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Economics 1 - Fall 2003 - Train - Final Answers

Economics 1 - Fall 2003 - Train - Final Answers
Economics 1 - Fall 2003 - Train - Final Answers

Department of Economics Professor Kenneth Train University of California, Berkeley Spring 2003

ECONOMICS 1

FINAL EXAMINATION

May 16, 5-8pm

INSTRUCTIONS

1. Please fill in the information below:

Your Name: SUGGESTED ANSWERS

Your SID#: DO NOT DISTRIBUTE TO STUDENTS!

GSI’s Name:

Section Days/Time:

2. There are a total of 180 points, 8 questions, and 11 pages (including this cover sheet). The suggested times to spend on

each question are in parentheses.

3. Answer the questions in the space provided. (NO BLUE BOOKS.) If you need extra room to answer questions, use the

backs of the pages.

4. Calculators are not permitted.

5. You may leave early if you finish prior to 7:45. So that the end of the exam is orderly, please do not leave between 7:45

and 8pm.

6. When time is called, stop writing immediately and pass your exam to your right.

HAVE A GOOD SUMMER! J

>>> D O NOT TURN THE PAGE UNTIL YOU ARE TOLD TO BEGIN THE EXAM. <<<

QUUESTION 1: 40 Total Points (40 Minutes)

True, False, or Uncertain For each of the following decide whether the statement is true, false, or uncertain and explain why. Your explanation determines the grade; you will be given no credit for an answer without an explanation. Use diagrams where they are appropriate to complement your answer.

a) [8 points] A competitive market maximizes social welfare because in a competitive market profits are zero.

False. A competitive market maximizes social welfare because price is equal to MC in equilibrium.

b) [8 points] The socially optimal level of pollution is zero.

False. The socially optimal level of pollution is determined by the intersection of demand curve and marginal social cost curve in a market with a negative externality (e.g., pollution). As long as the socially optimal level of output is positive, the socially optimal level of pollution will be positive.

c) [8 points] An additional dollar of tax reduction has the same effect on the economy as an additional dollar of government

expenditure.

False. An additional dollar of tax reduction increases aggregate expenditure (AE) through increasing consumption by MPC*$1, not by the whole dollar, whereas an

additional dollar of government expenditure increases AE by the whole dollar. Therefore, the effect of $1 increase in G is greater than that of $1 reduction in T.

QUESTION 1 (Continued)

d) [8 points] When OPEC triples the price of oil used by American producers, it causes aggregate output and prices to rise. False. If OPEC raises the price of oil used by American producers, then this is a supply shock. The AS curve shifts to the left and in the new equilibrium aggregate output is lower and prices are higher than before.

e) [8 points] The aggregate demand curve for the economy is derived by aggregating market demand curves across all

markets.

False. The aggregate demand curve for the economy is not the aggregate of all individual market demand curves. It shows the relationship between prices and aggregate output.

QUESTION 2: 20 Total Points (20 Minutes)

Consider an island economy with only two persons, Alex and Ben, and only two goods, fish and coconuts. Alex could catch 6 fish per hour or collect 12 coconuts per hour, and Ben could catch 4 fish per hour or collect 2 coconuts per hour. These rates are the same no matter how much time they spend in each activity. Each person works 10 hours each day.

a) [3 points] What is the opportunity cost of fish for Alex?

2 coconuts

b) [7 points] Draw the production possibility frontier for this island economy. Be sure to label the axes, and show the units

on the axes.

c) [10 points] Now suppose that a third person, Maria, enters the island economy. She could catch 5 fish per hour or 5

coconuts per hour. She also works 10 hours each day. Draw the new PPF for this three-person economy

Fish Coconuts 100 140 40 120 Fish

150 170 190 Coconuts 120 90 40

10

10 20 MC AC D $

20

Q MR 2 4 6 8

12 14 18 16 12

8 6 4

2

14 16 18

QUESTION 3: 25 Total Points (25 Minutes)

Berkeley Waste Management (BWM) has a monopoly on the garbage pickup market in Berkeley. BWM’s costs are shown below.

a) [6 points] Given the costs of BWM and the demand curve as in the graph above, explain the most likely reason that BWM has a monopoly.

This is a natural monopoly,

caused by increasing returns to scale.

b) [5 points] What are the profit maximizing level of output and price? Calculate profits and deadweight loss. Show your

work.

Profit max: MR = MC è Q = 8, P = 12, Profit = (12-10)8 = 16,

DWL = (14-8)(12-4)0.5 = 24

c) [6 points] The government decides to regulate BWM by inquiring them to produce at the socially optimal level of output.

