Spring 2017 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=$50; Q=21,000; Qai=300; Qci=150; graph omitted.

(b) Pd=$29; Ps=$73; Qm=30,660; value of subsidy=$1,349,040; Qai=342; Qci=219; change in CSai=+$6741 (gain); change in PSai=+$4243.5 (gain).

Question 2

(a) New P=$1300, Qm=1700; Qu=1300; Qf=400; change in CS= -$555k (loss); change in PSu= +345k (gain); change in foreign revenue=+$300k (gain); change in SS=+$90k (gain); US consumers were gaining and US producers were losing. In addition, the foreign government was out the money spent on the subsidy.

Question 3

(a) Initial P=$120, Q=960; new Pd=$128, Ps=$118, Q=944; revenue raised=$9440; change in CS=-$7616 (loss); change in PS=-$1904 (loss); change in SS=-$80 (loss); buyer burden is $8 of the $10 tax or 80%, seller burden is $2/$10 or 20% (in revenue, $7552/$9440 and $1888/$9440).

Question 4

(a) Extra revenue in L=$200k; total subsidy to H is $200k+$100k=$300k or $60 per unit so WTAh=$160; new Ql=11k; new Qh=2600; change in CSl=+$210k (gain); change in CSh=-$228k (loss); change in SS is $210k-$228k+$100k or +$82k (gain).