ECON 247: Assignment 1A
- In each of the following situations, identify the relevant economic principle and explain how it applies. (6 marks)
- Peter has lived in his own apartment for many years. However, rental costs have recently increased so much that Peter considers moving into a smaller apartment and renting out his own.
- Alfonso is a talented singer and he strongly wants to pursue an artist’s career. However, he is two years short of graduating from law school. He is certain he will never be a lawyer because he does not like it and has no talent to be a lawyer. However, his family insists he finish his studies, since he has already spent so much time and money on law studies. What should he do?
- There are a few industrial sites in town that produce essential goods and services for residents and provide citizens with jobs. However, the businesses, including an airport in the downtown core, also produce pollution, congestion, and noise. People understand the blessings of economic and civil freedoms and are pleased and proud to have productive activities in their town. However, they also crave a more pleasant place in which to live. What economic principle can give these people some guidance about what to do?
- a. Identify each of the following topics as being part of microeconomics or macroeconomics: (4 marks)
- the impact of a change in consumer income on the purchase of vacation properties
- the effect of an increase in the money supply on interest rates
iii. the effect of a change in the price of eggs on the consumption of bread
- factors influencing the rate of economic growth
- Which of the following statements are positive and which are normative? (4 marks)
- If consumer income increases, other things being equal, the demand for automobiles will increase.
- Canadian workers deserve more liberal unemployment benefits.
iii. If the money supply increases, interest rates will fall.
- Students who study more are better students.
- Use the graph below to answer the questions that follow. (8 marks)
- What are the most efficient combinations of TV and XBox?
- What is the opportunity cost of moving from point C to point D?
- If this economy puts all of its resources into the production of Xbox, how many units could it produce?
- Is the production of TV and Xbox at point F efficient? Explain.
- Use the graph below to answer the questions that follow. Be sure to show your calculations. (16 marks)
- What would the equilibrium price and quantity be?
- Suppose the price is currently at $2. What problem would exist in the economy? What would you expect to happen to price? Explain your answer.
- Suppose the price is currently $5. What problem exists in the economy? What would you expect to happen to price? Explain your answer.
- What is the slope of the demand curve between point A and point E?
- Using the midpoint method, calculate the elasticity of demand if price changes from $5 to $2. Is this elastic or inelastic?
- Using the midpoint method, calculate the elasticity of supply if price changes from $2 to $ 3.50. Is this elastic or inelastic?
- Explain the effect a $2 price ceiling would have on the market for eight units. Would this be a binding price ceiling?
- Why would policymakers choose to impose a price ceiling or price floor?
- Recently, in Smalltown, the price of Twinkle snack cakes fell from $1.80 to $1.50. As a result, the quantity demanded of Giggle snack cakes decreased from 210 to 170.
- What would be the appropriate elasticity to compute? Compute this elasticity. What does your answer tell you? (5 marks)
- List and explain the two determinates of the price elasticity of supply. (4 marks)
- Evaluate the following statement “If two items are complements in production, an increase in the price of production complement will increase the supply of the item in question.” (4 marks)
- Suppose we are analyzing the market for coffee. For each of the events given below, state whether the demand curve and/or the supply curve would shift, provide reasons for the shift, and indicate the effect on the equilibrium price and equilibrium quantity. (12 marks)
- The price of tea, a substitute for coffee, falls.
- The price of coffee beans decreases.
- A better method of harvesting coffee beans is introduced.
- Consumer income falls because of a recession, and coffee is considered a normal good.
- Farmers expect the price of coffee beans to increase next month.
- Currently, the price of coffee is $2.50 per cup above equilibrium.
- a. What is the difference between a "change in supply" and a "change in quantity supplied"? (4 marks)
- Suppose the domestic supply and demand for leather boots in Canada are given by the following equations: QS = 25 + 10P and QD = 925 – 5P. What is the market equilibrium price and quantity? (6 marks)
- a. Consider the following two statements: i) “A tax that has no deadweight loss cannot raise any revenue for the government,” and ii) “A tax that raises no revenue for the government cannot have any deadweight loss.” Which one, if any, is correct? Explain your answer. (7 marks)
- The Coase theorem suggests that efficient solutions to externalities can be achieved through bargaining. Under what circumstances does this fail to produce a solution? (3 marks)
- Comparing a progressive tax with a lump-sum tax, which one is more efficient? Which one is more fair? Why? (7 marks)
- Suppose Canada and Jordan only trade with each other, and they both produce the same two goods: meats and tomatoes. Given their resources, Canada can process either 200 tonnes of meat per day or 230 tonnes of tomatoes. Jordan can process either 80 tonnes of meat or 160 tonnes of tomatoes. (10 marks)
- Which country has the absolute advantage in producing in both goods? Why?
- What is the opportunity cost of producing one tonne of meat in Canada?
- What is the opportunity cost of producing one tonne of meat in Jordan?
- Which country has the comparative advantage in producing meats? Why?
- Which country has the comparative advantage in producing tomatoes? Why?