What are the firm’s output, price, and profits and inefficiency (i.e., deadweight loss) under this regulation? Show your work.

Social optimum: MC = D è Q = 14, P = 6, Profit = (6-7)14 = -14, DWL = 0

d) [8 points] Suppose instead of forcing BWM to produce at the socially optimal level, the government decided to regulate

the monopoly by placing a business tax of $200 on the land owned by BWM. When entry/exit is not allowed, will trash pickup consumers prefer this policy over the policy proposed in part c)? Use consumer surplus and efficiency (deadweight loss) as criteria for making your judgment.

This is a fixed cost. This will have no effect on the quantity that BWM will

produce or the price that the monopoly charges because it doesn’t affect MC, MR or the demand curve. In this case, consumer surplus =(20-12)*8*0.5=32 and DWL = 24, whereas in part c), consumer surplus = (20-6)*14*0.5=126 and DWL = 0. Therefore, consumers will prefer the policy proposed in part c).

QUESTION 4: 15 Total Points (15 Minutes)

Consider an oligopoly consisting of two firms. The table below depicts each firm’s profits, depending on what price both firms charge. Firm B chooses: Firm A chooses:

a) [5 points] Find (if any) each firm’s dominant strategy.

Firm A does not have a dominant strategy. Firm B’s dominant strategy is HIGH.

b) [5 points] Which strategy does each firm choose in equilibrium when no collusion is allowed?

Firm A chooses Low and Firm B chooses HIGH.

c) [5 points] Suppose that collusion is allowed between the two firms. Could these firms benefit from collusion? Why or

why not?

When collusion is allowed, the firms will maximize combined profits. That is, in equilibrium both firms will choose HIGH. This outcome is the same as the one without collusion. Thus, they do not benefit from collusion in this case.

QUESTION 5: 15 Total Points (15 Minutes)

The demand and supply schedule for coffee are:

Price ($ per cup) Qd Qs 1.50 90 30 1.75 70 40 2.00 50 50 2.25 30 60 2.75

10

70

a) [3 points] If there is no tax on coffee, what is the price and how much coffee is consumed?

P = 2 and Q = 50

b) [6 points] If a tax of 75 cents a cup is imposed, what is the price and how much coffee is consumed?

P = 2.25 and Q = 30

c) [6 points] How much of the tax is paid by consumers? How much of the tax is paid by sellers? Low High Low Firm A earns $18 Mill. Firm B earns $18 Mill. Firm A earns $20 Mill. Firm B earns $23 Mill. High Firm A earns $23 Mill. Firm B earns $4 Mill. Firm A earns $16 Mill. Firm B earns $16 Mill.

Consumers pay 25 cents and sellers pay 50 cents.

QUESTION 6: 30 Total Points (30 Minutes)

The Korean economy, a small and open economy, is in quite a slump these days. Its president, Moo Hyun Roh, has decided to use either monetary or fiscal policy to revive economic activity. Suppose the following model provides a good description of this economy:

C = 0.9 (Y – T)

T = 100

I = 100

G = 100

EX = 20

IM = 20 + 0.1Y

where C is consumption, Y is aggregate output, T is tax, G is government expenditure, I is planned investment, EX is exports, and IM is imports. Suppose that prices, interest rates and exchange rates are fixed. (Since these variables are fixed, you can ignore the “feedback effects” to answer the following questions.)

a) [4 points] Find the equilibrium values of output, consumption, imports, and the trade deficit (or surplus). Show your

work.

Y = AE = C+I+G+EX-IM = 0.9(Y-100)+100+100+20-(20+0.1Y) = 0.8Y-110

è 0.2Y= 110 è Y = 550, C = 405, IM = 75, EX-IM = -55 (Trade Deficit)

b) [4 points] Increase G by 100 to observe the effects of fiscal policy. What is the G multiplier? What is the new

equilibrium output? Show your work.

G multiplier = 1/1-(mpc-mpm) = 1/1-(0.9-0.1) = 1/0.2 = 5

Y increases by 100*5 = 500, so the new equilibrium output is 1050.

c) [4 points] What is the G multiplier if there were no exports and imports? Is it greater or smaller than the multiplier you

found in part b)? Explain.

G multiplier = 1/1-mpc = 1/0.1 = 10

This is greater than the multiplier in part b) because when there are exports and imports, some of the increase in aggregate expenditure is spent on imports rather than on domestically produced goods and services.

Now assume that prices, interest rate, and exchange rates are no longer fixed. In reality, the Korean economy is little bit more complicated than the equations given above. For the following questions, consider the usual relationships among different variables that we discussed in class.

d) [7 points] As a result of the fiscal policy in part b),

? Does Korean Won appreciate or depreciate?

