Fall 2014 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=$80; Q=16,000; Qai=800; Qxi=80; Qyi=8000; graph omitted.

(b) Q=15,200; Pd=$120; Ps=$76; revenue=$668,800; Qai=760; Qxi=76; Qyi=7600; change in CSai=-$31,200; change in PSxi = -$312; change in PSyi=-$31,200; DWL=$17,600.

Question 2

(a) New P=$60; new total Q=900; old Qc=900; new Qc=700; new Qr=200; change in CS=-$9500; change in PSr=+$1500; change in PSc=$0; change in revenue=+$7000.

Question 3

(a) Policy B: new Qx and new Qy are both 900; total revenue from both markets=$9000; total DWL in both markets=$500.  Policy N: new Qx=760; Qy is unchanged; revenue=$9120; DWL=$1440. Tax B is better: much smaller DWL and nearly the same revenue: the loss per dollar of revenue is 5.6 cents for B but 15.8 cents for N.  This illustrates a general principle: broader taxes tend to be more efficient than narrow ones.

Question 4

(a) Original equilibrium: P=$500, Q=300; New equilibrium: Pd=$460, Ps=$520, Q=320; change in CS=+$12,400; change in PS=+$6200, change in revenue=-$19,200; change in social surplus=-$600; thus DWL=$600.

Question 5

(a) New Q=87,500; change in CS=-$187.5k; change in PS=+$168.75k; change in SS=-$18.75k; DWL=$18.75k.