Econ 247 Assign1 A Revised

Topics: Supply and demand, Consumer theory, Opportunity cost Pages: 9 (2040 words) Published: February 14, 2015
Economics 247 Assignment 1 Version A

This assignment has a maximum total of 100 marks and is worth 10% of your total grade for this course. You should complete it after completing your course work for Units 1 through 5. Answer each question clearly and concisely.

1. a.Define opportunity cost, and explain its importance in economics. (3 marks)

Opportunity cost is whatever must be given up to obtain something. It is fundamental to economic reasoning because it shows that people face trade-offs and the opportunity cost helps us decide what decisions to make.

b. The province of British Columbia hosted the 2010 Olympic Games and invested millions of dollars in improvements to facilities for these events. How would one determine the opportunity cost of the 2010 Olympic Games? (4 marks)

The opportunity costs could be determined by looking at the amount of money invested versus the lasting economic value that it could bring to the province such as tourism, consumerism and notoriety. They must look at what they could have possibly done with the money spent on the Olympics and determine if it would have been more beneficial to invest it elsewhere.

2. Use the graph below to answer the questions that follow. (2 marks each)

a. What type of curves are these? Do these curves show a positive or negative correlation between price and quantity?

These curves are demand curves. They show a negative correlation between price and quantity because as the demand increases the price decreases, thus the demand curve slopes downwards.

b. Calculate the slope of the curve between points A and C. (Please show your work.)

24.00 drops to 16.00 = -8.00
Qty increases from 20 to 40 = +20
-8/+20 = -0.4

c. Explain the difference between a “change in quantity demanded” and a “change in demand.”

A change in quantity demanded means there is a movement along a fixed demand curve that occurs when the price changes.

A change in demand means that there is a shift in the demand curve that occurs when a non-price determinant changes, such as income or number of buyers.

3. Which of the following statements are positive, and which are normative? (1 mark each)

a. The minimum wage creates unemployment among young and unskilled workers. Positive statement

b. The minimum wage ought to be abolished.
Normative statement

c. If the price of a product in a market decreases, other things equal, quantity demanded will increase. Positive statement

d. A little bit of inflation is worse for society than a little bit of unemployment. Normative statement

e. There is a tradeoff between inflation and unemployment in the short run. Positive statement

4. Use the graph below to answer the questions that follow. (2 marks each)

a. Analyze the effect a $300 price ceiling would have on the market. What would be the size of the shortage or surplus? Would this be a binding price ceiling? Why or why not? Because the $300 price ceiling is below equilibrium price, the $300 price ceiling would be binding and would cause a shortage of $4000.

b. Analyze the effect a $700 price floor would have on this market. What would be the size of the shortage or surplus? Would this be a binding price floor? Why or why not? Because the $700 price floor is above equilibrium price, the $700 price floor would be binding and would cause a $4000 surplus.

c. List and explain two reasons why policymakers would choose to impose a price ceiling or price floor. Price ceilings are imposed so they can set a limit on how high a price for something can go for. A price floor is to set a limit on how low something can be sold for. One example of a price ceiling is rent control, which makes housing more affordable to those with less means. An example of price floor is minimum wage, which dictates the lowest price an employer may pay an employee.

5. The following table shows the quantities of ice cream cones...
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