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Economics
101A

Midterm
II
There are 3 parts. Each
should
take about
27 minutes'
part
I: True/False
Uncertain Answer all 3 questions,
using diagrams and equations
to prove
your answer,
1. The Social security system
is financed by a proportional earnings
tax: for an
individual with
hourly wage w who woiks H hours
(per year),
iotal taxes paid are
twH (where
t is the tax rate)'
A 10 percent
increase
in the tax rate will lead
to a
less
than 10
percent
in total tax revenues'
A
1'n Cv {c'1
f
2. A monopolist
sells
to two markets:
in market 1 there
is a constant
elasticity of demand et< 1;
in market 2 thereis a constant elasticity of demand ez<
L
The monopolist charges
a higher
price in the market with the "more elastic" demand
(i.e., the one with a more negative
value of e)'
3. Consumers
have preferences
ovet2 goods, x and y' of the form
U(x,Y):x+log(Y).
Suppose
irritidfy
p1;i
und each
consumer
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 Fall '08
 Staff
 Economics

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