practiceFINALsol

practiceFINALsol - Name: Artiwa “69 Economics 1008...

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Unformatted text preview: Name: Artiwa “69 Economics 1008 Microeconomics Winter 2006 James Rauch FINAL EXAM This exam is worth 240 points. Do all four problems. (70 points) 1. Consider an economy populated by a representative consumer with preferences over avocados and beer given by U(A,B) = AB. One hour oflabor produces one pound of avocados or one can of beer. The economy is endowed with 1000 hours of labor. ’z' a. Plot the production possibility frontier for this economy, placing beer on the horizontal axis and avocados on the vertical axis. J b. Find demand for beer relative to avocados as a function of the price of beer relative to avocados. s’ c. Find the competitive equilibrium price of beer relative to avocados. P- Use the fact that the competitive equilibrium is on the production possibility frontier to find the competitive equilibrium quantities transacted of avocados and beer. Show this equilibrium on the diagram from part a., including the indifference curve of the representative consumer. Now suppose that, in order to discourage drinking, the government imposes a tax of a half pound of avocados per can of beer. >' e. Find the new consumer price of beer relative to avocados. i f. Use the fact that the competitive equilibrium is on the production possibility frontier to find the new competitive equilibrium quantities transacted of avocados and beer. Show this equilibrium in a new diagram, including the indifference curve of the representative consumer. l0 g. Show that the value of the representative consumer’s expenditure equals the value of her income, including the taxes rebated to her by the government. 2 Name: aVOCflAOS ' K? R» W Q. 1 [000 @ ‘Vaf 5n Afig’trcncfi— fluxva 5/00 +¢AJLALJ i bur goo loco ’5‘ v m C» a ms—z a ,9. FA @ me A Pg D E: E: I: t ‘ GD A N AD {JG/FA C_ MCA= {-N MC‘SZI'W w~ uan YB/fg MCB/MCA: '@ ° :>[’>‘:A 5 a, (s /‘ 7 I A rb/flq From )Jfoévtbba fJJ L ["7 Prwn¥tf A“ /000 ‘6 7:) A'- /ooO~A fl -=— goo (5 '= 5’00 @ 3 Name: LlAJhL £> thY‘c +lx (if guy)!» |J {cff'cdlj (-5 l7yi/f{l O.A “lo (lg/\Jvlmenli Mww: “vie/D FA FA, o \ __L\ _ F (2.: '. A=§6@ fl {:W‘ M LIE/(«LL Luruc, Lot Hmj PP]: Alan/’2. bétr \, 3, “witer = A +éfi§g = éow game @ : [0100 ._ z: IflLb/HL' l - way” +M<ej C3) Name: (50 points) 2. An economy that fits the model of perfect competition produces two goods, aircraft and buttons, using skilled labor and unskilled labor. There is a fixed stock of both inputs. Aircraft are skilled labor intensive in production relative to buttons. The government is worried that the distribution of income in the economy is too unequal and wants to try to increase the incomes of unskilled workers relative to skilled workers. Suppose the government decides to subsidize employment of unskilled labor. Will the competitive equilibrium of the economy be on the production possibility frontier? Why or why not? Now, in order to save money, the government decides to subsidize employment of unskilled labor only in the button industry. Will the competitive equilibrium of the economy be on the production possibility frontier? Why or why not? The government decides there is too much bureaucracy involved in subsidizing employment, so it decides to consider intervening in goods markets instead. What policy can it adopt that will raise the wages of unskilled labor relative to skilled labor? In a production possibility frontier diagram, show the competitive equilibrium of the economy after it adopts this policy, placing aircraft on the horizontal axis and buttons on the vertical axis. Be sure to include the indifference curve of the representative consumer. \le S. gall" induHrmJ i‘kc ‘l'LW 3“” " (w h “l7 Stout; labor (tilWQ. +9 qnjltlllttl [alga/.2 JO “ill l9” +134“ +1» L-(Llfl 0+L£C CL . +14 Ur (Jojwm‘ll (A i JoufttJ arc 5 CR. jimllcl I‘Lgf I'S /o'\.Jf_/‘ i’or {’qu )3“ Han (“luJHJ LLJLA tLF'Ll\(A+‘l:). \3 “l”ij (93+ o'l LA/‘Jlkillcl /abar relahw, lo x3 +L0" l’of 'l'l'sc. airnrxl+148u4+7l Jo +L‘tir Mal) will not la ioejur lo C4.wa arLc". lat. bol'L‘ 3‘7‘785 703‘“th lo (MC/Lug [)roéubl’lm 3F flLlU’lUL ‘l‘o (omrthl’lw ij‘libflum’. Name: C. AA] W o¥ +14; {‘wflaw’mij ‘FrH-kr falI’LICJ (Jo/LL JM LJIJIIL fa; snub-an a; LuHo/vj) jquléi'zl’. (o.fl)um'9h:sn Q[’ buHon)’ +k~K rm iuL 38f “ifo¢{'+-) +Lx (DAJMMpr/i 0+ 61-"fL(0¥+. \guLfio’U- Ff-‘(L \nF “\rcrb‘}:+— (Qtd‘hUQ ’10 4M HMJ 9*“; 3L)(I’ +L\*/‘ (7/!