# Fall 2008 Exam 1 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.

### Part 2, Question B

Price paid by buyers: Pd = $65. Price received by sellers: Ps =$77.  New market equilibrium Q = 2300. New Qx = 30, new Qy = 42.5, new Qz = 230.

### Part 2, Question C

Amount spent on the subsidy = $27,600. Change in CS =$22,000.  Change in PS = $4,400. Net is$-1,200, which is the DWL.  Change in Qx = +5, change in CS to X = 275.  Change in Qy = +2.5, change in CS to Y = 412.50.  Change in Qz = +20, change in PS to Z = 440.

### Part 3

Change in apartments supplied by A = 0; change in PS to A = $-1M. Change in apartments supplied by B = -500; change in PS to B =$-875,000.  Change in apartments to renters = -500; change in CS = $1.6875M ($1.75M gain to apartment keepers less loss of $62,500 in CS on the apartments that are no longer rented (from 3500 to 4000). Note that to calculate the last value, it is necessary to solve for the W2P at 3500 apartments, which is$2250. The DWL = $1.6875M -$1M - $875,000 =$-187,500.

### Part 4

P = 25 (before subsidy, paid by type-H), Qh = 175, Pl = 15 (price after subsidy, to type-L households), Ql = 85.  Cost of the subsidy = \$850.

URL: https://wilcoxen.maxwell.insightworks.com/pages/2915.html
Peter J Wilcoxen, The Maxwell School, Syracuse University
Revised 12/22/2008