S.
Klepper, Economics 73-100, Fall 2011
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.
[42] 1. Consider the first experiment conducted in class. Suppose a third round of the experiment was
conducted. In order to compensate
traders that were unable to make a transaction in the first two rounds, all
traders were offered a payment of $.40 if they did not make a transaction in
the third round. Otherwise, all the
rules of the experiment were the same, including the receipt of a $.05
commission for trading a unit. Assume there
were exactly 60 traders in all three rounds of the experiment.
Which of the following statements correctly describe
the third round of the experiment according to the model of supply and
demand?
_____1. No buyer would have
purchased a unit at prices above $3.20.
_____2. All sellers with
costs greater than or equal to $2.10 would not have sold their unit.
_____3. The price would have
been the same as in rounds 1 and 2.
_____4. The quantity
transacted would have been less than in rounds 1 and 2.
_____5. Some traders would have earned $.40 more in profit than they earned in rounds 1 and 2.
_____6. Every trader would
have earned greater profits than in rounds 1 and 2.
_____7. Forty percent of the
traders would have accepted the payment of $.40 and not made a transaction.
_____8. All sellers that
sold their unit in round 3 would have earned the same profit as in rounds 1 and
2.
[29] 2. Consider a consumer that
purchases two goods, food and clothing.
Originally the consumer spent half his income on each good. Subsequent events caused the price of
clothing to increase by 50% and the consumer’s income to increase by 25%, with
the price of food remaining the same.
Assume that the consumer’s tastes did not change over time, so that the
consumer got the same utility from any particular consumption bundle both
before and after the price and income changes.
Which
of the following correctly describe the situation of the consumer after the
increase in income and the price of clothing?
_____9. The maximum amount of food the consumer could purchase was greater after the increase in income and the price of clothing.
_____10. The consumer had just enough income to purchase the same combination of food and clothing that he/she previously purchased.
_____11. The consumer sustained an (unequivocal) rise in real income as a result of the increase in income and the price of clothing.
_____12. The consumer purchased more units of both food and clothing after the increase in income and the price of clothing.
_____13. The consumer was better off after the increase in income and the price of clothing.
_____14. The ratio of the marginal utility of food to the marginal utility of clothing after the increase in income and the price of clothing (i.e., at the quantities of food and clothing purchased after the increase in income and the price of clothing) was the same as the ratio of the marginal utilities before the increase in income and the price of clothing.
[29] 3. Consider the second experiment.
Suppose a third round of the experiment was played in which the
government intervened in the trading process.
It stipulated that traders had to make all exchanges with the government
at the fixed rate of two units of good Y for each unit of good X. The government would use its stock of goods X
and Y to satisfy all comers—i.e., the government would be prepared to make any
trades that were proposed by traders.
Suppose that all other aspects of the experiment were the same—the level
schedule was the same, the initial allocations of good X and Y were the same,
and the reward structure was the same, including the commission.
Assume that in the first two rounds, one unit of X
traded for one unit of Y, as predicted by the model of consumer choice. Which
of the following statements correctly describe the outcome of the experiment in
the third round under these circumstances according to the model of consumer
choice? Mark true for a correct statement and false for an incorrect one.
_____15. In round three,
traders that began with 12X and 48Y would have the same budget line as traders
that began with 48X and 12Y.
_____16. The budget lines of
both traders in the third round would have crossed their budget lines in the
first two rounds.
_____17. For traders that
began with 12X and 48Y, the combination of X and Y that maximized their profits
in the first two rounds was inside their budget line in the third round.
_____18. Traders that began with 48X and 12Y would have been able to trade to get to level 6 but not to a higher level.
_____19. Traders that began with 48X and 12Y would have been able to purchase the bundle they chose in the first two rounds.
_____20. In the third round, traders that began with 48X and 12Y would have wanted to trade units of good X for good Y until their willingness to pay for the marginal unit of good X equaled one unit of good Y.