canadian economic
ECON290 Canadian Microeconomic Policy Spring 2020
Assignment #1
Due: Thursday, April 21 at 5:00 pm
1) All written assignments are group work. Please form study groups by yourself. Each group should include 2 – 4 people. Firstly, everyone tries to answer all questions individually, then compare answer with each other to find out the best version. Each group should submit only one copy of answer. Make sure to put all names and student ID numbers on the firs page. Everyone in the group will receive the same grade.
2) Please type your answer in Word document format. For graph or calculation, a useful tool is “whiteboardfox” (check whiteboardfox.com). Follow these steps: a) draw the graph on the whiteboard; b) save the drawing as a picture (jpeg file); and c) insert the picture to your Word file. You are free to use any other programs to draw graphs. For example, if your operation system is Windows 10, you can try drawing with Windows Ink.
3) Submit your assignment by uploading to Canvas: Select Assignments – Upcoming Assignments – Assignment #1 – Submit Assignment (click the yellow button). Note only Word files (with a .doc
or .docx suffix) are accepted. There is no need to convert Word to PDF. Please don’t upload cellphone pictures. They will not be accepted.
1. Read the article “Why economists are not popular” (The weblink is available on Canvas – Syllabus) and answer the following questions.
a) Why are economists not popular?
b) Some politicians advocate for “free” things like free health care or free college education, but economists do not think they are good ideas. What are the two problems identified by economists?
2. The enrollment for ECON 290 exceeds the spaces available. Some students who need to take this course to graduate are unable to get a space even though others who are taking it as an elective do get a space.
a) Is this situation allocatively efficient? Briefly explain.
b) Is this situation Pareto efficient? Why or why not? Briefly explain. If it is not efficient, what action would make a Pareto improvement?
3. A market for agriculture produce can be described by two linear equations. Demand is given by P = 170− (1/6)Q, and supply is given by P = 50+(1/3)Q, where Q is the quantity and P is the price.
a) Graph the functions and find the equilibrium price and quantity.
b) Now the government implements a supporting price of $140. Calculate the surplus (excess supply), the consumer surplus and producer surplus.
c) Suppose the government instead chose to maintain a price of $140 by a system of quotas. What quantity of quotas should the government make available to the suppliers?
d) Suppose that, at the supporting price, the government buys up all of quantity supplied that is not demanded and exports it at a price of $80 per unit. Compute the loss to the government of this operation.
4. Consider a market where supply and demand are given by P = 10 and P = 34−Q respectively.
a) Draw a graph to show and compute the equilibrium price and quantity.
b) Now government impose a tax of $2 per unit on producers. Calculate the new equilibrium quantity and illustrate it in your diagram.
c) Calculate the tax revenue generated and the deadweight loss.
5. Demand for labour is LD = 45 – 4W, labour supply is LS = 8W, where W is hourly wage and L is labour measured in thousands of labour hours per year.
a) Find equilibrium employment and wage in a competitive labour market.
b) Suppose government introduces minimum wage at Wmin = $4. Calculate and show on diagram the number of jobs destroyed and the resulting unemployment.
c) Suppose that government introduces a wage subsidy program per hour: for each hour of employment firms receive unit subsidy of 75 cents. Calculate and show on a diagram: employment, wage paid by firms and wage received by workers, total wage bill (total labour cost), and total subsidy paid. What is the share of wage subsidy received by workers?
