Category: Economics

Figure 1 represents the case of a (an)
a. negative externality.
d. positive externality.
b. pure public good.
e. pure private good.
c. common property resource.
f. open access resource.
Given the MSC, MPC, MPB = MSB, and MEC curves in Figure 1, is zero pollution (i.e., Q = 0) socially efficient?
a. No, zero pollution is NOT socially efficient because MPB(0) > MPC(0).
b. No, zero pollution is NOT socially efficient because MSB(0) > MSC(0).
e. Yes, zero pollution is socially efficient because MEC(0) = MSC(0).
f. Yes, zero pollution is socially efficient because MPB(0) > MPC(0).
In Figure 1, the quantity Q1 is
a. socially inefficient because MSB(Q1) = 59 < 85 = MPC(Q1). b. socially inefficient because MPB(Q1) = 59 < 85 = MPC(Q1). c. socially inefficient because MSB(Q1) = 59 < 144 = MSC(Q1). d. cost effective because MEC(Q1) = 59 = MPB(Q1). e. socially inefficient because MSC(Q1) = 144 > 85 = MPC(Q1).
In Figure 1, the competitive market equilibrium quantity, Qc, is Qc = 372 units and the socially efficient quantity, Qε, is Qε = 1102 units.

In 2004, the World Wildlife Foundation (WWF) helped set up the Roundtable on Sustainable Palm Oil (RSPO), a group that includes every link in the global supply chain, from growers and processors to food companies, retailers, and investors. With the RSPO, the WWF developed a set of international standards for responsible palm oil production. Producers who show they meet these criteria are able to sell certified sustainable palm oil (CSPO). That means companies that then use that oil for products such as lipstick, soap, or margarine can make the same guarantee to their customers.
WWF believes that consumers should purchase CSPO whenever possible, rather than simply boycotting palm oil. Why is purchasing products that contain CSPO a more environmentally and economically sustainable alternative to boycotting all products that contain palm oil?
Group of answer choices
CSPO increases smallholder profits and does not contain byproducts of endangered animals
CSPO improves smallholder yields and profits and decreases the environmental impact of deforestation
CSPO increases smallholder yields and profits while also increasing air and soil pollution
CSPO increases the salaries of smallholders while decreasing the number of carbon sinks in tropical regions

7. The long-run supply curve in different cost industries
The following graph shows the market for orange juice. Initially, the market is in a long-run equilibrium. Suppose that a change in tastes resulted in a leftward shift in demand.
On the following graph, shift the demand or supply curve to reflect this change in tastes. Then use the grey point (star symbol) to indicate the new short-run equilibrium.
Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther.
In the short run, firms will _____.
In the long run, the supply curve will _____: remain unchanged / shift leftward / shift rightward
On the previous graph, show the shift in the supply curve and then use the purple point (diamond symbol) to indicate the resulting new long-run equilibrium.
Comparing the two long-run equilibria on the graph, you can see that the orange juice market is an example of a low-cost industry / a high-cost industry / an increasing-cost industry / a decreasing-cost industry.
On the previous graph, use the green line (diamond symbols) to plot the long-run market supply curve for orange juice.

2. Global warming is associated with more frequent and severe heat waves and an increase in heatrelated mortality due to heart disease, strokes, and respiratory problems. A city prone to extreme heat episodes is considering implementing a heat warning system (HWS) that would reduce health risks by providing alerts to residents and health-care workers along with guidance on how to adjust behaviour during dangerous hot episodes. A BCA will be conducted to determine the HWS’s feasibility. The benefit, in terms of avoided heat-related premature mortality (heat-related excess deaths in otherwise healthy individuals who die earlier because of heat exposure), is to be estimated using the VSL (value of a statistical life) valuation method. Implementing a HWS is expected to reduce heat-related premature deaths from 1 out of 100,000 to 1 out of 200,000 people. A random sample of the city’s residents were surveyed. The results revealed an average willingness to pay of $10 for this risk reduction. Using the VSL valuation method to estimate the benefit of implementing the HWS, if the cost of the risk reduction is estimated to be $1.75 million would implementing the HWS be justified? Explain showing your calculations. [3 marks]

MINI CASE: Trends in China’s Balance of Payments
Over the past decades, China has emerged as a global economic powerhouse. In 2020, China was the second-largest economy after the United States, with a nominal GDP of $14.7 trillion. The state of China’s economy, including that of China’s balance of payments, has generated much discussion and debate among economists, policy makers, and market participants.
Analyze the data on China’s balance of payments from 1982 through 2020 posted in the online databank and write a report on the subject. In the report, you may:
Document the trend in China’s key economic indicators, such as the economic growth rate, the share of consumption in output, and exchange rate from 1982 to 2020.
Analyze the trends in China’s current account and its sub categories and investigate their causes. For example, how have the balances on goods and services trade changed over time, respectively?
Analyze the trends in China’s financial account and its sub categories and investigate their causes.
Examine the trend in China’s reserve holdings and discuss the likelihood of China’s twin surplus returning in the future. A twin surplus occurs when a country maintains surpluses on both current and financial accounts.

B. Exercise
Consider a situation in which there are just two countries: an Origin, and a Destination country.
Labor demand in the origin country is given by: wo=10-Lo
Labor demand in the destination country is given by: wd=14-Ld where Lo and Ld indicate the number of workers in the origin and destination countries, respectively.
2 Initially, there are 6 workers in the origin country and 4 workers in the destination country. Assume that labor supply is perfectly inelastic in both countries (that is, that labor supply can be represented through a vertical line).
Consider first the case in which individuals are not able to change their country of residence. What would be the equilibrium wage in the destination and in the origin countries?
Consider next the case in which workers can freely migrate across countries (at no cost). What would be the equilibrium wage in the destination and in the origin countries? How many workers (if any) would migrate from the origin to the destination country?
The government in the destination country is worried about the potentially negative effects of immigration on the labor market. To address this issue, the government is considering the introduction of a

Femi’s HookNLadder is the only company selling fire engines in the fictional country of Alexandrina. Femi initially produced six trucks, but then decided to increase production to seven trucks. The following graph gives the demand curve faced by Femi’s HookNLadder. As the graph shows, in order to sell the additional fire truck, Femi must lower the price from $100,000 to $50,000 per truck. Notice that Femi gains revenue from the sale of the additional engine, but at the same time, he loses revenue from the initial six engines because they are all sold at the lower price. Use the purple rectangle (diamond symbols) to shade the area representing the revenue lost from the initial six engines by selling at $50,000 rather than $100,000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained from selling an additional engine at $50,000. Femi increase production from 6 to 7 fire engines because the dominates in this scenario.
True or False: If alternatively Femi’s HookNLadder were a competitive firm and $100,000 were the market price for an engine, increasing production would not affect the price at which the company is able to sell engines.
True
False