Question 1- Chapter 1 (10 marks)

Answer the following question as per your understanding about this topic:

In 2000, the Government of Ontario reform the province's welfare system. The reform reduced the amount of welfare payments to a person with no income, but also allowed welfare recipients to keep a larger part of their welfare paymentsif they did earn some income.

A)How does this reform affect the incentive to work? (5)

B)How might this reform represents the trade between equity and efficiency?(5)

Question 2 - Chapter 2 ( 20 marks)

Using the general functional form for a linear demand curve, QD= a-bP, and the data in table 2 :

TABLE 2

Books Purchased by Sandra

Income

Price $

$20000

$30000

$40000

10

2 books

5 books

8 books

9

6

9

12

8

10

13

16

7

14

17

20

6

18

21

24

5

22

25

28

Demand curve D3

Demand curve D1

Demand curve D2

A)Determine the values for a and b for Sandra when her income is $20000. (4)

B) Determine the x- and y-intercepts of this demand curve. (4)

C)Determine the slope of demand curve.(2)

D)Draw it on a diagram along with the demand curves when her income is $30000 and $40000, identifying the x- and y-intercepts in each case. (10)

Question 3- Chapter 3 ( 25 marks)

Suppose that in a year, a Canadian worker can produce 100 shirts or 20 computers, while a Chinese worker can produce 100 shirts or 10 computers.

a. Graph the production possibilities curve for the two countries. Suppose that without trade, the workers in each country spend half their time producing each good. Identify this point in your graph. (5)

b. If these countries were open to trade, which country would export shirts? Give a specific numerical example and show it on your graph. Which country would benefit from trade? Explain. (10)

c. Explain at what price of computers (in terms of shirts) the two countries might trade. (5)

d. Suppose that China catches up with Canadian productivity so that a Chinese worker can produce 100 shirts or 20 computers. What pattern of trade would you predict now? How does this advance in Chinese productivity affect the economic well-being of the citizens of the two countries? (5)