S.
Klepper, Economics 73-100, Fall 2009
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.
[52] 1. Consider the first experiment conducted in class. Suppose a third round of the experiment was
conducted in which buyers and sellers were each given two units to buy and sell
respectively. Buyers and sellers could
buy and sell their two units separately and in any order they wanted. As in the
first two rounds, sellers could not sell a unit for less than its cost and
buyers could not buy a unit for more than its redemption value, and each would
receive a commission of $.05 on each unit transacted. Assume there were 80 traders in total.
The
range of redemption values for the second unit of the buyers was the same as for
the first unit. For each buyer, the
redemption values for the two units balanced out as follows. If a buyer had the
lowest possible redemption value for the first unit ($2.10) then it would have
the highest possible redemption value for the second unit ($3.60), if it had
the second lowest possible redemption value for the first unit ($2.30) then it
would have the second highest possible redemption value for the second unit
($3.50), and so forth.
The
range of costs for the second unit of the sellers was $.80 higher than for the
first unit—the lowest cost was $2.20 ($1.40 + $.80), followed by $2.30, $2.40,
$2.50, $2.70, $2.90, $3.10, $3.30, $3.50, and $3.70. The costs of the two units
for sellers balanced out, comparable to the buyers. If a seller had the lowest possible
cost for the first unit ($1.40) then it would have the highest possible cost
for the second unit ($3.70), if it had the second lowest possible cost for the
first unit ($1.50) then it would have the second highest possible cost for the
second unit ($3.50), and so forth.
Which
of the following statements correctly describe the outcome of the third round
of the experiment according to the model of supply and demand? Mark true for correct statements and false
for incorrect ones and explain your answers.
_____1. No buyer in the
third round would have been willing to purchase a unit at a price above $3.60.
_____2. Every seller in the
third round would have been willing to sell two units of output at a price of
$2.90 or higher.
_____3. Twice as many units
would have been traded in the third round as the first two rounds.
_____4. The price in the
third round would have been $2.70.
_____5. Every seller would have sold at least one unit in the third round.
_____6. Half of the buyers
would have bought two units in the third round.
_____7. Forty percent of the
sellers would have sold two units in the third round.
_____8. Excluding the
commission, in the third round each buyer would have earned the same total
profits.
_____9. Excluding the
commission, in the third round each seller would have earned the same total
profits.
_____10. The total profits
earned by all buyers together would have been twice as great in the third round
as in the first two rounds.
[26] 2. Consider a consumer that
purchases two goods, food and clothing. Suppose
that the consumer always purchases a positive amount of both goods. Suppose that in the last ten years the prices
of both food and clothing increased, with the percentage increase in the price
of food greater than the percentage increase in the price of clothing. Furthermore, suppose that over the same ten
year period the consumer’s income increased sufficiently that today the
consumer is just able to purchase the same combination of food and clothing it
purchased ten years ago. Assume that the consumer’s tastes did not change over the
ten year period, so that the consumer gets the same utility from any particular
consumption bundle today that it got ten years ago.
Which
of the following correctly describe the situation of the consumer? Mark true for correct statements and false
for incorrect ones and explain your answers.
_____11. The budget line of the consumer today must pass through the combination of food and clothing the consumer purchased ten years ago.
_____12. The maximum amount of food the consumer can purchase today is less than the maximum amount of food the consumer could purchase ten years ago.
_____13. The consumer sustained an (unequivocal) rise in real income over the last ten years.
_____14. The consumer was better off ten years ago than today.
_____15. The consumer purchases the same combination of food and clothing today as ten years ago.
[22]
3.Suppose that in the future the
federal government makes tuition payments for college tax deductible, which
would effectively lower the cost of college tuition. Which of the following correctly predict the
effects of making tuition payments tax deductible according to the analysis of
college enrollments discussed in class?
Mark true for correct predictions and false for incorrect ones and explain
your answers.
_____16. The percentage of high school
graduates that enroll in college will rise.
_____17. The degree of income inequality
in the
_____18. The average earnings of college
graduates will rise.
_____19. The difference in the average
earnings of college and high school graduates will rise.
_____20. The willingness to pay for the
marginal unit of a college education will decrease.