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practice_ak - Practice Final Exam Answer Key Econ 11 Summer...

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Practice Final Exam Answer Key University of California, Los Angeles The exam will be worth 100 points, 20 points per question. Handheld calculators are permitted. 1. Suppose the demand for student basketball tickets for UCLA games is given by Q = 8000 40 P . (a) If the price UCLA charges for a student ticket is 10 dollars, what is the price elasticity of demand for tickets? ANSWER: The price elasticity of demand is e PQ = dQ dP P Q = 40 P 8000 40 P and at P = 10 , this is e PQ = 40 10 8000 400 = 1 19 (b) Suppose there is a secondary market on Craig±s List, which resells tickets according to the function Q = 40 P 80 . Calculate the market equilibrium price and the quantity of tickets sold. ANSWER: A secondary market will clear where demand equals sup- ply, so where 8000 40 P = 40 P 80 8080 = 80 P P = 101 At this price, the market will demand Q (101) = 8000 40 (101) = 3960 (c) What is the total consumer surplus at this price? What is the total producer surplus? ANSWER: We calculate the inverse demand in order to ²nd the price intercept: P = 1 40 Q + 200 . Inverse supply is P = 1 40 Q + 2 . Total consumer and producer surplus at this price is CS = 1 2 (200 101) (3960) = 196 ; 020 PS = 1 2 (101 2) (3960) = 196 ; 020 1
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(d) Suggest a method for the college to gain some of this surplus. Sketch your solution in a graph of the market. ANSWER: The college could charge a tax for those tickets that are used by students who were not the purchasers. Then the college would collect revenues 2. Consider two individuals A and B with the following utility functions for goods x and y . U A ( x;y ) = x 2 y U B ( x;y ) = xy (a) True or false: if both individuals have identical endowments, there ANSWER: False. These individuals have di/erent marginal rates of substitution, which means that they are willing to trade consumption of these two goods at di/erent rates. Pareto optimal allocations would have 2 y A x A = y B x B which could not happen when x A = x B and y A = y B . (b) Now suppose
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This note was uploaded on 09/23/2008 for the course ECON 11 taught by Professor Cunningham during the Summer '08 term at UCLA.

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practice_ak - Practice Final Exam Answer Key Econ 11 Summer...

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