1) This question examines a number of economic decisions you might face in the course of a standard day.
Imagine that you are a 40 year old man with a wife and 5 children. It's 7:00AM. You and your wife wake up and realize that you only have 30 minutes to get all of your children dressed and make each of them a lunch before they have to leave the house to catch the school bus. Your children cannot help each other or do these tasks for themselves.
It takes your wife 5 minutes to make a single lunch and 3 minutes to dress a single child. It takes you 15 minutes to make a lunch and 10 minutes to dress a child.
a) How do you assign the tasks between the two of you to get the job finished in time? What economic concept does your solution demonstrate? With that crisis behind you, you head off to work. Towards the end of your shift your boss asks you to work an extra hour. He promises that you will get paid overtime wages (1.5 times your normal wage) for working later.
b)
i) What is the opportunity cost of working the extra hour?
ii) Even if it was not the law, why would firms find it necessary to pay overtime wages?
iii) Briefly sketch this scenario using a supply and demand curve for a labour market.
On your way home from work your wife calls and asks you to pick up some American dollars from the bank for your trip to Minnesota next week. While driving to the bank you listen to the radio and here two pieces of news:
i) The Canadian federal government plans to run a series of large deficits.
ii) McDonald's in the US is introducing a new Canadian maple syrup hamburger.
c) With these pieces of information now available to you do you speed up to get to the bank earlier or decide to wait a few days before getting the US currency?
After a long day, you finally arrive home. Bad news, your wife's car has broken down and is not able to be repaired. You decide to buy a used car. You know that there are two types of used cars available out there, good quality cars and bad quality cars, but you cannot distinguish between the two. You are willing to pay $6,000 for a good quality car and $2,000 for a bad quality car. You also know that sellers of used cars are willing to accept nothing less than $5,000 for a good quality car and $1,000 for a bad quality car. The only thing you are unsure of is the proportion of bad quality cars in the market.
d) If you think the proportion of bad quality cars out there is 0.5, how does this affect what you are willing to pay and the outcome of the market?
e) If you think the proportion of bad quality cars out there is 0.2, how does this affect what you are willing to pay and the outcome of the market?
2) This questions looks at the market for laptop computers in Canada. The demand curve is given by the following equation:
P = 2000 - 0.25Q
The supply curve is given by the following equation:
P = 400 + 0.15Q
Where P is the price of a laptop and Q is the number of laptops sold. Assume initially that Canada doesn't import or export laptops.
a) Graph the demand and supply curve for laptops in Canada.
b) Determine the equilibrium price of laptops and equilibrium quantity of laptops sold in Canada. Indicate this on your graph.
c) Calculate the consumer surplus and producer surplus for this market.
d) Suppose Canada began trading laptops internationally. Assume that the global price for laptops was $800. On a new graph, graph this situation and answer the following questions:
i) What is the new price of laptops in Canada?
ii) How many laptops are purchased by Canadians? How many laptops are provided by Canadian firms? How many laptops are imported?
iii) Calculate the Producer Surplus, Consumer Surplus, and Deadweight loss for this scenario, and indicate these on your graph.
e) Suppose the government restricted imports of laptops to 1000 units. On a new graph, graph this situation and answer the following questions:
i) What is the new price of laptops in Canada?
ii) How many laptops are purchased by Canadians? How many laptops are provided by Canadian firms? How many laptops are imported?
iii) Calculate the Producer Surplus, Consumer Surplus, and Deadweight loss for this scenario, and indicate these on your graph.