Answer:
The amount of projected benefit obligation is on Dec 31 is $39 million
Explanation:
The computation of the amount of projected benefit obligation is on Dec 31 as follows;
Beginning PBO $30 million
Service cost $10 million
Interest cost (10% × $30) $3 million
Loss (gain) on PBO $0
Less: benefits paid -$4 million
Ending PBO $39 million
Hence, the amount of projected benefit obligation is on Dec 31 is $39 million
Outline the process the raw ingredients for a single flavor of ice cream might undergo to get to a local grocery’s freezer case.
Answer: fermenting , shredding , pasteurizing
At December 31, 2017, Ayayai Corporation has the following account balances: Bonds payable, due January 1, 2021$6,500,000 Premium on bonds payable132,000 Interest payable290,000 Show how the above accounts should be presented on the December 31, 2017, balance sheet, including the proper classifications. (Enter account name only and do not provide descriptive information.)
Answer:
See below
Explanation:
Balance sheet as at December 31, 2017
Current liabilities
Bond interest payable
$290,000
Long term liabilities
Bonds payable
$6,500,000
Less: premium on bonds payable
($132,000)
Net bonds payable
$6,368,000
1. Friedman distinguishes between the two concepts that (a) businesses really do act in ways to maximize profit and (b) businesses have a moral responsibility (or, as he puts it, a social responsibility) to act to maximize profit. How does he defend the latter position? (See both the Friedman and Sandbu readings)
Explanation:
Friedman defends the position that companies have a social responsibility to act to maximize profit, in the sense that, the primary function of companies is to generate profit. The author goes against the growing opinions in society that companies must have social responsibility, that is, they need to create a positive and sensitive corporate image to please political and society interests and counter or even soften the words and actions its central purpose, which is profit generation. For him, social responsibility cannot be politicized in order to be an obligation of companies, as it limits freedom and interests arising from the business.
Exchanged all of the securities for shares of preferred stock, which were not mandatorily redeemable. Market values at the date of the exchange were for the securities and per share for the preferred stock. The shares were retired immediately. What journal entries should record in connection with this transaction?
Answer:
The full question is as follows "The following accounts were among those reported on Good Corp.'s balance sheet at December 31, year 1: Available-for-sale securities (market value $140,000) $80,000 Preferred stock, $20 par value, 20,000 shares issued and outstanding 400,000 Additional paid-in capital on preferred stock 30,000 Retained earnings 900,000 On January 20, year 2, Good exchanged all of the available-for-sale securities for 5,000 shares of Good's preferred stock. Market values at the date of the exchange were $150,000 for the available-for-sale securities and $30 per share for the preferred stock. The 5,000 shares of preferred stock were retired immediately after the exchange. Prepare the general journal entry, without explanation, to record this event."
Date General Journal Entry Debit Credit
Preferred stock A/c $100,000
(5000*$20)
Add. paid-in capital on preferred stock $7,500
(30000 * 1/ 4)
Retained earnings $42,500
Trading securities A/c $140,000
Gain on exchange of securities $10,000
The following transactions occurred during the month of June 2021 for the Stridewell Corporation. The company owns and operates a retail shoe store.Issued 100,000 shares of common stock in exchange for $500,000 cash.Purchased office equipment at a cost of $100,000. $40,000 was paid in cash and a note payable was signed for the balance owed.Purchased inventory on account at a cost of $200,000. The company uses the perpetual inventory system.Credit sales for the month totaled $280,000. The cost of the goods sold was $140,000.Paid $6,000 in rent on the store building for the month of June.Paid $3,000 to an insurance company for fire and liability insurance for a one-year period beginning June 1, 2021.Paid $120,000 on account for the merchandise purchased in 3.Collected $55,000 from customers on account.Paid shareholders a cash dividend of $5,000.Recorded depreciation expense of $2,000 for the month on the office equipment.Recorded the amount of prepaid insurance that expired for the month.
