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economics

Questions and Answers of Economics

Specify and explain the typical shapes of marginal-benefit and marginal-cost curves. How are these curves used to determine the optimal allocation of resources to a particular product? If current
Explain how (if at all) each of the following events affects the location of a country’s production possibilities curve: a. The quality of education increases.b. The number of unemployed workers
Referring to the table in question 10 suppose improvement occurs in the technology of producing forklifts but not in the technology of producing automobiles. Draw the new production possibilities
On average, households in China save 40 percent of their annual income each year, whereas households in the United States save less than 5 percent. Production possibilities are growing at roughly 9
Suppose that, on the basis of a nation’s production possibilities curve, an economy must sacrifice 10,000 pizzas domestically to get the 1 additional industrial robot it desires but that it can get
Studies indicate that married men on average earn more income than unmarried men of the same age and education level. Why must we be cautious in concluding that marriage is the cause and higher
Briefly explain the use of graphs as a way to represent economic relationships. What is an inverse relationship? How does it graph? What is a direct relationship? How does it graph? Graph and explain
Indicate how each of the following might affect the data shown in the table and graph inFigure of this appendix:a. GSU’s athletic director schedules higher-quality opponents.b. An NBA team locates
The following table contains data on the relationship between saving and income. Rearrange these data into a meaningful order and graph them on the accompanying grid. What is the slope of the line?
Construct a table from the data shown on the graph below. Which is the dependent variable and which the independent variable? Summarize the data in equationform.
Suppose that when the interest rate on loans is 16 percent, businesses find it unprofitable to invest in machinery and equipment. However, when the interest rate is 14 percent, $5 billion worth of
Suppose that C = a + bY, where C = consumption, a = consumption at zero income, b = slope, and Y = income. a. Are C and Y positively related or are they negatively related?b. If graphed, would the
The accompanying graph shows curve XX’ and tangents at points A, B, and C. Calculate the slope of the curve at these three points.
In the accompanying graph, is the slope of curve AA’ positive or negative? Does the slope increase or decrease as we move along the curve from A to A’?Answer the same two questions for curve
Contrast how a market system and a command economy try to cope with economic scarcity.
How does self-interest help achieve society’s economic goals? Why is there such a wide variety of desired goods and services in a market system? In what way are entrepreneurs and businesses at the
Why is private property, and the protection of property rights, so critical to the success of the market system?
What are the advantages of using capital in the production process? What is meant by the term “division of labor”? What are the advantages of specialization in the use of human and material
What problem does barter entail? Indicate the economic significance of money as a medium of exchange. What is meant by the statement “We want money only to part with it”?
Evaluate and explain the following statements: a. The market system is a profit-and-loss system.b. Competition is the disciplinarian of the market economy.
In the 1990s thousands of “dot-com” companies emerged with great fanfare to take advantage of the Internet and new information technologies. A few, like Yahoo, eBay, and Amazon, have generally
With current technology, suppose a firm is producing 400 loaves of banana bread daily. Also assume that the least-cost combination of resources in producing those loaves is 5 units of labor, 7 units
Assume that a business firm finds that its profit is greatest when it produces $40 worth of product A. Suppose also that each of the three techniques shown in the table below will produce the
Some large hardware stores such as Home Depot boast of carrying as many as 20,000 different products in each store. What motivated the producers of those individual products to make them and offer
What is meant by the term “creative destruction”? How does the emergence of MP3 (iPod) technology relate to this idea?
In market economies, firms rarely worry about the availability of inputs to produce their products, whereas in command economies input availability is a constant concern. Why the difference?
Distinguish between the resource market and the product market in the circular flow model. In what way are businesses and households both sellers and buyers in this model?What are the flows in the
What explains why millions of economic resources tend to get arranged logically and productively rather than haphazardly and unproductively?
Explain the law of demand. Why does a demand curve slope downward? How is a market demand curve derived from individual demand curves?
What are the determinants of demand? What happens to the demand curve when any of these determinants change? Distinguish between a change in demand and a change in the quantity demanded, noting the
What effect will each of the following have on the demand for small automobiles such as the Mini Cooper and Smart car?a. Small automobiles become more fashionable.b. The price of large automobiles
Explain the law of supply. Why does the supply curve slope upward? How is the market supply curve derived from the supply curves of individual producers?
