Fall 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 = $30; Q = 2400; Qli = 70; Qxi = 120; diagram omitted.

(b) Pd = $38; Ps = $23; Q = 1840; revenue = $27,600; Oli = 62; Qxi = 92; change in CSli = -$528; change in PSxi = -$742.

(c) Transfers: type L buyer = $496; type H buyer = $480; type X seller = $644; effective tax rate for L buyers: 1.7%; effective tax rate for H buyers: 0.6%; tax is regressive. Verification: 20*$496 + 10*$480 + 20*$644 = $27,600.

Question 2

(a) New P = $120; new Qtot = 1800; new Qu = 1200; new Qf = 600; change in CS = -$48,000; change in PSu = $22,000; new revenue = $12,000; change in social surplus = -$14,000.

Question 3

(a) Initial P = $180; initial Q = 60; efficient Q = 72; efficient Pd = $156; efficient Ps = $216; subsidy rate = $60; change in CS = $1584; change in PS = $2376; change in revenue = -$4320; change in externality = $720; change in SS = $360.

Question 4

(a) Initial conditions: P = $400; Q = 400; CS = $320,000; PS = $80,000.  With regulation: P = $440; Q = 390; CS = $304,200; PS  = $76,050; change in CS = -$15,800; change in PS = -3950; compliance cost = $19,500; the changes in CS and PS exceed the amount spent on safey by $250, which is the DWL arising from the fact that 10 units are no longer traded.