Spring 2016 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 = 25k; Qai = 875; Qxi = 625; diagram omitted but it should contain the market WTP and WTA curves and the equilibrium.

(b) Ps = $115; Pd = $175; Q = 23k; revenue = $1.38M; Qai = 825; Qxi = 575; change in CSai = -$42.5k; change in PSxi = -$6k.

Question 2

(a) P = $80; Qm = 1400; Qh = 400; Qf = 1000; change in CS = +$24k; change in revenue = -$10k; change in PSh = -$9k; change in PSf = 0; change in SS = +$5k.

Question 3

(a) P = $500; Qm = 2000; Qu = 1500; Qc = 500; Qt = 1500; Qh = 500. Note that it's a coincidence that Qt = Qu and Qc = Qh.

(b) P = $100; Qm = 1600; Qt = 1500; Qh = 100; change in CSu = +$620k; change in PSt = -$600k; change in PSh = -$120k; change in PS overall = -$720k; loss of PS is considerably larger than the gain in CSu.

Question 4

(a) Revenue in L = $20M; WTAh = $1400; Ql and Qh without cross-subsidy = 110k and 45k; change in CSl = +$21M; change in CSh = -$19M; change in CS overall = +$2M.