MICROECONOMICS Practice Questions - Continue Short Response 1.. Consider each of the following statements; is it TRUE or FALSE? You do not need to explain your answer. (15%) a) Jimmy is an elite athlete, and has a choice between three careers: he can join Major League Baseball and make $1 million per year, he can join the National Hockey League and make $2 million per year, or he can join the National Football League and make $2 million per year. Assuming he only cares about monetary compensation, Jimmy’s opportunity cost of playing in the NFL is $2 million per year. False b) I have a choice between three activities on Friday night: drinking at the pub with my friends, going bowling, or sitting at home and getting high. I hate getting high at home, but I enjoy the other two activities. Therefore, the opportunity cost of going bowling for me is the combined satisfaction I’d receive if I went to the pub with my friends, and got high at home. True c) The Production Possibilities Frontier shows the opportunity cost of producing one good in terms of the other. True d) Free trade is always good, since it leads to an increased standard of living and better relations between countries. False e) The Production Possibilities Frontier is always concave (that is, curved outward). False 2. Consider the following Figure, which shows a Production Possibilities Frontier for the Planet of Dune. Are each of the following points Feasible or Infeasible? If they’re feasible, then are they productively efficient, or productively inefficient? You do not need to explain your answer. (15%) a) Point A. b) Point B. c) Point C. d) Point D. e) Point E. Feasible and Efficient Feasible and Efficient Not Feasible Not Feasible Feasible and Inefficient This study source was downloaded by 100000841890969 from CourseHero.com on 03-11-2022 23:35:07 GMT -06:00 https://www.coursehero.com/file/113581324/MICROECONOMICS-Practice-Questions-Continuepdf/ 3. There are two nations: Domum and Aliena. Each can produce two goods: Marijuana and Gold. In a single year, Domum can produce 20,000 tons of marijuana, or 80,000 tons of gold. By contrast, in a single year, Aliena can produce 10,000 tons of marijuana, or 5,000 tons of gold. Show your work. a) Which country has absolute advantage in marijuana? (3%) Country Marijuana Gold Domum 20,000 tons 80,000 tons Aliena 10,000 tons 5,000 tons The definition of absolute advantage means the ability of a firm, country or an economy that can produce higher quantities of goods from lowest costs than other firms, countries or economies. The chart above shows that Domum has absolute advantage in Marijuana compared to Aliena. b) Which country has absolute advantage in gold? (3%) Domum also has absolute advantage in gold compared to Aliena. c) Which country has comparative advantage in marijuana? (3%) The definition of comparative advantage is the ability of an individual firm or country to produce a good or service at a lower opportunity cost than competitors. The chart above reveals that Aliena has comparative advantage in marijuana compared to Domum. d) Which country has a comparative advantage in gold? (3%) Domum has comparative advantage in gold compared to Aliena. e) Suppose that, prior to trade, both nations are in a state of autarky. Domum produces 10,000 tons of marijuana, and 40,000 tons of gold. Aliena produces 10,000 tons of marijuana, and no gold. Draw this situation in two separate PPF diagrams, one for each nation. (10%) This study source was downloaded by 100000841890969 from CourseHero.com on 03-11-2022 23:35:07 GMT -06:00 https://www.coursehero.com/file/113581324/MICROECONOMICS-Practice-Questions-Continuepdf/ f) Consider the situation in part (e). Suppose that Domum gives Aliena 1,000 tons of gold in exchange for 1,000 tons of marijuana. Draw this situation in two separate PPF diagrams, one for each nation. (10%) This study source was downloaded by 100000841890969 from CourseHero.com on 03-11-2022 23:35:07 GMT -06:00 https://www.coursehero.com/file/113581324/MICROECONOMICS-Practice-Questions-Continuepdf/ g) Does the trade in part (f) result in an improvement for both nations? Explain why or why not. (5%) The trade which is shown in part (f) is crucial for both Domum and Aliena since they lack relativity in the production of one good and this trade has given an increase in the production capacities of the goods in which their production is less when compared to the other. h) If each country were to specialize in the good for which it has comparative advantage, how much would each produce? (3%) If each country were to specialize in the good for which it has comparative advantage, Domum would produce 80,000 tons of gold and Aliena would produce 10,000 tons of marijuana. This is because when a country specializes in a good, it uses its