Which field deals with behavioral issues as well as technical issues surrounding the development, use, and impact of information
1 answer:
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Answer:
The total effect is 35 out of which income effect is 15 and substitution effect is 20.
Explanation:
Ross has an income of $1440.
The price of chocolates (Px) is $10 and donuts (Py) is $9.
The utility function is given as
U = 0.5xy
Before price rise, Budget line:
1440 = 10x + 9y,
Consumption is optimal when
0.5y / 0.5x= 1.11
y = 1.11x
Substituting in budget line,
1440 = 10x + 9y = 10x + 9(1.11x)
1440 = 10x + 9.99x
19.99x = 1440
x = 72
y = 1.11x = 79.92 = 80
After price rise,
Py = 16.
New budget line:
1440 = 10x + 16y,
Price ratio
=
= 0.625
And,
y = 0.625x
Substituting in new budget line: 1440 = 10x + 16y
1440 = 10x + 16(0.625)x
1440 = 20x
X = 72
Y = 0.625x = 45
So, total effect (TE)
= Decrease in consumption of y
= 80 - 45
= 35
With previous (x, y) bundle,
U = 0.5xy
U = 0.5 x 72 x 80
U = 2880
Keeping utility level the same & substituting,
y = 0.625x in utility function:
28800 = 0.5xy
x = 96
Now, putting the value of x,
y =
y =
y = 60
Substitution effect (SE)
= 80 - 60
= 20
Income effect
= TE - SE
= 35 - 20
= 15
Answer:
$2,385,086
Explanation:
To answer this question, we need to use the present value of an ordinary annuity formula:
Where:
- A = Value of the annuity
- i = interest rate
- n = number of compounding periods
Because the interest rate is annual, it is convenient to convert it to a monthly rate.
4.5% annual rate = 0.37% monthly rate.
The number of compounding periods will be = 12 months x 30 years
= 360 months
Now, we simply plug the amounts into the formula:
You will need to have saved $2,385,086 if you plan to retire under the aforementioned circumstances.