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2 1 2 1 2 1 2 1 % % ( ) / 2 ( ) / 2 8,000 4,000 4 8 (8,000 4,000) / 2 6 2.667 0.7 0.9 1 3 (0.7 0.9) / 2 4 Q p Q Q Q Q P P P P or ! " = " # + = # + # + = = = # # # # + ANSWERS TO PART B OF THE FIRST HOUR EXAM Economics 102 Fall 2010 Section 02 Professor Douglas Blair This document reports answers to all four of the test forms for the second question. The four versions include two price ceilings and two price floors; in one version of each, the price constraint was binding and in the other the constraint was not binding. Since quite a few points were lost on this question, particularly on the two versions that included a non-binding price control, you should review carefully all four of the versions. The demand elasticity calculations in the four versions of Question 1 are sufficiently similar that only one is shown here. 1. TEST FORM A: (16 points) You operate the only ferry across the Raritan River. This year you lowered the fare and the total number of passengers you carried increased. The relevant data appear in the table below. One-way fare Thousands of one-way crossings purchased Last year \$.90 4 This year \$.70 8 Compute the price elasticity of demand. Show your work. Answer: The price elasticity of demand is calculated as follows by the midpoint rule:

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2. TEST FORM A: (24 points) Demand and supply functions in the market for spandrels are illustrated in the diagram below. Enter a number in every cell of this table. (a) In the first column of the table, enter the appropriate numerical values for the situation in which no regulations are imposed on price. Answer:
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