Answer:
Sew below
Explanation:
Sidwell
Debit Cash account $500,000
Credit Common stock $625,00
To record the issue of 100,000 shares for cash
Debit office equipment $100,000
Credit cash account $40,000
Credit notes payable $60,000
To record the purchase of office equipment
Debit inventory $200,000
Credit Accounts payable $200,000
To record the purchase of inventory
Debit Accounts receivables $280,000
Credit Sales revenue $280,000
To record the sales of goods on account
Debit Cost of goods sold $140,000
Credit Inventory $140,000
To record the cost of goods sold
Debit rent expenses $6,000
Credit cash account $6,000
To record the payment of rent for the month
You purchased a 5-year, 6% annual-coupon bond with $1,000 par value. The yield to maturity at the time of purchase was 4%. You sold the bond after one year, right after receiving the first coupon payment. The bond's yield to maturity was 3.4% when you sold it. What is your holding period return on the bond
Answer:
6.12%
Explanation:
the market value of the bond when you purchased it was:
PV of face value = $1,000 / 1.04⁵ = $821.93
PV of coupon payments = $60 x 4.4518 (PV annuity factor, 4%, 5 periods) = $267.11
initial investment = $1,089.04
after 1 year, you receive $60 +
PV of face value = $1,000 / 1.034⁴ = $874.82
PV of coupon payments = $60 x 3.6818 (PV annuity factor, 3.4%, 4 periods) = $220.91
market price = $1,095.73
total holding return = ($1,095.73 + $60 - $1,089.04) / $1,089.04 = 6.12%
Marge owns land and a building (held for investment) with an adjusted basis of $75,000 and a fair market value of $250,000. The property is subject to a mortgage of $400,000. Because Marge is in arrears on the mortgage payments, the creditor is willing to accept the property in return for canceling the amount of the mortgage.
a. How can the adjusted basis of the property be less than the amount of the mortgage?
b. If the creditor's offer is accepted, what are the effects on the amount realized, the adjusted basis, and the realized gain or loss for Marge?
c. Does it matter in (b) if the mortgage is recourse or nonrecourse?
Answer:
A. The amount deducted for Depreciation may be higher than the amortized amount of the mortgage principal.
Decrease in the value of the property after they granted the mortgage
Bi $400,000
ii. $75,000
iii. $325,000
C.No
Explanation:
a. The adjusted basis of the property can be tend to be lesser than the amount of the mortgage due to the fact that in the beginning of an asset life the amount that was deducted for Depreciation may be more higher than the amortized amount of the mortgage principal .
Secondly the adjusted basis of the property can be tend to be lesser than the amount of the mortgage when their is Decrease in the value of the property after they granted the mortgage .
Lastly the adjusted basis of the property can be tend to be lesser than the amount of the mortgage when the fair market value of Property are been given instead of the Adjusted basis of the property.
b. Calculation for the effects on the amount realized, the adjusted basis, and the realized gain or loss for
i. Based on the information given the amount that was realized will be the amount of $400,000
ii. Based on the information given the Adjusted basis will be the amount of $75,000
iii. Realized gain=$400,000 − $75,000
Realized gain= $325,000
c.No it don't not matter if the mortgage is recourse or nonrecourse since the amount that was realized was the amount of $400,000 and
to justify the nonrecourse mortgage is that the taxpayer has already enjoy some benefit when the mortgage was acquired due to the increase in Adjusted basis of the property.
Prepare Krum Co.'s journal entries to record the following transactions involving its short-term investments in available-for-sale debt securities, all of which occurred during the current year. a. On August 1, paid $70,000 cash to purchase Houtte's 11%, six-month debt securities ($70,000 principal), dated August 1. b. On October 30, received a check from Houtte for 90 days' interest on the debt securities in transaction a
Answer and Explanation:
The journal entries are shown below:
On Aug 1
Short-term investments $70,000
To Cash $70,000
(Being the short term investment is recorded)
Here short term investment is debited as it increased the asset and credited the cash as it decreased the asset
On Oct 30
Cash ($70,000 × 11% × 90 days ÷ 360 days) 1,925
To Interest revenue $1,925
(Being the interest revenue is recorded)
here cash is debited as it increased the asset and credited the interest revenue as it also increased the revenue
Here we assume 360 days in a year
E-Wisdom, a publishing company, implements a new business strategy to keep both talent and information within the organization by creating their own content instead of outsourcing it. In the given scenario, which of the following factors has most likely influenced the company's new business strategy?
a. The potential for role ambiguity
b. The potential for data loss
c. The potential for employee burnout
d. The potential for intragroup conflict
Answer:
B: poten of data loss
Explanation:
The ABC Lawn Company aims for a high number of clients that result in high profits. To meet its goal ABC markets its landscaping service vigorously because there are many lawn services and nurseries in the local community. As a sales-oriented company, ABC focuses on _______.
