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4. (20 points) Consider the following model of the labor market, with labor supply Ls and labor demand Ld respectively given as a function of the wage by: Ls = aw +l Ld = f w: (a) (2 points) In the following box, represent this model graphically, as well as its equilibrium (L;w). Represent an increase in a on the graph, using a dotted line. Represent the eect of this increase in a on the wage and the eect on employment.

(c) (4 points) One last time, represent the labor market model in the following box, but consider the introduction of a proportional tax on wages such that when w is paid by employers, employees actually only receive w(1 ). Show the triangle corresponding to deadweight loss (also known as Harberger's (1924-) triangle).

A mail-in rebate form is printed on the side of every High Liner box of breaded fish. It allows the consumer to mail in the UPC along with the form and receive a $2 rebate. If a 700 g box of fish is normally sold to grocery stores for $3.50, costs are 40% of the regular unit selling price, and expenses are 20% of cost, what is the expected profit under the rebate program? Assume that only 25% of rebates are actually redeemed and that rebate marketing expenses are $0.15 per box,

A car dealership acquired a used Ford Mustang for $15,000. Its expenses on used vehicles are 15% of the cost, and it prices the vehicle with a 30% markup on cost percentage. After two months, if the car doesn't sell, it marks the car down by 10%.

A UK life insurance company is carrying out its annual supervisory valuation at 31 December 2003. When calculating the resilience reserve the company considers two scenarios. Alongside an assumed fall in equity and property values, it considers both an increase and a decrease in the yields on fixed interest assets of 1.5 percentage points. It finds that the scenario that maximizes the resilience reserve, and therefore the total supervisory reserves, is the 1.5 percentage point increase in the yield on fixed interest assets. During 2003, the yield on fixed interest assets increased by 0.5 percentage points. (i) Explain the impact of this increase on the free assets shown in the supervisory returns of the company at 31 December 2003. [6] In order to minimize the immediate impact of the change in fixed interest yield on its solvency position the company is considering the following courses of action: Changing the resilience scenario considered so that the assumed increase in the yield on fixed interest assets is reduced from 1.5 percentage points to 1 percentage point. Changing its portfolio of fixed interest assets so as to reduce the mean term of these assets.

32. Which of the following is an example of an intangible asset: A. Equipment B. Inventory C. Office building D. Accounts receivable 33. Which of the following is a characteristic of a profit-and-loss statement: A. Is the same as a balance sheet B. Summarizes expenses and revenue from sales C. Shows the owner's financial position D. Lists assets and liabilities 34. In managerial accounting, the number of hours that a business runs its machinery during the production process is classified as a(n) A. production output. B. cost driver. C. unexpected expense. D. inflexible transaction.

47. Which of the following is one way that businesses use marketing information: A. To predict change B. To analyze data C. To develop surveys D. To conduct research 48. Which of the following is a characteristic of the data collection step in marketing research: A. The least expensive step in marketing research B. The least tedious step in marketing research C. The step in which the most mistakes are made D. The step that is most interesting to researchers 49. Which of the following is an example of a durable good: A. House B. Haircut C. Gasoline D. Hamburger

57. The FPD Company keeps copies of its brochures, catalogs, and flyers on file for future reference. This is an example of a company that is maintaining ____ records. A. inventory B. legal C. promotional D. asset 58. Which of the following is most likely to be a dynamic element of a business's external environment: A. Decrease in personnel B. Increase in competition C. Renewed emphasis on training D. New quality control measures 59. James needs to hire a bookkeeper for his growing business. To determine the new employee's salary, James obtained pay data from five companies in his industry that are similar in size. The research indicated the following: Company A pays $31,205; Company B pays $29,995; Company C pays $34,800; Company D pays $42,500; and Company E pays $36,500. James decided to set his bookkeeper's salary at $35,000. What measure of central tendency did James use to set his new employee's salary? A. Mode B. Mean C. Range D. Median 60. Hill Industries uses specific criteria to evaluate vendor performance, including on-time delivery rate, return rate, and number of customer complaints. These metrics are also known as A. consensus scales. B. performance indicators. C. economic indicators. D. return on capital.

