Introduction to Micro Macro and Econometrics

Statistics for Economists

Name : Section: TA: Page 6 of 7 10. Ronald, Amy, and Sharon are neighbors who are deciding on how many street lights to install in their neighborhood. Suppose that street lights are a public good. Furthermore, suppose that the cost of installing each street light is $200, and that no one receives any beneﬁt when there are no street lights installed. The total beneﬁts for each resident are given in the table below. Number of Street Lights Ronald’s Total Beneﬁt Amy’s Total Beneﬁt Sharon’s Total Beneﬁt 1 170 180 250 2 320 250 430 3 420 280 500 4 490 300 560 Ronald has an income of $1000, Amy has an income of $900, and Sharon has an income of $500. (a) What is the socially optimal number of street lights? Explain. The neighbors are trying to ﬁnd a way to pay for the installation of the socially optimal number of street lights. Each of them has a diﬀerent proposal. (b) Ronald proposes a ﬂat tax – a ﬁxed amount T paid by each neighbor. What is the minimal tax per person T required to build the socially optimal number of street lights? Who will and who will not agree to pay such a tax? Why? Name : Section: TA: Page 7 of 7 (c) Sharon proposes that each neighbor pays a 25% income tax. Will the tax revenue cover the cost of the socially optimal number of street lights? Who will and who will not agree to pay such a tax? Why? (d) Amy proposes that each neighbor pays a percentage tax X % of the total beneﬁt he / she gets from the socially optimal number of street lights. What is the minimum percentage X % that generates enough revenue to cover the cost of the socially optimal number of street lights? Who will and who will not agree to pay such a tax? Why? Julie is moving into the neighborhood. Her income is $800 and the total beneﬁt that she receives from each street light is given in the table below. Number of Street Lights Julie’s Total Beneﬁt 1 75 2 140 3 200 4 250 (e) After determining the new socially optimal number of street lights, ﬁnd which of the three proposals (from parts b, c and d) Julie prefers.

ECON | 1 and 2 and 10 | Introduction to Micro Macro and Econometrics | exam | Name : Section: TA: Page 6 of 

ECON 001 Name (Print): Fall 2019 Final Exam Recitation Section: December 16, 2019 Time Limit: 120 Minutes Name of TA: • This exam contains 12 pages (including this cover page) and 17 questions. Check to see if any pages are missing. • The exam is scheduled for 2 hours. • This is a closed-book, closed-note exam, no calculator exam. • Answer each multiple choice question by writing the correct answer on the line at the right margin of the corresponding question. Make sure that your answer is clearly written or it will be marked incorrect. • Write your answers to the short answer questions in the spaces provided below them. If you don’t have enough space, continue on the back of the page and state clearly that you have done so. • Do not remove any pages or add any pages. No additional paper is supplied • Show your work when applicable. Use diagrams where appropriate and label all diagrams carefully. • You must use a pen instead of a pencil to be eligible for remarking. • This exam is given under the rules of Penn’s Honor system. My signature certiﬁes that I have complied with the University of Pennsylvania’s Code of Academic Integrity in completing this examination. Please sign here Date Question Maximum Grade MC (Q1-14) 39 1st SA (Q15) 22 2nd SA (Q16) 17 3rd SA (Q17) 22 Total 100 Multiple Choice Questions (best 13 out of 14: 39 points) 1. (3 points) Pat is going on a trip to tropical Costa Rica during the winter break. For this trip Pat bought a volcano tour for $100 and values it at $300. Two days before the tour date, the tour is cancelled due to an unexpected mild eruption. Pat has two options: to retake the tour the next week, but his valuation of the tour will go down to $150; or to get a 60% refund and a tour to the natural hot springs at no extra cost, which Pat values at $100. Which option has the lowest opportunity cost, and why? A. Take the next week volcano tour, because its opportunity cost is $160. B. Get the refund and take the hot springs tour, because its opportunity cost is $50. C. Take the next week volcano tour, because its opportunity cost is $150. D. Get the refund and take hot springs tour, because its opportunity cost is $150. E. Both options have the same opportunity cost. 1. D 2. (3 points) The market for croissants has demand P = 10 - Q d and supply P =4 Q s . Bakers unionize, so bakeries increase the wages paid to bakers. Which of the following could be a consequence of the wage increase? A. The price of croissants falls B. The croissant market equilibrium after the wage increase is on a more inelastic portion of the demand curve than the equilibrium before the wage increase. C. The croissant market equilibrium after the wage increase is at the unit elastic point on the demand curve D. Total consumer expenditures on croissants decreases 2. D 3. (3 points) Tom can choose between two diﬀerent goods for consumption. Both cost $4 and he consumes 6 units of each good. Which of the following answers are possible explanations for Tom’s consumption choice? I. The two goods are perfect substitutes for Tom. II. Both goods are inferior. III. The two goods are perfect complements for Tom. IV. None of the above. A. I., II., and III. B. Only I. C. I. and III. D. Only II. 3. C 4. (3 points) Suppose a market for oranges is perfectly competitive. Suppose all farmers have the same short- run total cost TC ( q ) = 16 + 10 q + q 2 and marginal cost MC ( q ) = 10 + 2 q . Find the diﬀerence between the break-even price and the shutdown price, i.e. p BE - p SD . A. 4 B. 8 C. 10 D. 14 4. B