Answer:
Agressive trading technique
Explanation:
A Sales Orientation company is a company that capitalizes or dwell on selling its products and services rather than satisfying their customers wants or needs. Due to the fact that sales orientation business is bent on pushing their product out to the customer it use or employ aggressive techniques in its handling, and this will cost or involves intensive promotions and price- strategy.
Aggressive trading shoulders more risk and thereafter may be accepting a big loss.
Fran Bowen created the following budget: Budget Food $ 364 Clothing $ 164 Transportation 408 Personal expenses and recreation 307 Housing 994 She actually spent $331 for food, $416 for transportation, $1,046 for housing, $161 for clothing, and $259 for personal expenses and recreation. Calculate the variance for each of these categories, and indicate whether it was a deficit or surplus.
Answer:
Fran Bowen
Budget Vs Actual, Variance and Status:
Budget Actual Variance Status
Food $ 364 $331 $33 Surplus
Clothing 164 161 3 Surplus
Transportation 408 416 -8 Deficit
Personal expenses and recreation 307 259 48 Surplus
Housing 994 1,046 -52 Deficit
Total $2,237 $2,213 $24 Surplus
Explanation:
a) Data and Calculations:
Budget Actual Variance Status
Food $ 364 $331 $33 Surplus
Clothing 164 161 3 Surplus
Transportation 408 416 -8 Deficit
Personal expenses and recreation 307 259 48 Surplus
Housing 994 1,046 -52 Deficit
Total $2,237 $2,213 $24 Surplus
b) The difference between the estimated budget cost and the actual cost spent on each item gives rise to either surplus or deficit. This surplus or deficit is described as the variance. It is surplus when the budgeted cost is greater than the actual cost spent. It is deficit when the budgeted cost is less than the actual cost spent.
Emilio’s accountant told him that if he continues to pay $50 a month on his credit card, it will take him 42 years to pay off his current balance (assuming the interest rate doesn’t change and assuming he doesn’t charge anything else on that card). His credit card interest rate is 18.99%. What is his balance?
Answer:
$3,158.40
Explanation:
The current balance on his credit card is the present value of $50 payable per month over 42-year period as shown below:
PV=monthly payment*(1-(1+r)^-n/r
PV=the unknown
montly paymet=$50
r=monthly interest rate= 18.99%/12=0.015825
n=number of monthly payments=42*12=504
PV=$50*(1-(1+0.015825)^-504/0.015825
PV=$50*(1-(1.015825)^-504/0.015825
PV=$50*(1-0.000365827)/0.015825
PV=$50*0.999634173/0.015825
PV=$3,158.40
Below are certain events that took place at Hazzard, Inc., last year: Collected cash from customers. Paid cash to repurchase its own stock. Borrowed money from a creditor. Paid suppliers for inventory purchases. Repaid the principal amount of a debt. Paid interest to lenders. Paid a cash dividend to stockholders. Sold common stock. Loaned money to another entity. Paid taxes to the government. Paid wages and salaries to employees. Purchased equipment with cash. Paid bills to insurers and utility providers. Required: Indicate how each of the transaction would be classified on a statement of cash flows. Place an X in the Operating, Investing, or Financing column as appropriate.
Answer:
Events Operating Investing Financing
a. Paid cash to repurchase its own stock. X
b. Borrowed money from a creditor. X
c. Paid suppliers for inventory purchases. X
d. Repaid the principal amount of a debt. X
e. Paid interest to lenders. X
f. Paid a cash dividend to stockholders. X
g. Sold common stock. X
h. Loaned money to another entity. X
i. Paid taxes to the government. X
j. Paid wages and salaries to employees. X
k. Purchased equipment with cash. X
l. Paid bills to insurers and utility providers. X
An Argentinian economist pointed out that the inflation rate based on the PCE(personal consumption expenditures) deflator was higher than the inflation rate you calculated in part (b) based on the GDP deflator. Provide two possible explanations for this difference between the inflation rates calculated from the PCE deflatorversus the GDP deflator.
Answer:
Note: The complete question is attached as picture below
Year Nominal GDP Real GDP
2019 100 100
2020 105 99
a) %change in nominal GDP = [(105 - 100) / 100] * 100 = 5%
%change in real GDP = [(99 - 100) / 100] * 100 = -1%
b) GDP deflator is = [Nominal GDP / Real GDP]. %change in GDP deflator = [(106.06 - 100) / 100] * 100 = 6.06%
c) Inflation calculated from GDP deflator and PCE is different because
- GDP deflator does not includes price increase of imported goods while PCE does.
