1. "Water is so precious for life, and without it everything dies. Therefore, we must treat it with

care and look after it. Unfortunately, we abuse water. We waste it watering our lawns, flushing

out toilets, and washing our cars." If water is so valuable, why are we so frivolous with it?

2. Children are fond of asking parents "What's your favorite 'blank' ?"Where they may be asking

about a color, television show, or morning cereal. What notion of value are they implicitly

using? If you ask a child, however, what is their favorite toy, friend, or parent(!), they often

say "all of them are my favorite". What notion of value are they using in this answer and why

would they give this answer?

3. Suppose that a large company owns an underground parking lot that has spots currently

worth $200/month. Initially the company provides the parking for free to its employees with

the condition that they are not allowed to sublet the spot. After a change in management, the

company removes the free parking privileges and charges the employees $200/month for the

spot. If there are only two types of cars (good cars that rent for $1000/month and bad cars

that rent for $500/month), what would you predict would happen to the average quality of car

parked in the lot after the increase in fee?

4. What does the law of demand predict will happen to the number of abortions when abortion

is made legal? How would you respond to the comment: "the law of demand doesn't apply to

desperate women seeking an abortion."?

5. In the 1970s the United States adopted a policy to reduce speed limits to 55 miles per hour

on its freeways in order to save fuel. Speed limits on secondary roads were not changed. If we

think of the cost of using different roads simply in terms of the amount of time it takes to get

from point A to B, what did this policy do to the relative price of using freeways versus using

secondary roads? Driving on freeways is much safer than driving on a secondary road. What

impact do you think the 55 mph speed limit had on the overall death rate from car accidents

in a given state?

6. Every country in the western world has some type of safety net system to help the poor. In

creating such laws it is necessary to define who the poor are. In an effort to obtain the money

in such plans, what types of substitutions do you think will be made by some individuals if

the poor are defined as:

a. individuals with an income less than $13,000.

b. single parents.

c. blind people.

7. Provide a law of demand type explanation for why urban families have fewer children than

rural families.

8. Why do you think women and seniors are more likely to participate in volunteer activities like

churches, the red cross, and fraternal societies, than men and people under 65?

9. Most life insurance policies are void if the policy holder commits suicide within a short time of

obtaining the policy. These probation periods are usually either 12 or 24 months. How many

months after a policy has been taken out do you think coincide with the highest for number

of suicides? Which number of months do you think have the lowest?

10. We often hear expressions like "free to choose"; economics is often called "choice theory"; in

religious circles there are debates about "freewill". Given our basic principles of economics

would you say that individuals have freewill? How would you reconcile this with the following

quote from a national newspaper regarding the sensational Lorenna Bobbit marriage case:

"Lorenna Bobbit had no choice but to cut off her husband's penis. She was abused from the

beginning of the marriage, and enough was enough."

11. "It wouldn't matter if you raised the price of gas to $5 per gallon, consumption of gas would

not change, because people need gas." Does this make any sense? Use a graph in your answer.

12. British Columbians have the highest per capita use of real Christmas trees than any one else

in North America. The head of the Christmas Tree Grower's Association says this is due to

"our love of real trees". What is a better explanation

13. The ancient mariner said "Water, water, everywhere, and all the boards did shrink. Water,

water, everywhere, nor any drop to drink." (For those of you who don't know, the mariner

was on the ocean.) Would there have been a water-diamonds paradox for the ancient mariner?

Explain.

14. When I lived in Seattle I attended the University ofWashington Husky football games regularly.

Now that I live Vancouver B.C. (100 miles away), what do you think has happened to (i) the

quantity of live Husky games I attend and (ii) the quality of seat I now sit in? Briefly explain

your answer.

15. It has been reported that Canadians on average spend more money on perfume than they

do on post secondary education. Would this mean that Canadian's value perfume more than

education?

16. In Spain good sandals cost $6, while cheap ones cost only $3. Spanish sandals, however, are

subject to a $12 duty and shipping fee when brought into Canada. Predict the relative consumption

of good and cheap sandals, here and in Spain. What about the relative consumption

of sandals to other goods, here and in Spain?

17. At some public hearings over their decision to allow various firms to use "dirty" fuels, like coal,

as a substitute for natural gas. At a hearing a spokesman for the Canadian Lung Association

got up and said "When you can't breath, nothing else matters". In what sense was this person

confusing marginal and total value. Draw a graph to explain your answer, and be careful to

indicate what is on the demand curve.

18. It is often observed that when a "war on drugs" takes place, the number of deaths by overdose

increases. How is this a subtle implication of the law of demand?

