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Take-Home Exam #1 -- Fall 2013, September 19, 2013
1. Using the circular flow model explain how the economy interacts with the environment. Include in your answers a discussion of residuals and the potential for environmental impacts.
2. The first and second law of thermodynamics suggest that in a closed ecosystem, the system will eventually die. Explain these laws and why planet earth is unlikely to have this fate any time soon.
3. Assume that a market exists for soy milk represented by these two equations:
D: Qd = -1000P + 3000, S: Qs = 700P-200
a. Graphically depict this market with Q on the horizontal axis.
b. What is the value of equilibrium P and Q?
c. What is consumer surplus and what is the total value of consumer surplus at equilibrium?
d. What is producer surplus and what is the total value of producer surplus at equilibrium?
e. If this market is allocatively efficient, what is the total value of net welfare in the market?
f. If output were regulated in this market such that 2,000 units are bought and sold, would the market be efficient? Explain! If not, what loss in net welfare would occur? Show and explain your calculations.
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