? Does the balance of trade improve or worsen?

? Does the price level increase or decrease?

Answer using graphs and explain in words.

Increase in G è AE rises è Y rises è MD increases è the interest rate (r) increases.

When r increases, the demand for Korean Won increases è the exchange rate for Korean Won rises è Korean Won appreciates.

When Korean Won appreciates, EX decreases and IM rises è Balance of trade worsens When Y rises for any given level of P, AD curve shifts to the right and P rises.

For full credit, students need to draw four graphs and show the changes described above.

e) [7 points] Now suppose that the money supply increases by 40, without a change in G. Answer the following questions

using graphs and explain in words.

? Does the equilibrium output increase or decrease?

? Does Korean Won appreciate or depreciate?

? Does the balance of trade improve or worsen?

? Does the price level increase or decrease?

Increase in MS è r falls è I increases è Y increases.

When r falls, supply of Won increases è Exchange rate decreases è Korean Won depreciates.

When Korean Won depreciates, EX rises and IM falls è Trade of balance improves. When Y increases for any given level of P, AD curve shifts to the right and P increases.

For full credit, students need to draw four graphs and show the changes described above.

f) [4 points] Suppose that Mr. Roh wants to choose a policy that can enhance the long term growth of the Korean economy.

If you were an economist making a recommendation to Mr. Roh, which policy would you recommend? Explain.

Monetary policy is better in this case because it decreases the interest rate, which in turn increases investments. The increase in investments will enhance the long term growth of the economy.

QUESTION 7: 20 Total Points (20 Minutes)

Consider two countries, Japan and U.S., producing two goods, cell phones and computers. Suppose that there are 10 workers

in each country. The table below depicts how many goods can be produced by a worker per day in each country.

Output per worker

Japan U.S.

Cell phones 1 2

Computers 6 6

a) [2 points] Which country (if any) has the absolute advantage in producing cell phones?

U.S.

b) [2 points] Which country (if any) has the absolute advantage in producing computers?

No country has the absolute advantage in producing computers.

c) [3 points] Which country (if any) has the comparative advantage in producing cell phones?

U.S.

d) [3 points] Which country (if any) has the comparative advantage in producing computers?

Japan

e) [5 points] If the terms of trade are one cell phone for one computer, can trade benefit both countries? Why or why not?

U.S. will not benefit from trade because the cost of producing one computer without trade, 1/3 cell phone, is lower than the cost with trade, which is one cell phone. However, Japan will benefit from trade because without trade the cost of producing one cell phone is six computers, but with trade the cost is only one computer.

f) [5 points] Describe the range of terms of trade (i.e., relative prices) at which both countries would want to specialize (i.e.,

produce only one good) and trade. Explain your answer.

The price of computers in terms of cell phones should be between 1/6 and 1/3 (or, the price of cell phones in terms of computers should be between 3 and 6). For example, if terms of trade are one cell phone to four computers, then U.S. will specialize in producing cell phones and Japan will specialize in producing computers and trade.

For U.S. without trade the cost of producing one computer is 1/3 cell phones, but

with trade it costs only 1/4 cell phones. Similarly, for Japan, without trade the

cost of producing one cell phone is six computers, whereas with trade it costs only four computers. Therefore, both countries will benefit from trade.

QUESTION 8: 15 Total Points (15 Minutes)

Using AS-AD curves to illustrate your point, discuss the impact of the following events on the equilibrium price level and output:

a) [5 points] In an effort to fight inflation, the fed decides to implement contractionary monetary policy.

Decrease in MS è the interest rate rises è I falls è Y falls è AD curve shifts to the left è Both Y and P decrease.

For full credit, students need to draw AS-AD graph.

b) [5 points] After some period of time inflation is finally under control but the country is still in recession. The Congress

passes a tax cut with no corresponding change in government spending.

The tax cut increases C and thus Y è AD shifts to the right è Both Y and P rise.

For full credit, students need to draw AS-AD graph.

c) [5 points] Due to the outbreak of Severe Acute Respiratory Syndrome (SARS) in Asia, shipments of input products from

Asia to the U.S. have decreased significantly.

Decrease in shipments of input products in the U.S. will increase production costs èAS curve shits to the left è Y falls and P rises.

For full credit, students need to draw AS-AD graph.

