Final Exam 5/9/17. Problem Number Points
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1 Final Exam 5/9/17 Economics 108 Landsbug NAME: Thee ae 12 poblems, with the following point values: Total Points: 202 Poblem Numbe Points
2 1. The govenment is consideing imposing eithe a sales tax of 2 pe cabbage o an excise tax of 2 pe cabbage. Fo each of the following statements, ente the following lettes: Ente N if the statement must be tue. Ente R if the statement might o might not be tue. Ente U if the statement cannot be tue. a) The sales tax huts consumes and poduces equally. b) The sales tax and the excise tax hut consumes equally. c) The sales tax would cause the pice of a cabbage to incease by 1. d) The sales tax would cause the pice of a cabbage to fall by 1.50 but the excise tax would cause the pice of a cabbage to ise by.50. e) The sales tax would cause the pice of a cabbage to fall by 1.50 but the excise tax would cause the pice of a cabbage to ise by f) The sales tax aises moe evenue than the excise tax. g) Unde the sales tax, the evenue collected by the govenment is less than the total of the losses to consumes and poduces.
3 2. In the maket fo died moose antles, thee ae two selles, both of whom ae pice-takes. Both selles have fixed costs of 1. Thei total cost cuves, and the maket demand cuve, ae as follows: Alice s Total Cost Cuve Bob s Total Cost Cuve Maket emand Cuve uantity TC uantity TC Pice uantity Answe the following questions using LETTERS instead of numbes, accoding to the following scheme: N) 1 R) 2 U) 3 X) 4 A) 5 L) 6 E) 7 H) 8 K) 9 M) 10 ) 11 T ) 12 W ) 13 C) 14 B) 15 ) 16 G) 17 J) 18 P ) 19 S) 20 V ) 21 BB) 22 ) 23 Y ) 24 F ) 25 I) 26 ZZ) 27 HH) Some othe numbe not on this list. a) What is the equilibium quantity of died moose antles? RR) 28 LL) 29 T T ) 30 AA) 31 CC) 32 P P ) 33 SS) 34 V V ) 35 MM) 36 b) What is the poduce suplus in the maket fo died moose antles? c) Suppose a sales tax causes the maket quantity to fall by 4 died moose antles. What is the amount of the tax pe died moose antle? d) Suppose that (INSTEA of the sales tax) the govenment imposes a pice ceiling of 3 pe died moose antle. Assume also that eveyone s time is woth 50 cents pe hou. How many hous must you wait in line to buy a died moose antle? hous You must ente LETTERS, not numbes!
4 3. The following gaph shows the maket fo cabbages. S N 8 5 X H A E R U L M K One day, the govenment sets a pice floo of 8 pe cabbage (so that it is illegal to sell cabbages below that pice). The govenment also agees to puchase (at 8 each) any cabbages that go unsold. All the cabbages bought by the govenment ae discaded. a) How many cabbages does the govenment buy? b) Use LETTERS FROM THE GRAPH to fill in this chat: NO PRICE FLOOR WITH PRICE FLOOR Consume Suplus Poduce Suplus Cost to Taxpayes Social Gain eadweight Loss
5 4. In the town of Nwot, doctos have two types of expenses: Evey docto needs one X-ay machine, which s/he ents fo 100 pe month. Each time a docto sees a patient, s/he uses one disposable tongue depesso, which costs 1.. Kildae is a docto in the town of Nwot, who chages 50 pe office visit. Fo each question below, ente the lette of the coect answe. a) Suppose the ental ate fo an X-ay machine ises to 200 pe month. Assuming. Kildae emains in business, what happens to the pice of an office visit? (Answe assuming that. Kildae is the only docto in town.) N. It cetainly falls. R. It might eithe fall o emain 50. U. It cetainly emains 50. X. It might eithe ise o emain 50. A. It cetainly ises. L. It might eithe fall, o emain 50, o ise. b) Suppose the ental ate fo an X-ay machine ises to 200 pe month. Assuming. Kildae emains in business, what happens to the pice of an office visit? (Answe assuming that. Kildae is one of many doctos in town.) N. It cetainly falls. R. It might eithe fall o emain 50. U. It cetainly emains 50. X. It might eithe ise o emain 50. A. It cetainly ises. L. It might eithe fall, o emain 50, o ise. c) Suppose the pice of a tongue depesso ises to 2. Assuming. Kildae eamains in business, what happens to the pice of an office visit? (Answe assuming that. Kildae is one of many doctos in town.) N. It cetainly falls. R. It might eithe fall o emain 50. U. It cetainly emains 50. X. It might eithe ise o emain 50. A. It cetainly ises. L. It might eithe fall, o emain 50, o ise.
