Economics

1. Show your reasoning and you may use graphs to assist your answer.

a. What is the trade-offs between efficiency and equity in comparing a privatization of parks in Saskatchewan with the government controlled parks?
b. Most provincial parks charge a fixed price for a camping permit, and allow you to reserve specific campsites in advance. By the time the summer holiday weekends arrive, all the permits are usually taken. There is excess demand but no price adjustment. Suggest a pricing system for provincial parks that allows them to take advantage of the higher demand for campsites on holiday weekends. Your system should explain who is competing and who is cooperating.

2. In an analysis of the market for camping equipment, an economist discovers the facts listed below. State whether each of these changes will affect supply or demand, and in what direction. What would happen to equilibrium price and quantity?
a. There have recently been some important cost-saving inventions in the technology for making camping equipment.
b. Camping equipment is lasting longer, so that owners need not replace them as often.
c. Government raises the price for camping permit.
d. The hailstorms damaged several factories that make camping equipment, forcing them to close down for several months.

3. Businesses in the ice cream market are currently earning zero economic profits. A heat wave strikes and demand for ice cream skyrockets, so a shortage develops, driving up ice cream prices. Using economic profits as the key, explain all the choices using a demand and supply graph that will be made before the ice cream market once again returns to long-run market equilibrium with zero economic profits.

4. Show your reasoning and you may use graphs to assist your answer.

a. What market structure would Saskatoon Inn be competing in? Describe your pricing strategy using the concept of the elasticity of demand.
b. Explain why the hospitality industry was hit the most by the COVID-19 pandemic? Discuss whether Saskatoon Inn should shut down during the pandemic or choose to remain open. Explain your answer.

Multiple choice questions: –
1- What happens when the government prevents prices from adjusting naturally to supply and demand?
a. It stabilizes the economy by reducing market uncertainties.
b. It adversely affects the allocation of resources.
c. There is an improvement in equity that justifies the reduction in efficiency.
d. There is an improvement in efficiency that justifies the reduction in equity.

2.Suppose there are two countries, Freedonia and Sylvania, which have identical amounts of resources, identical technologies, and identical populations. Both produce two types of goods, consumer goods and capital goods, and they both always operate on their production possibilities frontiers. The only difference is that this year Freedonia chooses to produce relatively more consumer goods than Sylvania. What will happen as a result?
a. Freedonia will have a higher living standard this year but will grow slower than Sylvania.
b. Freedonia will have a higher living standard this year and will grow faster than Sylvania.
c. Sylvania will have a higher living standard this year but will grow slower than Freedonia.
d. Sylvania will have a higher living standard this year and will grow faster than Freedonia.

3- Suppose a producer is able to separate customers into two groups, one having a price inelastic demand and the other having a price elastic demand. If the producer’s objective is to increase total revenue, what should she do?
a. Increase the price charged to customers with the price elastic demand and decrease the price charged to customers with the price inelastic demand.
b. Decrease the price charged to customers with the price elastic demand and increase the price charged to customers with the price inelastic demand.
c. Charge the same price to both groups of customers.
d. Increase the price for both groups of customers.

4- Assume that the demand and supply curves for cars are elastic. If the government imposes a $500 tax on the buyer of each car, what can we assume will happen to the price of a car?
a. The equilibrium price of a car will decrease by less than $500.
b. The equilibrium price of a car will decrease by exactly $500.
c. The equilibrium price of a car will decrease by more than $500.
d. The equilibrium price of a car will not change since both curves are elastic.

5 .What effect will a tax on sellers of jewellery have on the price the buyers pay and the effective price the sellers receive?
a. The price the buyers pay and the effective price the sellers receive will rise.
b. The price the buyers pay and the effective price the sellers receive will fall.
c. The price the buyers pay will rise, and the effective price the sellers receive will fall.
d. The price the buyers pay will fall, and the effective price the sellers receive will rise.