What are the determinants of supply? What happens to the supply curve when any of these determinants changes? Distinguish between a change in supply and a change in the quantity supplied, noting the
What effect will each of the following have on the supply of auto tires? a. A technological advance in the methods of producing tires.b. A decline in the number of firms in the tire industry.c. An
“In the corn market, demand often exceeds supply and supply sometimes exceeds demand.” “The price of corn rises and falls in response to changes in supply and demand.” In which of these two
Suppose the total demand for wheat and the total supply of wheat per month in the Kansas City grain market are as shown in the accompanying table. a. What is the equilibrium price? What is
How will each of the following changes in demand and/or supply affect equilibrium price and equilibrium quantity in a competitive market; that is, do price and quantity rise, fall, or remain
In 2001 an outbreak of foot-and-mouth disease in Europe led to the burning of millions of cattle carcasses. What impact do you think this had on the supply of cattle hides, hide prices, the supply of
Use two market diagrams to explain how an increase in state subsidies to public colleges might affect tuition and enrollments in both public and private colleges.
Critically evaluate: “In comparing the two equilibrium positions in Figure 3.7b, I note that a smaller amount is actually demanded at a lower price.
For each stock in the stock market, the number of shares sold daily equals the number of shares purchased. That is, the quantity of each firm’s shares demanded equals the quantity supplied. So, if
Refer to the table in question 8. Suppose that the government establishes a price ceiling of $3.70 for wheat. What might prompt the government to establish this price ceiling? Explain carefully the
What do economists mean when they say that “price floors and ceilings stifle the rationing function of prices and distort resource allocation”?
Assume that demand for a commodity is represented by the equation P = 10 – .2Qd and supply by the equation P = 2 + .2Qs, where Qd and Qs are quantity demanded and quantity supplied, respectively,
Suppose the supply of apples sharply increases because of perfect weather conditions throughout the growing season. Assuming no change in demand, explain the effect on the-equilibrium price and
Assume the demand for lumber suddenly rises because of a rapid growth of demand for new housing. Assume no change in supply. Why does the equilibrium price of lumber rise? What would happen if the
Suppose both the demand for olives and the supply of olives decline by equal amounts over some time period. Use graphical analysis to show the effect on equilibrium price and quantity.
Assume that both the supply of bottled water and the demand for bottled water rise during the summer but that supply increases more rapidly than demand. What can you conclude about the directions of
Why are shortages or surpluses more likely with preset prices, such as those on tickets, than flexible prices, such as those on gasoline?
Use the table below to answer the questions that follow:a. If this table reflects the supply of and demands for tickets to a particular World Cup soccer game, what is the stadium capacity?b. If the
Most scalping laws make it illegal to sell—but not to buy—tickets at prices above those printed on the tickets. Assuming that is the case, use supply and demand analysis to explain why the
Distinguish between the functional distribution and personal distribution of income. Which is being referred to in each of the following statements? “The combined share of wage income and
Assume that the five residents of Econoville receive incomes of $50, $75, $125, $250, and $500. Present the resulting distribution of income as a graph similar to Figure 4.2. Compare the incomes of
Distinguish between a plant, a firm, and an industry. Contrast a vertically integrated firm, a horizontally integrated firm, and a conglomerate. Cite an example of a horizontally integrated firm from
What are the three major legal forms of business organization? Which form is the most prevalent in terms of numbers? Why do you think that is so? Which form is dominant in terms of total sales? What
What is the principal-agent problem as it relates to managers and stockholders? How did firms try to solve it in the 1990s? In what way did the “solution” backfire on some firms?
Identify and briefly describe the main economic functions of government. What function do you think is the most controversial? Explain why.
What divergences arise between equilibrium output and efficient output when (a) Negative externalities (b) Positive externalities are present? How might government correct these divergences? Cite an
Explain why zoning laws, which allow certain land uses only in specific locations, might be justified in dealing with a problem of negative externalities. Explain why tax breaks to businesses that
What are the two characteristics of public goods? Explain the significance of each for public provision as opposed to private provision. What is the free-rider problem as it relates to public goods?
Draw a production possibilities curve with public goods on the vertical axis and private goods on the horizontal axis. Assuming the economy is initially operating on the curve, indicate how the
Use the distinction between the characteristics of private and public goods to determine whether the following should be produced through the market system or provided by government: (a) French
Use the circular flow diagram to show how each of the following government actions simultaneously affects the allocation of resources and the distribution of income: a. The construction of a new high
What do economists mean when they say government purchases are “exhaustive” expenditures whereas government transfer payments are “nonexhaustive” expenditures? Cite an example of a government
What is the most important source of revenue and the major type of expenditure at the Federal level? At the state level? At the local level?
