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ECON 201 WHAT TO EXPECT FOR FINAL EXAM WINTER 2023 SOLUTION CONCORDIA UNIVERSITY
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ECON 201 WHAT TO EXPECT FOR FINAL EXAM WINTER 2023 SOLUTION CONCORDIA UNIVERSITY
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ECON 201 WHAT TO EXPECT FOR FINAL EXAMWINTER 2023 SOLUTION CONCORDIA UNIVERSITY
Chapter 1 - Terms
Macroeconomics studies the economy as system in which feedback among sectors determine
nationaloutput, employment and prices.
Microeconomics is the study of individual behaviour in the context of scarcity.
Mixed economy: goods and services are supplied both by private suppliers and government.
Model is a formalization of theory that facilitates scientific inquiry.
Theory is a logical view of how things work, and is frequently formulated on the basis of observation.
Opportunity cost of a choice is what must be sacrificed when a choice is made.
Production possibility frontier (PPF) defines the combination of goods that can be produced
using all ofthe resources available.
Consumption possibility frontier (CPF): the combination of goods that can be consumed as a
result of agiven production choice.
A zero-sum game is an interaction where the gain to one party equals the loss to another party.
Economy-wide PPF is the set of goods combinations that can be produced in the economy
when allavailable productive resources are in use.
Productivity of labour is the output of goods and services per worker.
Capital stock: the buildings, machinery, equipment and software used in producing goods and services.
Full employment output Yc=(number of workers at full employment)× (output per
worker).
Recession: when output falls below the economy's capacity output.
Boom: a period of high growth that raises output above normal capacity output.
,EXERCISE 1.1
An economy has 100 identical workers. Each one can produce four cakes or three shirts,
regardless of thenumber of other individuals producing each good.
a. How many cakes can be produced in this economy when all the workers are cooking?
Answer: 100 x 4 = 400
b. How many shirts can be produced in this economy when all the workers are sewing?
Answer: 100 x 3 = 300
c. On a diagram with cakes on the vertical axis, and shirts on the horizontal axis, join
these pointswith a straight line to form the PPF.
d. Label the inefficient and unattainable regions on the diagram.
EXERCISE 1.2
In the table below are listed a series of points that define an economy's production possibility
frontier forgoods Y and X.
Y 100 900 800 700 600 500 400 300 200 100 0
0
X 0 160 250 330 4000 460 510 550 5750 5900 600
0 0 0 0 0 0 0
a. Plot these pairs of points to scale, on graph paper, or with the help of a spreadsheet.
Answer: The PPF is curved outwards with intercepts of 1000 on the Thinkpod axis and
6000 onthe iPad axis. Each point on the PPF shows one combination of outputs.
b. Given the shape of this PPF is the economy made up of individuals who are similar or
, different intheir production capabilities?
Answer: Different.
, c. What is the opportunity cost of producing 100 more Y at the combination (X=5500,Y=300).
Answer: 400 X
d. Suppose next there is technological change so that at every output level of good Y the
economy can produce 20 percent more X. Enter a new row in the table containing the
new values, and plotthe new PPF.
Answer: The new PPF in the diagram has the same Thinkpod intercept, 1000, but a new
iPadintercept of 7200.
EXERCISE 1.3
Using the PPF that you have graphed using the data in Exercise 1.2, determine if the following
combinations are attainable or not: (X=3000,Y=720), (X=4800,Y=480).
Answer: By examining the opportunity cost in the region where the combinations are defined,
andby assuming a linear trade-off between each set of combinations, it can be seen that the
first combination in the table is feasible, but not the second combination.
EXERCISE 1.4
You and your partner are highly efficient people. You can earn $20 per hour in the workplace;
yourpartner can earn $30 per hour.
a. What is the opportunity cost of one hour of leisure for you?
Answer: 20$
b. What is the opportunity cost of one hour of leisure for your partner?
Answer: 30$
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