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business
micro economics

Questions and Answers of Micro Economics

Historically, the production of many perishable foods, such as dairy products, was highly seasonal. As the supply of those products fluctuated, prices tended to fluctuate tremendously-typically by 25
If the equilibrium price and quantity of a product were $100 and 1,000 units per month in 2015 and $150 and 800 units per month in 2016, did this product experience a larger shift in its demand curve
A student writes the following: "Increased production leads to a lower price, which in turn increases demand." Do you agree with his reasoning? Briefly explain.
A student was asked to draw a demand and supply graph to illustrate the effect on the market for smart-watches of a fall in the price of displays used in smart-watches, holding everything else
The following four graphs represent four market scenarios, each of which would cause either a movement along the supply curve for Pepsi or a shift of the supply curve. Match each scenario with the
Proposals have been made to increase government regulation of firms providing childcare services by, for instance, setting education requirements for childcare workers. Suppose that these regulations
Which of the following graphs best represents what happens in the market for hotel rooms at a ski resort during the winter? Briefly explain. From the graph that you picked, what would be the result
The following graphs show the supply and demand curves for two markets. One of the markets is for Tesla automobiles, and the other is for a cancer-fighting drug, without which lung cancer patients
If, over time, the demand curve for a product shifts to the right more than the supply curve does, what will happen to the equilibrium price? What will happen to the equilibrium price if the supply
Suppose the demand for smart-watches increases rapidly during 2016. At the same time, six more firms begin producing smart-watches. A student remarks that, because of these events, we can't know for
Suppose that oil prices sharply increase, while more cities pass laws banning the use of plastic bags at stores. Use a demand and supply graph to illustrate your answers to the following
The demand for watermelons is highest during summer and lowest during winter. Yet watermelon prices are normally lower in summer than in winter. Use a demand and supply graph to demonstrate how this
According to one observer of the lobster market: After Labor Day, when the vacationers have gone home, the lobstermen usually have a month or more of good fishing conditions, except for the
Years ago, an apple producer argued that the United States should enact a tariff, or a tax, on imports of bananas. His reasoning was that "the enormous imports of cheap bananas into the United States
Suppose that the following table shows the quantity demanded of UGG boots at five different prices in 2016 and 2017: ______________________________ Quantity Demanded ________________________
Suppose that the curves in the following graph represent two demand curves for traditional chicken wings (basket of six) at Buffalo Wild Wings. What would cause a movement from point A to point B on
Both smart-watches and smart-phones use applications, or "apps," which are software that consumers can download and use to play games, check stock market prices, and read news stories, among many
Since 1979, China has had a policy that allows couples to have only one child. This policy has caused a change in the demographics of China. Between 1980 and 2013, the share of the population under
Suppose the following table shows the price of a base model Toyota Prius hybrid and the quantity of Priuses sold for three years. Do these data indicate that the demand curve for Priuses is upward
A journalist wrote the following about the effects of falling gasoline prices: "With lower prices, demand rises and people consume more." Briefly explain whether you agree with the journalist's
According to an article in the Wall Street Journal in 2015, "Apple Inc.'s surging smart-phone sales in China may have busted a myth: that many Chinese consumers couldn't, or wouldn't, shell out for
What is the law of demand? Use the substitution effect and the income effect to explain why an increase in the price of a product causes a decrease in the quantity demanded.
What are the main variables that will cause the demand curve to shift? Give an example of each.
An article in the Wall Street Journal titled "Auto Sales Zoom, Helped by Low Prices at the Pump" includes a graphic showing increasing car and truck sales in one panel and decreasing gasoline prices
A number of industry analysts believe that smart-phone prices will decline over the next few years. If these forecasts are correct, what will be the effect on the demand for smart-watches? Briefly
What is the law of supply? What are the main variables that cause a supply curve to shift? Give an example of each.
Suppose that the curves in the following graph represent two supply curves for traditional chicken wings (basket of six) at Buffalo Wild Wings. What would cause a movement from point A to point B on
Suppose that the following table shows the quantity supplied of UGG boots at five different prices in 2016 and 2017: ___________________________ Quantity Supplied _____________________ (Thousands of
In most cities, firms that own office buildings can renovate them for use as residential apartments. According to a news story, in many cities "residential rents are surpassing office rents." Predict
What is marginal benefit? Why is the demand curve referred to as a marginal benefit curve?
A student makes the following argument: "When a market is in equilibrium, there is no consumer surplus. We know this because in equilibrium, the market price is equal to the price consumers are
In the following graph, is the consumer surplus larger with demand curve D1 or demand curve D2? Briefly explain. Compare the producer surplus with demand curve D1 and with demand curve D2.
