Spring 2009 Exam 1 Solution

Here are the final numerical results for each section of version R 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) EV of PV of the external benefit = $100 per acre; (b) subsidy = $100 per acre; (c) subsidized price of land = $400 per acre; (d) percentage change in grazing land = 30% increase.

Question 2

(a), (b) market P and Q are $50 and 125; (c), (d) efficient P and Q are $200 and 50; (e) welfare gain = $14,062.5.

Question 3

(a) efficient total abatement =  4200; (b) efficient tax = $10; (c), (d) Qi (old sources) = 10; Qj (new source) = 50; (e), (f) abatement cost to an old firm = $50; to a new firm = $250; (g), (h) tax payment by an old firm = $400; by a new firm = $0 (complete abatement).

Question 4

(a) Pp = $20; (b) source 1's allocation = 250; (c) source 2's allocation = 145; (d) source 3's allocation = 205.

Question 5

(a), (b) A = $75, B = $2; (c), (d) market P and Q are $25 and 25,000; (e), (f) efficient P and Q are $21 and 27,000; (g) total amount spent on the subsidy = $108,000.