Previous Exams

Fall 2012 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. 

Question 1

(a) $40M

(b),(c) Plan 1 PV $35M; Plan 2 expected PV $30M.

(d) Plan 2 is best: it has the lowest overall expected cost to the city.

Question 2

(a),(b) Q = 1200; P = $2,400.

(c),(d) Q = 1600; Pd = $1,600; Ps = $3,200.

(e) Subsidy per unit = $1,600.

(f) Cost of the subsidy = $2.56M

(g) Net welfare gain = $0.24M

Question 3

(a) Total cost of command and control = $4,000

(b) Emissions tax for the same reduction = $80

(c) Total cost of abatement under the tax = $3,200

(d) Total compliance costs: firm A $1,600; firm B $4,000; firm C $4,000.

(e) Efficiency gain = $800

Question 4

(a) Pp = $160

(b),(c),(d) Source 1: 160 permits; Source 2: 145 permits; Source 3: 155 permits.

Question 5

(a) Efficient Qd = 7,200

(b) Tax = $40

(c) Revenue in the D market = $288,000

(d) Revenue in the C market after the change: $190,000

(e) Revenue in the C market before the change = $360,000; change in revenue on C: -$170,000.  The new revenue in the D market exceeds the lost revenue in the C market.

(f) Efficiency gain in the D market: $6,000

(g) Old DWL in the C market: $20,000; new DWL in the C market: $5,000; Change in DWL in the C market: reduction of $15,000 (that is, a $15,000 improvement).

(h) Overall gain = $6,000 (in the D market) + $15,000 (in the C market) = $21,000.

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Peter J Wilcoxen, The Maxwell School, Syracuse University
Revised 12/20/2012