S. Klepper, Economics 73-100, Fall 2009

# Exam III

There are a total of three major questions, each weighted according to the points listed to the left of the question.  These are the points apportioned to each question.  They sum to 100

Each of the major questions has a series of subsidiary questions.  Each of these subsidiary questions is a true-false question.  To answer the question, indicate in your exam booklet whether the answer is true or false and provide a brief explanation for your answer.  Correct answers with insufficient explanations will get no points.  When you finish, hand in only your exam booklet.

The exam is open-book and open-notes.  If you have any questions at all, then ask the proctor to help you.  Do not introduce any assumptions (beyond those introduced in class) without consulting the proctor.

[47] 1.  Consider the fifth market experiment concerning perfect competition.  Suppose that in round 2 of the experiment, buyers were told that the experimenter would help them make purchases.  If they paid a price for a unit greater than \$.33, then the experimenter would pay \$.33 and the buyer would be responsible to pay the rest of the price of the unit.  Buyers could buy a unit as long as their share of the purchase price was less than or equal to the redemption value of the unit. All other aspects of the second round of the experiment would have been the same, including buyers and sellers receiving a commission of \$.05 per unit beginning with the fourth unit transacted.

Assume there were 40 sellers and 24 buyers. Which of the following correctly describe round two of the experiment under these circumstances according to the model of perfect competition?  Mark true if a statement correctly predicts an outcome in the second round and false otherwise.

_____1. The demand curve of buyers would have been the same as in round 2 of the version of the experiment conducted in class.

_____2. The price of transactions would have equaled \$.69.

_____3. The total quantity transacted would have been 50% greater than in round 2 of the version of the experiment conducted in class.

_____4. Less sellers would have exited the market between rounds 1 and 2 than in the version of the experiment conducted in class.

_____5. Each seller that remained in the market (i.e., sold output in round 2) would have sold the same number of units of output as in round 2 of the version of the experiment conducted in class.

_____6. Each buyer would have purchased 50% more units of output than in round 2 of the version of the experiment conducted in class

_____7. Ignoring the commission, sellers would have earned the same amount of profit as they earned in round 2 of the version of the experiment conducted in class.

_____8. Including the commission, buyers would have earned \$1.32 more profit than in round 2 of the version of the experiment conducted in class

_____9. The percentage of sellers exiting the market from round one to two would have been 10%.

[34] 2.  Congress has been striving to make new homes more affordable to U.S. consumers.  It is considering a plan in which it will build 1 million new homes every year and sell them at whatever price is established for new homes. Assume that before the plan was instituted, the new home industry was in long-run equilibrium.  Which of the following correctly predict the effects of the plan in the short run and the long run? Mark true for correct statements and false for incorrect ones.

_____10. The market demand for new homes will increase by 1 million at every price.

_____11. In the short run, the market supply of new homes will increase by 1 million at every price.

_____12. In the short run, the number of new homes sold will rise, but by less than 1 million.

_____13. In the short run new home producers will earn negative economic profits.

_____14. In the long run the quantity of new homes purchased will increase by 1 million.

_____15. In the long run the price of new homes will be unchanged.

_____16. In the long run some producers of new homes will exit the market.

[19] 3. The recent recession has hit especially hard individuals that did not have a job when the recession began in 2008.  Included in this group are new graduates from high school and college that entered the job market in the last two years. It is predicted that the effects of the recession on these recent graduates will persist for ten years in total, causing new graduates from 2008 through 2019 to earn significantly less than they otherwise would have were it not for the recession.  Assume that all other individuals that had jobs prior to the recession were not affected by the recession and have continued to earn the same amount they would have if the recession had not occurred.  Assume also that on average new graduates from high school and college are 20 years old and all individuals that had jobs when the recession began were older than 20.  Which of the following are predicable effects of the recession? Mark true for a correct prediction and false for an incorrect one.

_____17. The suicide rate of men of all ages will be greater in the period 2008-2019 than it would have been without the recession.

_____18. The fertility rate in the decade 2028-2037 will be higher than it would have been without the recession.

_____19. The participation rate of women aged 18 to 25 in the decade 2008-2019 will be higher than it would have been without the recession.

_____20. The suicide rate of men over 55 will be greater in the decade 2028-2037 than it would have been without the recession.