19. Fact number one: the price of gas throughout most of the 1990s was about $2 per gallon;

in 1980 the price was about $1.20 per gallon; and in 1972, the price was about 40 cents perfour cylinder engines (Pintos, Hondas, Toyotas, etc.). Fact number three: in the 1990's there

was a large movement towards larger vehicles with six and eight cylinder motors (eg. SUVs,

Vans, Suburbans, etc.). Why would there be in increase in the demand for large gas consuming

vehicles when the price of gas increased? Make sure this answer can also explain why there

was a move towards small vehicles in the 1970s.

20. Suppose that in 1985, the prices of steak and potatoes were, respectively, $3 and $.50 per pound.

In 1995, after some inflation, the prices became $4 and $.60, respectively. If we ignore income

effects and assume there are no other goods, would you expect this person's consumption of

steak and potatoes to have changed?

21. I get paid, like most people, once every two weeks. Like most people, I spread my income

around so that I consume about the same everyday. I don't go from "feast to famine". Using

the appropriate graph, show why this behavior is consistent with economic principles.

22. Prior to unleaded gasolines all cars used leaded gas, with the more expensive gas containing

more lead. It turned out that lead was a major pollutant, and in the 1960's, in an effort to

mitigate pollution a tax of $.10/gallon was placed on all gas in the hope that it would reduce

the level of gas consumption and lower the amount of pollution. Can we say, unambiguously,

that such a tax would lower pollution from leaded gasoline? Why or why not?

23. Joe's, and poor student, has a demand for meat given by

Price. 12 11 10 9. 8 7 6 5 4

QuantityDemanded 1 2 3 4 5 6 7 8 9

In the market place the price of meat is $8. However, the government has introduced a "meat

stamp" subsidy program for students. Students can purchase $1 of meat stamps for $.50. Each

student is limited, however, to how many meat stamps they can buy. At most Joe can buy $80

worth of meat stamps (for $40).

a. Assuming Joe cannot trade meat and meat stamps (that is, he must use them for his

own meat consumption), how much meat will Joe buy and at what total expenditure?

b. What is the consumer's surplus to Joe of being able to purchase meat stamps? That is,

how much better off is Joe when he is allowed to buy the meat stamps?

c. If Joe can resell the meat stamps to non-students, how much meat will Joe buy?

d. Which case would Joe prefer, the case where he must use the stamps, or the case where

he is allowed to sell them? Why?

24. Once I took my children skating. Afterwards my eldest daughter bought a hot chocolate, and

by the time we reached the car, she still had not finished. "You'd better not spill that in my

car" I told her. Sure enough, 5 seconds later, she spilled the drink on her lap and on the seat.

I got angry, and she replied, "You love your car more than you love me!" I responded that this

was partly true, and then told her why. What economic concepts did I tell her about?

25. Video Jones (VJ) likes to play arcade games. There are two arcades in the town where he

lives. No other close substitutes are available. Arcade A and Arcade B differ only with respect

to the way they price their games. Arcade A charges 50 cents per game, with no admission

charge. Arcade B charges 40 cents per game after customers pay a weekly admission fee of $5.

Reproduced below is a portion of VJ's demand schedule for arcade games.

Price . Games/Week

$.55. 25

.50. 50

.45 75

.40 100

.35 125

a. In order to gain the most from his purchase of arcade entertainment, which arcade should

he patronize? (Assume VJ's demand schedule is not affected by payment of a weekly fee.)

b. Suppose Arcade B raised the weekly admission fee to $11. If VJ purchased from Arcade

B, would he receive any consumer surplus? In this case would he purchase from Arcade

A or Arcade B?

26. Does the fact that garbage men make more money than the average high school teacher mean

that society values garbage removal more than education? If not, what does it mean?

27. Many seminars are presented by job candidates for faculty positions in the economics departments

of North American universities. Typically, several current faculty members go out to

dinner with the candidate after the seminar. If the department were to subsidize this activity

by reimbursing current faculty a flat amount, say, $15.00 per dinner, how would this affect:

a. The number of dinners attended by faculty?

b. The quality of the dinners, ie. would the subsidy lead to consumption of more costly, or

less costly dinners?

28. "In 1979-80 the Vancouver real estate market went crazy. People would buy properties, the

price would rise, then they would buy more. The demand for housing was upward sloping!"

What's a more reasonable explanation that is consistent with the law of demand?

29. Explain the economics behind the following quote from the newspaper: "Among the reasons

for a larger, more expensive home is the lot cost. Just two years ago, lots in some areas sold

for $60,000. It doesn't make sense to build a $50,000 home on lots that cost up to $150,000

today."

30. Parent use a number of methods to discipline their children. Two long standing methods are

to spank or withhold goods. How do you think the frequency of spanking varies with income

within the family? (Hint: What happens to the number and quality of goods to withhold as

income changes?)

31. In Joni Mitchell's 1973 hit song Big Yellow Taxi she has the famous lyrics:

Don't it always seem to go

That you don't know what you've got till it's gone?

They paved paradise and put up a parking lot.

How would you interpret these sentiments using the economic ideas discussed in this chapter?