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Unformatted text preview: Economics 50 Stanford University Spring Quarter 2008 Page 1 of 13 Name: TA: Midterm Exam May 6, 2008 Part I (Questions 1 through 3; 50 points total) Write your name and your TAs name ( Itai Ater, Molly Goldstein, Pedro Miranda, Eduardo Perez, or Betsy Walls), and sign the statement on the cover of Parts I and II of the exam. Pace yourself carefully, and provide clear, concise answers lengthy explanations are not necessary! Write all of your answers in the space provided. If you need extra room, please use the back of each sheet. You can work on Parts I and II in any order. If you must make any additional assumptions in order to answer a question, please state what those assumptions are. At least one member of the Econ 50 staff will be available outside the classroom at all times. We usually cannot answer questions, but please notify us if you feel youve found a mistake in the exam or if you observe a classmate engaging in suspicious behavior. At the end of the exam, turn in Part I and Part II in the boxes provided. Your numerical answers should be as precise as possible. If youre pressed for time, dont worry about simplifying your answers perfectly. Make sure you show your work. You will have a total of 110 minutes to complete this exam. The exam is worth a total of 100 points, so you should allocate approximately one minute per point. Remember that no calculators, notes, books, headphones, or visible cell phones are allowed. Good luck! The answers written on these pages are entirely my own. I attest that in taking this exam, I am fully complying with all provisions of Stanfords Fundamental Standard and Honor Code. Signature: Do not open this exam until it is time to begin. Economics 50 Stanford University Spring Quarter 2008 Page 2 of 13 Question 1: Lets give trade a fair shot [20 points] The demand for guns in Chefland is given by the equation X D =80-P X . Domestic firms are willing to supply guns according to the equation X DOM =P X ; guns are sold on a well-established world market at a price of $10 each. Domestically-produced guns do not give rise to any externalities, but imported guns (if any) generate environmental damages in the amount of $10 per gun . You may find it helpful to draw a diagram on the axes below to illustrate your answer and aid in your calculations, but the diagram itself will not be graded. a) Suppose no imported guns are allowed into Chefland. Compute the equilibrium price of a gun, and the equilibrium number of guns bought and sold, in this closed economy....
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- Spring '07