midterm Kazakh version aka P.S. 5 eco 146 spring 2008 prof snyder

Midterm Kazakh version aka P.S. 5 eco 146 spring 2008 prof snyder

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Unformatted text preview: 27 February 2008 Name Midterm Exam Eco 146 Spring 2008 Professor Snyder Instructions: Use your usual good judgment. This is a 45 minute in-class closed book, closed notes exam. All work shouid be your own. You need only a pencil or pen and blue book. Simple drawing aids are optional as is a calculator for simple arithmetic (no use of stored programs). I will supply a calculator if you need one. Snacks are allowed, but please be considerate. Do not leave your seat without permission. If you need a calculator, need to go to the bathroom, or have a question about a problem, raise your hand and I will come to you. You have 45 minutes to complete this exam. There are two multiple-section questions. It is in your best interest to answer ever section of every question. Each section is worth 2 points unless marked otherwise. Write all answers in the blue book provided. Write your name on both the biue book and this test paper. When you are done place your test paper in your blue book, but stay in your seat. I will call time remaining at frequent intervals. 1 ask that you leave when I do so, and not in between. This is to minimize disruption for students who are still working. Good luck. 1) Kazakhstan has the following domestic demand for wheat: Qk = 1000 — 2p. Kazakhstan has also exported a bit of wheat. The export market obeyed the foilowing demand curve: Qe=700 — p. The supply curve for Kazakh wheat is given by: Q5 = 100 + 5p. a. What is the elasticity of domestic demand when p=300? What is the elasticity of export demand when p=300? b. Draw a sketch showing Qk, Qe and what the total demand, Qd, for Kazakh wheat must look like. (Hint: Qd = Qk + Qe, but there is never a negative quantity demanded.) c. Write an expression for the total demand curve for Kazakh wheat. Sketch a supply and demand drawing of the Kazakh wheat market. d. Find the equilibrium p and Q. At this equilibrium how much is consumed domestically, how much is exported? e. The export market shifted due to crop failures elsewhere so that it is now described by Qe = 2000 — p. This led the Kazakh government to institute an EXPORT tariff. Expiain why. A sketch might help. 2) Risky Education: Mac has graduated from college. Congratulations Mac! She now has a choice to make. She can take a nice steady job paying 30 and Work for two periods, or she can go to grad school. if she goes to grad school and is successful she will make 105 in period 2, but nothing in period 1. She Would need to borrow her living expenses for period 1. However, grad school is risky. She may go to grad school and not do so well. in that case she will earn 60 in period 2, but nothing in period 1. Assume that her probability of success in grad school is 1/3 and that her utility function is U(c1,c2) = min{c1, c2) where Cl is consumption in period 1 and c2 is consumption in period 2. Also assume that she pays 50% interest on the money she borrows for living expenses. 3. (1 point) If she does not go to grad school let us assume she just has c1=30 and c2=30. No borrowing or spending. What is her utility? Yes, this question is easy. b. Draw a sketch for her budget constraints if she is or is not successful in grad school and write dOWn a budget constraint for each possibility. c. Find her optimal c1 and c2 ifshe goes to grad school and is successful. Also find her optimal c1 and c2 if she goes to grad school and is not successful. d. (1 point) Compute her monetary payoff in part a) and her expected monetary payoff in part c). Which is bigger? e. But Mac is not trying to maximize her monetary payoff. Assume Mac is an expected utility maximizer, and that when she thinks about the risk of grad school she is governed by a second but related utility function U2=JU. Will she go to grad school? That is, is the square root of your answer to part a) greater or smaller than the value of the success-in-grad-school lottery? (We could just say there is a single utility function U = J(min(c1,c2)), and if you want to think of it that way, it will not really change the problem.) 7 I f. (free skating) Mac has a 1/3 probability of success in grad school, but other people have higher or lower odds of succeeding. The government thinks there is a social benefit to having more people go to grad school. is this a sensible position? What could the government do to encourage more students to go on to grad school? Explain your answer. A sketch might help. Kb'l vcfihm. 1 131659 vitiwl-Wmmyf»~v Lu “Ricmkmm.... 7, VC ..ckcvbs¥wcgb._.. ...Dom¢sk-\9. .. DMZ .._Q1¢.= “9.0.0 " 9» )f _ ngfm‘t Defy-04 , a 7'” 77 .09 .‘ P, .. 70') .. it) 7'-’ . 3 dflk..._z_‘2_rl k ._ 06 p ,, , ,=.z9¢esé0a§ ,1...u...,.w+mwmwwmwmfi , z 00 E o, , (. “Q3003”, 1 “(no . . Q00 MwWWW““NamW.W...ma“WWMMNMMM:,.MMW.W_WMM mmewmw~ _. 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This note was uploaded on 05/01/2008 for the course ECO 146 taught by Professor Snyder during the Spring '08 term at Lehigh University .

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Midterm Kazakh version aka P.S. 5 eco 146 spring 2008 prof snyder

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