Assume that the following graph illustrates the market for a breast cancer-fighting drug, without which breast cancer patients cannot survive. What is the consumer surplus in this market? How does it
The following graph shows the market for tickets to a concert that will be held in a local arena that seats 15,000 people. What is the producer surplus in this market? How does it differ from the
What is marginal cost? Why is the supply curve referred to as a marginal cost curve?
What is consumer surplus? How does consumer surplus change as the equilibrium price of a good rises or falls?
What is producer surplus? How does producer surplus change as the equilibrium price of a good rises or falls?
On a shopping trip, Melanie decided to buy a light blue coat made from woven fabric. A tag on the coat stated that the price was $79.95. When she brought the coat to the store's sales clerk, Melanie
Uber is a company that offers people transportation by drivers who use their own cars for this purpose. Customers pay for their rides with their smart-phone apps. Uber's prices fluctuate with the
Consider the information given in the table on four consumers in the market for orange juice._____________________________ Highest PriceConsumer ____________________ Willing to PayJill
Suppose that a frost in Florida reduces the size of the orange crop, which causes the supply curve for oranges to shift to the left. Briefly explain whether consumer surplus will increase or decrease
A Wall Street Journal article noted that as manufacturers began to produce more 4K television sets, their production costs declined.a. Use a demand and supply graph to show the effect of these
Using the following graph, explain why economic surplus would be smaller if Q1 or Q3 were the quantity produced than if Q2 is the quantity produced?
What is economic efficiency? Why do economists define efficiency in this way?
A Wall Street Journal article about a drought in California indicated that one result would be a smaller tomato crop. Use a demand and supply graph of the tomato market to illustrate the effect of
According to a Wall Street Journal article, many restaurant chains, including McDonald's and Chick-fil-A, have begun serving only chickens that were raised without being fed antibiotics. Using this
Using the following graph, show the effects on consumer surplus and producer surplus of an increase in supply from S1 to S2. By how much does economic surplus increase?
A student argues: "Economic surplus is greatest at the level of output where the difference between marginal benefit and marginal cost is largest." Do you agree? Briefly explain.
Why do some consumers tend to favor price controls while others tend to oppose them?
A Wall Street Journal article noted that a study by the U.S. Congressional Budget Office "estimated raising the minimum wage to $10.10 an hour would reduce U.S. employment by 500,000 but lift 900,000
Suppose that initially the gasoline market is in equilibrium, at a price of $2.50 per gallon and a quantity of 45 million gallons per month. Then a war in the Middle East disrupts imports of oil into
An editorial in the Economist magazine discusses the fact that in most countries-including the United States-it is illegal for individuals to buy or sell body parts, such as kidneys.a. Draw a demand
Do producers tend to favor price floors or price ceilings? Briefly explain.
What is a black market? Under what circumstances do black markets arise?
Can economic analysis provide a final answer to the question of whether the government should intervene in markets by imposing price ceilings and price floors? Briefly explain.
The following graph shows the market for apples. Assume that the government has imposed a price floor of $10 per crate.a. How many crates of apples will be sold to consumers after the price floor has
Use the information on the kumquat market in the table to answer the following questions:a. What are the equilibrium price and quantity? How much revenue do kumquat producers receive when the market
Suppose that the government sets a price floor for milk that is above the competitive equilibrium price and that the government does not purchase any surplus milk.a. Draw a graph showing this
In Allentown, Pennsylvania, in the summer of 2014, the average price of a gallon of gasoline was $3.68-a 22-cent increase from the year before. Many consumers were upset by the increase. One consumer
According to a New York Times article, the Venezuelan government "imposes strict price controls that are intended to make a range of foods and other goods more affordable for the poor. They are often
Suppose the government imposes a payroll tax of $1 per hour of work and collects the tax from employers. Use a graph for the market for labor to show the effect of the payroll tax, assuming the
Does who is legally responsible for paying a tax-buyers or sellers-make a difference in the amount of tax each pays? Briefly explain.
As explained in the chapter, economic efficiency is a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production. Using this
Suppose the current equilibrium price of a quarter-pound hamburger is $5, and 10 million quarter-pound hamburgers are sold per month. After the federal government imposes a tax of $0.50 per
The following graph shows the effect of a tax imposed on soft drinks. Use this graph to answer the questions.a. Which areas in the graph represent the excess burden (deadweight loss) of the tax? b.
