Econ 522 (HW1).docx - Econ 522 Homework#1 Q1...

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Econ 522 Homework #1 Q1 i) ($200000-150000)+(275000-200000)=125,000 ii) (275000-150000)+(275000-275000)=125,000 iii) (125000-150000)+(275000-125000)=125,000 iv) (350000-150000)+(275000-350000)=125,000 - These are all Kaldor-Hicks improvement Q2 a) computer programmer: 2000-1000=1000 coal miner: 3000-1800=1200 - a coal miner is far more efficient than a computer programmer b) computer programmer: 2000-1000=1000 coal miner: 3000-1800=1200 - when hiring, I would take a coal miner industry c) computer programmer: 2000-1000:1000 coal miner: 3000-1800-400(externality)=800 - a computer programmer is far more efficient than a coal miner d) coal miner: 3000-1800=1200 because coal miner does not bring about externality Q3 a) u(f,b)=10 ( f ) +b, c ( D + x ) '=> c 2 ( D + x ) =>u(f,50-f)=>10 f +(50-f) = 10 2 f + ( 1 ) = 0 = 5 f = 1 f = 25, b = 25 b) each price is $1. firework is $ 25 beer is $ 25 c) u=10 ( f ) + b total fireworks (F) = $20 +f, total beer = 50-f

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