Fall 2015 Exam 2 Solution

Here are the final numerical results for each section of the exam. You can use them to check your work if you do the exam for practice. If you have trouble with the problems, or don't get the answers shown here, stop by during office hours or make and appointment and we can go over them.

Question 1

(a) Q of apartments = 8,000; change in PS = -$1.8 M; change in CS = -$400k; change in SS = -$2.2 M.

Question 2

(a) Household B is CD; g = 0.8.

(b) Graph omitted; it should contain the BC, at least one IC, and the equilibrium.

(c) Derivation omitted; the result is M = U*(Px/0.8)^0.8 * (Py/0.2)^0.2.

Question 3

(a) X = 160; Y = 128. Change in net revenue = +$56.  It's a slight increase: better than breaking even.

(b) CV = $238; the household is worse off.

Question 4

(a) Household C has perfect complements preferences; d = 2.

(b) Derivation omitted; result is X = (2*M)/(2*Px+Py) and Y = M/(2*Px+Py).

(c) Graph omitted; new X = 188, new Y = 94; CV = $36; household is worse off; change in revenue is +$32; change in SS = -$4.

Question 5

(a) Initial equilibrium: X1 = 200, Y1 = 50; new equilibrium: X2 = 100, Y2 = 100; CV = $500; household is worse off.

Question 6

(a) Should take the training: PVI is $263.3 k vs. $241.7 k if she does not.

(b) C0 = $206,087; C1 = $68,696; borrows $26,087. Graph omitted.