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BROCK UNIVERSITY
Econ 1P91, Winter 2023
Department of Economics
Assignment 1

Due: At the beginning of your weekly tutorial the week of Jan. 22, 2024
Instructions: Hand in typed or neatly handwritten answers to the following questions. No
late assignments or emailed assignments will be accepted. Please put your name and
student number on your assignment. Total marks:50

1. In which situation would economists use the word equity? (1 mark)

a. Each member of society has the same income.

b. Society is getting the most it can from its scarce resources.
c. Those in society who have the least will receive the most.
d. The benefits of society’s resources are distributed fairly among society’s
members.

2. If an externality is present in a market, what may enhance economic efficiency? (1 mark)

a. government intervention b. increased competition

c. better informed market participants d. more defined property rights
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3. Refer to the above figure. At which point or points can the economy produce? (1 mark)
a. points B, D, and E b. points A, B, D, and E
c. points D and C d. point D

4. What will be the probable outcome if Honduras chooses to engage in trade? (1 mark)

a. It will only benefit if it trades with countries that produce goods it cannot
produce.
b. It cannot benefit if it trades with less developed countries.
c. It will only benefit if it trades with countries that are geographically close to
Honduras.
d. It can benefit by trading with any other country.

5. Henry decides to spend two hours swimming at the beach rather than working at his job,
which pays $16 per hour. What is Henry’s tradeoff? (1 mark)

a. the $32 he could have earned working for two hours

b. nothing, because he enjoys going to the beach more than working
c. the increase in skill he obtains from swimming for those two hours
d. nothing, because he spent $32 on new swim shorts

6. If the average income of a Norwegian is higher than the average income of a Belizean,
what is the most likely reason? (1 mark)

a. Productivity is higher in Norway than in Belize.

b. Norway has a more industrial economy than Belize.
c. There is more competition in Norway than in Belize.
d. Labour unions are more aggressive in Norway than in Belize.
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7. Refer to the above figure. What is the opportunity cost of moving from point A to point
B? (1 mark)

a. 8 bathtubs
b. 20 barrels
c. the difference between the 8 bathtubs you get and the 20 barrels you give up
d. the difference between the 20 barrels you get and the 8 bathtubs you give up

8. What is a marginal change? (1 mark)

a. a long-term trend
b. a large, significant adjustment
c. a change for the worse, and so is usually short term
d. a small incremental adjustment

9. According to economists, what do people respond to? (1 mark)

a. laws b. incentives
c. threats more than rewards d. positives, but not negatives

10. What are factors of production? (1 mark)

a. positive or negative changes in inventory

b. weather and social and political conditions that affect production
c. the physical relationships between economic inputs and outputs
d. inputs into the production process

11. The welfare system provides income for people who are very poor, with low incomes
and few assets. If a recipient of welfare payments decides to work and earn some money,
the amount he or she receives in welfare payments is reduced.

a. How does this affect the incentive to work? (3 mark)

b. How does this feature of the welfare system represent the tradeoff between equality
and efficiency? (3 mark)
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12. Explain whether each of the following government activities is motivated by a concern
about equity or a concern about efficiency. In the case of efficiency, discuss the type of
market failure involved.

a. regulating cable TV prices (2 marks)

b. providing some poor people with free prescription drugs (2 marks)
c. prohibiting smoking in public places (2 marks)
d. preventing mergers between major banks (2 marks)
e. imposing higher personal income tax rates on people with higher incomes (2 marks)
f. instituting laws against driving while intoxicated (2 marks)

13. Draw and explain a production possibilities frontier for an economy that produces milk
and cookies. What happens to this frontier if disease kills half of the economy’s cows? (4
marks)

14 Draw a circular-flow diagram. Identify the parts of the model that correspond to the flow
of goods and services and the flow of dollars for each of the following activities.
a. Selena pays a storekeeper $2 for a litre of milk. (2 marks)
b. Stuart earns $15 per hour working at a fast-food restaurant. (2 marks)
c. Shanna spends $30 to get a haircut. (2 marks)
d. Salma earns $10 000 from her 10 percent ownership of Acme Industrial. (2
marks)

15. Imagine a society that produces military goods and consumer goods, which we’ll call
“guns” and “butter.”
a. Draw a production possibilities frontier for guns and butter. Explain why it most likely
has a bowed-out shape. (4 marks)
b. Show a point that is impossible for the economy to achieve. Show a point that is
feasible but inefficient. (2 marks)
c. Imagine that the society has two political parties, called the Hawks (who want a strong
military) and the Doves (who want a smaller military). Show a point on your production
possibilities frontier that the Hawks might choose and a point the Doves might choose. (4
marks)