Suppose in Fiscalville there is no tax on the first $10,000 of income, but a 20 percent tax on earnings between $10,000 and $20,000 and a 30 percent tax on income between $20,000 and $30,000. Any
What do economists mean when they refer to Social Security as a pay-as-you-go plan? What is the Social Security trust fund? What is the nature of the long-run fiscal imbalance in the Social Security
Describe the four major economic flows that link the United States with other nations. Provide a specific example to illustrate each flow. Explain the relationships between the top and bottom flows
How important is international trade to the U.S. economy? In terms of volume, does the United States trade more with the industrially advanced economies or with developing economies? What country is
What factors account for the rapid growth of world trade since the Second World War? Who are the major players in international trade today? Besides China and Japan, what other Asian nations play
The following are production possibilities tables for China and the United States. Assume that before specialization and trade the optimal product mix for China is alternative B and for the United
Suppose that the comparative-cost ratios of two products—baby formula and tuna fish—are as follows in the hypothetical nations of Canswicki and Tunata:Canswicki: 1 can baby formula = 2 cans tuna
True or False? “U.S. exports create a demand for foreign currencies; foreign imports of U.S. goods create a supply of foreign currencies.” Explain. Would a decline in U.S. consumer income or a
If the European euro were to decline in value (depreciate) in the foreign exchange market, would it be easier or harder for the French to sell their wine in the United States? Suppose you were
What measures do governments take to promote exports and restrict imports? Who benefits and who loses from protectionist policies? What is the net outcome for society?
Identify and state the significance of each of the following: (a) WTO; (b) EU; (c) euro; (d) NAFTA.What commonality do they share?
Explain: “Free-trade zones such as the EU and NAFTA lead a double life: They can promote free trade among members, but they pose serious trade obstacles for nonmembers.” Do you think the net
Speculate as to why some U.S. firms strongly support trade liberalization while other U.S. firms favor protectionism. Speculate as to why some U.S. labor unions strongly support trade liberalization
What forms do trade adjustment assistance take in the United States? How does such assistance promote support for free trade agreements? Do you think workers who lose their jobs because of changes in
What is offshoring of white-collar service jobs and how does that practice relate to international trade? Why has it recently increased? Why do you think more than half of all the offshored jobs have
How does a fair-trade product differ from an otherwise identical imported good? What is the purported benefit of fair-trade certification on purchases of goods such as chocolate, coffee, bananas, and
Explain why the choice between 1, 2, 3, 4, 5, 6, 7, and 8 “units,” or 1000, 2000, 3000, 4000, 5000, 6000, 7000, and 8000 movie tickets, makes no difference in determining elasticity in Table
Graph the accompanying demand data, and then use the midpoint formula for E d to determine price elasticity of demand for each of the four possible $1 price changes. What can you conclude about
Calculate total-revenue data from the demand schedule in question 2. Graph total revenue below your demand curve. Generalize about the relationship between price elasticity and total
How would the following changes in price affect total revenue? That is, would total revenue increase, decline, or remain unchanged? a. Price falls and demand is inelastic.b. Price rises and demand is
What are the major determinants of price elasticity of demand? Use those determinants and your own reasoning in judging whether demand for each of the following products is probably elastic or
What effect would a rule stating that university students must live in university dormitories have on the price elasticity of demand for dormitory space? What impact might this in turn have on room
In November 1998 Vincent van Gogh’s self-portrait sold at auction for $71.5 million. Portray this sale in a demand and supply diagram and comment on the elasticity of supply. Comedian George Carlin
What is the formula for measuring the price elasticity of supply? Suppose the price of apples goes up from $20 to $22 a box. In direct response, Goldsboro Farms supplies 1200 boxes of apples instead
The income elasticities of demand for movies, dental services, and clothing have been estimated to be + 3.4, + 1, and + .5, respectively. Interpret these coefficients. What does it mean if an income
Research has found that an increase in the price of beer would reduce the amount of marijuana consumed. Is cross elasticity of demand between the two products positive or negative? Are these products
Refer to T able 6.5. If the six people listed in the table are the only consumers in the market and the equilibrium price is $11 (not the $8 shown), how much consumer surplus will the market generate?
Refer to Table 6.6. If the six people listed in the table are the only producers in the market and the equilibrium price is $6 (not the $8 shown), how much producer surplus will the market generate?
Draw a supply and demand graph and identify the areas of consumer surplus and producer surplus. Given the demand curve, what impact will an increase in supply have on the amount of consumer surplus
Use the ideas of consumer surplus and producer surplus to explain why economists say competitive markets are efficient. Why are below- or above-equilibrium levels of output inefficient, according to
What is the purpose of charging different groups of customers different prices? Supplement the three broad examples in the Last Word with two additional examples of your own.
Complete the following table and answer the questions below:a. At which rate is total utility increasing: a constant rate, a decreasing rate, or an increasing rate? How do you know?b. “A rational
Mrs. Simpson buys loaves of bread and quarts of milk each week at prices of $1 and 80 cents, respectively. At present she is buying these products in amounts such that the marginal utilities from the
Columns 1 through 4 in the table below show the marginal utility, measured in utils, that Ricardo would get by purchasing various amounts of products A, B, C, and D. Column 5 shows the marginal
You are choosing between two goods, X and Y, and your marginal utility from each is as shown in the table below. If your income is $9 and the prices of X and Y are $2 and $1, respectively, what

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