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UWM Econ 328 Professor Grant Spring 2014 NAME _____________________________ MIDTERM EXTRA: Due Tuesday, Mar 25, 2014 in class at 11a. Print and write...

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UWM Professor Grant Econ 328 Spring 2014 NAME _____________________________ MIDTERM EXTRA: Due Tuesday, Mar 25, 2014 in class at 11a. Print and write legibly on these pages; do not include extra sheets/spacing. PART I: CIRCLE the best single answer for each problem; then legibly WRITE a sentence or two definition/justification for EACH. 1. What is the elasticity of demand for oranges (using the midpoint formula) when the price of oranges changes from $200 to $160 per bushel and causes the quantity demanded to change from 1000 to 1400 bushels? AND explain the effect. A) 1.5 B) 0.10 C) 10.0 D) 0.67 2. Hedonic valuation A) is only a measurement of the natural amenities affecting humans. B) separates and measures the value of each characteristic of a good, such as pleasure of use and functionality, on the good’s total value. C) demonstrates the substitutability of one attribute for another for houses. D) is mandatory for project analysis for government agencies, like the NSA. 3. When determining the optimal amount of pollution, we often graph units of pollution on the x-axis and prices on the y-axis. Then typically in the graph A) marginal abatement costs are increasing because first units abated tend to be expensive. B) marginal abatement costs are decreasing because last units abated tend to be most expensive. C) marginal damages are usually decreasing because the first units of pollution are the most harmful. D) marginal damages are increasing because harms from pollution are higher in total amount of pollution.
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UWM Professor Grant Econ 328 Spring 2014 PART II: ANSWER all portions; SHOW your work. 4. The demand for paper is Q = 15 P / 2 , where P is measured in $ per ream and Q is measured in reams. It costs $6 to produce each ream of paper ( what is the marginal cost equation?). Producing paper also generates water pollution externalities due to the chemical processing. The cost of the pollution is as follows: The first ream causes $1 damage and each additional ream imposes $1 more pollution costs than the previous ream. A) Plot the MB, MC, and SMC. Label the axes, intercepts and the lines you add. 21 12 3 B) Mark the free market equilibrium quantity of paper production with a RECTANGLE. C) Mark the socially optimal quantity of paper production with a STAR. D) Shade in and label the dead weight loss on the figure. 5. For hiring a band for your house party, you and your nine friends each have a willingness to pay of P = 12 - Q / 5 where P is in $ and Q is in minutes. The cost of hiring the band is P = ½ Q. The concert is a shared public good among you and your fiends. A) How long will the concert be in free market equilibrium? B) What would the socially optimal concert length be for all ten of you? UWM Professor Grant Econ 328 Spring 2014 PART II: ANSWER all portions; SHOW your work. 4. The demand for paper is Q = 15 P / 2 , where P is measured in $ per ream and Q is measured in reams. It costs $6 to produce each ream of paper ( what is the marginal cost equation?). Producing paper also generates water pollution externalities due to the chemical processing. The cost of the pollution is as follows: The first ream causes $1 damage and each additional ream imposes $1 more pollution costs than the previous ream. A) Plot the MB, MC, and SMC. Label the axes, intercepts and the lines you add. 21 12 3 B) Mark the free market equilibrium quantity of paper production with a RECTANGLE. C) Mark the socially optimal quantity of paper production with a STAR. D) Shade in and label the dead weight loss on the figure. 5. For hiring a band for your house party, you and your nine friends each have a willingness to pay of P = 12 - Q / 5 where P is in $ and Q is in minutes. The cost of hiring the band is P = ½ Q. The concert is a shared public good among you and your fiends. A) How long will the concert be in free market equilibrium? B) What would the socially optimal concert length be for all ten of you?
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