answertoMICROEX2 - Answers to old exam questions excluding...

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Answers to old exam questions, excluding those specifically on elasticity 2. C (from Ch 3) 3. D 4. E (chapter covered on previous exam) 5. D (chapter covered on previous exam) 7. B 9. B Note there is no question #11 12. a) solve for equil: 2500 - 5P = 25P - 500 => 3000 = 30P => P* = 100 then Q* = 2500 - 5P = 2000 check: Q* = 25P - 500 = 2000 b) see below (graph coming soon) c) CS = 1/2 (500-100)(2000) = $400,000 PS = 1/2 (100-20)(2000) = $80,000 d) S+tax line: P = (1/25) Q S+tax + 35 therefore Q S+tax = 25 P - 875 equilibrium: 2500 - 5P = 25 P - 875 => 3375 = 30 P => P C = $112.50 Q * D+tax = 2500 - 5 (112.5) = 2500 - 562.50 = 1937.5 Check this by plugging in this quantity into the original supply curve and see if the price to suppliers is the consumers price less the tax: P S = (1/25)(1937.5) + 20 = 77.5 + 20 = 97.5 = P C + $15 e) DWL = 1/2 (tax per unit)(difference in Q with and without tax) = 1/2 ($15) (62.5) = $468.75 Note: This was not asked, but you can calculate the CS, PS, and tax revenue when the tax is in place. Then you can compare the total surplus without the tax and with the tax. THe difference between these is the deadweight loss (DWL), so it's a good way to check your answer to that: CS tax = 1/2 (500 - 112.5)(1937.5) = $375,390.625 PS tax = 1/2 (97.5 - 20)(1937.5) = $75,078.125
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answertoMICROEX2 - Answers to old exam questions excluding...

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