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microeconomics
Questions and Answers of
Microeconomics
In each of the following situations, identify which of the 11 principles is at work.a. You choose to purchase your textbooks online rather than pay a higher price for the same books through your
Tim Geithner, a former U.S. Treasury secretary, has said,“The recession that began in late 2007 was extraordinarily severe. But the actions we took at its height to stimulate the economy helped
Explain how the marginal rate of substitution changes as an allergy sufferer increases the consumption of Sudafed.Sudafed, used by allergy sufferers, contains as the active ingredient
a. If Jim changes the quantities that he buys, will he buy more or fewer muffins and more or less coffee?b. When the prices change, will there be an income effect, a substitution effect, or both at
Why do all three types of firms survive and in which sectors is each type most prominent?
Is our economy competitive? Is it becoming more competitive or less competitive?
Calculate Lee’s opportunity cost of production and his economic profit.Lee is a computer programmer who earned $35,000 in 2009. But on January 1, 2010, Lee opened a body board manufacturing
Lee’s accountant recorded the depreciation on his cottage during 2010 as $7,000. According to the accountant, what profit did Lee make?Lee is a computer programmer who earned $35,000 in 2009. But
In 2009, Toni taught music and earned $20,000.She also earned $4,000 by renting out her basement.On January 1, 2010, she quit teaching, stopped renting out her basement, and began to use it as the
Which of the following news items involves a short-run decision and which involves a long-run decision? Explain.January 31, 2008: Starbucks will open 75 more stores abroad than originally predicted,
Grain Prices Go the Way of the Oil Price Every morning millions of Americans confront the latest trend in commodities markets at their kitchen table. Rising prices for crops have begun to drive up
Explain what might be the source of the diseconomies of scale that ProPainters experiences.The table shows the production function of Bonnie’s Balloon Rides. Bonnie’s pays $500 a day for each
What is the elasticity of demand for Lin’s fortune cookies and how does it differ from the elasticity of the market demand for fortune cookies?Lin’s makes fortune cookies that are identical to
If in the long run, the market demand for paper remains the same as in Problem 8,a. What is the long-run equilibrium price of paper, the market output, and the economic profit or loss of each firm?b.
Explain and illustrate graphically how the diaper service market has been affected by the decrease in the North American birth rate and the development of disposable diapers.
Not only has scouring the Web for the best possible price become standard protocol before buying a big-ticket item, but more consumers are employing creative strategies for scoring hot deals.
In Problem 24, under what conditions will Delta Truss exit the market?Problem 24Delta Truss in Cadillac [Michigan] is shutting down and temporarily discontinuing truss production.Workers fear this
After you have studied Reading Between the Lines on pp. 292–293 answer the following questions.a. What are the features of the global market for corn that make it competitive?b. If the increase in
How does advertising influence demand?
In the long run, how does the number of firms producing running shoes change?Use the following figure, which shows the situation facing a producer of running shoes, to work Problems 5 to 10. Price
List three main reasons why governments exist.
How do taxes help us to cope with external costs? At what level must a pollution tax be set to be efficient?
How do emission charges and marketable pollution permits work?
Congress plans to make large polluters, such as oil refiners and automobile manufacturers, and makers of cement, aluminum, glass and paper, start tracking their emissions next year. The EPA’s
Half of the respondents polled in 10 cities said that traffic congestion increased their stress levels and cut their productivity. IBM has been devising ways for cities to cut traffic congestion,
A consortium of Hong Kong investors and Donald J. Trump are selling a stretch of riverfront land and three buildings on the Upper West Side for about $1.8 billion in the largest residential sale in
It’s hard to put a price on happiness, but if you’ve ever had to choose between a job you like and a better-paying one that you like less, you’d like to know what job satisfaction is worth.John
From 1970 to 2009 did the distribution of income become more equal or more unequal?How did the richest quintile’s share change? FIGURE 19.5 The U.S. Gini Ratio: 1970-2009 Gini ratio 0.48 0.46 0.44.
What are the main characteristics of people who earn large incomes and who earn small incomes?
Draw a scatter diagram of the inflation rate and the interest rate. Describe the relationship.Use the following spreadsheet to work Problems 1 to 3. The spreadsheet provides data on the U.S.
Draw a scatter diagram of the growth rate and the unemployment rate. Describe the relationship.Use the following spreadsheet to work Problems 1 to 3. The spreadsheet provides data on the U.S.
Draw a scatter diagram of the interest rate and the unemployment rate. Describe the relationship.Use the following spreadsheet to work Problems 1 to 3. The spreadsheet provides data on the U.S.
