Exam 2

Question 1

What is the econ. Explanation of the DWL in tariffs?

Answer 1

It’s 2 triangles,
one if from protecting high opportunity cost domestic producers
Second is from reduction in consumption from the US

Question 2

DWL area of tax

Answer 2

Triangle to the left of intersection

Question 3

DWL of subsidies

Answer 3

Area of triangle to right of intersection

Question 4

DWL of price support

Answer 4

Area under p bar intersect with demand and supply MINUS the top triangle

Question 5

DWL of deficient payment

Answer 5

Govt pays different between p bar and price demanded, works out to be a subsidy problem. So the triangle at right of the intersections

Question 6

DWL of tariff

Answer 6

Between Pw and Pw+T there is a trapezoid. The left and right triangle sections of this are the DWL

Question 7

Tax revenue of tariff

Answer 7

Amount imported * amount tariffed. In the trapezoid between price world and Pw + T, it’s the square in the middle

Question 8

Perfect compliments means

Answer 8

Goods cannot be substituted for each other, straightforward calculations

Question 9

In the short/long run what is capital?

Answer 9

Short - fixed, long - not fixed

Question 10

How much to clarify?

Answer 10

Explain in economic terms, short/long run, elasticities, and write out MRTS.

Question 11

Label graphs?

Answer 11

Be as specific as fuckin possible

Question 12

When it asks how much is imported, it was before/after tariff?

Answer 12

Before tariff, aka how much would be imported at the world price.

Question 13

Cost min? What is tangency + what is MRTS?

Answer 13

1. -w/r = MRTs
2. q = KL^whatever
   MRTS = -qPartialLabor / qPartialCapital

Question 14

Expansion path

Answer 14

MRTS = -w/r, so just solve for MRTS and w,r to get an equation relating K to L, and that’s the equation for expansion path