Answers for Final BA 315 Winmter 08

# Answers for Final BA 315 Winmter 08 - Final Exam (test #4),...

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Final Exam (test #4), Winter 2008 Student Name:__________ BA 315: Economy, Industry, and Competitive Analysis Favorite Sport:__________ Department of Finance Lundquist College of Business University of Oregon Ali Emami Please answer all questions. You are allowed to use a calculator to help with the calculations on the test. Do not talk during the test or use someone else’s paper or calculator as assistance this can result in a zero and a failing grade in the class. Please show graphs and/or calculations for all questions as needed. Part A: Microeconomics 1. [4 points] Show graphically how higher production of goods in China and more use of cars in India would affect gasoline prices and consumption worldwide. Higher production of goods in China will increase Chinese income, hence creates their demands for cars and thus demand for gasoline increases from D 1 to D 2 and Price increase to P 2 . Next, higher demand in India for cars increases the demand further to D 3 and price will increase to P 3 . Quantity supplied increases from Q 1 to Q 2 and Q 3 assuming that supply slopes upward and is not vertical. 2. [4 points] Assume the following data describe the gasoline market. a. What is the equilibrium price? Equilibrium is at: 320; \$3.50 d s Q Q Q AND P = = = b. If the quantity supplied at every price is reduced by 60 gallons, what will the new equilibrium price be? With new supply, equilibrium is at 300; \$4.00 d s Q Q Q AND P = = = c. If the government freezes the price of gasoline at its initial price, how much of a surplus or shortage will exist when supply is reduced as described above? With new supply and old price, there will be a shortage of 60 units since 320 260; \$3.50 d s Q and Q At P = = = d. Illustrate your answers on a graph (please label everything). E 1 E 2 E 3 D 1 D 2,CHINA D 3,INDIA S P Q GASOLINE MARKET FOR GASOLINE P 3 P 2 P 1 Q 1 Q 2 Q 3 Price per gallon \$2.0 0 2.5 0 3.5 0 3.7 5 4.0 0 4.2 5 4.50 Quantity Demanded 360 350 320 310 300 280 250 Quantity Supplied 200 300 320 340 360 380 400 New Supply 140 240 260 280 300 320 340

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3. [2 points] Suppose that at current gasoline prices, people in Eugene purchase 500,000 gallons of gasoline per day. Suppose that the price elasticity of daily demand for gasoline in Eugene is -0.75. Assume that the City Council is preparing a proposal for imposing an additional \$0.05 per gallon tax that will increase gasoline prices roughly one percent. If this tax proposal is implemented, (a) by how much will gasoline usage drop in response to such a tax? % % 0.75
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## This test prep was uploaded on 04/22/2008 for the course ECON 315 taught by Professor Aliemami during the Spring '08 term at University of Oregon.

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Answers for Final BA 315 Winmter 08 - Final Exam (test #4),...

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