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Note: Round figures to TWO decimal places. Show appropriate calculations. Draw good diagrams.
Q1 Consider the following table and answer the questions given below. 2 marks
Wage rate per hour ($)
Demand for labour
Supply of labour
15
14000
38000
14
20000
32000
10
26000
26000
9
32000
20000
i) What is the initial equilibrium wage rate? Why?
Equilibrium wage rate= $10, Equilibrium Quantity= 26000,
Because demand and supply is equal (Qd=Qs=26000)
ii) What will the problem in the economy if the minimum wage rate is determined as
$15 per hour? Why will it happen? Quantify your result.
Since the demand for labour is 14,000 and the supply of labour is 38,000 at a wage rate
of $15 per hour, it therefore means that there will be a surplus of 24,000 in labour
supply.
Q2 Suppose that S = a + bY. (Where ‘a’ is the intercept, ‘b’ is the slope, Y means income and
S means savings). 8 marks
(i) What is the income if intercept = 10, savings = 3500 & slope = 0.5?
3500= 10 + 0.5Y
3500-10= 0.5Y
3490= 0.5Y
Y= 3490/0.5
Y=6980
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(ii) What is the savings if Y = 1000, a = 100 and b = 0.28?
S= 100 + 0.28(1000)
S= 100 + 280
S= 380
(iii) What is the slope when Y= 1400, S = 200 and a = 60?
200= 60 + b(1400)
200-60= b(1400)
140= b(1400)
b= 1400/140
b=10
(iv) The profit function of an industry is given as Profits = 1200 + 14% of the sales value.
900 units are sold by the industry at the price $6 per unit. Compute the profits of the
industry.
If profits= 1200 + 14% of sales value
Sales= $6 x 900 units= $5400
1200 + 14% of $5,400
1200 + 756= 1956
Profits= $1,956
Q3 Suppose that demand for a bunch of fresh banana is represented by the equation
P = 10 – 0.2Q and the supply equation is represented by the equation P = 2 + 0.2Q
Find out the equilibrium price and equilibrium quantity. 2 marks
10 – 0.2Q = 2 + 0.2Q
10 – 2 = 0.2Q + 0.2Q
8 = 0.4Q
8/0.4 = Q
20 = Q
P= 10 – 0.2(20)
P= 10 – 4
P= 6
Q4 Suppose you won $2500 on a lottery ticket at local Costco Gas station. You decided to spend all the
winnings on two products (Laptop and CD player). The price a laptop is $500 and the price of a CD player
$125. Construct a table showing different combinations of these two goods that you can buy. Also, show
total expenditure at each combination. 5 marks
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Combinations
Lap top
CD player
A
0
20
B
1
16
C
2
12
D
3
8
E
4
4
F
5
0
Q5 (i) Trade relations between USA and Canada have changed drastically after Donald Trump
became the president of the United States. The famous NAFTA has become very controversial
and highly debated issues these days. The Canadian imports have become very costly. If the
imports expenditure increased from $355000 in 2012 to $384500 in 2017, find the percentage
increase in the Canadian imports expenses over the given period. 1 mark
The percentage increase in Canadian imports over the period is:
$355,000/ $384,500= 92.33%
(ii) Jennifer works in a Steel manufacturing firm where she earned $90250 in the year 2019. She
paid income tax $14720 to file her income tax return. Jennifer wonders about how much percentage
of her income is spent in the form of income tax. Find income tax as percentage of income of
Jennifer. 1 mark
The income tax percentage of income for Jennifer is:
$14,720/ $90,250= 16.31%
Q6 What are the characteristics of public goods and private goods? Explain their significance
for public provision as opposed to private provision. Is the Canadian border patrol a public good
or a private good? Why? How about satellite TV? Explain. 8 marks
The characteristics of public goods are non-rivalry and non-excludability. Non-rival good is a
good consumed by one consumer without preventing the simultaneous consumption by others,
for example: streetlights, public safety.
The characteristics of private goods are rivalry and excludability. This is the opposite of public
goods. Rival goods are goods that can only be consumed by one person at a time. Consumers
become rivals to obtain them. For example: Cars, electronics, food, clothing.
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The Canadian border patrol is a public good because it is both non-rival and non-excludable,
whereas satellite TV is a private good because there is an effective way of keeping persons from
obtaining it unless they pay.
Q7 Look at the two tables below. 8 marks
Consumers
Producers
Person
Maximum
Price
Willing
to Pay
($)
Actual Price
(Equilibrium
Price) ($)
Person
Minimum
Acceptable
Price ($)
Actual Price
(Equilibrium
Price) ($)
Tom
$17
$7
Jackson
$6
$7
Harry
14
7
Ambry
7
7
Linda
13
7
Johnny
8
7
Shelly
12
7
Cindy
9
7
Ricky
11
7
Laurie
7
Thomson
10
7
Garry
7