Economics 110 : Assignment # 3 Essay

1591 Words Nov 20th, 2015 null Page
ECONOMICS 110/111* Assignment #3 DUE: By Friday November 20, 2:00 PM. Completed assignments should be placed in the slot marked for your section in the white assignment collection box on the 2nd floor of Dunning Hall. Late assignments will not be accepted.

Use the Cover Page (download from the Assignments page on moodle) when submitting assignments. Place diagrams for particular questions with your answers to those questions (not all at the end).

This assignment covers material from the Supplement Chapter “Other Household Decisions” (available on the Reading List page on the moodle site) and from Chapters 7-9 of the text. True, False, or Uncertain [48 marks - 6 marks each] Explain why each of the following statements is True, False, or Uncertain according to economic principles. Use diagrams where appropriate. Unsupported answers will receive no marks. It is the explanation that is important. A3-1. A household would prefer a reduction in the tax on interest income and an increase in the tax on current labour income that would leave it able to afford the original consumption in the present and consumption in the future (Cp, Cf) bundle. [Hint: Assume all labour income is earned in the present and that saving is the only source of future consumption.]

This statement is true. Consider the budget line below. There is a certain maximum Cp, (I), a maximum Cf, ((1+r)I), and somewhere along this budget line lies the preferred bundle of the…

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