ECON 1001X Assign 1 2020 21f (1)

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1 Mount Allison University Principles of Microeconomics (ECON 1001X) Self-directed Distance Learning Academic Year 2020 – 2021 (Spring 2021) Assignment 1 (Based on Chapters 1-3) Question 1 Indicate whether each of the following statements applies to microeconomics or macroeconomics: 1.1 Suppose that Royal Bank of Canada hired 200 employees in April 2021. 1.2 The prime rate in Canada was 2.45 percent in April 2021. 1.3 The consumer price index in New Brunswick was 139.6 in March 2021. Question 2 Determine whether each of the following statements is positive or normative. 2.1 Canadians currently have too much personal debt. 2.2 Financial aid to developing countries has no impact on per capita GDP in those countries. 2.3 It is unfair that Canadians have universal access to health care but not to dental care. Question 3 Assume you have the following information for the global market for agricultural commodity X . For each scenario, use demand and supply analysis to provide a likely explanation for the change in market equilibrium. The prices are per bushel and the quantities are millions of bushels. Scenario April 2020 April 2021 A P * = $142 Q * = 315 P * = $180 Q * = 315 B P * = $142 Q * = 315 P * = $128 Q * = 360 C P * = $142 Q * = 315 P * = $135 Q * = 275 D P * = $142 Q * = 315 P * = $142 Q * = 400

2 Question 4 Assume that the demand for a good is represented by the equation and supply by the equation , where and are quantity demanded and quantity supplied, respectively. In addition, shows the price that consumers would pay, and represents the price that producers would receive. Find the equilibrium price and quantity transacted in the market when there is no government policy. Question 5 In the following statements there is an example of one of the pitfalls often encountered in the study of economics. Indicate following each statement the type of pitfall involved. 5.1 “July is the month with the most ice cream sales and also the month with the most drowning. Therefore, the more ice cream people eat, the more likely they are to drown.” 5.2 “Dry weather in Sackville where Farmer Robinson lives decreased his income because his crop was so poor. Therefore, when there is dry weather in the nation as a whole all farm incomes will suffer.” Question 6 The following table shows hypothetical demand schedules for sugar for three separate months. To help make the distinction between changes in demand and changes in quantity demanded, choose the wording to make each of the following statements correct. Quantity Demanded for Sugar (in kilograms) Price/kg October November December $1.50 11,000 10,500 13,000 1.75 10,000 9,500 12,000 2.00 9,000 8,500 11,000 2.25 8,000 7,500 10,000 2.50 7,000 6,500 9,000 2.75 6,000 5,500 8,000 3.00 5,000 4,500 7,000 3.25 4,000 3,500 6,000 3.50 3,000 2,500 5,000

3 6.1 When the price of sugar rises from $2.50 to $3.00 in the month of October there is a(n) increase / decrease in ( demand / quantity demanded of ) Sugar of 2000kg. 6.2 We can say that the demand curve for sugar in December shifted ( to the right/to the left ) of November’s demand curve. This represents a(n) ( increase / decrease ) in demand for sugar. 6.3 An increase in the demand for sugar means that quantity demanded at each price has ( increased / decreased ), while a decrease in demand for sugar means that quantity demanded at each price has ( increased / decreased ). 6.4 In the month of December, a price change for sugar from $3.50 to $2.75 per kilogram would mean a change in ( demand for /quantity demanded of) sugar of 3000kg.

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4 Question 7 Suppose you want to create a price index for the price of a combo-burger across several Canadian university campuses, as of April 1, 2021. The data are shown as follows: University Price per combo-burger UNBF $4.86 Carleton 5.90 SFX 6.35 Lethbridge 5.12 Mount Royal 4.40 King’s University College 5.01 Regina 5.99 Acadia 6.19 Simon Fraser 6.65 Cape Breton 4.32 7.1 Are the data listed above time-series or cross-sectional data? Explain why. 7.2 Using Lethbridge as the “base university,” construct the Canadian university combo - burger price index. 7.3 At which university is combo-burger the least expensive, and by what percentage is the price lower than in Lethbridge? 7.4 At which university is combo-burger the most expensive, and by what percentage is the price higher than in Lethbridge? Question 8 8.1 Suppose you own a courier service and you use two types of delivery vehicles - Model A, which costs $30,000 to purchase, and Model B, which costs $50,000 to purchase. You have a budget of $300,000 for the purchase of new vehicles. What is the opportunity cost of one Model B vehicle? A) zero B) 3/5ths of a Model A vehicle C) 5/3rds of a Model A vehicle D) 5 Model A vehicles E) 3 Model A vehicles

