning that the price mechanism is what balances the production and consumption of goods. When the demand for a particular good increases, its price will increase since the increase in demand means that there is currently a shortage of the good in the market. The new higher rate works as an incentive for sellers to supply more of the good with the expectation of increasing their profits. However, the increase in supply will lead to a fall in the price, and the sellers will reduce the quantity of the good produced. Thus, the price will eventually be pushed back to the equilibrium market price. In contrast, should the demand for a particular product fall, then there will be an excess supply in the market for the specific commodity. The producers of the product will then be forced to reduce the market price to eliminate the surplus of the good. The new lower price will indicate to the sellers that they should produce less of the particular product since they can’t make as much profit as before by selling it. The fall in the supply...
Words: 1007 - Pages: 5
...Pareto was born of an exiled noble Genoese[->0] family in 1848 in Paris, the centre of the popular revolutions of that year. His father, Raffaele Pareto (1812–1882), was an Italian civil engineer and Ligurian marchese who had left Italy much like Mazzini and other Italian nationalists.[3] His mother, Marie Metenier, was a French woman. Enthusiastic about the 1848 German revolution[->1], his parents named him Fritz Wilfried, which became Vilfredo Federico upon his family's move back to Italy in 1858.[4] In his childhood, Pareto lived in a middle-class environment, receiving a high standard of education. In 1869, he earned a doctor's degree in engineering from what is now the Polytechnic University of Turin[->2].[3] His dissertation was entitled "The Fundamental Principles of Equilibrium in Solid Bodies". His later interest in equilibrium analysis in economics[->3] and sociology[->4] can be traced back to this paper. From Civil engineer to liberal, and then to economist[edit[->5]] For some years after graduation, he worked as a civil engineer[->6], first for the state-owned Italian Railway Company and later in private industry. He was manager of the Iron Works of San Giovanni Valdarno and later general manager of Italian Iron Works.[3] He did not begin serious work in economics until his mid-forties. He started his career a fiery liberal[->7], besting the most ardent British liberals with his attacks on any form of government intervention in the free market[->8]. In 1886 he became...
Words: 2396 - Pages: 10
...equal to the amount that is supplied Reservation Price: A person’s maximum willingness to pay for something Demand Curve: A curve that relates the quantity demanded to price. Supply Curve: Measures how much people wish to supply at each price Equilibrium Price: p*; price where the quantity of apartments demanded equals the quantity supplied Comparative Statics: asking how price changes when various aspects of the market change Four possible ways of allocating apartments to people: (Apt example) The competitive market – Pareto Efficient A discriminating monopolist – Pareto Efficient An ordinary monopolist – Pareto Inefficient Rent control – Pareto Inefficient Pareto efficiency or economic efficiency Pareto Improvement: If we can find a way to make some people better off without making anybody else worse off. Pareto Inefficient: If an allocation allows for a Pareto improvement Pareto Efficient: If an allocation is such that no Pareto improvements are possible Short run: Fixed supply of variable Lon run: Supply of variable can change Budget constraint: use the case of two goods. Requires that the amount of money spent on the two goods be no more than the total amount the consumer has to spend Consumption bundle: (x1,x2); tells us how much of each good the consumer is choosing to consume m; The amount the consumer has to spend Budget constraint: p1x1+p2x2 m p1x1 is amount consumer spends on good 1 p2x2 is amount consumer spends on good 2...
Words: 969 - Pages: 4
...this opening chapter/salvo, discusses the reasonableness of a price system, whereby price—the neon billboard—“dictates” the movements of goods and services. Price is a summary of market conditions. It informs both producers and consumers. Without this information, estimates of cost, of expected returns, of distribution, of budget, etc. are distorted. Allocation by price is contrasted against cronyism and a first-come-first-serve breadline. In the former, inefficiency is guaranteed (or your money kept). In the latter, inefficiency is also guaranteed. Inefficiency, as it is used here, is a euphemism for deprivation. Yes, the troika is a cruel mistress when mismanaged. A price allocative system, according to Wheelan, reaches nearest Pareto Efficiency. The Law of Supply and Demand is covered with an example; in this case, the offending example is a fish—a tuna fish. How is it that the amount and availability of tuna increase when demand for tuna increases? [Presumably, we’re talking about shifts, rather than movements]. The answer, again, is a free market predicated on price. How...
Words: 291 - Pages: 2
