ECON_1110_Prelim2_FINAL1_sol - 1 ECON 1110 Preliminary...

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1 ECON 1110 – Preliminary Exam #2 – Fall 2008 SOLUTIONS Answer all 25 multiple choice questions on the accompanying bubble sheet. The exam is closed-book and closed-notes. No electronic devises are permitted during the exam. Unless explicitly stated, you must assume that demand curves are downward sloping and supply curves are upward sloping. Use the following table to answer questions 1, 2, and 3. In this table MV is the marginal value in dollars, and MC is the marginal cost in dollars, for each unit produced and consumed. Unit MV MC 1 1000 600 2 950 650 3 900 700 4 850 750 5 800 800 6 750 850 7 700 900 8 650 950 9 600 1000 10 550 1050 1. What are the efficient gains from trade? a. $1000 b. $4500 c. $1500 d. $500 e. None of the above 2. If a quota of 3 units is set, what is the equilibrium price and producer surplus respectively? 3. If the government sets a subsidy of $200 for every unit produced and consumed, what is the government expenditure? 1
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Use the following information to answer questions 4 and 5. A dentist office has been in operation for 20 years, when a metal stamping company buys the land adjacent to the dentist office and decides to open a metal stamping facility. The metal stamping operation is such that the vibration will disturb the dentist office. Transaction costs are low. The way the current town rules are written is that anyone who legally purchases a piece of property may use it for any legal activity. 4. Ultimately the dentist changes locations. Which of the following is true? 5. Which of the following is true in this example? a. The dentist is indifferent whether the rule gave the right to new entrants to do what they wanted with the property, or whether the rule permitted the dentist to oppose the metal stamping facility. b. If there had been an auction for the adjacent property, the metal stamping plant would have bid higher than the dentist. c. It would have been efficient if the mayor passed a law stating that no loud business were permitted to move next to the dentist under any circumstances. d. None of the above. e. Both a and b are true.
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