Use the following graph of the market for cigarettes to answer the questions.a. According to the graph, how much is the government tax on cigarettes? b. What price do producers receive after paying
Suppose the federal government decides to impose a sales tax of $1.00 per pizza. Briefly explain whether you agree with the following statement, made by a representative of the pizza industry:The
According to a news story, Pennsylvania's liquor tax is "paid by the seller-the restaurant or bar owner-when the seller buys liquor from state-run wine and spirit stores." Briefly explain the effect
In a linear demand equation, what economic information is conveyed by the intercept on the price axis? Similarly, what economic information is conveyed by the intercept on the price axis in a linear
Why would economists use the term deadweight loss to describe the effect on consumer surplus and producer surplus from a price control?
Suppose that you have been hired to analyze the effect on employment from the imposition of a minimum wage in the labor market. Further suppose that you estimate the demand and supply functions for
The following graphs illustrate the markets for two different types of labor. Suppose an identical minimum wage is imposed in both markets. In which market will the minimum wage have the largest
Suppose that you are the vice president of operations of a manufacturing firm that sells an industrial lubricant in a competitive market. Further suppose that your economist gives you the following
The following graph shows a market in which a price floor of $3.00 per unit has been imposed. Calculate the values of each of the following.a. The deadweight loss.b. The transfer of producer surplus
Construct a table like the one in this appendix on page 144 but assume that the rent ceiling is $2,000 rather than $1,500?
What is an externality? Give an example of a positive externality, and give an example of a negative externality.
In a study at a large state university, students were randomly assigned roommates. Researchers found that, on average, males assigned to roommates who reported drinking alcohol in the year before
Tom and Jacob are college students. Each of them will probably get married later and have two or three children. Each knows that if he studies more in college, he'll get a better job and earn more
In recent years, companies have used fracking, or hydraulic fracturing, in drilling for oil and natural gas that previously could not be profitably recovered. According to an article in the New York
In an article in the agriculture magazine Choices, Oregon State University economist JunJie Wu made the following observation about the conversion of farmland to urban development:Land use provides
When will the private cost of producing a good differ from the social cost? Give an example. When will the private benefit from consuming a good differ from the social benefit? Give an example.
What is economic efficiency? How do externalities affect the economic efficiency of a market equilibrium?
What is market failure? When is market failure likely to arise?
A neighbor's barking dog can be both a positive externality and a negative externality. Under what circumstances would a dog's bark be a positive externality? Under what circumstances would a dog's
Yellowstone National Park is in bear country. The National Park Service, at its Yellowstone Web site, states the following about camping and hiking in bear country: Do not leave packs containing food
Every year at the beginning of flu season, many people, including the elderly, get a flu shot to reduce their chances of contracting the flu. One result is that people who do not get a flu shot are
John Cassidy, a writer for the New Yorker, wrote a blog post arguing against New York City's having installed bike lanes. Cassidy complained that the bike lanes had eliminated traffic lanes on some
What do economists mean by "an economically efficient level of pollution"?
Ira Goldman invented the Knee Defender, which keeps the airline seat in front of you from reclining. He argues that airlines have sold the space between two seats to the person occupying the seat but
An article in the Economist discussing the struggle among airline passengers over reclining seats offered the following observation: "Given that airlines are unlikely to increase the [distance
What are transactions costs? When are we likely to see private solutions to the problem of externalities?
Is it ever possible for an increase in pollution to make society better off? Briefly explain, using a graph like Figure 5.3 on page 154.
Discuss the factors that determine the marginal cost of reducing crime. Discuss the factors that determine the marginal benefit of reducing crime. Would it be economically efficient to reduce the
In discussing the reduction of air pollution in the developing world, Richard Fuller of the Blacksmith Institute, an environmental organization, observed, "It's the 90/10 rule. To do 90 percent of
In the first years following the passage of the Clean Air Act in 1970, air pollution declined sharply, and there were important health benefits, including a decline in infant mortality. According to
Mabel is an advocate for a "zero tolerance" policy regarding all illegal street drugs, including cocaine, marijuana, and heroin. Mabel has witnessed high crime and violence in her neighborhood and
What is a Pigovian tax? How large should a Pigovian tax be to achieve efficiency?
Solved Problem 5.3 contains the statement "Of course, the government actually collects the tax from sellers rather than from consumers, but we get the same result whether the government imposes a tax
The fumes from dry cleaners can contribute to air pollution. Suppose the following graph illustrates the situation in the dry cleaning market.a. Explain how a government can use a tax on dry cleaning
Companies that produce toilet paper bleach the paper to make it white. Some paper plants discharge the bleach into rivers and lakes, causing substantial environmental damage. Suppose the following

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