《住宅设计规范》(GB50096-2011)

住宅建设量大面广,关系到广大城镇居民的居住水平和切身利益,为进一步保证住宅设计质量,促进城镇住宅建设健康发展,落实好国家建设节能省地型住宅的要求,贯彻高度重视民生与住房保障问题的精神,住建部组织了《住宅设计规范》GB50096-1999的修编工作,近日予以发布公告。编号为GB50096-2011,自2012年8月1日起实施。其中,第5.1.1 5.1.1 住宅应按套型设计,每套住宅应设卧室、起居室(厅)、厨房和卫生间等基本功能空间。 5.3.3 厨房应设置洗涤池、案台、炉灶及排油烟机、热水器等设施或为其预留位置。 5.4.4 卫生间不应直接布置在下层住户的卧室、起居室(厅)、厨房和餐厅的上层。 5.5.2 卧室、起居室(厅)的室内净高不应低于2.40 m,局部净高不应低于2.10m,且其面积不应大于室内使用面积的1/3。 5.5.3 利用坡屋顶内空间作卧室、起居室(厅)时,其1/2面积的室内净高不应低于2.10 m。 5.6.2 阳台栏杆设计应采用防止儿童攀登的构造,栏杆的垂直杆件间净距不应大于0.11m,放置花盆处必须采取防坠落措施。 5.6.3 住宅的阳台栏板或栏杆净高,六层及六层以下的不应低于1.05m;七层及七层以上的不应低于1.10m。 5.8.1 外窗窗台距楼面、地面的净高低于0.90m时,应有防护设施。 6.1.1 楼梯间、电梯厅等共用部分的外窗窗台距楼面、地面的净高小于0.90m时,应有防护设施。 注:窗外有阳台或平台时可不受此限制。窗台的净高或防护栏杆的高度均应从可踏面起算,保证净高达到0.90m。 6.1.2 住宅的公共出入口台阶高度超过0.70m并侧面临空时,应设防护设施,防护设施净高不应低于1.05m。6.1.3 住宅的外廊、内天井及上人屋面等临空处的栏杆净高,六层及六层以下不应低于1.05m,七层及七层以上不应低于1.10m。防护栏杆必须采用防止少年儿童攀登的构造,当采用垂直杆件做栏杆时,其杆件净距不应大于0.11m。 6.2.1 十层以下的住宅建筑,当住宅单元任一层的建筑面积大于650m2,或任一套房的户门至安全出口的距离大于15m时,该住宅单元每层的安全出口不应少于2个。 6.2.2 十层及十层以上但不超过十八层的住宅建筑,当住宅单元任一层的建筑面积大于650 m2,或任一套房的户门至安全出口的距离大于10m时,该住宅单元每层的安全出口不应少于2个。 6.2.3 十九层及十九层以上的住宅建筑,每层住宅单元的安全出口不应少于2个。 6.2.4 安全出口应分散布置,两个安全出口的距离不应小于5 m。 6.2.5 楼梯间及前室的门应向疏散方向开启。 6.3.1 楼梯梯段净宽不应小于1.10m,不超过六层的住宅,一边设有栏杆的梯段净宽不应小于1.00m。 注:楼梯梯段净宽系指墙面装饰面至扶手中心之间的水平距离。 6.3.2 楼梯踏步宽度不应小于0.26m,踏步高度不应大于0.175m。扶手高度不应小于0.90m。楼梯水平段栏杆长度大于0.50m 时,其扶手高度不应小于1.05m。楼梯栏杆垂直杆件间净空不应大于0.11m。 6.3.5 楼梯井净宽大于0.11m 时,必须采取防止儿童攀滑的措施。 6.4.1 七层及七层以上住宅或住户入口层楼面距室外设计地面的高度超过16m 的住宅必须设置电梯。 6.4.7 电梯不应紧邻卧室布置。 6.5.1 外廊、内天井及上人屋面等临空处的栏杆净高,六层及六层以下住宅不应低于1.05m,七层及七层以上住宅不应低于1.10m。栏杆设计应防止儿童攀登,垂直杆件间净空不应大于0.11m。 6.5.3 住宅的公共出入口位于阳台、外廊及开敞楼梯平台的下部时,应采取防止物体坠落伤人的安全措施。 6.6.1 七层及七层以上的住宅,应对下列部位进行无障碍设计。 1.建筑入口; 2.入口平台; 3.候梯厅; 4.公共走道 6.6.2 建筑入口及入口平台的无障碍设计应符合下列规定: 1.建筑入口设台阶时,应同时设有轮椅坡道和扶手; 2.坡道的坡度应符合表6.6.2的规定。 表6.6.2 坡道的坡度

2000年1月大学英语六级考试试题及解答

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【通用文档】住宅设计规范(gb50096).doc

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