Draw a graph of the relationship between the revenue per theater on the y-axis and the number of theaters on the x-axis. Describe the relationship.Use the following news clip to work Problems 4 to
Calculate the slope of the relationship between 4,060 and 2,673 theaters.Use the following news clip to work Problems 4 to 6.Clash of the Titans Tops Box Office With Sales of $61.2 Million: Movie
Calculate the slope of the relationship between 2,155 and 4,060 theaters.Use the following news clip to work Problems 4 to 6.Clash of the Titans Tops Box Office With Sales of $61.2 Million: Movie
Explain why the United States does not produce tea and instead imports it from India.Americans are switching to loose-leaf tea for its health benefits. Tea could be grown in the United States, but
In what did the South have a comparative advantage?Before the Civil War, the South traded with the North and with England. The South sold cotton and bought manufactured goods and food. During the
Nevada has plenty of jobs for the over 50s and its elderly population is growing faster than that in other states.Explain how grannies have influenced:a. The demand in some Las Vegas markets.b. The
a. How would you expect the price of a used Toshiba player on eBay to change? Will the price change result from a change in demand, supply, or both, and in which directions?b. How would you expect
Explain how the market for Blu-ray format movies will change.Toshiba Corp. yesterday withdrew from the race to be the next-generation home movie format, leaving Sony Corp.’s Blu-ray technology the
Why does the level of income influence the magnitude of the income elasticity of demand?
Mississippi cracked down on gougers after Hurricane Katrina. John Shepperson was one of the “gougers” authorities arrested. Shepperson lives in Kentucky and he watched news reports about Katrina
The Omnibus Budget Reconciliation Act of 1990 included a stern tax on “luxury items.” In 1990 the Joint Committee on Taxation projected that the 1991 revenue yield from the luxury taxes would be
On a graph of the market for low-skilled labor, show the effect of the increase in the minimum wage on the quantity of labor employed.The rise in the federal minimum wage will boost the wages of the
Explain the effects of the higher minimum wage on the workers’ surplus and the firms’ surplus.Does the labor market become more efficient or less efficient? Explain.The rise in the federal
Use the news clip in Problem 21.a. Would a cut in the tax on small business profits offset the effect of the higher minimum wage on employment? Explain.b. Would a cut in the Social Security tax that
a. Why does the federal government subsidize farmers?b. Explain how a subsidy paid to cotton farmers affects the price of cotton and the marginal cost of producing it.Congress sent the White House a
Explain how a subsidy paid to cotton farmers affects the consumer surplus and the producer surplus from cotton. Does the subsidy make the cotton market more efficient or less
a. How would a payment to cotton farmers to idle their land influence the supply of cotton?b. How would a payment to cotton farmers to idle their land affect the consumer surplus and the producer
After you have studied Reading Between the Lines on answer the following questions.a. In what ways do employers break laws in the underground labor market described in the news article?b. How does a
a. Are China’s price controls described in the news clip price floors or price ceilings?b. Explain how China’s price controls have created shortages or surpluses in the markets for coal,
Explain how China’s price controls have changed consumer surplus, producer surplus, total surplus, and the deadweight loss in the markets for coal, gasoline, and diesel.Chinese power plants have
Show on a graph the change in consumer surplus, producer surplus, total surplus, and the deadweight loss in the markets for coal, gasoline, and diesel.Chinese power plants have run short of coal, an
Suppose that in 2008, tomato growers in Florida lobby the U.S. government to impose an import quota on Mexican tomatoes. Explain who in the United States would gain and who would lose from such a
Explain why, if Max equalized the marginal utility per hour from windsurfing and from snorkeling, he would not maximize his utility.
After you have studied Reading Between the Lines (pp. 196–197) answer the following questions.a. If a wave of natural disasters put paramedics in the news and a large number of people decide to try
a. What does the news clip imply about how the total utility from consumption changes over time?b. What does the news clip imply about how the marginal utility from consumption changes over time?At
This question pertains to the addendum to Chapter 2. The following tables show the production possibilities for two hypothetical countries, Italia and Nire. Which country has the comparative
Are the following statements true or false? Explain your answers. a. A 10 percent reduction in price that leads to a 5 percent increase in the amount purchased indicates a price elasticity of more
Rod N. Reel owns a dealership that sells fishing boats in an open, price-searcher market. To develop his pricing strat egy, Rod hired an economist to estimate his demand curve. Columns (1) and (2) of
Suppose that you are considering whether to enroll in a summer computer-training program that costs $2,500. If you take the program, you will have to give up $1,500 of earnings from your summer job.
“In a world of uncertainty, it is important that entrepreneurs be able to introduce new products and try out innovative ideas. But it is also important that unproductive projects be brought to a
Will political officials be more likely to channel funds into wealth-creating projects than private investors and entrepreneurs? Why or why not? Discuss.
The interest rates charged on outstanding credit card balances are generally higher than the interest rate that banks charge customers with a good credit rating. Why do you think the credit card rate
“The Great Depression was caused by the 1929 stock market crash. The 1929 collapse of stock prices was the most severe in U.S. history, and therefore it is not surprising that it caused a prolonged
Do the length and severity of the Great Depression reflect a defect in the operation of markets? Do they reflect a failure of government policy? Discuss.
“Franklin Roosevelt was one of our greatest presidents be cause it was his New Deal policies that brought the Great Depression to an end.” Evaluate this statement.
