Fall 2011 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 1

(1a) Market P=$100, Q=100,000; Qai = 100; Qx = 50,000, Qy = 50,000.

(1b) New P=$125, Q=112,500; New Qai = 75; Change in CS for one type A buyer: -$2187.50; Qx = 50,000, Qy = 62,500; Change in PSx = $1.25 million, change in PSy = $1.406 million.

Part 2

(2a) Surplus in U = $50 million; Subsidy in R = $100 million; X = $15; Without policy, Qu = 60 million, Qr = 10 million.

(2b) New quantities: Qu = 40 million, Qr = 18 million; New surplus in U = $80 million, new subsidy in R = $72 million; Change would work: the firm would run a profit of $8 million.

Part 3

(3a) Market equilibrium before the policy: P=$200, Q=100; Quantity with the ceiling: 50; Change in CS = $3750; Change in PS = -$7500; DWL = $3750.

Part 4

(4a) New quantities for individual buyers: Qxi = 180, Qyi = 45; Revenue per individual buyer: type X = $360, type Y = $90; Total tax revenue = $72,000; Total DWL = $4000; Ratio = 5.6%.