full production size to produce that good. 4. A country produces only two goods: Wheat and Barley. Consider each of the following situations. Would it cause an increase in economic growth, or a contraction in the economy? In each case, draw an accompanying Production Possibilities Frontier diagram, showing the shift in the PPF. You do not need to explain your answer. (15%) a) The country experiences a drought. This study source was downloaded by 100000841890969 from CourseHero.com on 03-11-2022 23:35:07 GMT -06:00 https://www.coursehero.com/file/113581324/MICROECONOMICS-Practice-Questions-Continuepdf/ b) An inventor comes up with a way to improve agricultural yields. c) The country shifts existing resources away from wheat and towards barley. d) The country transitions from a democracy with well-defined property rights to a dictatorship with poorly defined property rights. This study source was downloaded by 100000841890969 from CourseHero.com on 03-11-2022 23:35:07 GMT -06:00 https://www.coursehero.com/file/113581324/MICROECONOMICS-Practice-Questions-Continuepdf/ e) The country ends trade relations with all of its partners. 5. International trade can be beneficial for a nation’s economy, while barriers to trade can hinder economic growth. Canada has significant barriers to trade between provinces. A 2016 study concludes that interprovincial trade barriers cost Canadians $100 billion per year.2 In certain cases, it is cheaper for Canadian companies to trade with the United States than with other Canadian provinces. Using your research skills, find five examples of concrete and specific barriers to Canadian interprovincial trade. Be sure to cite your sources. (15%) 1. Coexistence of Multiple provincial regulations Canada faces coexistence of multiple provincial regulations. Trucks are prevented from efficiently transferring goods nationwide. Ranging from the sizes and weights of vehicles allowed on the highway to the types of tires, trucks crossing across provincial lines going from legal to illegal. This cripples Canadian industry's productivity as it adds unnecessary costs to the transportation. Provincial Trade Barriers Shoot Canadians in the Foot. Frontier Centre For Public Policy https://fcpp.org/2019/10/22/provincial-trade-barriers-shoot-canadians-in-the-foot/ This study source was downloaded by 100000841890969 from CourseHero.com on 03-11-2022 23:35:07 GMT -06:00 https://www.coursehero.com/file/113581324/MICROECONOMICS-Practice-Questions-Continuepdf/ 2. Regulatory and administrative barriers Divergent set of rules and processes between provinces that have created a tyranny of small differences for businesses. A lot of paperwork is associated with different workers' compensation boards or the varying rules across health and safety boards when moving employees across provincial lines. Senate of Canada - Interprovincial trade barriers are a national embarrassment: Senators Cordy, Bellemare. Senate of Canada https://sencanada.ca/en/sencaplus/opinion/interprovincial-trade-barriers-are-a-national-embarrass ment-senators-cordy-bellemare/ 3. Provincial or territorial laws These laws restrict distribution and sales of alcohol to customers in other provinces. While the federal government is abolishing the requirement that all alcohol crossing provincial boundaries go through a federal liquor authority. Federal government moves to lift its final barrier to interprovincial alcohol sales. National Post https://nationalpost.com/news/politics/ottawa-moves-to-lift-alcohol-trade-restrictions-urges-provinc es-to-do-the-same 4. Provincial protectionism Canada has been stuck with forgone internal trade due to misguided provincial protectionism. The country has arrived at a point where foreign countries have better access to portions of Canada than Canadian companies themselves. Provincial Trade Barriers Shoot Canadians in the Foot. Frontier Centre For Public Policy https://fcpp.org/2019/10/22/provincial-trade-barriers-shoot-canadians-in-the-foot/ 5. Evolution of Canada's interprovincial integration In the 1980s, each sum total of interprovincial trade and international trade (exports and imports combined) equally represented 55 per cent of total GDP. While the latter boomed to 80 per cent following the 1994 North American Free Trade Agreement, the former dropped to less than 40 per cent in the 1990s,l, and has remained there through 2017. Canada should look inward first on free trade. http://winnipegfreepress.com/ https://www.winnipegfreepress.com/opinion/analysis/canada-should-look-inward-first-on-free-trade -565265162.html This study source was downloaded by 100000841890969 from CourseHero.com on 03-11-2022 23:35:07 GMT -06:00 https://www.coursehero.com/file/113581324/MICROECONOMICS-Practice-Questions-Continuepdf/ Powered by TCPDF (www.tcpdf.org)