(L (41,10 ‘F‘AQLL 1.1) (,nJumtf {J L“- )Oj Fro ALLLCFJ akrcn£+ )6 "gar ‘AA‘IQkaCALL’ CIA/UL Lu Hin‘j Y? F (70!“ edge-vi. 01/1? C-f‘b “Q 4L4); fgiidt‘i 6 Name: (60 points) 3. A steel plant that sells its output at the world price of $2,000 per ton has costs given by lOOqz, where q = tons of steel output. It also produces smoke that is blown to a nearby town. Every ton of steel produced causes 10 workers in the nearby town who suffer from asthma to lose a day of work. Each of these workers earns $l 00 per day. I; a. Suppose the steel plant is able to ignore its impact on the health of the workers. How much steel will it produce? 1; b. What is the optimal Pigouvian tax? How much steel will be produced if the government imposes this tax on the steel plant? (0 c. Now suppose that instead of a Pigouvian tax the government assigns property rights in the air of the nearby town to the steel plant. The 10 workers now have an incentive to bribe the steel producer to reduce its output. If the Coase theorem holds, how much steel will be produced in this situation? [all Why might we expect equilibrium steel production in the situation described in part c. to exceed the socially optimal level? @ de Tl : 1000i- “9ch a, : 2000—2001 IQ A‘l 11l0@ ‘1 TL“, albii’lbnui (0)? +0 Joglcij Di: a ‘ian m7L @iltci C+L~L (Vii/)3" ‘V‘i‘tfnwliicd +L£ Jlui FrociwLer) l5 ’ “ii/00‘ Htwflc +LL (3’) i'flwai Pf uuUiuA +AX "(5 Far +DA.@ NOR) (Tl— : 20001'fl307zv/0001 : l I 5 O O l K) G O .4) it ,_Q If U at TAL Coalk +Liviorflm dink“ H—ic Ligand/j [Ni/“+165 [(atQL‘ +(IVL Jame.) joLia”) Orin/hall F'Cjui‘l' (Cjarriit‘um 0.; {/Lw QJJISV‘flW/Ii oi froyvlj ffflLi’il. Lute 7: C. 7 Name: fr A (j. H/‘irc’ ‘) 0‘“ "‘("‘+"’C €°K “KL aJ'H/IMMHL (ADA/{Cr .kb {((L-({Jz_ 0/1 +L|L bflbtj 3(0+L(r1 bC(uU-"\)€. 4?ch L,‘L.\A Mr C(La’rzé ‘3 0 Yutht 305d. @ 8 Name: (60 points) 4. Consider a country whose production possibilities for goods and information are given by the production possibility frontier G + 10001 = 10,000. Information is a public good. The country is populated by 50 identical individuals with preferences given by U(Gj,1) = Gil, where Gj is the individual’s share of consumer goods production (Gj 2 G/50). w. What are the optimal production levels for goods and information? (0b. If the social optimum in part a. is implemented as a Lindahl equilibrium, what is ' the tax share for each individual? What is the price of goods relative to information faced by each individual? ( Now suppose that the population of the country doubles, so the new production possibility frontier is given by G + 10001 = 20,000. Preferences are unchanged, but there are now 100 individuals so Gj = G/ 100. Find the new answers to the questions in parts a. and b. I Is the ratio of information to goods consumed by each individual the same in part c. as in part a.? Give the intuition behind your result. 1: (JlaFCl cf PFIZ) ‘6 la Ht? @ WHAT: -‘i__ci - /000 3 A 9 Name: b_ V‘Awaluq‘) art .ktnb'aa‘) Lulu; a“ [7“. “fl a 44x SL‘d/C ‘- ‘/§Q © 1 7‘“ ~15 ‘//;.DO. Eg‘xLLI ('flj‘im‘r Ffij5 \/§O 0‘; +110 (9)} a)“ IAFDI’mihfi/‘I JO I7KIQ£ 9‘ 39951 (t In Hdc, - v t ‘ O H lAFszna‘hon I-S '2‘. —* . 5 S 0. NM MKSJZ Ghee: A"):3 ZMRJS“ /OO (S//ooI C)“ Q (VHLT tA300 -»-— I G“ \ H ‘ ~. , W poem mm: = 20 000 it [0 (, - /o,ooo Th4 JLu/C : ‘//OO 10 Name: \fl+d-'\rloai [APDfA—ohan IJ A FULL-(- jocl‘) JD IV+J (c)+ Var ‘HNM WaJ LAMA win” +L~L S7.ru|4fmn Aoulzz’eda ...
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This test prep was uploaded on 04/07/2008 for the course ECON 100B taught by Professor Rauch during the Fall '07 term at UCSD.

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practiceFINALsol - Name: Artiwa “69 Economics 1008...

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