ECON 1P92 Assignment 2

September 17, 2023

Instructions: Please write out your answers clearly, and submit them to your TA,
when you first meet them during the week of September 25th to September 29th.
You may type your assignment, or write it in hard copy. If you write it out, then please
ensure that it is legible.
If you are citing sources, then please use an accepted citation style (MLA, Chicago,
APA, etc.).

Short Response
1. What is the opportunity cost in each of the following situations? You do not need to
explain your answer, but you should be as precise as possible. (10%)
a) “I have an option between three jobs: I can work as a professor and make $150,000
per year, I can work as a consultant and make $200,000 per year, or I can work as an
investment banker and make $300,000 per year. If I choose to work as a professor, and
I only care about money, what is my opportunity cost?”
b) “I have $1,000,000, and can invest it either in GICs, which yield 6% per year, or
in real estate, which yields 1% per year. After a year, what is my opportunity cost of
investing in real estate?”
c) Suppose that John is an elite athlete, and has a choice between either playing for the
NBA or the NHL. In either case, he would earn a salary of $1,000,000. Assuming he
only cares about money, what is his opportunity cost of becoming a NHL hockey player?
d) “It is a Wednesday night, and I have a choice between two actions: studying math,
or studying economics. What is my opportunity cost of studying economics?”
e) “There are five places I could go for vacation. My favourite spot would be the Amalfi
Coast, followed by Bhutan, and then Kentucky. Tied for last are London and Toronto.
Money is no barrier, and I care only about the pleasure. What is my opportunity cost
of going to the Amalfi Coast?”

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2. In the 1964 movie, Goldfinger, James Bond takes on the notorious gold smuggler and
jeweller Auric Goldfinger. Goldfinger’s evil plan involves destroying the United States
of America’s biggest stock of gold at Fort Knox, hence making Goldfinger wealthier.
According to supply and demand, why does Goldfinger’s plan make sense? Explain,
using a diagram.1 (10%)

3. It is well-known that when a couple ‘lives together before marriage,’ then this increases
the chance of divorce.2 How might an economist explain this phenomenon, using the
concept of opportunity cost? Briefly explain. (20%)

4. The slope of a Production Possibilities Frontier is called the Marginal Rate of

Transformation. Using your definition of opportunity cost, as well as the mathematical
concept of a ‘slope,’ explain how the PPF depicts the opportunity cost of producing one
good as opposed to another. (10%)

5. Consider Toussaint, a nation which only produces wine and steel. Using a diagram,
explain how each of the following events would affect the country’s Production Possibil-
ities Frontier. (20%)
(a) A neighbouring volcano explodes, destroying much of the nation’s farmland and
infrastructure.
(b) Technological growth permits improvements in steelmaking.3
(c) Immigration causes the labour force to explode.
(d) A sigma dictator ascends to power, enshrining the rights of businessmen into
Toussaint’s Constitution, uniformly enforcing those rights.

6. All else being equal, how will the following events affect price and quantity in the
Canadian real estate market? Use a diagram to explain each of your answers. (30%)
(a) The government raises immigration targets, causing migrants to flood into the
country.
(b) Crime increases in Canada.
(c) The government gets rid of many construction regulations, making building easier.
(d) A recession hits the nation.
(e) The Bank of Canada raises interest rates.
(f) The Baby Boomers all die at around the same time.

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This movie starred Sean Connery as Bond.
2
Rosenfeld, Michael J., and Katharina Roesler, “Cohabitation Experience and Cohabitation’s Asso-
ciation with Marital Dissolution,” Journal of Marriage and Family, September 2018, 18(1): 42-58.
3
Be careful. The PPF will not shift uniformly.

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Bonus Question (50%)
Briefly explain the Midwit Meme and why it tends to be true. Apply it to a real life
example.