Two important industries on the island of Bermuda are fishing and tourism. According to data from the Food and Agriculture Organization of the United Nations and the Bermuda Department of Statistics, in the year 2009 the 306 registered fishers in Bermuda caught 387 tonnes of marine fish. And the 2719 people employed by hotels produced 554 400 hotel stays (measured by the number of visitor arrivals). Suppose that this production point is efficient in production. Assume also that the opportunity cost of 1 additional tonne of fish is 2000 hotel stays and that this opportunity cost is constant (the opportunity cost does not change).

Atlantis is a small, isolated island in the South Atlantic. The inhabitants grow potatoes and catch fish. The accompanying table shows the maximum annual output combinations of potatoes and fish that can be produced. Obviously, given their limited resources and available technology, as they use more of their resources for potato production, there are fewer resources available for catching fish.

According to Statistics Canada, 11.0 million hectares of land in Canada were used for wheat or corn farming in 2012. Of those 11.0 million hectares, farmers used 9.6 million hectares to grow 999.62 million bushels of wheat and 1.4 million hectares of land to grow 514.15 million bushels of corn. Suppose that Canada’s wheat farming and corn farming are efficient in production. At that production point, the opportunity cost of producing 1 additional bushel of wheat is 1.7 fewer bushels of corn. However, because farmers have increasing opportunity costs at higher levels of wheat production, additional bushels of wheat have an opportunity cost greater than 1.7 bushels of corn. For each of the following production points, decide whether that production point is (i) feasible and efficient in production, (ii) feasible but not efficient in production, (iii) not feasible, or (iv) unclear as to whether or not it is feasible.

In the ancient country of Roma, only two goods, spaghetti and meatballs, are produced. There are two tribes in Roma, the Tivoli and the Frivoli. By themselves, the Tivoli each month can produce either 30 kg of spaghetti and no meatballs, or 50 kg of meatballs and no spaghetti, or any combination in between. The Frivoli, by themselves, each month can produce 40 kg of spaghetti and no meatballs, or 30 kg of meatballs and no spaghetti, or any combination in between.

According to the Canadian International Merchandise Trade Database from Statistics Canada, in December 2012, Canada sold aircraft and spacecraft worth $27.23 million to China and bought aircraft and spacecraft worth only $8.1 million from China. During the same month, however, Canada bought $255.1 million worth of apparel and clothing accessories from China but sold only $56 253 worth of apparel and clothing accessories to China. Using what you have learned about how trade is determined by comparative advantage, answer the following questions.

Peter Pundit, an economics reporter, states that the European Union (EU) is increasing its productivity very rapidly in all industries. He claims that this productivity advance is so rapid that output from the EU in these industries will soon exceed that of Canada and, as a result, Canada will no longer benefit from trade with the EU.

You are in charge of allocating residents to your dormitory’s baseball and basketball teams. You are down to the last four people, two of whom must be allocated to baseball and two to basketball. The accompanying table gives each person’s batting average and free-throw average.

The inhabitants of the fictional economy of Atlantis use money in the form of cowrie shells. Draw a circular-flow diagram showing households and firms. Firms produce potatoes and fish, and households buy potatoes and fish. Households also provide the land and labour to firms. Identify where in the flows of cowrie shells or physical things (goods and services, or resources) each of the following impacts would occur. Describe how this impact spreads around the circle.

An economist might say that colleges and universities “produce” education, using faculty members and students as inputs. According to this line of reasoning, education is then “consumed” by households. Construct a circular-flow diagram to represent the sector of the economy devoted to post-secondary education: colleges and universities represent firms, and households both consume education and provide faculty and students to colleges and universities. What are the relevant markets in this diagram? What is being bought and sold in each direction? What would happen in the diagram if the government decided to subsidize 50% of all college and university students’ tuition?

Your dormitory roommate plays loud music most of the time; you, however, would prefer more peace and quiet. You suggest that she buy some earphones. She responds that although she would be happy to use earphones, she has many other things that she would prefer to spend her money on right now. You discuss this situation with a friend who is an economics major. The following exchange takes place:

He: How much would it cost to buy earphones?

You: $15.

He: How much do you value having some peace and quiet for the rest of the semester?

You: $30.

He: It is efficient for you to buy the earphones and give them to your roommate. You gain more than you lose; the benefit exceeds the cost. You should do that.

You: It just isn’t fair that I have to pay for the earphones when I’m not the one making the noise.

A representative of the Canadian clothing industry recently made the following statement: “Workers in Asia often work in sweatshop conditions earning only pennies an hour. Canadian workers are more productive and as a result earn higher wages. In order to preserve the dignity of the Canadian workplace, the government should enact legislation banning imports of low-wage Asian clothing.”

Are the following statements true or false? Explain your answers.

Evaluate the following statement: “It is easier to build an economic model that accurately reflects events that have already occurred than to build an economic model to forecast future events.” Do you think this is true or not? Why? What does this imply about the difficulties of building good economic models?

Economists who work for the government are often called on to make policy recommendations. Why do you think it is important for the public to be able to differentiate normative statements from positive statements in these recommendations?

The mayor of Gotham City, worried about a potential epidemic of deadly influenza this winter, asks an economic adviser the following series of questions. Determine whether a question requires the economic adviser to make a positive assessment or a normative assessment.

Assess the following statement: “If economists just had enough data, they could solve all policy questions in a way that maximizes the social good. There would be no need for divisive political debates, such as whether the government should provide free medical care for all.”