Principles of Economics 2e
2nd Edition
ISBN: 9781947172364
Author: Steven A. Greenlaw; David Shapiro
Publisher: OpenStax
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Textbook Question
Chapter 31, Problem 28P
Illustrate the concept of Ricardian equivalence using the
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Consider a standard Hotelling model of competition with quadratic transportation costs. The consumers are located uniformly
along a segment of unit length. There are two firms, A and B, located at the opposite ends of the segment. Each firm has
constant marginal costs 2. Each consumer buys at most one unit of product and gets utility 20. Each consumer incurs travel
cost of 4 times the square of traveled distance.
Find equilibrium price and profit of firm A when firms set a unform price for the entire Hotelling segment.
Suppose now that firms can price discriminate between consumers located in the interval
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(interval 1) and those located
in the interval
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(interval 2). Find equilibrium prices of firm A and B on the interval 1.
Answer:
equilibrium uniform price of firm A =
profit of firm A under uniform pricing =
equilibrium price of firm A on interval 1 =
equilibrium price of firm B on interval 1 =
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Chapter 31 Solutions
Principles of Economics 2e
Ch. 31 - In a country, private savings equals 600, the...Ch. 31 - Assume an economy has a budget surplus of 1,000,...Ch. 31 - In the late 1990s, the U.S. government moved from...Ch. 31 - Imagine an economy in which Ricardian equivalence...Ch. 31 - Why have many education experts recently placed an...Ch. 31 - What are some steps the government can take to...Ch. 31 - Based on the national saving and investment...Ch. 31 - How would you expect larger budget deficits to...Ch. 31 - Under what conditions will a larger budget deficit...Ch. 31 - What is the theory of Ricardian equivalence?
Ch. 31 - What does the concept of rationality have to do...Ch. 31 - What are some of the ways fiscal policy might...Ch. 31 - What are some fiscal policies for improving a...Ch. 31 - What are some fiscal policies for improving the...Ch. 31 - Explain how cuts in funding for programs such as...Ch. 31 - Assume there is no discretionary increase in...Ch. 31 - Explain how decreased domestic investments that...Ch. 31 - The U.S. government has shut down a number of...Ch. 31 - Explain how a shift from a government budget...Ch. 31 - Describe how a plan for reducing the government...Ch. 31 - Explain whether or not you agree with the premise...Ch. 31 - Explain why the government might prefer to provide...Ch. 31 - Under what condition would crowding out not...Ch. 31 - What must take place for the government to run...Ch. 31 - Sketch a diagram of how a budget deficit causes a...Ch. 31 - Sketch a diagram of how sustained budget deficits...Ch. 31 - Assume that the newly independent government of...Ch. 31 - Illustrate the concept of Ricardian equivalence...Ch. 31 - During the most recent recession, some economists...
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