Midterm2answers 2009 - Department of Economics University...

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Page 1 of 10 Department of Economics Professor Kenneth Train University of California, Berkeley Fall 2009 ECONOMICS 1 SECOND MIDTERM EXAMINATION November 23, 2009 ANSWER KEY – DO NOT DISTRIBUTE INSTRUCTIONS 1. Please fill in the information below: Student’s Name: _____________________________________ SID #: ____________________________________________ GSI’s Name: ________________________________________ Section Number (Day/Time):___________________________ 2. This exam starts at 1:08 pm and ends at 1:58pm. 3. If you finish early, please remain in your seat so that you do not disturb others. 4. When time is called, please stop writing and pass your exam to the aisle. Please stay in your seats until all the exams are collected. 5. There is a total of 100 points, 7 questions, and 8 pages (including this cover sheet) points for each question are in parenthesis. 6. NO BLUE BOOKS NEEDED . Please answer the questions in the space provided. If you need extra room to answer the questions, use the backs of the pages. 7. Calculators are not permitted. 8. Good Luck!!! DO NOT TURN THE PAGE UNTIL YOU ARE TOLD TO BEGIN THE EXAM
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Page 2 of 10 Question 1: TRUE, FALSE, UNCERTAIN. (20 points) For each question decide whether the statement is false, true or uncertain. Your grade is determined by your explanation; an answer without an explanation receives no credit. Use graphs when needed to complement your answer. a) (4 points) Limit pricing is a way for incumbents firms to prevent entry. TRUE. A limit price is the price set by a monopolist to discourage economic entry into a market, and is illegal in many countries. The limit price is the price that the entrant would face upon entering as long as the incumbent firm did not decrease output. The limit price is often lower than the average cost of production or just low enough to make entering not profitable. b) (4 points) The Clayton Act makes tying agreements illegal in all circumstances. FALSE. Clayton Act outlaws tying agreements (and other specific acts) ONLY when the effect may be to substantially lessen competition. Tying agreements that do not substantially lessen competition are not illegal.
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Page 3 of 10 c) (4 points) Expansionary fiscal policy increases private investment, such that future productive capacity rises. FALSE: Expansionary fiscal policy increases interest rates, decreasing investment. d) (4 points) The CPI understates the effects of price changes by holding market bundle constant. FALSE: CPI overstates effects of price changes by holding market bundle constant. e)
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Midterm2answers 2009 - Department of Economics University...

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