6 5. Widgets ae supplied by a monopoly that pollutes the ai. The elevant cuves ae shown hee: MC social P MC pivate N R U X A L E H K M MR The govenment is thinking of focibly beaking up the monopoly into seveal competing fims. This beak-up, if it occus, will have no effect on the poduction pocess, and hence no effect on the maginal cost cuves. Make the following assumptions: The neighbos can move away (and hence eliminate all pollution damage) fo a cost of (A + L + K + M). Thee ae NO TAXES. a) Which of the following is tue? ) The neighbos will move away, egadless of whethe the industy emains monopolized o becomes competitive. T ) The neighbos will move away if the industy emains monopolized, but will NOT move away if the industy becomes competitive. W ) The neighbos will move away if the industy becomes competitive, but will NOT move away if the industy emains monopolized. C ) The neighbos will NOT move away, egadless of whethe the industy emains monopolized o becomes competitive. ANSWER: b) Ente the appopiate lettes in the following chat: MONOPOLY COMPETITION CONSUMER SURPLUS PROUCER SURPLUS EXTERNALITIES MOVING COSTS SOCIAL GAIN
7 6. A visit to the beach is woth 100 if you have the beach to youself, 80 if you must shae the beach with one othe peson, 50 if you must shae the beach with two othe people, and 30 if you must shae the beach with thee othe people. (Eveyone is identical and eveyone agees on these numbes.) The altenative to the beach is a day at the pak, which is always woth 80 egadless of how many people ae thee. Answe the following questions using LETTERS instead of numbes, accoding to the following scheme: Y Y ) 0 N) 1 R) 2 U) 3 X) 4 A) 5 L) 6 E) 7 H) 8 K) 9 M) 10 ) 11 T ) 12 W ) 13 C) 14 B) 15 ) 16 G) 17 J) 18 P ) 19 S) 20 V ) 21 BB) 22 ) 23 Y ) 24 F ) 25 I) 26 ZZ) 27 HH) Some othe numbe not on this list. RR) 28 LL) 29 T T ) 30 AA) 31 CC) 32 P P ) 33 SS) 34 V V ) 35 MM) 36 a) If the beach is fee, how many people come to the beach? b) If the beach is fee, how much social gain does it ceate? c) What is the maximum possible social gain fom the beach? Fo pats d) and e), assume that any enty fee must be a whole numbe of dollas. d) What is the lagest enty fee that would maximize social gain? e) What is the smallest enty fee that would maximize social gain? Remembe to ente LETTERS, not numbes!
8 7. This poblem concens the wold economy. The gaphs show the wold maket fo all goods and sevices, with the inteest ate on the vetical axis. S S' S S' S S=S' N R ' U ' X ' S S' S S' S S' S' S A ' L ' E ' H ' Fo each of the cicumstances below, ente the LETTER of the gaph that best illustates what will happen. a) People lean that fams will be pemanently fa moe poductive in the futue, though thee is no change in the pesent. b) People feel especially enegetic and eage to wok this yea, though they expect things to etun to nomal in the futue. c) The govenment announces that beginning next yea, it will eliminate an ongoing wasteful spending pogam that had been expected to last foeve. d) The govenment announces a new wasteful spending poject that takes place this yea only.
