Online Intermediate Microeconomics exam. Word limit is 2500 words in Total so roughly 500-600 words MAX per question. I’ve also included the questions here aswell. Handrawn diagrams or diagrams you’ve produced yourself are required for the questions. Q1. The government is considering whether or not to fund a food voucher programme for low income families. Typical household income is £96, and households spend £32 on food and £64 on other goods. Using indifference curves, show that a £40 income supplement may possibly give greater satisfaction than £40 worth of vouchers. (40 percent of marks) b) If the government’s objective is to increase spending on food to £72 per week, which of the two schemes would be most cost effective? (40 percent of marks) c) In order to raise money for such initiatives the government must raise additional revenues. This can be achieved by using a quantity tax or an income tax. Using indifference curves, analyse the impact of each option and discuss any welfare implications **the guidance for this question that i got was that it involves distinguishing between high and low consumer MRS** Q2. Assume that the decision maker fulfils the von Neumann-Morgenstern Axioms and has a utility function for money given by u(X) = √X. Consider the lottery [£100, £200 | 0.8,0.2]. a) Calculate the certainty equivalent and the risk premium of the lottery/decision maker. NOTE: Round to two decimal places. (40 percent of marks) b) The decision maker receives the offer to buy the lottery for £110. Would he buy it? Give a reason for your answer. (20 percent of marks) c) Is the decision maker risk-neutral, risk-loving, or risk-averse? (Give a reason for your answer.) What would be the maximal price a risk-neutral person would be willing to pay for the lottery? Q3. Using diagrams, illustrate and discuss the relationship between short run total costs and long run total costs. Q4. The standard one-shot Prisoners’ Dilemma game suggests that there will never be cooperation among the Organization of Petroleum Exporting Countries (OPEC) to determine their level of oil production. Illustrate why this is the case and hypothesize why this may not be the case in the real world. ** FOR Q4. they wanted to explain the prisoners dilemma game and nash equilibrium first, background into the OPEC. After that explain how prisoners dilemma can be applied to OPEC countries producing oil and the advantages/disadvantages of the strategies that opec might use in terms of oil production.**
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