ECONOMICS QUESTIONS

| May 18, 2015

QUESTION 1(20 marks)

 

  1. Discuss each of the following statements from the standpoint of equity and efficiency. [10 marks]
  2. “Everyone in society should be guaranteed the best health care possible”.
  3. “When workers are laid off, they should benefits until they find a new job”.

 

  1. Which of the following statements are positive and which are normative? Explain why? [10 marks]
    1. The minimum wage creates unemployment among young and unskilled workers.
    2. The minimum wage ought to be abolished.
    3. If the price of a product in a market decreases, other things equal, quantity demanded will increase.
    4. A little bit of inflation is worse for society than a little bit of unemployment.
    5. There is a tradeoff between inflation and unemployment in the short run.
    6. If consumer income increases, other things equal, the demand for automobiles will increase.
    7. The Canadian income distribution is not equitable.
    8. Canadian workers deserve more liberal unemployment benefits.
    9. If interest rates increase, investment will decrease.
    10. If welfare benefits were reduced, the country would be better off.

 

QUESTION 2(40 marks)

 

An economy consists of three workers: Larry, Moe, and Curly. Each works for ten hours per day and can produce two services: Mowing lawns and washing cars. In an hour, Larry can either mow one lawn or wash one car. Moe can either mow one lawn or wash two cars and Curly can either mow two lawns or wash one car.

  1. Calculate how much of each service is produced under the following circumstances. You can use a table to organize the outcomes. [10 marks]
  • All three spend all their time mowing lawns (Outcome A)
  • All three spend all their time washing cars (Outcome B)
  • All three spend half their time on each activity (Outcome C)
  • Larry spends half his time on each activity while Moe only washes cars and Curly only mows lawns (Outcome D)

 

  1. Draw the production possibilities frontier (PPF) for this economy. Using your answers to part a), identify points A, B, C and D on your graph. [10 marks]

 

  1. Explain why the PPF has the shape it does?[10 marks]

 

  1. Are any of the allocations calculated in part a) inefficient? Explain [5 marks]

 

  1. Show a point that is not feasible for this economy on the graph you drew in part b), explain why? [5 marks]

 

 

QUESTION 3(40 marks)

 

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