ASSIGNEMNT – FALL 2017
ESSAY. Write your
answer in the same sheet of paper.
407 ETR in Toronto is a toll road that uses transponders to keep track of how
many kilometers you drive on it, and then sends you a monthly bill. Highway 401
runs parallel to Highway 407 and is free. Why do drivers voluntarily pay the
tolls? (Use opportunity cost in your answer.) Suppose the government could
calculate the cost per kilometer of the pollution damage from your driving, and
send you a similar monthly bill. How might that additional cost affect your
decision to drive?
the opportunity cost on
highway 407 is that time is saved while driving whereas highway 401 is free but
busy which will more time to travel. Therefore driver have an option giving an
opportunity to him to arrive on time over money.
your friend, who is a history major, claims that economic models are useless
because they are so unrealistic. He claims that since the models leave out so
many descriptive details about the real world, they can’t possibly be useful
for understanding how the economy works. How would you defend your decision to
Economics is a subject
which solves the three major problems faced by country or economy which are:
to produce? And For
whom to produce?
knowledge of economics help to understand the mechanism that how an economy
regulates and hence aid in knowing the working of market forces (demand and
supply). Every economy have limited or scarce resources but unlimited sectors
who need them, study of economics help to allocate limited resources in more
efficient and effective manner.
changes in market-clearing prices and quantities is harder when both demand and
supply change at the same time. You run a halal butcher shop in Ottawa and
expect an increase in the number of Muslims in Ottawa who prefer halal meant.
Rents for retail space are also falling all over town. Predict what will happen
to the market-clearing price for halal meat. Predict what will happen to the
market-clearing quantity. Explain your predictions.
The expected increase in
the number of Muslims in Ottawa will increase the supply of halal meat. As a result,
the demand curve will shift towards right.Morever, the reduction in the rent
will decrease the total input in shop. The results in increasing supply. Increasing
demand will increase the price whereas the increase in supply will decrease the
price. Thus, there will be no net effect on market clearing price. However,
there will be an obvious increase in market clearing quantity because both
demand and supply favors the quantity being sold.
Suppose the Paola’s Parlour
was producing only piercings and no fingernail If Paola wanted to start
producing some fingernail sets, which staff person should she switch to
fingernails first? Who should she switch last? Explain your answers.
According to me, Poala
would first switch those persons who are skilled because they being already
trained persons, Poala need not incur additional cost to train them. At last
those employees will be switched who are new in Poala’s Parlour.
are some “status goods,” like Rolex watches, that people want to own
because they are expensive. In contradiction to the law of demand, if Rolex
watches were less expensive, few “status-seeking” consumers would
demand them. Reconcile status or services with the law of demand. How does
the existence of cheap “knock-off” imitations of Rolex watches fit with
the law of demand?
Status goods or Veblen
goods are the goods which have a positive demand correlation with price of the
good and quantity demanded. People buy status goods because they think that
these goods have a prestige value so when the price of these status goods fall,
customers think that the prestige value of the good have also fallen. Therefore
the existance of cheap knock off goods is exception to law of demand, because
with fall in price in price of such goods the demand also falls.
that babies are a normal good for lower income
earners and an inferior good for higher income earners. Use the income
elasticity of demand to explain what this means, using the definitions of
“normal” and “inferior”goods.
Normal goods are the
goods whose demand increase with an increase in income. Inferior goods are the
goods whose demand decreases with an increase in customer’s income.According to elasticity
of demand, for the normal goods elasticity of demand will be positive but
elasticity of demand will negative for inferior goods as the demand decreases
with increase in income.
sell for about $40 a bouquet most of the year, and worldwide sales are 6
million bouquets per month. Every February, the price of roses doubles to $80 a
bouquet, but the quantity of roses demanded and sold also increases, to 24
million bouquets per month. The cost of producing roses doesn’t change
throughout the year. Can you explain what else is going on that saves the law
Law of demand states that
other things remaining constant. The demand for a good will increase will fall
in its price and vice versa. In the month of February the bouquets can be
regarded as goods having a prestige value that is Velben goods. Therefore velben
goods are one of the exception to law of demand. And at the same time in this
month roses are regarded as one of the basic thing or gift which constitute to another
exception of law of demand.
Your business is about to
launch an advertising campaign, announcing your new low prices. You hope the
ads will bring in many more customers. Explain why you need to be concerned
about your elasticity of supply.
Elasticity of supply
measures the responsiveness of how supply is affected by price change. I need
to be concerned about elasticity of supply because as the price will fall, the
supply of the products will increase. Therefore, I need to produce more goods
to meet increased supply.