ECON3128\/ECON6040 Practice Midterm Exam
\nNote:
\n1. Your mid-term will contain two parts. In the first part, you will have 35 minutes to complete
\nsome MCQs and short answer questions. You will need to complete the first part answering all
\nquestions on the wattle quiz. In the second part of the exam, you will have 55 minutes to
\ncomplete some problem solving questions handwritten on paper and upload the scanned
\npages. Note that there will be a short break between the two parts of the exam. (for more
\ndetailed information see the \u201cPre Midterm Festivities\u201d Handout in the Midterm Preparation
\nsection)
\n2. Answers to the practice exam will be released in the 2nd week of the teaching break. To make
\nthe most out of the practice exam, we strongly encourage you to attempt the questions before
\nyou see the answers.
\nPart One
\nMCQs
\nThe MCQs in your mid-term will be similar to what you have seen in your quiz (covering all
\ncontent from the first 6 weeks of the semester).
\nShort Answer Questions
\nQ1: Consider a fishery
\n(a). Explain why profits of individual fishers differ in open-access equilibrium and
\nsocial optimal equilibrium?
\n(b). Explain why open-access equilibrium isinefficient using the concept of externality.
\nQ2: How is wage-risk analysis used to estimate the value of a statistical life? What are potential
\nproblems with wage-risk analysis?
\nPart Two
\nProblem Solving
\nQ4. Suppose that a wood pulp mill is situated on a bank of the Murrumbidgee River. The private
\nmarginal cost and marginal benefits of producing wood pulp is given by the function
\nThe production Y is measured in tons. For every ton of wood pulp production, the downstream
\nWagga Wagga community suffer $10 loss from the polluted water (all prices could be thought of as
\nmillions of dollars to be more realistic but for simplicity we just call it dollars)
\n(a) What is the profit-maximising output of wood pulp without any regulation? What is the
\nsocial benefit maximising output of wood pulp?
\n(b) Draw a diagram illustrating the market. Remember to label everything: marginal cost
\n(MC), marginal benefit (MB), social marginal cost (SMC) functions, name the axes
\nand mark your answers to part (a).
\n(c) Calculate the net social benefit at profit-maximising output level without regulation and
\nsocial benefit maximsing output level
\n(d) Name and discuss two solutions that can achieve social benefit maximising output level.
\nQ5 We are concerned with only two generations. The demand and supply functions for oil
\nin the present generation are given by:
\nwhere Q is expressed in millions of barrels and P is the price per barrel. There is a total of 100
\nmillion barrels of the resource available.
\n(a) Draw a supply-and-demand graph showing the equilibrium price and quantity
\nconsumed in the current generation in the absence of any consideration of the future.
\nRemember to label all axis, lines, and important intersections (equilibrium) in your
\ngraphs. Solve for the equilibrium price and quantity algebraically.
\n(b) Draw a graph showing the marginal net benefits from consumption in this period at all
\nlevels of consumption up to the equilibrium level. Express the marginal net benefit
\nfunction algebraically.
\n(c) Suppose that the marginal net benefit function is expected to be the same for the next
\ngeneration. The discount factor is 1\/4. Calculate the efficient allocation of resources
\nbetween the two generations and show this graphically. (You can extend your graph
\nfrom part b. Again name axis and functions and mark the equilibrium.)
\n(d) What is the appropriate resource depletion tax in the first period?<\/p>\n","protected":false},"excerpt":{"rendered":"
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