- PCE measures change in price of goods which are generally consumed by consumers while GDP deflator includes all goods produced in an economy.
Dell is undergoing a major expansion. The expansion will be financed by issuing new 15-year, $1,000 par, 9% annual coupon bonds. The market price of the bonds is $1,070 each. Dell's flotation expense on the new bonds will be $50 per bond. Dell's marginal tax rate is 35%. What is the pre-tax cost of debt for the newly-issued bonds
Answer:
8.76%
Explanation:
The computation of the pre-tax cost of debt is as follows:
Market price of the bond is
= $1,070 - $50
= $1,020
Coupon payment = Face value × Annual coupon rate
= $1,000 × 9%
= $90
Now YTM would be
Given that
NPER = 15
PMT = $90
PV = $1,020
FV = $1,000
The formula is given below:
=RATE(NPER;PMT;-PV;FV;TYPE)
After applying the above formula, the yield to maturity is 8.76%
Binder Corporation agreed to build a warehouse for a client at an agreed contract price of $4,000,000. Expected (and actual) costs for the warehouse follow: 2017, $640,000; 2018, $1,600,000; and 2019, $800,000. The company completed the warehouse in 2019. Compute net income for each year 2017 through 2019 using the cost-to-cost method. a. 2017: $200,000 2018: $520,000 2019: $240,000 b. 2017: $640,000 2018: $1,600,000 2019: $800,000 c. 2017: $0 2018: $0 2019: $960,000 d. 2017: $320,000 2018: $320,000 2019: $320,000
Answer:
The correct option is a. 2017: $200,000 2018: $520,000 2019: $240,000.
Explanation:
The formula for cost to cost method is expected or actual cost incurred to date divided by the total cost of the project or contract.
Therefore, we have:
Total cost = Cost in 2017 + Cost in 2018 + Cost in 2019 = $640,000 + $1,600,000 + $800,000 = $3,040,000
Cost in 2017 contribution to total cost = Cost in 2017 / Total cost = $640,000 / $3,040,000 = 0.21
Cost in 2018 contribution to total cost = Cost in 2018 / Total cost = $1,600,000 / $3,040,000 = 0.53
Cost in 2019 contribution to total cost = Cost in 2019 / Total cost = $800,000 / $3,040,000 = 0.26
Revenue in 2017 = Cost in 2017 contribution to total cost * Contract price = 0.21 * $4,000,000 = $840,000
Revenue in 2018 = Cost in 2018 contribution to total cost * Contract price = 0.53 * $4,000,000 = $2,120,000
Revenue in 2019 = Cost in 2019 contribution to total cost * Contract price = 0.26 * $4,000,000 = $1,040,000
Therefore, net income for each year 2017 through 2019 using the cost-to-cost method can be computed as follows:
Net income for year 2017 = Revenue in 2017 - Cost in 2017 = $840,000 - $640,000 = $200,000
Net income for year 2018 = Revenue in 2018 - Cost in 2018 = $2,120,000 - $1,600,000 = $520,000
Net income for year 2019 = Revenue in 2019 - Cost in 2019 = $1,040,000 - $800,000 = $240,000
Therefore, the correct option is a. 2017: $200,000 2018: $520,000 2019: $240,000.
Answer:
Eet
Explanation:
Assume the smart watch industry is a perfectly competitive industry that uses a specialized input. If this industry experiences an increase in demand, we might expect that in the long run: Multiple Choice neither input nor output prices will increase. both input and output prices will increase. only input prices will increase. only output prices will increase.
Answer:
Option B, both input and output prices will increase
Explanation:
Since the demand far smart watches is increasing, the price of watches will escalate to cater the opportunity cost. With the rising demand for smart watch, the demand for specialized input will also increase. Considering the growth in demand for specialized input, its cost shall also escalate to take the benefit of opportunity. Along with raw material, variable costs such as transportation, manpower, electricity etc. will also increase both in input (bringing raw material and producing final product) and output (export of the final product)
In nut shell, both the input and output price will increase.
Suppose that it costs $1.50 to download a song. How many songs will Ray choose to download per
month?
