1. Briefly describe the term "Scarcity" and provide two practical examples of this concept. What does Scarcity force people to do? Please explain...

2. Amber has $150 to provide for one of two spending choices: (a) A new Economics textbook or (b) A ticket to a Sean Mendes concert...

a. If Amber decides to go to the concert, what accounting and opportunity costs does she face? Please explain...

b. What is Amber's opportunity cost of buying the textbook?

c. Is there any way that she can avoid facing an opportunity cost? Explain...

3. Mu Ying has recently received a $40 000 inheritance from her father. She has considering using the money in three possible ways (in no particular order of preference):

a. Invest it in a Registered Retirement Savings Plan (RRSP)

b. Purchase a new car

c. Pay off her education debt from going through law school

Questions:(i) What are Mu Ying's accounting and opportunity costs if she decides to pay off her education debt? Please explain...

(ii) Suppose once again that Mu Ying decides to pay off her debt, but she reveals that she prefers purchasing the new car to invest in the RRSP. What is the opportunity cost of paying off her education debt in this case? Explain...

(iii) Is it possible for Mu Ying's opportunity cost of paying off her debt to be both the new car and investment in the RRSP? Explain...

4. During the Pandemic, several governments have announced lockdowns during the past few months, where businesses are shut down and people are asked to remain at home. What are some Marginal Benefits of lockdowns and Marginal Costs of lockdowns? Using Marginal Analysis, how can the government justify the use of lockdowns? Explain...

What Economists Do

5. Which of the following topics relate to Microeconomics or Macroeconomics? Please explain...

a. An increase in the minimum wage (all else equal) reduces the demand for workers in several fields

b. An increase in the price of graphite raises the price of tennis racquets

c. Lower interest rates increase the demand for goods and services, which raises Gross Domestic Product (GDP)

d. The effect of an increase in public transit prices on the demand for public transit riders

6. Consider the following economic model of New Home Sales in the Greater Toronto area:

New Home Sales (H) = { Location (L), Price of New Homes (P), Mortgage rates (r), Population (POP), Income (Y), Advertising (A) }

a. Briefly outline the Independent and Dependent variables in this model

b. Use the above model to state one theory that shows a positive relationship and offers an inverse relationship. Explain any assumptions that are made.

c. Using the above model, an economist proposes the following theory:

"As income increases, new home sales will increase as well."

Briefly explain why the "Ceteris Paribus" Assumption is essential in such a theory...

7. Draw graphs of the following relationships (Hint: first decide which variable is dependent/independent, then consider the relationship between the variables):

a. Labour time and Leisure time (all else equal)

b. A firm's costs and profits (all else equal)

c. Economic output (production) and the level of capital(all else equal)

d. The price of apples and consumer demand for oranges (all else equal)

Consumer Choice Model:

8. Melinda earns $400 a month from her part-time job. She buys only two goods: X and Y. Good X costs $20 each, and good Y costs $40 each.

a. Using a chart, illustrate Melinda's budget constraint.

b. Give one example of an allocation that is unaffordable for Melinda. Explain why.

c. Draw a graph of Melinda's budget constraint. Explain how it illustrates the concept of Scarcity.

Production Possibilities Frontier (PPF) Model:

9. A small economy has a given amount of land, labour (25,000 workers) and capital (machinery and tools). Suppose that an economy produces only two goods during the Pandemic: Vaccines (Va) and Vitamins (Vi). Below is a table that shows the production possibilities faced by the economy:

Allocation.............................Vaccines (per week).....................Vitamins (bottles per week)

A 0 75

B 10 70

C 20 60

D 30 45

E 40 25

F 50 0

Questions:

a. Use the table above to produce a diagram of the economy's production possibilities frontier (PPF) for Vaccines and Vitamins. Label Vaccines on the X-axis and Vitamins on Y-axis.

b. If all resources were allocated to the production of Vaccines, how many could be produced? If all resources were given to the production of Vitamins, how many could be made? Label the Specialization Points on the diagram.

c. List the four assumptions associated with the PPF model

d. Calculate the opportunity cost of...

1. Increasing the output of Vaccines from 20 to 30 per week
2. Increasing the production of Vaccines from 40 to 50 per week
3. Increasing vitamin production from 25 to 45 per week
4. Increasing vitamin production from 70 to 75 per week

e. What is meant by the Law of Increasing Opportunity Cost? Use the table above to illustrate this Law...

f. Explain how each of the following will affect the PPF you drew in part (a)...

1. There is an increase in labour due to the rise in immigration (all else equal)
2. A new technological method allows vaccines to be produced more quickly (all else equal)

Demand/Supply Model:

• Consider the following demand/supply schedules for Whey Protein Powder, used to build muscle in weight training.

Price (P)................ Quantity demanded.................. Quantity Supplied................Surplus/Shortage

($/Pound) (Pounds/month) (Pounds/month)

40.00.................................0.............................................. 600

35.00...............................100.............................................500

30.00............................... 200............................................400

25.00................................300............................................300

20.00.................................400...........................................200

15.00..................................500...........................................100

10.00..................................600..............................................0

Questions:

a. Draw a diagram of the market for Whey protein powder, showing the demand and supply curves.

b. What is the equilibrium price and quantity of Whey powder exchanged in the market?

c. Suppose that the local health store decides to charge $20 per pound for Whey powder? Is there a surplus or shortage at this price? Explain. How would the market price adjust as a result?

d. Explain how each of the following changes would affect either the demand or supply side of Whey protein powder. Draw a separate diagram for each case and show the effect on equilibrium price and quantity...

1. There is an increase in income (all else equal)

• The price of whey used to produce the protein powder increases (all else equal)

1. Gyms reopen after Covid-19 is under control (all else equal)
2. There's a decrease in the price of Soy protein powder, a substitute in consumption for Whey protein powder (all else equal)
3. There's an increase in the price of whey protein powder (all else equal)

• Distinguish between a change in quantity demanded and a change in demand. Provide diagrams and a written explanation...
• An economist notices that the equilibrium price of apples has decreased, and more apples are exchanged in the market. Did a shift in demand or supply cause this change? Use a diagram to explain...