Test12005 - Page 1 of 5 Professor James E Pesando Economics...

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Page 1 of 5 Professor James E. Pesando Last Name: ____________________ First Name: ____________________ Student Number: ________________ Economics 100 Mid-Term Test: October 28, 2005 Length: 55 minutes Students Must Answer All Questions in the Space Provided. Non-Programmable Calculators (only) Allowed. 1. (13 points) In London, during World War II, the weekly demand and supply curves for a carton of eggs are as follows: Quantity Quantity Price Demanded Supplied $ 4 10,000 1,000 6 8,000 2,000 8 6,000 3,000 10 4,000 4,000 12 2,000 5,000 (a) What is the equilibrium price and quantity of a carton of eggs? (b) To protect consumers, the government imposes a price ceiling of $6 on each carton of eggs. What is the new quantity demanded? The new quantity supplied? Is there a surplus or a shortage of eggs? Illustrate your answer with a diagram. (c) If those consumers who were able to buy eggs at the price ceiling of $6 per carton were to resell the eggs in an illegal or “black market,” what price would they obtain? Show this price in your previous diagram.
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Page 2 of 5 2. (15 points) To raise revenues, the government imposes a $5 tax on a carton of cigarettes, to be paid by sellers . The supply curve for cigarettes has the usual positive slope. (a) Assuming that the demand curve for cigarettes is downward sloping, show the new market price, the price received by sellers, the price paid by buyers, and the quantity of cigarettes bought and sold in the marketplace. (b) Assume, instead, that the demand for cigarettes is perfectly inelastic at 10,000 cartons per month. What will be the change in the market price of a carton of cigarettes and in the quantity of cigarettes bought and sold? How much revenue will the tax raise each month? Illustrate your answers with an appropriate diagram. 3.
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Test12005 - Page 1 of 5 Professor James E Pesando Economics...

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