ECONOMICS

project #1
2018/2019



· DUE: By Friday October 5, 2:00 PM. Completed projects should be placed in the slot marked for your section in the white project collection box on the 2nd floor of Dunning Hall. Late projects will not be accepted.

· Use the Cover Page when submitting projects (download from the projects page on onQ). Place diagrams for particular questions with your answers to those questions (not all at the end).

· Group Work: Maximum four per group, all students must be registered in the same class. Names (as they appear on onQ) must be in alphabetical order on the cover page (last names first).

· Graded work will be available for pick-up beginning on Monday October 22 in the Econ Distribution Center, Dunning Hall Room 334. You will require your student card.

· This project covers material from Chapters 1, 2, 32 (pgs 775-788), and 3 of the text.


True, False, or Uncertain [48 marks – 6 marks each]

Explain why each of the following statements is True, False, or Uncertain according to economic principles. Use diagrams where appropriate. Unsupported answers will receive no marks. It is the explanation that is important.


A1-1. Your decision to spend Sunday afternoon working on your Econ course carries no opportunity cost.


A1-2. The circular flow of income and expenditure tells us that an increase household income is associated with an increase in the revenues flowing to firms.


A1-3. The statement: “Rainfall was ample this year so this should lead to high crop yields and low crop prices” is a positive economic statement based on a model in which the endogenous variables are the crop yields and prices and the exogenous variable is amount of rainfall.


A1-4. Suppose the output per unit of resources is 6 units of X OR 3 units of Y in country A, while the output per unit of resources is 12 units of X OR 4 units of Y in country B. B has an absolute advantage in the production of both goods and A has a comparative advantage in the production of good Y.


A1-5. Suppose the cost of producing a unit of X is $6 in Alberta and $12 in BC, while the cost of producing a unit of Y is $3 in Alberta and $4 in BC. BC has an absolute advantage in the production of both goods and Alberta has a comparative advantage in the production of good Y.


A1-6. Opening an economy to trade makes everyone in the economy better off.


A1-7. An increase in consumer incomes will lead to increases in the prices of all grocery store items.


A1-8. Since demand curves are downward sloping, we would never see an increase in price accompanied by an increase in the equilibrium quantity traded in a market.



Problems [52 marks – marks for each part as shown]



A1-9. Suppose the production possibility boundary (PPB) for a country that produces only two goods (x and y) is given by y = 100 – x2. Therefore the slope of the PPB at any given level of good x production is -2x.


(a) How much y is produced if the economy produces no x? What is the maximum amount of x that can be produced? Sketch the PPB with x on the horizontal axis, and y on the vertical axis. [4]


(b) Explain why the (absolute value of the) slope of the