Exams from Previous Semesters

Fall 2014 Exam 2 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) C is CD with a=0.3.

(b) Graph omitted; it should contain the BC, at least one IC, and the equilibrium.

(c) Derivation omitted; the result is M = U*(Px/0.3)^0.3 * (Py/0.7)^0.7.

Question 2

(a) Policy A: X=55, Y=55, taxes=$275, subsidy=$165, payment=$110. Policy B: X=44, Y=66, taxes=$330, payment=$330. The government breaks even on both.

(b) CV: Policy A=$94, Policy B=$29; household is worse off under both.

(c) Policy A is better for reducing Y; policy B is preferred by households.

Question 3

(a) A is PC with b=2.

(b) Derivation omitted; result is X = (b*M)/(b*Px+Py) and Y = M/(b*Px+Py).

Question 4

(a) X=140, Y=70; diagram omitted.

(b) CV=$310; household is worse off.

(c) Revenue=$280 less $10 payment to household=$270.  Change in SS=$270-$310=-$40; policy creates $40 of DWL.

Question 5

(a) Initial equilibrium: X1=120, Y1=80; new equilibrium: X2=65, Y2=70; change in X=-55.

(b) CV=$1028; worse off.

(c) X3=91, substitution effect=-29, income effect=-26. Check: total effect=-29-26=-55.

Question 6

(a) C0=$162k, C1=$81k, saving=$17.6k.

(b) Graph omitted; should show the BC, the endowment point, the equilibrium, and at least one IC.

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Peter J Wilcoxen, The Maxwell School, Syracuse University
Revised 10/18/2015