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Intermediate Microeconomics and Its Application 12th Edition by Walter Nicholson,Christopher Snyder
Edition 12ISBN: 978-1133189022Intermediate Microeconomics and Its Application 12th Edition by Walter Nicholson,Christopher Snyder
Edition 12ISBN: 978-1133189022 Exercise 31
Return to Problem and now assume that Smith and Jones conduct their exchanges in paper money. The total supply of such money is $60 and each individual wishes to hold a stock of money equal to % of the value of transactions made per period.
a. What will the money wage rate be in this model? What will the nominal prices of X and Y be?
b. Suppose the money supply increases to $90, how will your answers to part a change? Does this economy exhibit the classical dichotomy between its real and monetary sectors?
Suppose two individuals (Smith and Jones) each have 10 hours of labor to devote to producing either ice cream (X) or chicken soup (Y). Smith's demand for X and Y is given by
whereas Jones's demands are given by
where IS and 1/ represent Smith's and Jones's incomes, respectively (which come only from working).
The individuals do not care whether they produce X or Y and the production function for each good is given by
X = 2L
Y = 3L
where L is the total labor devoted to production ofeach good. Using this information, answer the following:
a. What must the price ratio, Px/Py be?
b. Given this price ratio, how much X and Y will Smith and Jones demand? (Hint: Set the wage equal to 1 here so that each person's income is 10.)c. How should labor be allocated between X and Y to satisfy the demand calculated in part b?
a. What will the money wage rate be in this model? What will the nominal prices of X and Y be?
b. Suppose the money supply increases to $90, how will your answers to part a change? Does this economy exhibit the classical dichotomy between its real and monetary sectors?
Suppose two individuals (Smith and Jones) each have 10 hours of labor to devote to producing either ice cream (X) or chicken soup (Y). Smith's demand for X and Y is given by
whereas Jones's demands are given by
where IS and 1/ represent Smith's and Jones's incomes, respectively (which come only from working).
The individuals do not care whether they produce X or Y and the production function for each good is given by
X = 2L
Y = 3L
where L is the total labor devoted to production ofeach good. Using this information, answer the following:
a. What must the price ratio, Px/Py be?
b. Given this price ratio, how much X and Y will Smith and Jones demand? (Hint: Set the wage equal to 1 here so that each person's income is 10.)c. How should labor be allocated between X and Y to satisfy the demand calculated in part b?
Explanation
Verified
Verified
a) In equilibrium, as we know that deman...
Intermediate Microeconomics and Its Application 12th Edition by Walter Nicholson,Christopher Snyder
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