S.
Klepper, Economics 73-100, Fall 2010
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.
[55] 1. Consider the first experiment conducted in class. Suppose a third round of the experiment had
been conducted in which all traders were given another unit to buy or sell at
the same cost and redemption value as in rounds 1 and 2. In the third round, sellers with a cost of
$2.50 or less and buyers with a redemption value of $2.50 or more had to pay a
tax of $.20 if they sold or bought a unit respectively. Their total profit after paying the tax
(excluding the commission) had to be greater than or equal to zero in order to
make a transaction. If they made a
transaction, they got a commission of $.05.
In the third round sellers with a cost above $2.50 and buyers with a
redemption value below $2.50 were given a payment of $.40 to help them make a
transaction. They could make a
transaction as long as the total profit they earned, including the $.40 payment
(but excluding the commission), was greater than or equal to zero. If they made
a transaction, they also got a commission of $.05 per unit. Assume there were 80 traders in total on all
three rounds of the experiment.
Which
of the following statements correctly describe the outcome of the experiment according
to the model of supply and demand (i.e., what would the model of supply and
demand predict about the experiment)?
Mark true for correct statements and false for incorrect ones and
explain your answers.
_____1. In the third round, all
suppliers would have been willing to sell their unit at a price of $2.70 or
greater.
_____2. The quantity
demanded at a price of $2.70 would have been the same in the third round as in
rounds 1 and 2.
_____3. In the third round,
all buyers would have purchased a unit only if the price had been $2.10 or
lower.
_____4. At every price, the
quantity supplied in the third round would have been less than or equal to the
quantity supplied in the first two rounds.
_____5. The price in the
third round would have been $2.50.
_____6. All the traders that made a transaction in rounds 1 and 2 would have made a transaction in round 3.
_____7. All the traders receiving a payment of $.40 would have made a transaction in the third round.
_____8. In the third round,
90% of the traders would have made a transaction.
_____9. In the third round,
the total profits (excluding the commission) earned by traders that were taxed
$.20 would have been less than or equal to the total profits they earned in
rounds 1 and 2.
_____10. All the traders
that received a payment of $.40 would have earned a greater profit (excluding
the commission) in the third round than in rounds 1 and 2.
[19] 2. Suppose that a country
has one productive resource, labor, that it uses to produce two goods, food and
oil. As of 1990, the amount of labor needed to produce each unit of food was
the same whereas the amount of labor needed to produce each unit of oil
increased as more units of oil were produced.
Over time the country depleted its stock of oil but discovered new oil
that was more difficult to extract.
Suppose that as of 2010 the amount of labor needed to produce each unit
of oil is twice as great as in 1990 but the amount of labor needed to produce
each unit of food is the same as 1990. Assume
the country has the same total amount of labor in 1990 and 2010.
Which
of the following correctly describe the situation of the country? Mark true for correct statements and false
for incorrect ones and explain your answers.
_____11. The maximum amount of food the country can produce is lower in 2010 than 1990.
_____12. The maximum amount of oil the country can produce in 2010 is half as great as the maximum amount of oil the country could produce in 1990.
_____13. The opportunity cost of each unit of food is the same in 2010 as 1990.
_____14. The opportunity cost of each unit of oil that can be produced is twice as great in 2010 as 1990.
_____15. The production possibilities curve of the country in 2010 is concave shaped.
[26]
3.The U.S. currently is importing a
great deal of oil, which is very costly.
Congress is considering a plan in which it would tax gasoline, which is
the most important product made from oil.
To cushion the effects of the tax, consumers would not pay any tax on
the first 300 gallons of gasoline consumed, but on all subsequent gallons of
gas they would pay a tax of $1.00 per gallon.
Assume that currently all consumers purchase more than 300 gallons of
gasoline. For simplicity, assume that
consumers consume just two goods, food and gasoline.
Which
of the following correctly describe the situation of consumers? Mark true for correct statements and false
for incorrect ones and explain your answers.
_____16. The budget line of consumers
after the tax will have a kink in it.
_____17.
After the tax, all consumers will still be able to afford the original amount
of gasoline they consumed before the tax.
_____18.
All consumers will consume more units of food after than before the tax.
_____19. All consumers will be worse off
as a result of the tax.
_____20. No consumer will purchase more
than 300 gallons of gasoline after the tax.