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^d = P^s = 120`; `Q_m^d = Q_m^s = 2200`; `Q_a^d = 25`; `Q_b^d = 10`; graph omitted.

(b) `P^d = 100`; `P^s = 150`; share of the subsidy received by the buyers = $20/$50 = 40% and the share received by sellers = $30/$50 = 60%; new `Q_m=2800`; new `Q_a^d=30` and `Q_b^d=20`; spending on subsidy received by an A household = $600 and a B household = $400; effective benefit rates = 0.75% for A and 2% for B; policy is progressive.

Question 2

P = $80, `Q_m` = 800; `Q_h`= 600, `Q_f` = 200; `\Delta CS` = -$36k; `\Delta PS_h` = $20k, `\Delta PS_f` = 0; `\Delta Rev` = $8k; `\Delta SS` = -$8k; `Q_f` falls by 67% from its BAU value so the policy is very successful at reducing imports of the dumped goods.

Question 3

Initial: Q = 200, `P^d` = `P^s` = $1200; Efficient: Q = 160, `P^d` = $1280, `P^s` = $960; T = $320; `\Delta Rev` = $51.2 k; Reduction in externality costs = `\Delta Ext` = $14.4 k.

Question 4

Initial: `P^d` = `P_h^s` = `P_f^s` = $150, `Q_m^s` = 900, `Q_h^s` = 300, `Q_f^s` = 60o. With subsidy: `P^d` = $140, `P_h^s` = $190, `P_f^s` = $140, `Q_m^d` = 940, `Q_h^s` = 380, `Q_f^s` = 560.`\Delta PS_h` = $13.6k, `\Delta PS_f` = -$5.8k; helps H but hurts F due to the fall in the market price.

Extra credit: `\Delta CS` = $9200, `\Delta Rev` = -$19k, impact on the US alone = $3.8k so the policy helps the US. In effect, the policy transfer $3.8k from F to the US and results in an overall loss of -$2k.