Question

Directions: Due in class on Tuesday, January 29. All answers should be typed. 1. (5 pts each) Suppose you are tasked with analyzing the following statements by a policymaker. Which variable would be exogenous and which would be endogenous? a) Government spending on assistance programs for the elderly increases the quality of life in older age. b) Graduating from college during a recession lowers your life-long stream of income. c) Students that spend a lot of time on their phones during lectures typically do worse on exams. 2. (5 pts each) Suppose the DJ of a radio station has six concert tickets to split between four winners of their annual costume contest. The utility of each consecutive concert ticket for each person is given below (e.g., the first ticket allows the person to go to the concert and the second, third and fourth tickets could be given to their friends). The DJ is a utilitarian. Utility per ticket Mike Jon Trey Page lst 2nd 3rd 4th 555 333 700 500 85 85 500 85 60 7585 80 50 65 70 75 a) Notice each person gets the most utility from the first ticket and each extra ticket yields a little less utility. What economic concept does this reflect? b) How would a utilitarian DJ distribute the six tickets? c) If instead, Jon received 800 units of utility from the first ticket, how would this change the optimal utilitarian distribution? 3. (5 pts each) In the table below, consider four societies with four people of differing

Answer 1

1. Let us first define what are endogenous and exogenous variables. Endogenous variables are those variables in a model whose value is determined by the states of other variables in the system.

Exogenous variables are those variables whicha re fixed when they enter the model. They are taken as a given in the model. They tend to influence endogenous variables in the model. They are not determined and not explained by the model.

a) here the government assistance is an exogenous variable and quality of lifebis endogenous. It is because the government spending is not affected by the quality of life of people and is determined independently by the government.

b) here recession is an exogenous variable because it not affected by the income model of the student. It depends entirely on other global scenarios. Whereas the income of the student is endogenous because it is determined by the level of recession in the economy.

c) spending time on phone is exogenous because it is not dependent on the exam model. It is upto the discretion of the student to use his or her phone. But the amount of usage of phone affects the examination result and hence it is an endogenous variable.