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business
micro economics

Questions and Answers of Micro Economics

Through the 2014 season, Nick Saban's record as the head football coach at the University of Alabama was 86 wins and 17 losses. His $7 million salary is the highest received by any college football
What are the two ways that the productivity of a firm's employees may increase when a firm moves from straight-time pay to commission or piece-rate pay?
If piece-rate or commission systems of compensating workers have important advantages for firms, why don't more firms use them?
According to a study, the number of jobs in which firms used bonuses, commissions, or piece rates to tie workers' pay to their performance increased from an estimated 30 percent of all jobs in the
Many companies that pay workers an hourly wage require some minimum level of acceptable output. Suppose a company that has been using this system decides to switch to a piece-rate system under which
For years, the Goodyear Tire & Rubber Company compensated its sales force by paying a salesperson a salary plus a bonus, based on the number of tires he or she sold. Eventually, Goodyear made two
When the contact lens firm discussed in the Making the Connection implemented a new compensation plan, who benefited from the change? Is it likely that there were any losers from the change? Briefly
In equilibrium, what determines the price of capital? What determines the price of natural resources? What is an economic rent?
Adam operates a pin factory. Suppose Adam faces the situation shown in the following table and the cost of renting a machine is $550 per week.a. Fill in the blank cells in the table and determine the
Many people have predicted, using a model like the one in panel (b) of Figure 17.12 below, that the price of natural resources should rise consistently over time in comparison with the prices of
In 1879, economist Henry George published Progress and Poverty, which became one of the best-selling books of the nineteenth century. In this book, George argued that all existing taxes should be
The total amount of oil in the earth is not increasing. Does this mean that in the market for oil, the supply curve is perfectly inelastic? Briefly explain.
In a competitive labor market, imposing a minimum wage should reduce the equilibrium level of employment. Will this result still hold if the labor market is a monopsony? Briefly explain.
An article in the Wall Street Journal about attempts by Congress to rewrite the tax code to make it more efficient noted that there were many provisions in the code intended to reduce the taxes paid
In Chapter 4, we discussed the federal government's agricultural programs. In arguing that the costs of these programs exceed their benefits, economist Vincent H. Smith stated, "The 10% to 15% of
The late Nobel Laureate James Buchanan, who was one of the key figures in developing the public choice model, wrote, "The relevant difference between markets and politics does not lie in the kinds of
What is the difference between the voting paradox and the Arrow impossibility theorem?
What is rent seeking, and how is it related to regulatory capture?
What is the relationship between market failure and government failure?
Will the preferences shown in the following table lead to a voting paradox? Briefly explain.
Many political observers have noted that Republican presidential candidates tend to emphasize their conservative positions on policy issues while running for their party's nomination, and Democratic
Briefly explain whether you agree with the following argument: The median voter theorem will be an accurate predictor of the outcomes of elections when a majority of voters have preferences very
An article in the Economist on the work of the late Nobel Laureate James Buchanan made the following observation: "It was important ... to understand the ways that government could fail
An article in the New York Times on President Obama's unsuccessful attempt to eliminate tax benefits for college savings accounts notes, "In theory, tax reform is supposed to be built around cutting
Which type of tax raises the most revenue for the federal government? What is the largest source of revenue for state and local governments?
Currently, the Social Security and Medicare programs are funded by payroll taxes rather than by the federal personal income tax. In 2015, the payroll tax for Social Security was 12.4 percent on wage,
Almost all states levy sales taxes on retail products, but about half of them exempt purchases of food. In addition, virtually all services are exempt from state sales taxes. Evaluate these tax rate
Suppose the government eliminates the income tax and replaces it with a consumption tax. With a consumption tax, individuals pay a tax on only the part of their income they spend rather than save.
Use the following table to answer the questions. Annual Income Tax
In 2012, Congress and President Barack Obama passed legislation raising tax rates on families earning $450,000 or more. Did this change in the law make the U.S. tax system more progressive or less
What is the difference between a marginal tax rate and an average tax rate? Which is more important in determining the effect of a change in taxes on economic behavior?
Briefly discuss each of the five goals and principles governments consider when deciding which taxes to use.
The federal government imposes a tax on sales of cigarettes. The following data are from a Gallup poll: Percentage Who Smoke, by Annual Household Income Income Percentage Who Smoke Less than
Many state governments use lotteries to raise revenue. If we think of a lottery as a type of tax, is a lottery likely to be progressive or regressive? What data would you need to determine whether
Use the information in Table 18.2 on page 602 to calculate the total federal income tax paid, the marginal tax rate, and the average tax rate for people with the following incomes. (For simplicity,
President Barack Obama proposed legislation that Congress failed to enact that would have included the so-called "Buffett Rule," named after billionaire Warren Buffett, who noted that he was paying a
Suppose the government decides to tax sales of pizzas. Use the following graph to answer the questions.a. How much of a per unit tax did the government impose on pizzas? b. Before the tax, what price
Briefly discuss the effect of price elasticity of supply and demand on tax incidence.