9 8. Suppose the govenment decides to cut cuent taxes, with no change in govenment spending. Fo each question below, ente the lette of the coect answe. a) Futue taxes must ise. N. efinitely tue. R. efinitely false. U. Tue if Ricadian equivalence holds, but false othewise. X. False if Ricadian equivalence holds, but tue othewise. b) Because the govenment s debt must be epaid with inteest, taxpayes must be made pooe in the long un. N. efinitely tue. R. efinitely false. U. Tue if Ricadian equivalence holds, but false othewise. X. False if Ricadian equivalence holds, but tue othewise. c) The cuent demand fo consumption will change. N. efinitely tue. R. efinitely false. U. Tue if Ricadian equivalence holds, but false othewise. X. False if Ricadian equivalence holds, but tue othewise. d) The cuent inteest ate will change. N. efinitely tue. R. efinitely false. U. Tue if Ricadian equivalence holds, but false othewise. X. False if Ricadian equivalence holds, but tue othewise.
10 9. Hee ae the U.S. and R.O.W. (est of the wold) demand and supply cuves fo all goods and sevices. uantities ae measued in dollas-woth. U.S. emand Inteest Rate uantity U.S. Supply Inteest Rate uantity R.O.W. emand Inteest Rate uantity R.O.W. Supply Inteest Rate uantity Answe the following questions by enteing LETTERS (not numbes!) accoding to the following scheme: N) 1 R) 2 U) 3 X) 4 A) 5 L) 6 E) 7 H) 8 K) 9 M) 10 ) 11 T ) 12 W ) 13 C) 14 B) 15 ) 16 G) 17 J) 18 a) What is the wold inteest ate? P ) 19 S) 20 V ) 21 BB) 22 ) 23 Y ) 24 F ) 25 I) 26 ZZ) 27 HH) Some othe numbe not on this list. RR) 28 LL) 29 T T ) 30 AA) 31 CC) 32 P P ) 33 SS) 34 V V ) 35 MM) 36 b) What is the quantity (in dollas woth) of Ameican net impots? c) What is the quantity (in dollas woth) of the est of the wold s net expots? d) Fill in the blank with the appopiate LETTER: Ameicans boow dollas moe than they lend.
11 10. Ente the lette coesponding to the coect answe in the blank: a) If Ameicans ae net impotes and if foeignes become convinced that thei futue incomes will be lowe than peviously expected, then: N. The inteest ate falls and Ameican net impots fall. R. The inteest ate falls and Ameican net impots emain unchanged. U. The inteest ate falls and Ameican net impots ise. X. The inteest ate emains unchanged and Ameican net impots fall. A. The inteest ate emains unchanged and Ameican net impots emain unchanged. L. The inteest ate emains unchanged and Ameican net impots ise. E. The inteest ate ises and Ameican net impots fall. H. The inteest ate ises and Ameican net impots emain unchanged. K. The inteest ate ises and Ameican net impots ise. M. Thee is not enough infomation to answe this question. b) If Ameicans ae net impotes and if Ameicans become convinced that thei futue incomes will be highe than peviously expected, then: N. The inteest ate falls and Ameican net impots fall. R. The inteest ate falls and Ameican net impots emain unchanged. U. The inteest ate falls and Ameican net impots ise. X. The inteest ate emains unchanged and Ameican net impots fall. A. The inteest ate emains unchanged and Ameican net impots emain unchanged. L. The inteest ate emains unchanged and Ameican net impots ise. E. The inteest ate ises and Ameican net impots fall. H. The inteest ate ises and Ameican net impots emain unchanged. K. The inteest ate ises and Ameican net impots ise. M. Thee is not enough infomation to answe this question.
