Question

Part I. True/False/Uncertain/Explanation.

Make sure you provide an explanation why you think the statement is True or False or Uncertain. You get ZERO mark if you do not provide any explanation.

1.   Perfect competition may lead to an equilibrium where P=MC (Price=Marginal Cost) and total surplus is maximized.
2.   Provinces use Canada Health Transfer and Canada Social Transfer to provide public health and education.
3.   If you were to drop out of college after attending for 3 years and completing 75% of all coursework, you could expect to earn about 75% of the college premium in the labor market.
4.   Maria is halfway to work before she realizes that she forgot to lock the back door. Because she has renter’s insurance, she decides it is not worth being late just to go home to lock the door. This is a situation caused by moral hazard.

Answer 1

1. Perfect competition may lead to an equilibrium where P=MC (Price=Marginal Cost) and total surplus is maximized.

True

In perfect competition, price is set equal to marginal cost. No buyer or seller can change the price. This results into an equilibrium where both consumer and producer surplus is maximized.

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2. Provinces use Canada Health Transfer and Canada Social Transfer to provide public health and education.

True

The CHT and CST are transfers from the federal government to the provinces, to provide for specific support in health, education, social development and child development.

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3. If you were to drop out of college after attending for 3 years and completing 75% of all coursework, you could expect to earn about 75% of the college premium in the labor market.

False

The full premium of college education will only be possible if a person completes the degree and scores well. Though there have been studies which indicate a 15% to 20% premium, but that is the maximum we can expect. The person will still be considered as with partial college education, or an incomplete degree.

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4. Maria is halfway to work before she realizes that she forgot to lock the back door. Because she has renter’s insurance, she decides it is not worth being late just to go home to lock the door. This is a situation caused by moral hazard.

True

The renter's insurance protects her belongings from theft, vandalism and certain other events. She is displaying risky behavior by not going back and locking the door. This is because she feels that the insurance will cover any losses. This is a moral hazard, as Maria is taking more risk due to the insurance.