According to the 2004 Economic Report of the President, "The actual incidence of a tax may have little to do with the legal specification of its incidence." Briefly explain what this statement means
According to the 2004 Economic Report of the President, "Another crucial principle [of tax incidence] is that only people can pay taxes. Businesses and other artificial entities cannot pay taxes." Do
Business historian John Steele Gordon noted in a Wall Street Journal column that the first federal corporate income tax was enacted in 1909, before passage of the Sixteenth Amendment made a federal
Governments often have multiple objectives in imposing a tax. In each part of this question, use a demand and supply graph to illustrate your answer.a. If the government wants to minimize the excess
Use the following graph of the market for cigarettes to answer the questions.a. If the government imposes a 10-cent-per-pack tax on cigarettes, will the price consumers pay rise more if the demand
Discuss the extent of income inequality in the United States. Has inequality in the distribution of income in the United States increased or decreased over time? Briefly explain.
An article in the New York Times about former Secretary of State Hillary Clinton's campaign for president noted that she proposed to "increase taxes on the wealthiest Americans to combat a widening
An article in the Wall Street Journal explained that the 10 wealthiest four-year colleges in the United States accounted for one-third of the total cash and investments held by all four-year
Evaluate the following statement: "Policies to redistribute income are desperately needed in the United States. Without such policies, the roughly 15 percent of the population that is currently poor
Why do economists often use a lower poverty threshold for low-income countries than for high-income countries such as the United States? Is there a difference between relative poverty and absolute
Suppose that a country has 20 million households. Ten million are poor households that each have labor market earnings of $20,000 per year, and 10 million are rich households that each have labor
In an article in the Wall Street Journal, Edward Lazear of Stanford University was quoted as saying, "There is some good news.... Most of the inequality reflects an increase in returns to 'investing
Define poverty line and poverty rate. How has the poverty rate changed in the United States since 1960?
What is a Lorenz curve? What is a Gini coefficient? If a country had a Gini coefficient of 0.48 in 1960 and 0.44 in 2016, would income inequality in the country have increased or decreased?
Describe the main factors economists believe cause inequality of income.
Describe the trend in global poverty rates.
In a column in the Washington Post, Robert J. Samuelson wrote: "As for what's caused greater inequality, we're also in the dark. The Reagan and Bush tax cuts are weak explanations, because gains have
A column in the New York Times observes that the "growing trend of 'assortative mating' is a major cause of income inequality." a. What is assortative mating? b. How can assortative mating contribute
Use the following Lorenz curve graph to answer the questions.a. Did the distribution of income become more equal in 2016 than it was in 2015, or did it become less equal? Briefly explain. b. If area
Draw a Lorenz curve showing the distribution of income for the five people in the following table.Name Annual
Why in microeconomics do we measure production in terms of quantity, but in macroeconomics we measure production in terms of market value?
Is the value of a house built in 2006 and resold in 2017 included in the GDP of 2017? Briefly explain. Would the services of the real estate agent who helped sell (or buy) the house in 2017 be
Suppose that a simple economy produces only four goods: shoes, hamburgers, shirts, and cotton. Assume that all the cotton is used in the production of shirts. Use the information in the following
According to Dan Sichel, an economist at Wellesley College, the amount of time a singer spends working on a record album in a recording studio is "quite analogous to a factory investing in a new
An artist buys scrap metal from a local steel mill as a raw material for her metal sculptures. Last year, she bought $5,000 worth of the scrap metal. During the year, she produced 10 metal sculptures
If the U.S. Bureau of Economic Analysis added up the values of every good and service sold during the year, would the total be larger, smaller, or equal to GDP? Briefly explain.
Describe the four major components of expenditures in GDP and write the equation that represents the relationship between GDP and the four expenditure components.
A student remarks, "It doesn't make sense that intermediate goods are not counted in GDP. A computer chip is an intermediate good, and without it, a laptop won't work. So, why don't we count the
Briefly explain whether each of the following transactions represents the purchase of a final good. a. The purchase of flour by a bakery b. The purchase of an aircraft carrier by the federal
An article in the Wall Street Journal states that a "change in ... inventories subtracted 0.57 percentage point from" what would have been the increase in GDP. For this result to occur, must there
Which component of GDP will be affected by each of the following transactions involving Ford Motor Company? If you believe that none of the components of GDP will be affected by a transaction,
Why does the size of a country's GDP matter? How does it affect the quality of life of the country's people?
