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| In order to hedge effectively, the hedger must have knowledge about expected basis. Traders and brokers have tables that show what a typical basis is in any given month for a particular contract. Sam is a soybean farmer. In October he will harvest 5,000 bushels of soybeans (one contract). Based on past experience he expects the basis on the December contract to be $0.08 in October. That is, a December futures contract will trade in October for $0.08 more than the cash price in October. In January (a slow time for soybean farmers) Sam notes that a December contract is trading at $7.80/bu. Sam figures his cost of production and returns to land is $6.80/bu. So, in January he hedges his crop. Show below how the hedge will work assuming two alternative October cash prices ($6.30 and 9.30) and an October basis of $0.08. |
In order to hedge effectively, the hedger must have knowledge
Suppose that the economy wide expected future marginal product of
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| Suppose that the economy wide expected future marginal product of capital is MPKf = 20 – 0.02/f, where K is the future capital stock. The depreciation rate of capital, d, is 20% per period. The current capital stock is 900 units of capital. The price of a unit of capital is 1 unit of output. Firms pay taxes equal to 50% of their output. The consumption function in the economy is C = 100 + 0.5F – 200r, where C is consumption, Y is output, and r is the real interest rate. Government purchases equal 200, and full-employment output is 1000. a. Suppose that the real interest rate is 10% per period. What are the values of the tax-adjusted user the desired future capital stock, and the desired level of investment? b. Now consider the real interest rate determined by goods market equilibrium. This part of the problem will guide you to this interest rate. i. Write the tax-adjusted user as a function of the real interest rate r. Also write the desired future capital stock and desired investment as functions of r. ii. Use the investment function derived in part (i) along with the consumption function and government purchases to calculate the real interest rate that clears the goods market. What are the goods market-clearing values of consumption, saving, and investment? What are the tax-adjusted user and the desired capital stock in this equilibrium? |
To fight an ongoing 10% inflation, the government makes raising
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| To fight an ongoing 10% inflation, the government makes raising wages or prices illegal. However, the government continues to increase the money supply (and hence aggregate demand) by 10% per year. The economy starts at full-employment output, which remains constant. a. Using the Keynesian AD-AS framework, show the effects of the government’s policies on the economy. Assume that firms meet the demand at the fixed price level. b. After several years in which the controls have kept prices from rising, the government declares victory over inflation and removes the controls. What happens? |
business-human-resource-management
Your company, a growing firm in the financial services industry,
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| Your company, a growing firm in the financial services industry, is extremely sensitive to the issues surrounding business ethics. The company wants to be proactive in developing a business ethics training program for all employees both to ensure the company’s reputation as an ethical company in the community and to maintain the industry’s high standards. As the HR Director and someone who values the importance of having all employees trained in the area of business ethics, you are in charge of developing the ethics training program. It needs to be a basic program that can be presented to all employees in the company. Resources for business ethics information can be found at www.business-ethics.org/primer1.html. What are key concepts related to business ethics that should be considered in the development of the ethics training program? |
Suppose that in the repeated Bertrand model discussed in Section
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| Suppose that in the repeated Bertrand model discussed in Section 19.5, Joe and Rebecca take only a week instead of a month to observe and respond to each other’s prices. Derive the largest weekly interest rate for which the two producers have an incentive to follow this strategy: Charge the monopoly price of $70 if no one has yet undercut that price; otherwise, charge $40 (equal to marginal cost). What is the largest weekly interest rate when price changes take a month? |
Take a look at the map of the locations of
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| Take a look at the map of the locations of the Federal Reserve districts and their headquarters in Figure 15-6 on page 329. Today, the U.S. population is centered just west of the Mississippi River-that is, about half of the population is either to the west or the east of a line running roughly just west of this river. Can you reconcile the current locations of Fed districts and banks with this fact? Why do you suppose the Fed has its current geographic structure? |
Fore! is a seller of golf balls that wants to
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| Fore! is a seller of golf balls that wants to increase its revenues by offering a quantity discount. For simplicity, assume that the firm sells to only one customer and that the demand for Fore!’s golf balls is P = 100 – Q. Its marginal cost is MC = 10. Suppose that Fore! sells the first block of Q1 golf balls at a price of P1 per unit. a) Find the profit-maximizing quantity and price per unit for the second block if Q1 = 20 and P1 = 80. b) Find the profit-maximizing quantity and price per unit for the second block if Q1 = 30 and P1 = 70. c) Find the profit-maximizing quantity and price per unit for the second block if Q1 = 40 and P1 = 60. d) Of the three options in parts (a) through (c), which block tariff maximizes Fore!’s total profits? |
In this chapter, we saw that financial market integration is
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| In this chapter, we saw that financial market integration is necessary for countries to smooth consumption through borrowing and lending. Consider two economies: those of the Czech Republic and France. For each of the following shocks, explain how and to what extent each country can trade capital to better smooth consumption. a. The Czech Republic and France each experience an EU-wide recession. b. A strike in France leads to a reduction in French income. c. Floods destroy a portion of the Czech capital stock, lowering Czech income. |
Suppose that each worker in Belgium can produce either 20
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| Suppose that each worker in Belgium can produce either 20 units of food per hour or 80 units of machinery per hour. At the same time, workers in France can produce either 15 units of food per hour or 30 units of machinery per hour. a. Explain which country has an absolute advantage in the production of food. Explain which country has an absolute advantage in the production of machinery. b. Calculate the opportunity costs for food and machinery in France and Belgium. c. Which country, if any, has a comparative advantage in the production of food? Explain why. d. Which country, if any, has a comparative advantage in the production of machines? Explain why. e. Choose a mutually advantageous trading ratio, if any exists, and explain why it improves the well-being of both trading parties. If none exists, explain why. f. Explain the consequences if France’s and Belgium’s trading ratio is 5 machines per unit of food. g. Suppose workers in France and Belgium earned €20 per hour. Calculate the cost per unit of food and cost per unit of machinery in both countries. Will trade take place at these compensation levels? h. Suppose that Belgium increased its worker productivity in both food and machinery by 300% (i.e., three times). How (if at all) would this increased productivity change your answers to Questions 8a, 8b, 8c, and 8d? |
A major assumption underlying all these welfare measures is that
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| A major assumption underlying all these welfare measures is that each individual consumer is the best judge of what is better for himself. In addition, a consumer’s actions reveal these preferences. Thus, if a consumer buys non-recycled paper when recycled paper is available at the same price, the consumer reveals that he prefers the non-recycled paper; in addition, she would be worse off if non-recycled paper were not available. (a) Suppose the price of recycled paper is higher than the price of non-recycled paper. A consumer buys the non-recycled paper. Would requiring that all paper be recycled make him worse off? Why or why not? (b) Suppose the price of recycled paper is higher than the price of non-recycled paper. A consumer buys the recycled paper anyway. Is this consumer irrational? Why or why not? Is she made worse off by the presence of non-recycled paper? Why or why not? (c) A university is considering requiring the use of recycled paper, although it is more expensive than non-recycled paper. Students are either like the consumer in (a), and would buy cheaper non-recycled paper if it is available, or like the consumer in (b), who buy more expensive recycled paper. What is the total effect on student well-being if recycled paper is required-that is, does consumers’ surplus increase or decrease? (d) What is the effect of greater availability of choices on consumer well-being? That is, in economic modeling, do additional choices make people better off or worse off? Why? |