6- Two firms, A and B, each currently dump 50 tonnes of chemicals into the local river. The government has decided to reduce the pollution and from now on will require a pollution permit for each tonne of pollution dumped into the river. It costs Firm A $100 for each tonne of pollution that it eliminates before it reaches the river, and it costs Firm B $50 for each tonne of pollution that it eliminates before it reaches the river. The government gives each firm 20 pollution permits. Government officials are not sure whether to allow the firms to buy or sell the pollution permits to each other. What is the total cost of reducing pollution if the firms are NOT allowed to buy and sell pollution permits from each other, and what is the total cost of reducing pollution if the firms ARE allowed to buy and sell permits from each other?
a. $3000; $1500
b. $4500; $2500
c. $4500; $4000
d. $4500; $3500

7- Dolores used to work as a high school teacher for $40 000 per year but quit in order to start her own catering business. To buy the necessary equipment, she withdrew $20 000 from her savings (which paid 3 percent interest per year) and borrowed $30 000 from her uncle, to whom she pays 3 percent interest per year. Last year she paid $25 000 for ingredients and had revenue of $60 000. She asked Louis, an accountant, and Greg, an economist, to calculate her profit for her. What did they say?
a. Louis said her profit was $34 100, and Greg said she lost $6500.
b. Louis said her profit was $34 100, and Greg said her profit was $6500.
c. Louis said her profit was $35 000, and Greg said she lost $5000.
d. Louis said her profit was $33 500, and Greg said her profit was $33 500.

8- Susan quit her job as a teacher, which paid her $36 000 per year, in order to start her own catering business. She spent $12 000 of her savings, which had been earning 10 percent interest per year, on equipment for her business. She also borrowed $12 000 from her bank at 10 percent interest per year, which she also spent on equipment. For the past several months she has spent $1000 per month on ingredients and other variable costs. Also, for the past several months she has taken in $3500 in monthly revenue. What should Susan do in the short run and the long run?
a. In the short run, Susan should shut down her business, and in the long run, she should exit the industry.
b. In the short run, Susan should continue to operate her business, but in the long run she should exit the industry.
c. In the short run, Susan should continue to operate her business, but in the long run, she will probably face competition from newly entering firms.
d. In the short run, Susan should continue to operate her business, and she is also in long-run equilibrium.

9- In which of the following ways does the profit-maximization problem for a monopolist differ from that of a competitive firm?
a. A competitive firm maximizes profit at the point where marginal revenue equals marginal cost; a monopolist maximizes profit at the point where marginal revenue exceeds marginal cost.
b. A competitive firm maximizes profit at the point where average revenue equals marginal cost; a monopolist maximizes profit at a point where average revenue exceeds marginal cost.
c. For a competitive firm, marginal revenue at the profit-maximizing level of output is equal to marginal revenue at all other levels of output; for a monopolist, marginal revenue at the profit-maximizing level of output is smaller than it is for larger levels of output.
d. For a profit-maximizing competitive firm, thinking at the margin is much more important than it is for a profit-maximizing monopolist.

10- Suppose medical research provides evidence that eating bananas provides far greater health benefits than was previously thought. Which of the following results would the increase in the demand for bananas have?
a. It increases the marginal product of banana pickers for any given number of banana pickers.
b. It increases the value of the marginal product of banana pickers for any given number of banana pickers.
c. It increases the supply of banana pickers.
d. It increases the minimum wage for workers in general.

11- As a result of severe flooding, a farmer loses one-half of his productive farmland. If the property of diminishing returns applies to all factors of production, which of the following should he expect?
a. an increase in the marginal productivity of his remaining land, and an increase in the marginal productivity of his labour
b. an increase in the marginal productivity of his remaining land, and a decrease in the marginal productivity of his labour
c. a decrease in the marginal productivity of his remaining land, and an increase in the marginal productivity of his labour
d. a decrease in the marginal productivity of his remaining land, and a decrease in the marginal productivity of his labour

Figure 15-7 The figure depicts the demand, marginal-revenue, and marginal-cost curves of a profit-maximizing monopolist.

12-Refer to Figure 15-7. If the monopoly firm perfectly price discriminates, what is consumer surplus?
a. $0
b. $250
c. $500
d. $1000