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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. 1 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? 2