The following table shows data from the Organization for Economic Co-operation and Development (OECD) on the average number of hours employed people worked per week and on real GDP per capita for
Why is GDP an imperfect measure of economic wellbeing? What types of production does GDP not measure? If GDP included these types of production, would it still be an imperfect measure of economic
Which of the following are likely to increase measured GDP, and which are likely to reduce it? a. The fraction of women working outside the home increases. b. There is a sharp increase in the crime
Michael Burda of Humboldt University in Germany and Daniel Hamermesh of the University of Texas examined how workers in the United States who lost their jobs spent their time. They discovered that
A typical U.S. worker today works fewer than 40 hours per week, while in 1890, he or she worked 60 hours per week. Does this difference in the length of work weeks matter in comparing the economic
Economic historians Roger Ransom and Richard Sutch have estimated that African-American farmers in the U.S. South worked about 30 percent fewer hours per year after the Civil War than they had as
An article in the New York Times describes the much greater use of cash, as opposed to checks and credit cards, in buying and selling in China. The article describes someone bringing several bags of
An article in the Wall Street Journal notes that many economists believe that GDP data for India are unreliable because "the average firm employs just a handful of people and the overwhelming
Why does inflation make nominal GDP a poor measure of the increase in total production from one year to the next? How does the U.S. Bureau of Economic Analysis deal with this drawback?
An article in the Economist on the revisions to Nigeria's GDP commented, "The GDP revision is not mere trickery. It provides a truer picture of Nigeria's size by giving due weight to the bits of the
What is the GDP deflator, and how is it calculated?
Assuming that inflation has occurred over time, what is the relationship between nominal GDP and real GDP in each of the following situations? a. In the years after the base year b. In the base
Suppose the information in the following table is for a simple economy that produces only four goods and services: shoes, hamburgers, shirts, and cotton. Assume that all the cotton is used in the
Briefly explain whether you agree with the following statements. a. "If nominal GDP is less than real GDP, then the price level must have fallen during the year." b. "Whenever real GDP declines,
An article in the Wall Street Journal discussed the views of Canadian Minister of Finance Joe Oliver on the effect of falling oil prices on the Canadian economy. According to the article, Oliver
The following table lists hypothetical values.a. Fill in column (4) by calculating real GDP using the GDP deflator with a base year of 2014 from column (3). Fill in column (7) by calculating real GDP
According to an article in the Economist, "China's GDP grew by 7% in the second quarter, which was higher than had been expected." Is it likely that the article is referring to the change in nominal
Use the data in the following table to calculate the GDP deflator for each year (values are in billions of dollars):Year Nominal GDP Real
What are the differences between national income, personal income, and disposable personal income?
What is gross domestic income? Which component of gross domestic income is the largest?
Suppose Turkey has many of its citizens temporarily working in other countries, and many of its firms have facilities in other countries. Furthermore, relatively few citizens of foreign countries are
An article in the Economist on the Irish economy argues, "Irish progress, both economic and fiscal, is typically measured using GDP.... But for an economy where foreign firms are so dominant, GNP ...
Suppose the amount the federal government collects in personal income taxes increases, while the level of GDP remains the same. What will happen to the values of national income, personal income, and
If you were attempting to forecast the level of consumption spending by households, which measure of total production or total income might be most helpful to you in making your forecast? Briefly
Briefly discuss the accuracy of the following statement: "Corporate profits are much too high: Most corporations make profits equal to 50 percent of the price of the products they sell."
a. Find the values for the most recent quarter for these four variables: (1) Personal Consumption Expenditures (PCEC); (2) Personal Consumption Expenditures: Durable Goods (PCDG): (3) Personal
a. Find the values for the most recent quarter for these three variables: (1) Gross Private Domestic Investment (GPDI); (2) Private Nonresidential Fixed Investment (PNFI); and (3) Private Residential
Go to the Web site of the Federal Reserve Bank of St. Louis (FRED) (research.stlouisfed.org/ fred2/). a. Find the values for the most recent two years for Real Exports of Goods and Services (EXPGSCA)
a. Find the values for the most recent quarter for Gross Domestic Product (GDP) and Gross National Product (GNP). b. Given these values, explain whether foreign production by U.S. firms exceeded U.S.
a. Find the values for the most recent quarter for these three variables: (1) Personal Income (PINCOME); (2) Disposable Personal Income (DPI); and (3) Personal Consumption Expenditures (PCEC). b. Use

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