Sample Mid-Semester Exam Paper
PUBLIC SECTOR ECONOMICS (G)
(ECON8034)
经济学考试助攻 (a) State the conditions for exchange, production and product-mix efficiency; and provide an intuitive explanation for each of them. (3 points)
Writing period: 1 ½ Hours duration
Study period: 15 Minutes duration
Permitted materials: Non-programmable Calculator
You must attempt to answer all questions.
All questions to be completed in the script book provided.
QUESTION 1 经济学考试助攻
(a) State the conditions for exchange, production and product-mix efficiency; and provide an intuitive explanation for each of them. (3 points)
(b) The First Welfare Theorem states that competitive markets lead to a Pareto efficient allocation. Explain with reference to consumer and production theory why this is so. (3 points)
(c) Consider an economy with two goods x and y, and 2 individuals A and B with preferences represented by the utility functions:
UA( xA ，yA)=xAyA
UB(xB ，yB)=xByB
where xi and yi represent the consumption of goods x and y by each individual i = A, B. The initial endowment of the goods is that A has 12 units of x and 2 units of y while B has 8 units of x and 18 units of good y. 经济学考试助攻
(i) Show how the two goods must be allocated among the two individuals at any Pareto efficient allocation in this economy. Draw the corresponding contract curve in the Edgeworth box. Make sure to label everything clearly. (2 points)
(ii) Assume A gets to choose a new allocation to maximize utility subject to the constraint that B’s utility is no lower than at the endowment point. Solve formally for the Pareto efficient allocation. (2 points)
QUESTION 2 经济学考试助攻
(a) Consider a price increase.
(i) Define the compensating variation (CV) and the equivalent variation (EV) for this price increase. Provide a graphical representation for each of these measures using (i) indifference curves and (ii) compensated demands. (4 points)
(ii) Assume the price increase is due to a commodity tax. Define the EBEV, where EB stands for excess burden and EV for equivalent variation. Provide a graphical representation for this excess burden measure. (2 points)
(b) If more than one price increases show how these welfare changes can be illustrated graphically using the compensated demand curves for goods x1 and x2 by assuming that one price rises before the other. Does it matter in which order you consider the price changes? Explain. (4 points)
QUESTION 3 经济学考试助攻
(a) State May’s theorem and provide an explanation – including definition and discussion – for each of the axioms. (3 points)
(b) Explain the Condorcet method and provide an example to illustrate the concepts of “Condorcet paradox”, “agenda manipulation” and “strategic voting”. (4 points)
(c) With strategic voting can an example be given in which an agenda is constructed so that a Condorcet winner is defeated? (3 points)
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