ECON200 EXAM1

# ECON200 EXAM1 - First Exam-Econ 200A Fall 2009 90 points-...

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F i r s t E x a m - E c o n 2 0 0 A Fall 2009 90 points- Maximum of 1 hour and 15 minutes allowed Answer Key 1. (20 points) Jackson has the following MV schedule for steaks per month Q 1 2 3 4 5 6 MV(\$) 30 25 20 15 10 5 a. The steak restaurant close to his house sells steaks at \$15 a piece. Use the MV schedule above to calculate the amount Jackson would offer the restaurant owner for the right to buy steaks at \$10 apiece. Write down the rule for consumer’s quantity choice, show your work, and briefly explain. At a price of \$15 per steak, he buys a Q up to where P = MV. So he purchases 4 steaks per month. His TV is = \$30 + 25 + 20 + 15 = \$90. His Total Expenditure is \$15* 4 = \$60. His CS is \$30. At a price of \$10 a steak, he would buy 5 steaks per month. His TV is \$100 and his Total Exp. is \$50. His CS here is \$50. Since his net gains—his CS-- increases by \$20 as the price falls from \$15 to \$10, he is willing to pay up to \$20 for the right to buy steak at \$10 per unit. b. Consider the MV schedule for Jackson again. The price of a steak is \$15. Now suppose the government taxes Jackson \$5 every time he buys a steak. Write down the rule for his demand behavior inclusive of the tax and also write down his new demand schedule. How many steaks does he buy and what is the tax revenues for the government? Show your work. Since he pays a tax of \$5 per steak purchased, it implies he pays the price plus a \$5 tax for each steak he purchases. His decision rule is now: buy Q up to where MV = P + \$5, or, MV - \$5 = P His new MV— inclusive of the tax -- is: Q 1 2 3 4 5 6 MV(\$)- \$5 25 20 15 10 5 0 At price of \$15 per steak, he now buys 3 steaks. The government tax revenues here: 3*\$5 = \$15 c. Draw a graph of Jackson’s demand for steaks prior to and after the tax (fully label your graph). Illustrate his choices of steaks in either case on your graph.

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2. (24 points) Use an appropriate concept (or framework) to clearly explain the following: a. Consider the following phenomenon: immediately after the school year begins, fast food chains experience a more difficult time finding young workers. [They usually raise the wage (which is the price of labor) to attract workers.] Does this phenomenon show a decrease in the quantity supplied of workers or a change in the supply of workers. The supply of workers (labor) to fast food chains must have shifted to the left. The
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## This note was uploaded on 02/06/2010 for the course ECONOMICS 200 taught by Professor Stiban,f during the Winter '10 term at University of Warsaw.

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ECON200 EXAM1 - First Exam-Econ 200A Fall 2009 90 points-...

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