PS1_spring2006 - EEP101/ECON125 Spring 2006 Problem Set...

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EEP101/ECON125 Spring 2006 Problem Set 1 (Due Thursday, February 9 in class) We encourage you to work together, but each person must submit his/ her own responses. PLEASE WRITE YOUR NAME, SID, AND SECTION NUMBER ON EACH PAGE. Please type and/ or write in pen- ANSWERS WRITTEN IN PENCIL WILL NOT BE ACCEPTED. Question 1 True, false, or uncertain. Please answer and provide a SHORT explanation, correcting if false. (Please correct in a meaningful way, not by adding the word “not.”) a) A market that has 10,000 sellers and 10,000 buyers is perfectly competitive. b) A Pareto-efficient allocation says nothing about equity. c) When a tax is imposed to correct an externality, most of the burden falls on consumers who consume goods made by the industry creating the externality. d) The existence of pollution, if there is no government intervention, some level of market power is socially preferable to none. Question 2 You run the only bookstore dealing in used textbooks on a college campus. You know that a lot of students took Econ 1, and although the class was very exciting it’s likely that some will want to sellback their textbooks at the end of the semester. The number of students who sell it back to you is likely to vary by the amount of money you’re willing to pay for it. You decide that you don’t want to be too fancy in your estimation so you’ll keep it linear, and you guess that if you offer $15 you will get 20books, and if you offer $30 you’ll get about 40.Next you have to figure out how many you think you can sell. Let’s say that the students are cheap, and you know that when you
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