S07 Prelim 1

S07 Prelim 1 - Econ313-1 Spring 2007 Talia Bar Prelim 1...

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Econ313-1 Spring 2007 Talia Bar Prelim 1 This exam consists of four questions. Label your blue books clearly with your name. The exam is worth 65 points. To help you allocate time you can plan on spending about one minute per credit point. The exam is closed-book. You may use a calculator. Good luck. Do not open this cover page until instructed to do so. 1
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Question 1 (32 minutes) Buzzard University is considering adopting a policy that would reduce the demand for parking around the campus. Only university employees park on campus. They can be roughly divided into two groups. Members of one group have a demand function u 1 ( P;Y ) = p P Y 6 : for parking P and other goods Y: Members of the other group have a demand function u 2 ( P;Y ) = 60 p P + Y: Every employee maximizes each period his/her utility from hours of parking ( P ) and the composite of all other consumption goods ( Y ), subject to a simple linear budget constraint (ignore the possible time constraint on parking). Income per period m = $3 ; 900 is allocated between P and Y . Before any policy is adopted, the price of parking is p 1 = $3 : The cost of the composite good is p 2 = $1 : The university considers adopting a policy of taxing parking, in hope that the tax would reduce the demand for parking. Tax revenues will not be given back to employees but used for other university spending. a. Before any policy is adopted, how many hours of parking does a member of group 1
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S07 Prelim 1 - Econ313-1 Spring 2007 Talia Bar Prelim 1...

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