final and hws

final and hws - Final Exam 120 minutes Econ 1101:...

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1 Final Exam 120 minutes Econ 1101: Principles of Microeconomics Thomas Holmes December 18, 2006 Name: _______________________________________________ TA’s Name: __________________________________________ Section Number: ______________________________________ ( TA’s Name and Section Number are worth 4 points, not bonus. ) Points are allocated on a 200 point scale. Clearly highlight/circle solutions. If you need more space, use the back of the page. Clearly state where your work/answer are. Calculators are NOT allowed. You may leave answers as fractions. Fully label all graphs. Read each question carefully and be sure to answer all parts of every question. There should be 12 pages including the cover sheet.
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2 Question 1 (6 points). State the First Welfare Theorem of Economics Question 2 (10 points). Reservation Prices and Costs in Econland Name of D Person Reservation price for one widget ($) Cost to make one widget ($) Name of S Person D1 9 1 S1 D2 8 2 S2 D3 7 3 S3 D4 6 4 S4 D5 5 5 S5 D6 4 6 S6 D7 3 7 S7 D8 2 8 S8 D9 1 9 S9 D10 0 10 S10 None of the allocations below are Pareto efficient. In each case, propose a Pareto improvment. (a) An allocation where S8 produces a widget but S3 does not. (b) An allocation where D1 and D7 consume widgets but D3 and D10 do not. (c) An allocation where S1 produces a widget and gives it to D1 and no other widgets are produced and consumed.
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3 Question 3 (44 points). This question asks you do determine the impact of various government policies in Econland. The policies are (i) a price floor of $7 with efficient rationing and (ii) a tradeable production quota policy (also called supply management) with a total quota of 3, with S4, S5, S6 each allocated one quota unit each. (a) Complete the table below. (In the case of tradable production quotas P S is the price the seller receives subtracting out whatever the seller has to pay to buy quota. Producer surplus does not include revenues obtained on sales of quota.) Free Market (i) $7 price floor (efficient rationing) (ii) Supply Mgmt Quota=3 allocated to S4,S5,S6 quota is tradable Q 5 P D 5 P S 5 Consumer Surplus 12.5 Producer Surplus 12.5 Gov't Surplus 0 Quota owner surplus 0 Total Surplus 25 (b) On Graph 1 below illustrate CS and PS in case (i), a $7 price floor with efficient rationing. 0 1 2 3 4 5 6 7 8 9 10 012345678910 Quantity $ S D Graph 1: CS and PS with $7 price floor
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4 (c) Both government policies have lower total surplus than the free market for the same reason. What efficiency condition do they both violate? (d) For policy (i) above, a $7 price floor, we assumed rationing is efficient. Suppose instead that the rationing was inefficient . Specifically, suppose the high cost producers get the sales. Consumer surplus would then be ________, producer surplus would be _______, and total surplus would be __________. What two efficiency conditions are violated with this allocation?
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final and hws - Final Exam 120 minutes Econ 1101:...

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