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Econ 200A
Midterm
Version A
05/05/2015

Name:

TA/Section/Start Time:

Seat #:

80 points total. 80 minutes maximum. Reminder: No graphing calculators

or smart phones allowed! Please write legibly and show your work on
every problem. Use two decimal places of precision when necessary.

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offenses. Moreover, a grade of zero can be assigned by the instructor for the course.

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 1. (15 points)

Price per Quantity Quantity

Bushel Demanded Supplied The table to the left contains information about
(dollars) (bushels) (bushels) the corn market. Answer the following questions
$2 36,000 4,000 based on this table, supposing the federal
4 32,000 8,000 government sets a price floor for corn at $12 per
6 28,000 12,000 bushel.
8 24,000 16,000
10 20,000 20,000
12 16,000 24,000
14 12,000 28,000
16 8,000 32,000
a. (3 points) What is the amount of shortage or surplus in the corn market as result of the
price floor?

b. (3 points) If the government agrees to purchase any surplus output at $12, how much will
it cost the government?

c. (3 points) If the government buys all of the farmers' output at the floor price, how many
bushels of corn will it have to purchase and how much will it cost the government?

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d. (3 points) Suppose the government buys up all of the farmers' output at the floor price
and then sells the output to consumers at whatever price it can get. Under this scheme,
what is the price at which the government will be able to sell off all of the output it had
purchased from farmers? What is the revenue received from the government's sale?

e. (3 points) In this problem we have considered two government schemes: (1) a price floor
is established and the government purchases any excess output and (2) the government
buys all the farmers' output at the floor price and resells at whatever price it can get. What
is the net cost to taxpayers of each scheme?

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2. (14 points) Denmark and Belize can both produce clocks and hats. The table below
shows production and consumption under autarky and production if both countries decide
to specialize and prepare for trade according to their relative comparative advantages.

Production and Production with

Consumption Specialization
without Trade and Trade
Clocks Hats Clocks Hats
Denmark 900 150 1,200 0
Belize 200 100 0 400
a. (3 points) What is the opportunity cost for producing clocks (in terms of hats) in
Denmark?

b. (3 points) What is the opportunity cost for producing hats (in terms of clocks) in Belize?

c. (4 points) Calculate the total gains from trade in hat and clock production.

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 d. (4 points) Provide a numerical example to show that both Denmark and Belize can gain
from trade. Assume that the terms of trade are 0.6 hat for every 1 clock. (Hint: You
should be calculating the consumption of both countries for both goods. There may be
more than one correct answer here.)

3. (14 points) The diagram below shows the US market for peanuts. The world price of peanuts
is $2.00/pound, but in order to protect US peanut farmers, the government has imposed an import
quota on peanuts. Please answer the following questions about the welfare impact of the quota:

Price per
pound, $ US Supply

$3.80
$2.80 US Price with quota
$2.00
World Price

$1.00
US Demand

10 18 28 33 37 Quantity
(millions of pounds)

a. (4 points) What is the change in consumer surplus due to the quota?

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 b. (4 points) What is the change in domestic producer surplus due to the quota?

c. (4 points) What is the deadweight loss due to the quota?

d. (2 points) How large is the quota?

4. (25 points) The demand and supply equations for the market for oil changes in Seattle are:
Demand: Q=12000 – 100P
Supply: Q=50P
where P= price per oil change, and Q=quantity of oil changes per day.

a. (4 points) Calculate the equilibrium price and quantity.

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b. (4 points) Draw the supply and demand curves on the graph below. Be sure to label the
y-intercepts of each graph and the equilibrium. Label the supply curve S and the demand
curve D.

c. (4 points) What is the total economic surplus in this market?

Now imagine that the city realizes that there is a negative externality in this market in the
form of pollution. The externality imposes a $9.00 per oil change cost and the new
supply curve can be given by: Q=50P-450 (or P=9+0.02Q, if you prefer)

d. (2 points) Draw this new curve on the graph, label it MSC.

e. (4 points) Calculate the economically efficient equilibrium in this market (price and
quantity).

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f. (4 points) What is the deadweight loss due to the externality? Draw the DWL on the
graph.

g. (3 points) Is there a market failure here? Why or why not?

5. (12 points) Answer the following questions about economic concepts.

a. (4 points) Give two examples of common resources. Define and briefly explain the
tragedy of the commons.

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b. (4 points) Will equilibrium in a market always result in an outcome that is
economically efficient? Explain your answer.

c. (4 points) The cities of Francistown and Nalady are five miles apart. Francistown
enacts a rent control law that puts a ceiling on rents well below their equilibrium
market value. Predict the impact of this law on the competitive equilibrium rent in
Nalady, which does not have a rent control law. Illustrate your answer with one
demand and supply graph for the apartment market in Francistown and another
demand and supply graph for the apartment marketing Nalady. (Hint: Mark all
relevant curves, label your graphs clearly and show the initial and final equilibria in
each market.)

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