5 8.2 Suppose Steve has a job that pays him $87,000 per year (after taxes). He is considering taking an unpaid leave of absence from his job to complete a 12-month MBA program. Tuition is $75,000 and books and materials will cost $5,000. Living expenses for the 12-month period will be cheaper by $500 per month, mostly due to lower apartment rental costs. What is the opportunity cost of Steve's 1-year MBA program? A) $75,000 B) $161,000 C) $76,000 D) $167,000 E) $175,000 8.3 Consider Canada's production possibilities boundary. Suppose a scientific breakthrough leads to a lower-cost method of producing battery-operated cars in Canada. The likely effect would be to move Canada's current production A) to a point beyond its new production possibilities boundary. B) to a point inside its new production possibilities boundary. C) possibilities boundary inward. D) above the level of U.S. production. E) possibilities boundary outward. 8.4 When discussing types of economic systems the Canadian economy is best described as A) primarily a public ownership economy. B) a mixed economic system. C) primarily free-market decision making. D) traditional. E) a command economy. 8.5 Choose the statement that best describes how endogenous variables differ from exogenous variables. A) An endogenous variable is explained within the theory, while an exogenous variable influences the endogenous variables but is determined outside the theory. B) An endogenous variable is a flow, while an exogenous variable is a stock. C) An endogenous variable is explained outside the theory and influences an exogenous variable while an exogenous variable is explained within the theory. D) An exogenous variable is a function of the endogenous variable, and both are flow variables. 8.6 Suppose there is a theory that several things influence the price of fish in Halifax, one of which is the weather during the fishing season. When examining the determinants of the price of fish, the weather is A) an endogenous variable, as it influences the price of fish. B) an exogenous variable, as it is determined outside the theory. C) a stock, as it influences the quantity of fish caught. D) an act of God and, therefore, has no legitimate connection with the theory. E) an endogenous variable, as it is determined within the theory.

6 8.7 The statement that a country's rate of economic growth is influenced by its firms' investment behavior is an example of a(n) A) variable. B) prediction. C) normative statement. D) theory. E) economic law. 8.8 The statement that a 2 percent increase in the money supply leads to a 2 percent increase in the price level is an example of a(n) A) prediction. B) assumption. C) normative statement. D) variable. E) model. 8.9 If we seek to explain the number of seats sold on a particular air route, say Toronto to Moncton, over a one-year period, we would consider many variables. Which of the following variables would be endogenous to our theory? A) the number of airline seats sold on this route B) the average salary of Canadian airline pilots C) the price of jet fuel D) the number of fog days in Moncton E) the unemployment rate in Toronto 8.10 When studying economic data, and when comparing the magnitude of changes in variables with different scales it is best to A) compare the absolute data on each variable. B) compare the relative data on each variable. C) express each variable as an index number. D) express each variable as a logarithmic number. E) use only time-series data. 8.11 According to the Bank of Canada's website, Canada's Consumer Price Index (CPI) in August 2012 was 121.8, August 2013 was 123.1, August 2014 was 125.7 and August 2015 was 127.3. Given this set of index numbers, what is the percentage change in the average level of prices between August 2012 and August 2015? A) 4.5% B) 127.3% C) 27.3% D) 121.8% E) 5.5%

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7 8.12 When considering how a family's level of consumption changes in response to changes in its income, A) income is the dependent variable and family consumption is the independent variable. B) consumption is the dependent variable and income is the independent variable. C) both of the variables are independent. D) both of the variables are dependent. E) there is no relationship between the variables. 8.13 Suppose Jack would spend $1200 per year on travel, even if his annual income were zero. As his income rises, he would spend 20% of each additional dollar of income on travel. Choose the correct mathematical equation that describes the functional relation between his travel spending (T) and his income (Y). A) Y = 1200 + 0.2T B) Y = 1200 - 0.2T C) T = 1200 + 0.2Y D) T = 0.2 + 1200Y E) T = 1200 + 0.8Y 8.14 Suppose there is a linear relationship between the ticket price ( P ) to a university basketball game and the number of tickets sold ( Q ). If the ticket price is $20, then 600 tickets are sold; if the ticket price is $8, then $3000 tickets are sold. What is the slope of the function if Q is plotted on the horizontal axis and P is plotted on the vertical axis? A) 0.005 B) -0.05 C) 0 D) 0.05 E) -0.005

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