## Wednesday, April 15, 2015

### 2012 Microeconomics Exam FRQ #3

2012 Microeconomics Exam FRQ #3

(a) at the world price of \$2 per pound, how much sugar is imported?

Ok, at \$2 price 14m pounds is demanded (look at the demand curve),,, and at \$2 then 2m pounds is supplied (look at supply curve).

Answer - One point is earned for stating that Loriland is importing 12 million pounds.

(b) Suppose that Lorillard imposes a per unit tariff on sugar imports and the new domestic price including the tariff is \$4.

(i) Identify the new level of domestic production.

Answer - One point is earned for identifying the new level of domestic production as 6 million pounds.

Answer - One point is earned for calculating the domestic consumer surplus as \$25 million and showing the work: 1⁄2 [(\$9 - \$4) × 10] = \$25

(iii) Calculate the total tariff revenue collected by the government. Show your work.

Answer - One point is earned for calculating the revenue from the tariff as \$8 million and showing the work: (\$4 - \$2) (10 - 6) = \$8.

(c) Given the world price of \$2, what per-unit tariff maximises the sum of domestic consumer surplus and producer surplus?

Consumer surplus is maxed with no tariffs,,, and producer surplus is maxed when all the international producers are able to sell in the country (without a tariff).

Answer - One point is earned for identifying the per-unit tariff that maximizes the sum of consumer and
producer surplus as \$0. Ha..

### 2012 Microeconomics Exam FRQ # 2

2012 Microeconomics Exam FRQ # 2

(a) The table above shows Theresa's marginal utility from bagels and toy cars.
(i) What is here total utility from purchasing three toy cars?

So simple it's easy to get wrong... overthinking again?

3 toy cars (10+8+6) = 24 utils

Answer - One point is earned for determining the total utility, which is 24.

(ii) Theresa's weekly income is \$11, the price of a bagel is \$2 dollars, and the price of a toy car is \$1.
What quantity of bagels and toy cars will maximise Theresa's utility if she spends her entire weekly income on bagels and toy cars?
Explain using marginal analysis. Then make a chart------

If you get to a place where both purchases have the same utility then you will be indifferent,, either one will do as long as you have cash to spend.
or
Using Marginal Analysis
MU/PB = 6/2 = 3 and MU/PTC = 3/1 = 3
the marginal utility per dollar spent on bagels equals the marginal utility per dollar spent on toy cars.

Answer - One point is earned for stating that three bagels and five toy cars will be purchased.

Answer - One point is earned for explaining that with this combination of bagels and toys, the marginal utility per dollar spent on bagels equals the marginal utility per dollar spent on toy cars.
Using Marginal Analysis
MU/P= 6/2 = 3 and MU/PTC = 3/1 = 3

(b) Assume that the price of wheat, an input for the price of bagels, increases. Will Theresa's demand for bagels increase, decrease, or remain unchanged. Explain.

Remember, that input prices affect suppliers of a good,, not demanders.. So, Theresa will not change her demand for bagels if the price of wheat increases.

Answer - One point is earned for stating that Theresa’s demand for bagels will not change because the increase in the price of wheat will affect the supply of bagels, not the demand.

(c) Suppose that Theresa's income elasticity for bagels is -0.2. Does the value of Theresa's income elasticity indicate that bagels are a normal good, inferior good, substitute, or compliments?

Answer - One point is earned for stating that bagels are inferior goods.

(d) Suppose the price of toy cars increase by 10%. Theresa buys 5% fewer toy cars and 4% less of a different toy, blocks. Calculate the cross-price elasticity for toy cars and blocks, and indicate if it is positive or negative. You gotta be *&(6%^# kidding me.

% change in   Qd = -.04   (4% less)
% change in Price = .10

Answer - One point is earned for calculating the cross-price elasticity for toy cars and blocks:
-0.04/0.10 = -0.4