Answer:
18
Explanation:
1.50x12=18
Marcus was offered a job as a senior manager by Super Corp. The offer, which was made over the phone, was for a three-year contract for $120,000 salary per year. Marcus orally accepted, there was no writing. The state in which Marcus was offered the job requires that such contracts be in writing. Marcus quit his current job, which paid $75,000 a year, and headed to the state where Super Corp was headquartered. When he arrived, the director at Super Corp who had originally offered him the job said that they were revoking and that there was no contract, as Marcus never signed an employment agreement. If Marcus sues Super Corp, what is the likely result
,Answer:
-Marcus is owed something by Super Corp because he relied reasonably and to his detriment on Super Corp's offer.
Explanation:
Employment contracts can be written, oral, or implied and each of these are binding to some extent.
In the given instance it is required that employment should be written in the state where Super Corp operates.
So Marcus will not be able to compel them to give him a job as the offer was made and accepted orally.
However the offer resulted in him quitting his current job, which paid $75,000 a year, and heading to the state where Super Corp was headquartered.
He relied on the offer to his detriment of losing his current job, so Super Corp owes him for the damages incurred
What happens to your employer-sponsored retirement plan if you decide to change employers?
Answer:
Most 401 (k) or IRA accounts allow employees to roll-over their accounts from the old employer to the new employer. Depending on the account and how much time you have been making contributions, you could also cash your retirement account, but that would mean starting from zero with the new employer.
Answer:
a). You may roll your money over to a new plan through your new employer.
b) You can withdraw the money from your plan in one lump sum and pay income taxes and likely a penalty as well.
c) You can leave the money in the plan with your former employer.
answer is correct
d) All of the above
Explanation:
What type of hazard could occur by wearing jewelry while preparing food
Answer:
it can fall into the food
Sales revenue $944,200 Less: Cost of goods sold 598,100 Gross profit 346,100 Less: Operating expenses (includes depreciation expense and bad debt expense) 248,500 Income from operations 97,600 Other revenues and expenses Gain on sale of investments $14,900 Loss on sale of equipment (2,900 ) 12,000 Income before taxes 109,600 Income taxes 45,200 Net income $64,400 (a) Compute net cash provided by operating activities under the direct method. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Net cash flow from operating activities
Answer:
$500
Explanation:
Net cash flow from operating activities is $500
Check the correct category for each of the following items. Note: for purposes of this exercise, consider cash in and out for this couple regardless of whether the item is for personal or business use. Cash In/Income Cash Out/Expense Cost of business trip State tax liability Clothing purchases Once expenses have been identified, they can be categorized as either fixed expenses or variable expenses. For example, your mortgage would be considered a expense, because . Conversely, grocery bills would be considered , because the actual amount is
Answer:
1. The correct category for each of the following items:
Cash In/Income:
Personal income
Business Income
Cash Out/Expense:
Cost of business trip = variable
State tax liability = fixed
Clothing purchases = variable
2. For example, your mortgage would be considered a fixed expense, because the total amount does not vary. Conversely, grocery bills would be considered variable, because the actual amount is not fixed but varies.
Explanation:
Variable cost or expense has a fixed cost per unit, with the total amount varying, depending on the units or quantities consumed. Fixed cost does have a fixed total amount within the relevant range, but the cost per unit varies.
On December 31, 2019, Wintergreen, Inc., issued $150,000 of 7 percent, 10-year bonds at a price of 93.25. Wintergreen received $139,875 when it issued the bonds (or $150,000 x .9325). After recording the related entry, Bonds Payable had a balance of $150,000 and Discounts on Bonds Payable had a balance of $10,125. Wintergreen uses the straight-line bond amortization method. The first semiannual interest payment was made on June 30, 2020.
Complete the necessary journal entry for June 30, 2020, by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns.
Answer:
Dr Bond Interest Expense$5,756
Cr Cash $5,250
Discount on bond payable $506
Explanation:
Preparation of the necessary journal entry for June 30, 2020
Based on the information given the necessary journal entry for June 30, 2020 will be :
Dr Bond Interest Expense$5,756
($5,250 + $506 = $5,756)
Cr Cash $5,250
($150,000 x 7% x 1/2 = $5,250)
Discount on bond payable $506
($10,125/20 interest Periods = $506)
Note that in a situation where a 10-year bonds pay interest semiannually, what we would have will be 20 interest periods
Parks Corporation is considering an investment proposal in which a working capital investment of $10,000 would be required. The investment would provide cash inflows of $2,000 per year for six years. The working capital would be released for use elsewhere when the project is completed. If the company's discount rate is 10%, the investment's net present value is closest to (Ignore income taxes.): Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using the tables provided.
