S.
Klepper, Economics 73-100, Fall 2008
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.
[40] 1. Consider the first experiment conducted in class. Suppose a third round of the experiment was
conducted in which buyers and sellers had to pay the experimenter a tax of $.20
if they made a trade. Furthermore, they
could not make a trade unless their profits after paying the tax (excluding the
commission) were greater than or equal to zero.
If they did make a trade, they would receive a commission of $.05, as in
rounds 1 and 2. Assume the total number
of buyers and sellers was a multiple of 20 in all three rounds of the
experiment.
Which of the following statements correctly describe
the outcome of the third round of the experiment according to the model of
supply and demand?
_____1. At prices between
$2.10 and $3.60, the total quantity demanded by the class would be less in the
third round than in the first two rounds.
_____2. At prices between
$1.40 and $2.90, the total quantity supplied by the class would be less in the
third round than in the first two rounds.
_____3. The price would be less
in the third round of the experiment than in the first two rounds
_____4. The quantity
transacted would be less in the third round of the experiment than in the first
two rounds.
_____5. Buyers and sellers that traded a unit in round 3 would earn $.20 less in profits (after paying the tax) in the third round than in the first two rounds.
_____6. Thirty percent of
the buyers and thirty percent of the sellers would not trade in the third round.
_____7. All buyers and
sellers would earn $.20 less in profit in the third round than in the first two
rounds.
[22]
2. Consider a consumer that consumes two categories of goods, food and
shelter. Suppose the price of shelter is
the same as the price of food and the consumer spends half of his/her income on
food and half on shelter. Assuming that
units of food and shelter are infinitesimally small, which of the following
correctly describe this situation? Mark
true for a correct description and false otherwise.
_____8.
The total utility the consumer gets from all the units of shelter consumed must
equal the total utility the consumer gets from all the units of food consumed.
_____9.
The consumer must be willing to pay the same for the marginal unit of shelter
as the marginal unit of food.
_____10.
The consumer must get the same utility from the marginal unit of food consumed
as the marginal unit of shelter consumed.
_____11.
If offered an additional unit of either good for free, the consumer would be
indifferent between another unit of food and another unit of shelter.
_____12.
If the consumer’s income doubled, the consumer would continue to spend half of
his or her income on food and half on shelter.
[38] 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.
_____13. In round three,
traders that began with 12X and 48Y would have the same budget line as traders
that began with 48X and 12Y.
_____14. For traders that
began with 12X and 48Y, their budget line in the third round crossed their
budget line in the first two rounds.
_____15. For traders that
began with 48X and 12Y, their budget line in the third round crossed their
budget line in the first two rounds.
_____16. For traders that
began with 48X and 12Y, the combination of X and Y that maximized their profits
in the first two rounds was inside their budget line in the third round.
_____17. Traders that began with 48X and 12Y attained a lower level in the third round than in the first two rounds.
_____18. In the third round, traders that began with 12X and 48Y traded units of good Y for good X.
_____19. Traders that began with 12X and 48Y attained a higher level in the third round than in the first two rounds.
_____20. In the third round, traders that began with 48X and 12Y would want 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.