Economic Assignment on ECON 1901 Assignment 1-3

1.Explain the function of the goods and services market and the factors of the production market in the Circular Flow Model. Explain both real and money flows and the role of prices in both the product and factor markets.

2.Using an example, explain why the production possibilities frontier is bowed outward.

3.Use the production possibilities frontier to explain fully economic growth, efficiency, and inefficiency.

4.Suppose that China can use cheaper labor to produce every product more cheaply than Canada. Explain why Canada will still gain from international trade with China.

5.Explain fully the difference between an increase in demand and an increase in quantity demanded. Be sure to explain the increase, not change or decrease. Provide at least four reasons for an increase in demand. Use appropriate graphs to illustrate your answer.

6.Compute the price elasticity of demand if price increases from $10 to $12 and the quantity demanded fall from 600 to 400. Use the value obtained and a specific example to determine whether the price must be increased or decreased to increase total revenue. Explain why. Note: Explain only how to increase total revenue, not decrease it.

7.Explain the concept of income elasticity of demand. How is it used to identify normal goods, luxuries, necessities, and inferior goods? Be as specific and logical as possible.

8.Why is a minimum wage such a popular government policy in most countries? Use your understanding of supply/demand analysis to explain the advantages of the minimum wage and the disadvantages of the minimum wage. Provide a graph to illustrate your answer. Be sure to use your graph and the laws of supply and demand to answer the question, not public opinion.

9.Use the Law of Demand to explain why all consumers must receive a surplus whenever they purchase more than one unit of a product but may receive no surplus if only one unit is bought. Make up a numerical example to illustrate. Provide two reasons why consumer surplus must increase when the price of a product falls?

10.Explain fully why taxing a product leads to deadweight loss. Use appropriate graphs to explain why the deadweight loss is greater the more elastic the demand for a product. Focus only on the elasticity of demand, not supply.

11.Governments often claim that they impose high taxes on cigarettes because smoking is bad for your health. They claim that the high taxes are intended to discourage your consumption. Use your understanding of the elasticity of demand to dispute this claim, assuming that cigarettes have a very inelastic demand. Illustrate with a graph. Hint: Very inelastic is not the same as inelastic or perfectly inelastic

12.Supposing that Canada and China were the only two countries in the world, why would it be impossible for Canada to import a greater value of goods from China than the value we export to China, even if China produced most goods more cheaply than Canada? Use this example to explain why increasing our imports from China can never create unemployment in Canada