Download Econ 300.01 - Shana M. McDermott, PhD

Econ 300.01
Midterm 1: Essay Questions
Chapters 1-3 and Selections from Chapter 9
45 points
Instructions: On the day of the exam we will randomly draw 3 of the 6 possible questions below.
Your answers should be thorough, concise, and provide explanation into your thought process.
Each question is worth 15 points for a total of 45 points.
1. The elasticity of demand for fresh milk in the U.S. has recently been estimated at about
0.60. It is also reported that the existing price ‡oors have been estimated to raise the price of
milk by about 30%. Answer both questions below with a paragraph (4 sentences describing the
de…nition(s) of the topics involved and interpretations of the results) and graphical analysis.
a. What e¤ect would the elimination of the price ‡oors have on quantity demanded and by
how much does it change?
b. Brie‡y explain what e¤ect the elimination of price ‡oors have on the total revenue of milk
sellers?
2. The demand for tickets to the Daytona NASCAR event is given by the equation QD =
350; 000 800P . The supply of tickets to the event is given by the capacity of the Daytona tracks,
which is 150,000. Be sure to provide a description (i.e. de…nitions, interpretations) of your answer
for each part below (2-3 sentences).
a. What is the equilibrium price and quantity of tickets?
b. What is the price elasticity of demand at the equilibrium price?
c. What is the price elasticity of supply at the equilibrium price?
3. Lion…sh, an aquatic invasive species, is now well established along the southeastern U.S. and
Caribbean. Lion…sh have many environmental/economic impacts, including permanently impacting
native reef …sh communities, displacing native species such as snapper and grouper, and may hamper
stock rebuilding e¤orts and coral reef conservation measures. Current conservation e¤orts include
harvesting Lion…sh for eating (see Lion…sh cookbook: http://www.reef.org/catalog/cookbook). This
cookbook is obviously meant to be temporary, or will exist as long as the Lion…sh population exists. Assume demand for the cookbook is given by QD = 10 + 0:3L 2P , where 0:3 represents
the catchability co-e¢ cient, L is the Lion…sh population, and P is the price of the cookbook. The
supply of the cookbook is given by QS = 100 + P . Assume each cookbook sold equals 1 harvested
Lion…sh.
a. Assume the Lion…sh population, L, is 1,000. What is the equilibrium price and quantity of
the cookbook?
b. Now assume the Lion…sh population, L, is 10,000. What is the equilibrium price and
quantity of the cookbook.
c. Given your answers in a.) and b.), do you think this cookbook is a good eradication
(removal) policy? Explain your answer with at least 3 sentences.
d. Assume Lion…sh is a substitute for snapper. If the price of snapper increases, what would
happen to …shing e¤orts for Lion…sh? Provide a paragraph (4 sentences) explanation
along with a graph.
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4. The e¤ect of the September 11 attacks on the World Trade Center on the market for o¢ ce
space in downtown Manhattan was that both equilibrium price and quantity fell. What is the most
likely explanation for this? Keep in mind that people had quality of life concerns in downtown
Manhattan and there was an economic downturn after the attack. In addition, there was a loss of
o¢ ce space due to the attacks. Explain with at least 1 paragraph (4 sentences) and a graph.
5. To protect the cod …shery o¤ the northeast coast of the U.S., the federal government may
limit the …sh that each boat can catch in the …shery. A catch limit would act like a reduction in
the number of boats in the …shery.
a. How would limiting catch (per boat) impact the demand and supply curves? Answer with
a graph and 2 sentences.
b. Explain how this policy will help preserve the cod population with at least 1 paragraph
(4 sentences), making sure to reference the graph/answer in part a.).
6. Suppose the market for grass seed can be expressed as:
QD
QS
=
=
200 5P
40 + 5P
If the government collects a $5 speci…c tax from sellers,
a. How much will the quantity demanded change from the amount demanded before the tax?
b. What price will the consumers pay after the tax?
c. What price will sellers receive after the tax?
d. What is the tax revenue?
e. Who bears the burden of the tax?
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