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# Test12007 - Question 1(7 points Your brother gives you a...

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Question 1 (7 points) Your brother gives you a “frequent flier” coupon, which allows you to pay \$200 less than the regular airfare on any flight you choose to take. The coupon can be used any time, and you often fly. The cost of Toronto/Vancouver airfare is \$500 for a regular ticket. You value the trip from Toronto to Vancouver at \$400. Should you use the coupon, pay \$300, and fly to Vancouver? Explain your answer. Question 2 (21 points) A worker in Canada can produce 5 computers or 10 televisions in a week. A worker in Japan can produce 12 computers or 12 televisions per week. a) What is the opportunity cost of producing one computer in Canada? In Japan? b) If trade occurs, which commodity will Japan export? Why? c) If the trade ratio is 1.5 televisions for one computer, would Japan benefit from trade? Explain your answer and illustrate with an appropriate diagram.

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Question 3 (16 points) The government removes an excise tax of \$0.50 per litre on gasoline, which was paid by sellers . Before the tax is removed, the market price of a litre of gasoline is \$1.00. a) If the demand for gasoline is perfectly inelastic, what is the new market price? Show the old and the new market price and quantity on an appropriate diagram.
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Test12007 - Question 1(7 points Your brother gives you a...

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