An African family that consumes W gallons of water every year, more or less the same amount every day. The price of water is Pw dollars per gallon. The water is in a store located far away, so they go the store and purchase large amounts of gallons which they store in their house. Every time they drive their truck to the store to purchase water they use up gallons of gas. The price of gas is PG. Let m be the average amount of water gallons they have in the house (m stands for mean) and M be the VALUE in dollars of those gallons. 1. Imagine that the family decides to go to the store to buy water once a year. How many gallons will they purchase? What is the average amount of gallons they will have stored in the house? How many dollars will those gallons be worth? 2. What if the family decides to go to the store twice a year? What is m in this case? What is M if the family decides to go to the store N times? The family has access to a bond market. All the dollars that it has invested in stored water could be earning the interest rate R. 3. From the definition of R just above, is such interest rate nominal or real? 4. The total cost of purchasing water is the price times the quantity, plus the cost of going to the store N times, plus the interest lost. Write down the total cost as a function of M.
An African family that consumes W gallons of water every year, more or less the same amount every day. The price of water is Pw dollars per gallon. The water is in a store located far away, so they go the store and purchase large amounts of gallons which they store in their house. Every time they drive their truck to the store to purchase water they use up gallons of gas. The price of gas is PG. Let m be the average amount of water gallons they have in the house (m stands for mean) and M be the VALUE in dollars of those gallons. 1. Imagine that the family decides to go to the store to buy water once a year. How many gallons will they purchase? What is the average amount of gallons they will have stored in the house? How many dollars will those gallons be worth? 2. What if the family decides to go to the store twice a year? What is m in this case? What is M if the family decides to go to the store N times? The family has access to a bond market. All the dollars that it has invested in stored water could be earning the interest rate R. 3. From the definition of R just above, is such interest rate nominal or real? 4. The total cost of purchasing water is the price times the quantity, plus the cost of going to the store N times, plus the interest lost. Write down the total cost as a function of M.
Principles of Microeconomics
7th Edition
ISBN:9781305156050
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter22: Frontiers Of Microeconomics
Section: Chapter Questions
Problem 4PA
Related questions
Question
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Microeconomics
Economics
ISBN:
9781305156050
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Microeconomics: Principles & Policy
Economics
ISBN:
9781337794992
Author:
William J. Baumol, Alan S. Blinder, John L. Solow
Publisher:
Cengage Learning
Exploring Economics
Economics
ISBN:
9781544336329
Author:
Robert L. Sexton
Publisher:
SAGE Publications, Inc
Principles of Microeconomics
Economics
ISBN:
9781305156050
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Microeconomics: Principles & Policy
Economics
ISBN:
9781337794992
Author:
William J. Baumol, Alan S. Blinder, John L. Solow
Publisher:
Cengage Learning
Exploring Economics
Economics
ISBN:
9781544336329
Author:
Robert L. Sexton
Publisher:
SAGE Publications, Inc
Principles of Economics 2e
Economics
ISBN:
9781947172364
Author:
Steven A. Greenlaw; David Shapiro
Publisher:
OpenStax
Brief Principles of Macroeconomics (MindTap Cours…
Economics
ISBN:
9781337091985
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning