Question

Please write your name and student ID number clearly at the top of your answer paper.

1. Production Possibilities Frontier gives us the information about the combinations of goods and services that can be produced by a country given its resources and production technology.

a. Assume that China can only produce 2 goods: toys and computers. Draw China’s PPF and clearly

specify the axes.

b. In class we learned about China’s demographic challenge. Describe this challenge in a few sentences.

c. To address the demographic challenge, say China opens up a favorable immigration policy to

encourage the migration of skilled labour into the country. In the same graph that you drew for part a, draw the change that will occur on the PPF. Explain why the PPF changed this way.

2. UAE has experienced phenomenal growth in the past couple of decades. List and explain 3 factors that helped propel this growth.

3. Fill in the following blanks. You only need to write the answer in the answer paper. Number the answers clearly.

a. The value of everything we give up to obtain something is called __________________

b. The economic system of collective ownership and joint share in the prosperity is known as ____________________

c. The country is said to have the __________________________________ in the production of a good if it has the lowest opportunity cost.

d. The gain in well-being of consumers from consumption of a good or service is known as ____________________________

e. The biggest advantage of free markets is that an efficient allocation of resources is achieved at _________________________________

f. If the price of a product increases, then the producer surplus in the market is expected to _______________________________ (increase/decrease)

g. Pegging the CNY against USD for almost 2 decades helped Chinese growth by keeping the prices of Chinese-made products ___________________ (low/high) in the foreign markets.

h. In the 1930s major part of UAE’s GDP comprised of Pearl fishing. This belongs to the ________________________ sector in the model of industrialization.

i. When the government imposes a tax in a market, the total surplus is calculated as the sum of ____________, _________________, and ________________

4. We

and cause a loss in welfare.

a. In the market for a life-saving drug such as insulin, what kind of price control would the government

know that any government intervention is likely to move the market away from the equilibrium point

want to impose? Why?

b. Say the government imposes a price floor above the equilibrium price. Using a graph explain what

happens to the market price, quantity bought and sold, consumer surplus, and producer surplus after the price floor is imposed. Show all of these things and the deadweight loss on the graph.

Answer 1