Fall 2013 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) P=$125; Qm=1500; Qai=75; Qbi=750; Qxi=125.

(b) Pd=$122; Ps=$130; Qm=1560; subsidy cost=$12,480; Qai=78; Qbi=780; Qxi=130; change in CSai = $229.5; DWL=$240.

Question 2

(a) P=$200; Qm=950; Qh=400; Qf=550.

(b) P=$150; Qm=1000; Qh=300; Qf=700; change in CS=$48,750; change in PSh=-$17,500; change in PSf=$0; change in revenue=-$27,500; change in SS=$3750.

Question 3

Extra revenue=$200K; WTAh=$2000; new quantities: Ql=1400, Qh=475; change in CSl=$240K; change in CSh=$-195K; overall change in CS=$45K.

Question 4

Usual P=$4, usual Qm=100; post-hurricane equilibrium with no price control: P=$12, Q=60; post-hurricane equilibrium with price control: P=$4, Q=20; change in CS=$0; change in PS=$-320; counterproductive in the sense that it decreases Q substantially with no net gain to consumers.