Intermediate Microeconomics: A Modern Approach, Seventh Edition

Info icon This preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Economics 301 – Fall 2006 – PRELIM 2 - J. Wissink – Thursday November 2, 2006 Directions: Answer all questions. Write legibly, concisely, and coherently. Be sure to label all axes, functions, and variables you use. READ QUESTIONS CAREFULLY. Draw pictures whenever possible. Show all your work! Total time for the test is 90 minutes. Total points on test = 100 ANSWER ALL THE QUESTIONS. See point scores by each question. 1. (20 points) The Bush administration has decided to follow the lead suggested by our very own Robert Frank and get people to conserve gasoline. Bush also wants to shore-up the federal budget. Suppose Bush decides to place a per unit tax on gas. This tax raises the price consumers pay from P 0 to P 1 . Assume the supply curve for gas is horizontal. Suppose Zac is a representative consumer with very well-behaved preferences who gets utility from Gas (G) and $aog. Much to Bush’s dismay, even though the tax on gas raises revenue in terms of $aog, the tax leads to absolutely NO CHANGE in the observed market amount of gas Zac consumes. a. Draw a market demand curve for gas that would illustrate such a situation/outcome. b. In an “indifference curve-budget line” diagram illustrate that this could, indeed, happen. Please put gallons of gas on the horizontal axis. c. Given that Zac consumes the same amount of gas as before the tax, is it fair to say that Zac is not hurt by this tax? Explain your position.
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern