Quiz 2 Ec21 S2013.pdf - Dartmouth ID(not name Economics 21...

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Page 1 of 10 Dartmouth ID ( not name): ___________________________ Economics 21 Spring 2013 Quiz 2 Instructions: Show all your work! (no credit for correct answers unless the intermediate steps are shown) You can earn 45 points in total. All items (including the axes) in a graph need to be labeled to get full credit There are two pages at the end in case you need additional space Do not remove the staple or tear out pages Books, notes, your own calculators or cell phones are not allowed. You are only allowed to use the calculator provided by me. Good luck!
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Page 2 of 10 1. Short Answer Questions (20 points) a. Give the definition of the “equivalent variation” of a policy. b. Draw an Engel curve for an inferior good. Be sure to label the axes (as always). c. True/False/Uncertain. “If an individual consumes three goods, then at least one of those goods must be a necessity.” Explain why . d. Suppose there is a currently a 5% tax on meals eaten at restaurants. A study has estimated that the DWL of this tax is $200 million per year. The government decides to increase the meals tax by 10 percentages points (so that the new meals tax is 15%). How much additional DWL is created by the tax increase? Explain in words how you arrived at your answer .
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Page 3 of 10 e. Suppose that the value of Tokumbo’s expenditure function at the current prices and a utility level of U=20 is equal to $1000/month (so “E=1000”).
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