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Econ 2010-002 Final Exam Summer 2014




Question;Econ;2010-002;Summer;2014;31st July;2014;Final Exam (40;Points);?;Section;I: Multiple choice questions (Difficulty Easy) (15 x 1 point = 15 points);(Refer to Diagram Sheet);1) Refer;to Figure I.Which graph represents a market with no externality?;a.;Panel (a);b.;Panel (b);c.;Panel (c);d.;None of the above is correct.;2) Refer;to Figure I.Which graph represents a market with a positive;externality?;a.;Panel (a);b.;Panel (b);c.;Panel (c);d.;Both (b) and (c) are correct.;3) Refer;to Figure I.Which graph represents a market with a negative;externality?;a.;Panel (a);b.;Panel (b);c.;Panel (c);d.;Both (b) and (c) are correct.;4);Refer to Figure I, Panel (b).The;market equilibrium quantity is;a.;Q2, which is the socially optimal;quantity.;b.;Q3, which is the socially optimal;quantity.;c.;Q2, and the socially optimal quantity is;Q3.;d.;Q3, and the socially optimal quantity is;Q2.;5) Refer;to Figure I, Panel (b).The market equilibrium price is;a.;P2.;b.;P3a.;c.;P3b.;d.;P3a - P3b.;6);Refer to Figure I.The;overuse of antibiotics leads to the development of antibiotic-resistantdiseases.;Therefore, the market for antibiotics is shown in;a.;Panel (a).;b.;Panel (b).;c.;Panel (c).;d.;Both (b) and (c) are correct.;7) Refer;to Figure I, Panel (b) and Panel (c).The;overuse of antibiotics leads to thedevelopment of antibiotic-resistant;diseases. Therefore, the socially optimal quantity of antibiotics is;represented by point;a.;Q2.;b.;Q3.;c.;Q4.;d.;Q5.;8) Refer;to Figure I, Panel (b) and Panel (c).The;overuse of antibiotics leads to the developmentof antibiotic-resistant;diseases. Therefore, the external cost of antibiotic overuse is represented by;a.;Q3 - Q2.;b.;Q5 - Q4.;c.;P3a - P3b.;d.;P4a - P4b.;9) Refer;to Figure I, Panel (b) and Panel (c).The;overuse of antibiotics leads to thedevelopment of antibiotic-resistant;diseases. Therefore, a government policy that internalized the externality;would move the quantity of antibiotics used from point;a.;Q2 to point Q3.;b.;Q3 to point Q2.;c.;Q4 to point Q5.;d.;Q5 to point Q4.;10);A good is excludable if;a.;one person's use of the good diminishes;another person's enjoyment of it.;b.;the government can regulate its;availability.;c.;it is not a normal good.;d.;people can be prevented from using it.;11) Which;of the following would be considered a private good?;a.;national defense;b.;a public beach;c.;local cable television service;d.;a bottle of natural mineral water;12) In;a certain city, the government is considering acquiring some land and turning;it into a park (without any fences or gates). In an attempt to determine the;extent to which residents of the city would value the park, residents are asked;to fill out a questionnaire. Which of the following is correct?;a. On;the questionnaire, some residents are likely to exaggerate the value they;associate with the park.;b. On;the questionnaire, some residents are likely to exaggerate the costs they;associate with the park.;c. The;use of such a questionnaire in cost-benefit analysis is likely to produce only;rough approximations of residents? perceptions of the costs and benefits of a;park.;d.;All of the above are correct.;13) The;Tragedy of the Commons occurs because;a.;a common resource is rival in;consumption.;b.;a common resource is underutilized.;c.;crimes are committed in public places.;d.;common resources are subject to;exclusionary rules.;14) An;economics professor, upset about the rising cost of textbooks, proposed that;his department purchase 50 copies of a statistics book so the students in the;statistics class would not have to purchase their own books but rather could;borrow a book for the semester and then return it for the next class to use.;Which of the following strategies would not prevent a common resource;problem with the textbooks?;a. Students;will be required to pay a deposit for the textbook, which is refundable at the;end of the semester when the book is returned in good condition.;b. The;textbooks are placed in a common area of the department so students can borrow;and return them as needed.;c. Students;must sign a form agreeing to return the book or pay a fine equal to the;replacement cost of the book.;d. The;textbooks are placed in the professor?s office and will only be given to;students who are registered members of the class. These students will not;receive their final course grades until the books are returned.;15);Which