12 11. Alice and Bob ae the only two esidents of Lowe Slobbovia, whee snowglobes ae the only good. Assume that: Alice owns 10 snowglobes and 30 dolla bills. Bob owns no snowglobes and 20 dolla bills. The pice of a snowglobe is 10 dollas. Answe the following questions using LETTERS instead of numbes, accoding to the following scheme: N) 1 R) 2 U) 3 X) 4 A) 5 L) 6 E) 7 H) 8 K) 9 M) 10 ) 11 T ) 12 W ) 13 C) 14 B) 15 ) 16 G) 17 J) 18 P ) 19 S) 20 V ) 21 BB) 22 ) 23 Y ) 24 F ) 25 I) 26 ZZ) 27 HH) Some othe numbe not on this list. RR) 28 LL) 29 T T ) 30 AA) 31 CC) 32 P P ) 33 SS) 34 V V ) 35 MM) 36 Now one day the King of Lowe Slobbovia pints 50 new dolla bills, use them to buy 5 snowglobes fom Alice at 10 each, and give these snowglobes to Bob. a) At the new equilibium (afte the new money has been pinted and spent), what is the pice of a snowglobe? b) What has happened to Alice s and Bob s eal balances? { inceased Alice s eal balances have (CIRCLE ONE) by deceased snowglobes. { inceased Bob s eal balances have (CIRCLE ONE) by deceased snowglobes. c) Afte accounting fo the changes in thei eal balances and the changes in thei snowglobe holdings, how much have Alice and Bob gained o lost? { gained Alice has the equivalent of snowglobes. lost { gained Bob has the equivalent of snowglobes. lost d) Which of the following is tue? N. Total eal balances have inceased and social gain has inceased. R. Total eal balances have inceased and social gain is unchanged. U. Total eal balances have inceased and social gain has deceased. X. Total eal balances ae unchanged and social gain has inceased. A. Total eal balances ae unchanged and social gain is unchanged. L. Total eal balances ae unchanged and social gain has deceased. E. Total eal balances have deceased and social gain has inceased. H. Total eal balances have deceased and social gain is unchanged. K. Total eal balances have deceased and social gain has deceased. ANSWER:
13 12. In Uppe Slobbovia, the only good is tomatoes, which sell fo 4 each. Each Uppe Slobbovian caies 60 in his pocket at all times. On Januay 1, 2018, the govenment of Uppe Slobbovia announces that beginning immediately, the Uppe Slobbovian money supply will incease at a steady ate that allows it to double each month, and this will continue foeve. Because of this news, Uppe Slobbovians want to educe thei eal balances by one thid. The govenment uses the new money to buy tomatoes fom Uppe Slobbovians, and it gives all the tomatoes away again to Uppe Slobbovians. Answe the following questions using LETTERS (not numbes) accoding to the following scheme: Y Y ) 0 N) 1 R) 2 U) 3 X) 4 A) 5 L) 6 E) 7 H) 8 K) 9 M) 10 ) 11 T ) 12 W ) 13 C) 14 B) 15 ) 16 G) 17 J) 18 P ) 19 S) 20 V ) 21 BB) 22 ) 23 Y ) 24 F ) 25 I) 26 ZZ) 27 HH) Some othe numbe not on this list. RR) 28 LL) 29 T T ) 30 AA) 31 CC) 32 P P ) 33 SS) 34 V V ) 35 MM) 36 a) What is the pice of a tomato at the end of the day on Januay 1 (afte people have adjusted thei eal balances but befoe the new money stats to appea)? b) What is the pice of a tomato at the end of the day on Febuay 1? c) Measued in tomatoes-woth, what is the amount of deadweight loss pe Uppe Slobbovian due to the govenment policy?
14 THIS PAGE IS FOR THE GRAERS. PLEASE O NOT WRITE ON IT. Poblem Numbe Scoe 1 /14 2 /24 3 /18 4 /9 5 /23 6 /15 7 /20 8 /12 9 /16 10 /12 11 /24 12 /15 Total /202
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