ECON 180 - Regulation and Antitrust Policy Drake University, Spring 2015 William M. Boal Course page: www.cbpa.drake.edu/econ/boal/180 Blackboard: bb.drake.edu Email: william.boal@drake.edu

### Quiz 3 Version A

(1)b. (2)b. (3)c. (4)b. (5)c. (6)c. (7)b. (8)b. (9)f. (10)e.

### Quiz 3 Version B

(1)b. (2)b. (3)a. (4)c. (5)a. (6)b. (7)a. (8)a. (9)e. (10)f.

### Test 3 Version A

(1) [Consumer surplus, producer surplus: 24 pts]

1. \$12 = height of demand curve.
2. \$4 = height of demand curve - price.
3. \$5 = height of supply curve.
4. \$3 = price - height of supply curve.
5. \$50 million = area of triangle bounded by demand curve, vertical axis, and price.
6. \$25 million = area of triangle bounded by supply curve, vertical axis, and price.

(2) [Pareto and potential Pareto improvements: 12 pts]

1. NO, NO.
2. NO, YES.
3. YES, YES.

(3) [Perfect competition: 20 pts]

1. inelastic, because less than one in absolute value.
2. 1.6 percent.
3. -16.0 = market elasticity / market share.
4. elastic, because greater than one in absolute value.
5. 32.0 percent.

(4) [Welfare analysis of price controls: 36 pts]

1. \$6.
2. 40 thousand bushels.
3. excess demand.
4. 90 thousand bushels.
5. decrease.
6. \$210 thousand.
7. decrease.
8. \$60 thousand.
9. \$270 thousand.

Critical thinking [10 pts]

1. Loss of consumer surplus = \$2.5 million.
2. Average cost of production = \$3. The quota will raise the price to \$5. At this price, all sellers on the supply curve up to 4 million pounds will want quota permits. The average height of the supply curve in this range is \$3.
3. Loss of producer surplus = \$0.5 million. Old producer surplus was \$4.5 million. New producer surplus = (new price - new avg cost of production) × quota quantity = (\$5-\$3) × 3 million.
4. Producers who actually receive the quota permits gain from the quota because they can sell at a higher price. All other producers and all consumers lose from the quota.

### Test 3 Version B

(1) [Consumer surplus, producer surplus: 24 pts]

1. \$10 = height of demand curve.
2. \$1 = height of demand curve - price.
3. \$3 = height of supply curve.
4. \$6 = price - height of supply curve.
5. \$16 million = area of triangle bounded by demand curve, vertical axis, and price.
6. \$32 million = area of triangle bounded by supply curve, vertical axis, and price.

(2) [Pareto and potential Pareto improvements: 12 pts]

1. YES, YES.
2. NO, YES.
3. NO, NO.

(3) [Perfect competition: 20 pts]

1. inelastic, because less than one in absolute value.
2. 1.2 percent.
3. -6.0 = market elasticity / market share.
4. elastic, because greater than one in absolute value.
5. 12.0 percent.

(4) [Welfare analysis of price controls: 36 pts]

1. \$6.
2. 80 thousand bushels.
3. excess supply.
4. 60 thousand bushels.
5. increase.
6. \$150 thousand.
7. decrease.
8. \$180 thousand.
9. \$30 thousand.

Critical thinking [10 pts]

• Same as Version A.