ECON 251
Maymester 2009, based on Final Exam Fall 2008
Essay Question
Practice Essay Question 3
Markets and Quotas (4 Points)
1.
Consider a market that has a demand curve given by
1
20
2
d
Q
P
=

and a supply curve given
by
1
s
Q
P
=  +
.
Suppose the government imposes a quota where no more than 10 units can be
produced.
Please show the following things in a diagram (be sure to use numbers when appropriate):
a). demand and supply curves, as well as the market equilibrium price and quantity
b). quota quantity
c). the price for each unit under the quota
d). the areas for consumer and producer surplus, as well as the dead weight loss.
Consumer Theory (4 Points)
2.
Explain, using economic intuition, why the utility maximizing bundle of goods
x
and
y
satisfies the following equation:
y
x
x
y
MU
MU
P
P
=
.
Do this by explaining how a person can increase
their total utility when the equality does not hold (i.e. either
y
x
x
y
MU
MU
P
P
or
y
x
x
y
MU
MU
P
P
<
).
Game Theory (2 Points)
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 Summer '08
 Blanchard
 Supply And Demand, Final Exam Fall, Px Py, MU x MU

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