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samplefinalanswers - NAME: e’ Finai Exam Winter 2007...

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Unformatted text preview: NAME: e’ Finai Exam Winter 2007 Economics 100 Professor Stevens This exam is worth 100 points in total and contains 8 pages including this cover sheet. You have 2 hours to complete the exam. You may not use notes, books, calculators, or any other materials. I. Muitiple Choice. Circie the best answer to each question. (4 points each). increase consumption of the good if it is a normal good . increase consumption of the good whether it is a normai good or not c. decrease consumption of the good if it is a normal good (i. decrease consumption of the good Whether it is a normal good or not The income effect of a decrease in the price of a good is to: 2. A consumer’s utiiity function is given by Mary) = xzyzmt200. If she is consuming 10 units 0 good X, and 2 units of good y, her marginal utiiity of X is equal to: ' a. 220 _ 2. 2:330 2*Y1W - ZUD)Z W 80 :2 $0 3. If a monopolist chooses the optimal two~part tariff and faces only a single group of identical consumers, he wiil set a. price above marginal cost and an entry fee of zero b. price equal to marginai cost and an entry fee of zero ((3 price equal to marginai cost and a total entry fee equai to the entire consumer surplus d. price above marginal cost and a total entry fee equai to the entire consumer surpius 4. A firin’s isoquant summarizes a. all possibie input combinations that have the same totai cost b. ail possibie input prices that result in the same totai cost all possibie input combinations that resuit in the same total revenue @ ail possible input combinations that result in the same level of output 5. As industry output expands in an increasing-cost industry, individual firms will face @ upward SiOping average cost curves . upward shifts in their average cost curves e. no incentive to continue production d. economies of scaie 6. If a consumer is maximizing utility, the marginal rate of substitution between two goods will be equal across all pairs of goods @ equai to the price ratio of the goods 0. neither a nor b d. a and b 7. Price controls under monopoly wiil 9.. always reduce deadweight loss sometimes reduce deadweight loss 0. always increase consumer surplus d. aiways increase producer surplus 8. The demand curve for a single perfectly competitive firm is a. perfectly inelastic infinitely elastic . the same as the industry demand curve d. vertical at the equilibrium quantity 9. A farm’s cost function reflects a. input prices only b. the technology of production only nput prices and the technology of production I. . only variable costs 10. The substitution effect of an increase in the price of a good a. will be to increase consumption of that good and any complement goods b. will be to decrease consumption of that good and any complement goods c. wiil be to increase consumption of that good g iii be to decrease consumption of that good II. Definitions: Define the foliowing terms in the space provided. Be as precise as possible in your definition. (5 points each) a. Price elasticity of demand - PB roan + lam @W ‘L que mm Q L Pefwlromysje if} Prltf ea ‘70 A Ln (9? O R «:9 3“ 3.. 0/0 gage”! 6-2 P & ' ' 'ect - W“ . .‘ § 3 b. Substgtgn 8 En \Jfl PflUfE) 1’1?) [55mg (,LH MW cemsiw/HL '* ‘mdlcmbxon 0F Momma! Poweln a Moo/keA“/‘ e$ML+O 3% DR m P c. Lerner Index d. Producer Surpius TorkL. RUE—MM (géwémr) To womcees MHQ‘A/S THE [NWQKEO €60 DULCEQS 111. Short answers. Answer each question below in the space provided. 1. (12 points) A particular metal is traded in a competitive worid market at a price of $9 per ounce, and uniimited quantities are available for import into the US at this price. The supply of this metal from US producers is given by Qs a (2/3)? and demand by US consumers is given by Qd “J 40 - 2P, where Q represents miliions of ounces and P is the price per ounce. a. if the US imposes a tariff on imports of the metal of $9 per ounce, what will be the US price and quantity sold {by US producers) of the metal? How much will be imported? : “ [‘Hfi The F: N O Impala-r5 so P sq so x20 1 r: u 33:1“ Pal; OPFGCIED FORE-‘6‘” HKMJS CPHTTLO). 50 us 3": M39 9P ::, %n~—‘L 1+0: 8/3P) P:\5 (e: 1; 05> 1-10 ¢ [Ix/(PORTS b. If the US does not impose a tariff, but allows oniy 6 miliion ounces of the metal to be imported, what wiil be the US price, and how much of the metal wiil be purchased by US consumers (totai from domestic producers and imports)? I I “ {wt/15M Q5: *(D I 2: . "5.": Q’DWZP 3P+ to 1 _ 3/317; 5‘i Pflfl‘jé r @3 (+0” .1 01.75) C: 2. (10 points) Consider the utility maximizing choices, shown on the f1 gure below, of a consumer with income of $1000 who faces an increase in the price of good A from $10 to $20. The government would like to compensate individuals for the increased price of good A and decides to offer a $1000 payment to all consumers, regardless of their income or expenditure levels. The figure shows the original budget line and indifference curve, and the budget line after the price increase, but not inciuding the government payment. a. On the graph below, show the consumption choice of this consumer after both the price increase and government compensation. State what happens (relative to the original point, 0) to consumption of goods A and B, and state whether this consumer is better off, worse off, or has the same utility after the changes. loco + lace _1_‘?ff “EB/"#20 2&2 Al _.ow A mu N to b. Show on your own figure (draw a new one below) how the policy described above could ieave a different consumer (different preferences and/or different income) worse off than before the price change. On your figure, indicate clearly the level of utility before and after edifiielwer Hunts tween/Va (5000) 50 We tech” :40 ‘Pull CHM ems-afive Sior P does + \i P Until)! \l/ ‘From do +0“! 3. (12 points) Consider a monopoEist who maximizes profits by charging differem~ prices to students and non—students for its product. The monOpolists’ total costs are given by TC 3 1000 + 40Q. Marginal revenue from sales to students is equal to MR5 3 240 —— 8ng marginal revenue from saies to non-students is given by MRn ""—“ 200 w 4Q“. a. Find the price charged to each group and the quantity (1 group. “Lg/NJ STLLDEM‘KS; 2}“) W861 :w C1: 2965 : 2/5 wV'ng/ND'M’SWDS Quoci ~' ‘i’Q ell/O (Q; £5an 1, 1+0 \ Dam Arm Cuevag Gram MR warm-es l7”: 2%)” We ":2? P two” Pl”: 200 “1&5? Pfilm ‘0 M Arms +©’°) ,- . ; 195533 + P Q M I C firearm”) ; “Ft” ,_ q/C) H b. Now suppose the monopolist can no longer price discriminate, but has to charge a single price to students and non-students. Show that this reduces profits below those earned in part a. j PE. 200 «:3 gr 3ch DEM me or: 2, cramps Pglepwrre % @1420»? 17: my Hues :§ (9: 100—22? @LTOTRL) 3‘ H90 M W: mien “15“” Ll’C‘Y‘lrEj :flBESLpB’Sfi 0Q :11 5135700 > 5cs'35 4. (6 points) Use a graph to illustrate the effects of imposing a price floor above the market price in a perfectly competitive market. Label the following quantities or areas: (if «t. w \ Q“ (If Ree i" Quantity supplied and demanded h“ } Deadweight loss from the price floor Consumer surplus after the price floor Producer surplus after the price floor “A \/ END OF EXAM ...
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samplefinalanswers - NAME: e’ Finai Exam Winter 2007...

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