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Tutorial_wk4 - Foundations of Economic and Financial Models...

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Foundations of Economic and Financial Models Jürgen Meinecke EMET 1001/7001 School of Economics Semester 2, 2010 Australian National University Tutorial Questions for Week 4 (09/08/2010–13/08/2010) Inequalities 1. What can be said about the signs of the numbers a, b, c in each case? ( a ) abc > 0 ( b ) ab c < 0 ( c ) a bc > 0 ( d ) a 2 bc < 0 . Comparative Statics 2. Given the following inverse supply and demand functions: p d = - 0 . 25 q d + 15 p s = 0 . 1 q s + 8 (a) Find the equilibrium price and quantity. (b) Suppose the government imposes an ad valorem tax of 50% of the supply price. Find the new equilibrium price and quantity. (Hint: An ad valorem tax is NOT a per unit tax. Instead it is a tax that is proportional to the sales price.) (c) Sketch the graphs before and after tax. 3. In macroeconomics, aggregate household consumption C is a function of disposable income Y d : C := aY d + b . The parameter a is called the marginal propensity to consume (why?) and the parameter b is called autonomous consumption (why?). Disposable income Y d is a function of total income Y and total taxes T : Y
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