1. Welfare analysis: Basic concepts Identify whether each of the following statements best illustrates the concept of consumer surplus, producer surplus, or neither. Consumer Surplus Producer Surplus Statement Neither I sold a used laptop for $167, even though I was willing to go as low as $160 in order to sell it. Even though I was willing to pay up to $48 for a jersey sweater, I bought a jersey sweater for only $39. A local store was having a sale on watches, so I bought a watch for my brother.
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- 3 b. State and explain the Second Theorem of Welfare Economics and discuss its economicimplications and significance.Question 2: Suppose NAWEC charges D5 for every kilowatt hour of electricity for the first 1000 used in a month and D7.5 for each extra. Kilowatt hour after that. Draw the budget constraint for George who face this price schedule. Discuss why many Gambian may choose to consume exactly 1,000 kilowatt hour. Question 3 Suppose an individual consumes three items: steak, lettuce, and tomatoes. If we were interested only in examining this person’s steak purchases, we might group lettuce and tomatoes into a single composite good called ‘‘salad.’’ Suppose also that this person always makes salad by combining two units of lettuce with one unit of tomato. How would you define a unit of ‘‘salad’’ to show (along with steak) on a two-good graph? How does the price of salad (PS) relate to the price of lettuce (PL) and the price of tomatoes (PT)? What is this person’s budget constraint for steak and salad? Would a doubling of the price of steak, the price of lettuce, the price of tomatoes, and this…Explain the First Theorem of Welfare Economic and theSecond Theorem of Welfare Economic.Please relatethese two theorems.
- Consider a simple economy with two individuals (A and B) and two goods (x and y). Can you please Write down the Pareto efficient conditions for this economy and explain thefirst fundamental theorem of welfare economics?SOLVE PART b First and second welfare theorems There are two goods A and B and two inputs K and L. The production functions are Ya=AKaαLa1-α Yb=BKbβLbβ The production functions display the standard properties including constatnt returns to scale A representative household has utility U(ca,cb) where ci is the consumption of good i. The total supply of each factor is fixed. K=Ka+Kb L=La+Lb a) A social planner allocates consumption of both goods and determines production and allocation of inputs. Derive the optimal allocation and demonstrate the marginal rate of substitution is equal to the marginal rate of transformation between the consumption goods. Draw a graph of the production possibility frontier. b) Now assume a maret system i. Households own the labor and capital which is rented to firms. The households face a budget constraint waLa+wbLb+raKa+≥PaCa+PbCb where wi is the real wage paid in industry i and ri is the rental rate in industry i. The total supply of each factor is fixed,…4. In our example with the rich living at the center and the edge of the city, a decline in automobilemarginal costs would lead to . . .A. The poor will be pushed farther away from the center of the city because the net income of therich went up.B. The utility of the rich will rise and the utility of the poor will fall.C. The utility of the poor will be unaffected because they don’t use cars.D. None of the above.
- A consumer has $300 to spend on goods X and Y. The market prices of these two goodsare Px = $15 and Py = $5. b. Illustrate the consumer’s opportunity set in a carefully labeled diagram.a) Describe the First Welfare Theorem. b) What are the tenets? Please list out with some detail. c) Describe the tenet that is subjective and how our analysis does not do a good job at overcoming this facet. d) Pick one of the tenets and provide an example of when it is violated in the real world and describe how the market outcome and optimal outcome are not aligned.1. Write down an exchange economy model with two individuals and two goods, in whichthere is no consumption externality. State and explain the key assumptions of the model.Using the model, answer the following questions:(a) Explain carefully how the concept of Pareto efficiency differs from that of socialwelfare.(b) State the Second Theorem of Welfare Economics and explain carefully why it holds.What is the importance of the assumption of convex preferences to this theorem?
- 1. What are the political implications of the First and Second Welfare theorems? ExplainEconomics Gowri has $6 per day to purchase lunch. She spends all of her lunch money on pizza and iced-tea. The price of pizza is $2.00 per slice and iced-tea costs $1 per bottle. a. Draw Gowri's budget constraint and label it BC0. Put pizza on the horizontal axis and iced-tea on the vertical axis. Be sure to identify the intercept values. b. If the price of iced-tea rises to $1.20 per bottle, show what will happen to her budget constraint in your diagram. Be sure to indicate any new intercept values.Explain briefly the intuition behindthe fundamental theorems of welfare..