Problem Set #1.

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Feb 20, 2024

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Economics 211 - Problem Set #1 (Due September 29 th ) 1) Tina grew up in Campbell River and started her studies at VIU this fall. To help save money she decided to live at home. Discuss the opportunity costs of her decision on choice of residence. The opportunity costs means in this situation is what she did not take from her other options. In this situation she could have lived on campus or any place close to VIU. This would help her to save 2 to 4 hours each day. When she save time, she meet with other student to work on homework assignments. Also, she could use this time to work and probably getting lots of money. 2) Draw the marginal benefit curve for the consumption of candy and explain the shape that you chose to represent. In this cause I would draw a very sharp curve. Eating a little pieces of candy can become quickly satiated. Also, It can quickly give you a stomach ache and it can cause tooth decay, diabetes or other health problem. Even if candy was free most, people would eat a relatively small amount. This causes marginal advantage to reduce rapidly when quantity increase. Also , some people would actually derive negative benefit from it MB Quantity

3) For each of the following state the effect each scenario would likely have on demand or quantity of lumber demanded. a) The American housing market is starting to rebound and the number of new homes being built skyrockets. When we see increase’s in homes that are being built which requires lumber. This should increase demand b) The cost of logging permits falls leading to a lower price for lumber. In this situation there is a change in the price of lumber. This can lead to an increase in quantity of demand. No change in demand. c) The cost of steel and concrete skyrockets. These are substitutes for lumber in construction . If the cost of theses skyrocket is expensive, it may increase demand for lumber d) The show Canada’s Handyman Challenge has inspired many Canadians to pick up wood working as a hobby. This is a alteration in preferences making people willing to pay more for lumber. This is an increase in demand e) The wages of loggers is increased leading to a higher price for lumber. This is a change in price not preferences . Therefore, the quantity demanded decrease but demand stays the same

4) The Nanaimo Swim Center is pondering raising the price of admission from $6 to $6.60 to increase revenues. The managers survey the community and estimate that the number of paid admissions would fall by 20 percent. Calculate the price elasticity of demand using the point formula and state whether this fee increase would increase or decrease revenues. Elasticity of demand = %change in quantity/ change in price ∆ 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦 E demand = ΔQunatityinitial Δ price = − 0.20 $ 0.60 = − 0.20 0.10 = - 2 Price initial The elasticity = -2 which is less than -1. This means that demand is elastic and that rate increase will actually decrease revenue. 5) The following equations describe demand supply and supply for kayaks in Nanaimo: Supply = 3P-300 Demand = 3700-2P Using this information draw the supply and demand curves and calculate the equilibrium quantity and price for kayaks in Nanaimo. 3P-300 = 3700-2P 5P 4000 5 = 5 P=800 Supply: 3(800)-300=2100 Demand: 3700-2(800)=2100 Supply $ Price equilibrium Demand Quantity equilibrium

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6) Discuss and show graphically how the supply and quantity of tomatoes would change due to the following events: a. Farm workers organize a union and bargain for a $2/hr wage increase. Supply decreases thus causing an increase in cost of production which increases in wages and a decrease in quantity. b. New innovations in hydroponics and greenhouses make it cheaper and easier to produce tomatoes year-round. Supply and quantity increases and it will cause the price to decline because of the cost of production is decreased. Supply1 Price Supply2 Quantity Price Supply1 Supply2 Quantity

c. Tomatoes become much more popular and everyday usage expands greatly. Supply and quantity increases and it will cause the price to decline because of the usage expands. d. The late summer and early fall is marked by frequent rains and extremely cold nights. Supply decreases thus causing an increase in price and a decrease in quantity. e. The cost of fertilizer falls sharply. Supply and quantity increases and it will cause the price to decline because of the cost of production is decreased. Supply1 Price Supply2 Quantity Price Supply1 Supply2 Quantity Supply1 Price Supply2 Quantity

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