There is a crop that the value p next month is random. The value can be...
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There is a crop that the value p next month is random. The value can be either small p₁=1 or large P₂=3 depending on the weather. Half of people are optimists believing the value of the crop will be large with good weather, and other half are pessimist believing the value of the crop will be small with bad weather. Today, people are going to trade crops and exchange promises to repay a fixed amount of a>0 of dollars in one month (a being any natural number). The market is competitive. qc and qa each represents the unit price of crop and promise. People in this market are utility maximizers, however, are also known for not keeping promises since there are no punishments for not keeping them. The equilibrium in market clearing is denoted: Σ;z/2 = ΣΞ/2 and Tza/2 = 0 zand z each represents the crop demand and net demand of promises. z represents the initial crop ownership i represent individual who can be either pessimist or optimist. Solve for following values: i) ii) Promise a's price and equilibrium effective payoff Would there be trading when at equilibrium? There is a crop that the value p next month is random. The value can be either small p₁=1 or large P₂=3 depending on the weather. Half of people are optimists believing the value of the crop will be large with good weather, and other half are pessimist believing the value of the crop will be small with bad weather. Today, people are going to trade crops and exchange promises to repay a fixed amount of a>0 of dollars in one month (a being any natural number). The market is competitive. qc and qa each represents the unit price of crop and promise. People in this market are utility maximizers, however, are also known for not keeping promises since there are no punishments for not keeping them. The equilibrium in market clearing is denoted: Σ;z/2 = ΣΞ/2 and Tza/2 = 0 zand z each represents the crop demand and net demand of promises. z represents the initial crop ownership i represent individual who can be either pessimist or optimist. Solve for following values: i) ii) Promise a's price and equilibrium effective payoff Would there be trading when at equilibrium?
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Financial Reporting and Analysis
ISBN: 978-0078025679
6th edition
Authors: Flawrence Revsine, Daniel Collins, Bruce, Mittelstaedt, Leon
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