1. Suppose there are two markets for housing A and B which have the same linear demand curve, but potentially different supply curves. In both markets the price goes up by 1 dollar. Market A's total revenue increasesI while Market B's total revenue decreases (a) Compare the initial prices between the two markets. It] points (b) 1Which market experiences the larger decrease in consumer surplus from the price increase? 1!? points [c] Now consider that. 200 consumers randomly selected among those hurt by the price increase in market A decide to move to market B. How does this a'ect the equilibrium prices and quantity of housing in market B? 10 points (d) Now consider the opposite scenario: 200 consumers randomly selected among those hurt by the price increase in market B decide to move to market A. Assume Supply is linear with the same slope in both markets. 1|Which scenario is associated with a greater change in price and quantity? It] points 2. Suppose the government imposes a tax of 5 dollars on a given market. Suppose the quantity purchased decreases by 10. The government analysts do not know the demand and supply but want to estimate how much DWL will accrue. (a) If demand and supply are linear what is the DWL? It? points (b) Now supposing no information about demand and supply, what is the maximum DWL from the tax? It? points (c) Now suppose the government's analysts learn about the demand side of the mar- ket. In particular they learn the demand is linear and price went up by 2 dollars for consumers after the tax. Now what is the new maximum dead weight loss. 1!} points 3. Suppose that Calvin has utility function 32:23; over two goods 2: and 3;. Suppose that 333 = py = 6 in Calvin's local marker and his income M = 24. Suppose there is an alternative market with dierent prices. but this market is a long bus ride away. That isI if he can only make purchases at one market in a given period. [a] Suppose the bus ride costs 8, and the prices in the other market are m 2 pg 2 5. Does Calvin take the bus ride? 19 points [b] 'What is the maximum ticket price under which Calvin will take the bus? Do you need to nd the optimal consumption bundle to answer this question? It? points (c) Suppose that the bus ride costs C 3: , 1Will there exist a high enough income such that Calvin takes the bus? 15' points [d] Suppose now that the prices in the alternative market are instead pI : 5 and 35,, = 7'. Answer the previous question. 1:\"? points 4. Now suppose a delivery company uses trucks {capital} and drivers [labor] to produce deliveries [quantity]. Ted owns the rm, and Ted's friend Mary decides to give Ted 4 trucks for free for the month of April. Suppose that Mary does not want Ted to rent these trucks out to anyone else, so Ted can either use them for his deliveries or let them languish. Suppose Ted's production function exhibits complementarity, UMP, and positive MP. Suppose that each truck costs 100 dollars to rent a month. Ted optimizes over his choice of inputs given Mary's gift in April and obtains a cost function CAWWQ}. Similarly in the month before without Mary's gift Ted obtains C'M\""\""[Q]. [a] Is CAW[Q} = CMMLHQ} 400 for every quantity Q? If not, why, and for which quantities will this equality not hold? 15 points [b] For each number of deliveries (Q), how will Ted's labor usage compare to the month before Mary lent the trucks? 19 points [c] Suppose that Cilm'CHQ) is convex [increasing marginal cost) and has no xed cost. ICompare the supply curve for Ted in April vs. March 15 points