mt_2005_soln - * WRITE YOUR NAME AND CLASS DAY (MONDAY OR...

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*** WRITE YOUR NAME AND CLASS DAY (MONDAY OR TUESDAY) ONLY ON THE BACK OF THE LAST PAGE *** UNIVERSITY OF CALIFORNIA HAAS SCHOOL OF BUSINESS EWMBA 201A—Economic Analysis for Business Decisions Fall 2005 Professor Catherine Wolfram MIDTERM EXAM Instructions: The number in brackets ( e.g., [5]) indicates the points for each question. Total: 90 points. Note that you also have 90 minutes to do the exam, so you should spend no more than 1 minute per point. Please Write Legibly. Briefly explain your answers (that is, don’t just write “yes” or “no” and don’t just write down a numerical answer without showing how you derived it). Write only on this exam. Short answer questions The following three questions require only short answers (1-3 sentences). Use any graphs that will help your explanation. Be sure to label graphs clearly. 1. [6] Do you think the introduction of cell phones made the demand for local telephone service delivered over land lines more or less elastic? Why? Some consumers see cell phones as a substitute for traditional local phone service, so the introduction of cell phones probably made the demand for local phone service more elastic.
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EWMBA 201a Fall 2005—Prof. Wolfram 2 2. In Fall 2004, Florida was hit by three hurricanes in quick succession, which wiped out much of the state’s tomato crop. As a result, the spot price in the U.S. wholesale market for tomatoes soared from $3 to $20 per pound, causing the retail price of tomatoes to increase dramatically as well. Many consumers of wholesale tomatoes changed their behavior as a result. For example, restaurants and cafeterias started serving salads without fresh tomatoes and supermarkets started stocking fewer fresh tomatoes. a. [9] Does this indicate that there was shortage in the U.S. wholesale tomato market? Explain. There is shortage in a market when the quantity demanded exceeds the quantity supplied. The question describes a situation instead where there was a shock to the supply of wholesale tomatoes. This would be expected to shift the supply curve up and to the left, raising the equilibrium price of tomatoes, and reducing the equilibrium quantity. These are exactly the effects the question describes. The market would be in shortage only if buyers would like to buy more than is available at the going market price. In this case, buyers are able to buy as much as they like at the going market price, they just want to buy less than they did before the price rose. b. [9] Wal-Mart, the largest produce retailer in the U.S., has a unique purchasing strategy for wholesale tomatoes. It purchases all of its tomatoes under contracts with a subset of growers (assume for this question that none of Wal- Mart’s growers are in Florida). In other words, Wal-Mart’s growers have agreed to supply Wal-Mart on a pre-set schedule and have their shipments monitored using Wal-Mart’s tracking technology. In exchange, Wal-Mart agrees to pay its growers a set price, which they negotiate every spring for the year to come. In
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This note was uploaded on 09/15/2009 for the course EWMBA 201A taught by Professor Wolfram during the Fall '07 term at University of California, Berkeley.

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mt_2005_soln - * WRITE YOUR NAME AND CLASS DAY (MONDAY OR...

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