ECON | 1 and 2 and 10 | Introduction to Micro Macro and Econometrics | exam | ECON 001 Name (Print): Fall 20

Midterm2_solSP2013.pdf-MC____ EXE I____ EXE II____ TOTAL____

midterm2_2019_04_02_solutions.pdf-Second Midterm Examination Econ 103, Statistics

Page 3 of 9 7) Consider the following three items of spending by the government: (1) the federal government pays a $500 unemployment benefit to an unemployed person; (2) the federal government makes a $2,000 salary payment to a Navy lieutenant; (3) the city of Bozeman, Montana makes a $10,000 payment to ABC Lighting Company for street lights in Bozeman. Which of these payments contributes directly to government purchases in the national income accounts? a. only item (1) b. only item (2) c. only items (1) and (2) d. only items (2) and (3) 8) James owns two houses. He lawfully rents one house to the Johnson family for $10,000 per year. He lives in the other house. If he were to rent the house in which he lives, it has been estimated that he could earn $12,000 per year in rent. How much do the housing services provided by these two houses contribute to GDP? a. $0 b. $10,000 c. $12,000 d. $22,000 9) Suppose an economy produces only iPhones and bananas. In 2010, 1000 iPhones are sold at $300 each and 5000 pounds of bananas are sold at $3 per pound. In 2009, the base year, iPhones sold at $400 each and bananas sold at $2 per pound. For 2010, a. nominal GDP is $315,000, real GDP is $410,000, and the GDP deflator is 76.83. b. nominal GDP is $410,000, real GDP is $315,000, and the GDP deflator is 130.16. c. nominal GDP is $315,000, real GDP is $410,000, and the GDP deflator is 130.16. d. nominal GDP is $410,000, real GDP is $315,000, and the GDP deflator is 76.83. 10) During a presidential campaign, the incumbent argues that he should be reelected because nominal GDP grew by 12 percent during his 4 ‐ year term in office. You know that population grew by 4 percent over the period and that the GDP deflator increased by 6 percent during the past 4 years. You should conclude that real GDP per person a. grew by more than 12 percent. b. grew, but by less than 12 percent. c. was unchanged. d. decreased. 11) In 1931, President Herbert Hoover was paid a salary of $75,000. Government statistics show a consumer price index of 15.2 for 1931 and 207 for 2007. President Hoover’s 1931 salary was equivalent to a 2007 salary of about a. $5507. b. $1,021,382. c. $1,140,000. d. $15,525,000. 12) Suppose some unemployed people search for jobs only at places where they are unlikely to be hired, so that they can still qualify for unemployment benefits. These people are officially counted as unemployed. If these individuals were counted as out of the labor force instead of as unemployed, then a. both the unemployment rate and labor ‐ force participation rate would be higher. b. both the unemployment rate and labor ‐ force participation rate would be lower. c. the unemployment rate would be lower and the labor ‐ force participation rate would be higher. d. the unemployment rate would be higher and the labor ‐ force participation rate would be lower.

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