Was the Great Depression the result of the inherent instability of a market economy, as John Maynard Keynes argued? Alternatively, was it the result of counterproductive government policy as Milton
“I’m for international trade, but not when it takes jobs from Americans. If the American worker can produce the product, Americans should not buy it from foreigners.” Do you agree with this
What are the most important lessons Americans should learn from the Great Depression? Do you think we have learned them? Why or why not?
The U.S. Postal Service (USPS) is an independent establishment within the federal government. When the USPS suffers a financial loss, the federal government is responsible for providing the funds to
Suppose that you’re very athletic. For example, you might like to run, swim, play volleyball, or bike. You would like to perform better at your next competition. Perhaps you want to run a
Consider an organization dedicated to helping low-income people. The members of the organization are discussing alternative methods of aiding the poor, when a proponent of one particular method
Suppose, for simplicity, that during any given week, the machinery and number of workers at Tesla Motors’s Fremont plant cannot be increased. So the number of original models or Model 3s the
Suppose that Canada and the United States both produce maple syrup and honey, which are sold for the same price in both countries. These are the combinations of the two goods that each country can
Review the information in Figure 2.4. Choose a rate of trading cherries for apples different from the rate used in the text (15 pounds of cherries for 10 pounds of apples) that will allow you and
What does increasing marginal opportunity costs mean? What are the implications of this principle for the shape of the production possibilities frontier?
Which letter is likely to be worth more: one written by Abraham Lincoln or one written by his assassin, John Wilkes Booth? Lincoln is one of the greatest presidents, and many people collect anything
When All birds introduced athletic shoes with uppers made from merino wool, it helped increase the popularity of this type of wool, which is softer than other wools. A news article noted that,
In many cities that have rent controls, such as New York and San Francisco, the actual rents paid can be much higher than the legal maximum. Because rent controls cause a shortage of apartments,
Suppose that Andy sells basketballs in the perfectly competitive basketball market. His output per day and his costs are as follows:a. Suppose the current equilibrium price in the basketball market
The city of Bethlehem, Pennsylvania, was considering raising the fine from $10 to $15 for cars parked at a meter whose time had expired. The city’s parking authority believed that raising the fine
Some economists, health professionals, and policymakers argue in favor of a soda tax because they believe that people who drink sweetened beverages can experience health problems. Some city
For decades, every fund manager would buy the individual stocks he or she believed would have the largest price increases in the future. In 1976, the late Jack Bogle of the Vanguard Group began
Many news articles on firms describe recent changes in their finances. Locate and read one recent article on a firm’s balance sheet or income statement from sources such as a local newspaper,
Tesla manufactures electric cars in a factory in California. There are a total of 4,500 parking spaces at the factory, and Tesla has about 16,000 employees working there (although they don’t all
Suppose you win a contest and are given the choice of the following prizes:Prize 1: $50,000 to be received right away, with four additional payments of $50,000 to be received each year for the next 4
Writing in 2018 on bloomberg.com, economist Noah Smith noted, “As economic growth has slowed, growth in demand for health care has slowed. But at the same time, prices have risen.” Use a graph
From your local paper, bloomberg.com, cnn.com, or another site, locate two articles that advocate specific changes in the U.S. health care system. Avoid news articles that only describe the debate
Santiago Delgado owns a copier store. He leases two copy machines for which he pays $12.50 each per day. He cannot increase the number of machines he leases without giving the office machine company
Pick five firms from articles you find in sources such as your local newspaper, cnn.com, bloomberg.com, the Wall Street Journal, or the New York Times and describe the technology that each firm uses
As we saw in the chapter opener, the development of fracking technology has revolutionized the U.S. oil industry, leading to large gains in production. Many of the firms that took the lead in using
According to an article in the Wall Street Journal, a wheat farmer decided to take 170 acres out of production and plant grass on it rather than wheat because “that seemed like his only choice
Financial writer Michael Lewis once remarked, “The sad truth, for investors, seems to be that most of the benefits of new technologies are passed right through to consumers free of charge.”a.
Explain why it is true that for a firm in a perfectly competitive market, the profit-maximizing condition MR = MC is equivalent to the condition P = MC.
The following graph represents the situation of Marguerite’s Caps, a firm selling caps in the perfectly competitive cap industry. In each part of this problem, be sure to show how you calculated
Suppose Apple finds that the relationship between the average total cost of producing iPhones and the quantity of iPhones produced is as shown in the following graph. Will Apple maximize profit if it
In recent chapters, we explored different types of industries that firms may be in, including perfect competition (Chapter 12), monopolistic competition (Chapter 13), and monopoly (this Chapter 15).
If you shop at an Amazon, Go convenience store, you can scan your smartphone as you enter the store. Cameras and sensors track your path through the store, and software records each item you take
A key part of this chapter is the section “Where Does Comparative Advantage Come From?” The section explains the main sources of comparative advantage among countries. Comparative advantage also
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