Answer:
$4,355.26
Explanation:
The net present value is the present value of future cash flows expected from the project minus the initial investment outlay
initial investment outlay=working capital investment = -$10,000
Years 1-5 cash inflow=$2,000
Year 6 cash inflow=normal cash inflows+release of working capital
Year 6 cash inflow=$2,000+$10,000=$12,000
the present value of a future cash flow=cash flow/(1+r)^n
n is 1 for year cash inflow 2 for year 2 cash inflow, 3 for year 3 cash inflow and so on
NPV=-$10,000+$2,000/(1+10%)^1+$2,000/(1+10%)^2+$2,000/(1+10%)^3+$2,000/(1+10%)^4+$2,000/(1+10%)^5+$12,000/(1+10%)^6
NPV=$4,355.26
During Year 3, Rex Co. introduced a new product carrying a 2-year assurance-type warranty against defects. The estimated warranty costs related to dollar sales are 2% within 12 months following sale and 4% in the second 12 months following sale. Sales and actual warranty expenditures for year ended December 31, Year 3 and Year 4, are as follows:
Year Sales Actual Warranty Expenditures
2008 $250,000 $2,250
2009 250,000 7,500
Total $500,000 $9,750
What amount should Gum report as estimated warranty liability on its December 31, 2009 balance sheet?
Answer:
the amount that should reported as the estimated liability is $20,250
Explanation:
The computation of the amount that should reported as the estimated liability is as follows:
= Total sales × total percentage - total actual warranty expenditure
= $500,000 × 6% - $9,750
= $30,000 - $9,750
= $20,250
Hence, the amount that should reported as the estimated liability is $20,250
Joe wants to open a restaurant and feels his best chance of being successful would be to purchase the rights to a well-known restaurant concept. This form of restaurant ownership is known as which of the following?
Food service corporation
Food service franchise
Independent food service operation
Food service chain
Answer:
Food-service franchise
Explanation:
A food-service franchise is a business arrangement where an established and successful restaurant allows the opening of an independent branch under its brand name. The new branch will be similar to the other existing branches in terms of appearance, products and services, operations, and pricing.
For an entrepreneur to open a food service franchise, they need to purchase a license from the franchisor. The franchise license increases the chances of success as customers are already familiar with the brand.
Adidea Corp. regularly buys merchandise from vendors. It just purchased 1,000 units on credit from one of its vendors. How will the company record this transaction?
The company will record the purchase as a debit to the inventory account and a credit to the ________ account.
Answer:
Vendor's account/ accounts payable
Explanation:
Merchandise is an asset to the company. An increase in assets is debited to that particular merchandise or inventory account.
Since the merchandise was bought on credit, liabilities will increase. An increase in liabilities is credited to the specific vendor's account who supplied the goods on credit.
Kilt Company used a predetermined overhead rate of $41 per direct labor hour for the year and estimated that direct labor hours would total 6,100 hours. Assume the only inventory balance is an ending Work in Process balance of $17,700. How much overhead was applied during the year
Answer:
$205,000
Explanation:
The above is an incomplete question as we were not given actual direct labor hours. From a similar question, I picked 5,000 as the direct labor hours .
With regards to the above information, applied overhead is computed as;
Applied overhead = Overhead rate × Actual direct labor hour
Given that;
Overhead rate = $41
Actual direct labor hour = 5,000
Therefore,
Applied overhead = $41 × 5,000 = $205,000
Suppose that a consumer has an initial endowment of 48.00 eggs. He is able to sell these eggs freely on the market for $1.00 per egg, but has no other income. However, he still demands some eggs himself. His demand is given by the following equation:
x1 = 16.00+ m/4p1
The price for eggs increases to $2.00 per egg. Calculate this consumer's endowment income effect.
Answer and Explanation:
The computation of the consumer's endowment income effect is as follows:
But before that following calculations must be done
Beginning value of the endowment,
m = 48 × 1
= 48
Now New value of endowment,
m' = 48 × new price
= 48 × 2
= 96
so,
Consumer's endowment income effect is
= x1(p1', m') - x1(p1', m)
= 28 - 22
= 6 eggs.
Working notes:
(x1(p1', m') is
= 16 + (96 ÷ 4 × 2)
= 16 + (96 ÷ 8)
= 16 + 12
= 28
And, x1(p1', m) is
= 16 + (48 ÷ 4 × 2)
= 16 + (48 ÷ 8)
= 16 + 6
= 22
