12. Exam Practice
All 4 exam papers with step-by-step solutions and interactive charts
Exam 1: ENPI 2025 - Q1 (Covid Vaccination) [10 pts]
Given: Covid-19 vaccination in competitive market. Equilibrium: cost = 2000 LE, vaccinated = 60% (60M of 100M). MEB = 600 LE. No MEC. Efficient level at 80% (80M), efficient price = 1700 LE.
Market equilibrium: Where MPB = MPC (Supply = Demand)
Q* = 60 Million (60% of 100M), P* = 2000 LE
At this point, the market price reflects only private costs and benefits.
Efficient point: Where MSB = MSC
Q_efficient = 80 Million (80% of 100M), P_efficient = 1700 LE (on MSC curve)
Since no external cost: MSC = MPC. So the efficient price = MPC at Q=80M = 1700 LE.
MSB at Q=80M = MSC at Q=80M = 1700 LE.
MPB at Q=80M = MSB - MEB = 1700 - 600 = 1100 LE.
Corrective Subsidy = MEB = 600 LE per vaccination
This is a positive externality (vaccination benefits non-vaccinated people). The government should subsidize to encourage more vaccination.
The subsidy shifts the demand curve up from MPB to MSB = MPB + 600.
Consumer price: 1700 - 600 = 1100 LE (market price minus subsidy)
Producer price: 1700 LE (receives full market price at efficient point)
Government cost: 600 LE x 80M = 48,000 Million LE = 48 Billion LE
Efficiency gains: Triangle = \(\frac{1}{2} \times (80M - 60M) \times 600 = \frac{1}{2} \times 20M \times 600 = 6{,}000M\) LE = 6 Billion LE
Exam 2: 2025 Other Exam - Q1 (Positive Ext, Decreasing MEB) [10 pts]
Given: Product in competitive market. No external cost. Has external benefit (MEB decreasing). Fill the blanks:
| Units | MPB | MPC | MEB | MSB | MSC |
|---|---|---|---|---|---|
| 10 | 100 | 10 | 45 | ||
| 20 | 40 | 120 | 20 | ||
| 30 | 60 | 35 | 95 | ||
| 40 | 70 | 30 | 70 | ||
| 50 | 20 | 0 | 80 | ||
| 60 | 0 | 90 | 0 |
Solution:
Patterns: MPB decreases by 20 each step: 100, 80, 60, 40, 20, 0. MPC: 10, 20, 60, 70, 80, 90. MSC = MPC (no ext cost). MSB = MPB + MEB.
Market equilibrium: MPB = MPC at Q=30, P=60 (both = 60)
Efficient point: MSB = MSC at Q=40, P=70 (both = 70)
Government policy: Corrective subsidy = MEB at Q=40 = 30
Producer price after subsidy: 70 (on MPC at Q=40)
Consumer price: 70 - 30 = 40 (= MPB at Q=40)
Efficiency gains: \(\frac{1}{2} \times (40-30) \times (95-60) = \frac{1}{2} \times 10 \times 35 = 175\)
Exam 3: July 2024 Final - Q2A (Negative Ext, MEC=$20)
Given: Same as Section 7 numerical example. Fill the table, find equilibrium and efficient point.
| Units | MPB | MPC | MEC | MSB | MSC |
|---|---|---|---|---|---|
| 10 | 80 | 20 | |||
| 20 | 70 | 30 | |||
| 30 | 60 | 40 | |||
| 40 | 50 | 50 | |||
| 50 | 40 | 60 | |||
| 60 | 30 | 70 |
MEC = 20 (constant), MSB = MPB (no ext benefit), MSC = MPC + 20
Equilibrium: Q=40, P=50. Efficient: Q=30, P=60. Tax=20. DWL=100.
Exam 4: Alex 2024 - Q1 (Same as ENPI 2025)
This exam's Q1 is identical to the ENPI 2025 Q1 (Covid vaccination). See Exam 1 solution above for the complete answer.
Summary: Equilibrium: Q=60M, P=2000 LE. Efficient: Q=80M, P=1700 LE. Subsidy=600 LE. Consumer price=1100 LE. Producer price=1700 LE. Efficiency gains = 6 Billion LE.