Suppose that the consumer has utility function u(x1, x) = (x+wx) = b. The consumer faces the budget constraint pia1 +p2x2 = m. 1. Let M denote the Marshallian demand of good i. Show that r = KTM, i.e. the Marshallian demand of good 2 is proportional to the Marshallian demand of good 1 (or some given reference good). What is ? 2. Derive as a function of (P1, P2, m). 3. What is the value of X*? Show that X* is proportional to the indirect utility function v(p, p2, m). 4. Derive the elasticity of substitution between two goods. Is it interesting? 5. Derive the Hicksian demand functions, along with an expenditure function. 6. Show that the Hicksian demand (p1, p2, u) is homogeneous of degree 0 in (p1, p2). Also show that the expenditure function e(p, p2, ) is homogeneous of degree 1 in (p, p2). (Observe that the homogeneity holds only in terms of prices and not , unlike the homogeneity property of Marshallian demand as in part 1.9.) 7. Calculate n* explicitly from the cost minimization problem. How is this related to X*?

An individual has a utility function u= rand an income of $60. a) Solve for MU and MU2 and use these to determine the MRS. Now use the tangency condition MRS= - together with the budget line to solve for the demand functions for P2 and 2 for this consumer. b) Initially we have p = 2 and p2 = 1, but then pi falls to 1. Use your demands to solve for points A and C (the optimal points pre and post price change) as done in class. Show these points on a clear well-labelled graph c) Now determine the Slutsky demand by computing the income that would make point A just affordable with the new prices. Plug this hypothetical income and the new prices into your demands to solve for point B, as done in class. Show both the hypothetical budget line and point B on either your graph in a) or a new graph. Again, make your graphs - including those below- complete and clear. Show the substitution and income effects on your graph, and compute them.

Al's marginal benefit curve for a pure public good is MBa = 300-6Q and Bob'sMB curve is MBb = 100 - 6 Q. Suppose that the Al controls the activity level and that production exhibits constant returns to scale with MC = 120. characterize the private supply of this externality generating activity in the absence of collective or governmental action. ii Characterize the Pareto optimal level of this externality generating activity. iii Determine the Pigovian subsidy rate which can induce Al to produce the Pareto optimal level of the externality generating activity. (Hint: a diagram may help.)3. (10 points) Suppose that N individuals have the same underlying utility function for private and public goods Ui = u( Xi, G) where X is a pure private good, and G is a pure public good. Let 100 = X 2 + G 2 be the production possibility frontier faced. Derive the Samuelsonian conditions for the optimal level of public good G.

i Suppose that the marginal cost of the service is MC = 75 and that the tax system will assign equal cost shares to each voter type. Characterize the median voter outcome. ii Contrast the median voter outcome with the Pareto efficient (SNB maximizing) level of the public service. iii Is the majoritarian result closer to the ideal than the private "high demander provides" result? iv Characterize the Lindalh tax system for this service. (Hint: a diagram may help.)2. (10 points) Analyze the concept of rent seeking. i Construct a 3-person rent seeking contest using a Tullock contest success function. Define all variables, determine the strategies of each player and the Nash equilibrium of your contest. ii Do institutions matter in determining the degree of rent dissipation? If so, discuss how such effects are or can be incorporated into your model. iii Under what circumstances, if any, are rents completely dissipated by socially wastefulexpenditures?3.

76. What is the relationship between shareholders and the board of directors? A. The shareholders pay dividends to the board of directors. B. The board of directors represents the shareholders. C. The shareholders make decisions for the board of directors. D. The board of directors holds the shareholders accountable. 77. An organization should include independent members on its board of directors because they A. provide an objective perspective. B. represent the interests of management. C. understand the company's inner workings. D. are less likely to act unethically. 78. When buyers and sellers have agreed on a value for a product, they have established the A. price policy. B. exchange price. C. equilibrium price. D. price line. 79. True or false: In determining the selling price of a good or service, most of the factors to be considered by the seller are internal to the business. A. True, most factors affecting price are internal to the business. B. False, most factors affecting price are not controlled by the firm. C. True, most factors affecting price are directly controlled by the business. D. False, most factors affecting price are directly controlled by the business.