of the following;is not a way for the government to solve the problem of excessive use of;common resources?;a.;regulation;b.;taxes;c.;turning the common resource into a;public good;d.;turning the common resource into a;private good;Section;II:Complete all the blank entries in the;given table. Then use the data to graph (toscale) the Fixed, Variable;Average Fixed, and Average Variable cost curves on one graph and graph (to;scale) the Marginal, Total and Average Total cost curves on another graph. Do;the shapes of all the curves conform to conventional economic knowledge? (5;points);?;(Difficulty Easy);Betty?s;Bakery;Quantity;Fixed;Variable;Total;Average;Average;Average;Marginal;of;Cost;Cost;Cost;Fixed;Variable;Total;Cost;cakes;Cost;Cost;Cost;1;$13;$38;2;$28;3;$70;4;$64;5;$110;6;$108;7;$133;8;$185;Section;III: Short and Long answers;Question A)Distinguish;between Perfect Competition, Monopoly on the basis of thefollowing;Number of Sellers, Ease of entry and exit, Nature of the product, existence of;deadweight loss, determination of Prices, Shape of the demand curve faced by;the firm and the extent of Government intervention. In addition give an example;for each of the following markets in the USA, also comment on which definition;of markets seems the;?;most;realistic. (4 points) (Difficulty;Easy);Question B);Tom (Swerves);Tom (Drives;Straight);Bryan;(Swerves);0,0;-1,+1;Bryan;(Drives Straight);+1,-1;-10,-10;Consider;two drivers, Bryan and Tom, both are headed for a single lane bridge from;opposite directions, each player has to options, first to Swerve and yield the;bridge to the other player, second to continue to Drive Straight.;The;following table shows the possible outcomes for each decision combination. The;numbers in each cell represent the players outcomes (+1= best outcome, -10 =;worst outcome);What is the;equilibrium for this game? Is there a dominant Strategy for this game? Is the;equilibrium a Nash Equilibrium? Define Pareto Optimality, is the equilibrium;Pareto Optimal?;?;(4;Points) (Difficulty Moderate);Question C)Consider;the following scenario (Hypothetical);Four;roommates, Keats, Shelly, Byron and Coleridge each have independent, individual;internet connections, Keats? monthly internet usage is never more than 4 GB;Shelly?s monthly internet usage is never more than 3 GB, Byron?s monthly;internet usage is 5 GB and Coleridge?s monthly internet usage is never more;than 4GB.;All;four of them decide to switch to a common internet connection for the apartment;and share the cost of the internet equally. The common internet connection;costs a total of $20 a month and allows for 20GB of usage (downloads and;uploads), after the 20 GB of usage is exhausted, every additional GB used costs;$3.;Six;months into using the common internet connection, the roommates realize that;they are on a monthly basis using more than 20GB and paying more than they had;initially intended.;Based;on what we?ve studied in class, why do you think the roommates are overshooting;the 20GB limit? Propose atleast 3 solutions to the problem (either internal or;external)?;?;(Difficulty Moderate) (4 points) (Hint: Start by;classifying the common internet;connection;into one of the four categories of goods we?ve studied in class. Be as detailed;and explicit with your explanation of the source of the problem and the;solutions to the problem);Question;D)One example of price discrimination;occurs in the publishing industry when apublisher initially releases an;expensive hardcover edition of a popular novel and later releases a cheaper;paperback edition. Use this example to demonstrate the benefits and potential;pitfalls of;?;a;price discrimination pricing strategy. (4 points) (Difficulty Difficult);(Hint: Assume different points of view of benefit, the Monopolist, the;consumer and the economist) [Do draw relevant diagrams wherever necessary];Question;E)Draw a graph to demonstrate the;circumstances that would prevail in a perfectlycompetitive market where;firms are experiencing Supernormal economic profits. Identify costs, revenue;and the economic profits on your graph. Would the firm continue to make;supernormal;?;economic;profits in the long run? Explain with a Diagram. (4 points) (Difficulty Easy);(Hint;Draw short run and long run diagrams for both the Individual firm as well as;that for the market equilibrium. Show appropriate shifts in market equilibrium)


Paper#56523 | Written in 18-Jul-2015

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