# HW6 - EEP 100 Homework 6 Optional Not to be handed in...

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EEP 100 Homework # 6 Perloff Optional: Not to be handed in Questions 1. Discussing the \$350 price of a ticket for one of her concerts, Barbra Streisand said, “If you amortize the money over 28 years, it’s \$12.50 a year. So is it worth \$12.50 a year to see me sing? To hear me sing live?” Under what condition is it useful for an individual to apply Ms. Streisand’s rule to decide whether to go to the concert? What do we know about the discount rate of a person who makes such a purchase? 2. Jen’s utility function with respect to wealth is U ( W ) = . W Plot this utility function and illustrate in your figure why Jen is risk averse. 3. If criminals are rational, crime is deterred by large expected punishments, which are the product of the fine or the sentence given that the criminal is convicted and the probability of being caught and convicted. Thus, one can raise the expected value of the punishment by raising either the penalty or the odds of capture and conviction. Is the following argument logical? “I propose executing one or two spammers. That way, even

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## This note was uploaded on 02/04/2011 for the course EEP 100 taught by Professor Perloff during the Spring '10 term at Berkeley.

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HW6 - EEP 100 Homework 6 Optional Not to be handed in...

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