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business
micro economics

Questions and Answers of Micro Economics

Political commentator B. Bruce-Briggs once wrote the following in the Wall Street Journal: "This is not to say that the case for international free trade is invalid; it is just irrelevant. It is an
While running for the 2016 Democratic nomination for president, Vermont Senator Bernie Sanders opposed the Trans- Pacific Partnership in part because he believed that as a result of the agreement,
The United States produces beef and also imports beef from other countries.a. Draw a graph showing the demand and supply of beef in the United States. Assume that the United States can import as much
When Congress was considering a bill to impose quotas on imports of textiles, shoes, and other products, the late Milton Friedman, a Nobel Prize-winning economist, made the following comment: "The
A student makes the following argument: Tariffs on imports of foreign goods into the United States will cause the foreign companies to add the amount of the tariff to the prices they charge in the
Suppose China decides to pay large subsidies to any Chinese company that exports goods or services to the United States. As a result, these companies are able to sell products in the United States at
The following graph shows the effect on consumer surplus, producer surplus, government tariff revenue, and economic surplus of a tariff of $1 per unit on imports of plastic combs into the United
What events led to the General Agreement on Tariffs and Trade (GATT)? Why did the WTO eventually replace the GATT?
According to an opinion column in the New York Times, because of attempts to make it more difficult to import catfish into the United States, during 2015 many Vietnamese businesses that export
What is globalization? Why are some people opposed to globalization?
What is protectionism? Who benefits and who loses from protectionist policies? What are the main arguments people use to justify protectionism?
What is dumping? Who benefits and who loses from dumping? What problems arise when anti-dumping laws are implemented?
In 2015, several U.S. paper manufacturers asked the federal government to impose tariffs on paper imported from China, Indonesia, Brazil, Portugal, and Australia. According to an article in the Wall
Steven Landsburg, an economist at the University of Rochester, wrote the following in an article in the Wall Street Journal: Free trade is not only about the right of American consumers to buy at the
Suppose you are explaining the benefits of free trade and someone states, "I don't understand all the principles of comparative advantage and gains from trade. I just know that if I buy something
Every year, the Gallup poll asks a sample of people in the United States whether they believe foreign trade provides "an opportunity for economic growth through increased U.S. exports," or whether
At one time, Eastman Kodak was the world's largest producer of photographic film, employing nearly 145,000 workers worldwide, including thousands at its headquarters in Rochester, New York. The firm
What is the economic definition of utility? Is it possible to measure utility?
Maya spends her $50 budget on two goods, cans of tuna and bottles of ginger ale. Initially, the marginal utility per dollar she spends on tuna is equal to the marginal utility per dollar she spends
LaToya is buying corn chips and soda. She has 4 bags of corn chips and 5 bottles of soda in her shopping cart. The marginal utility of the fourth bag of corn chips is 10, and the marginal utility of
When the price of pizza falls in the Super Bowl example, both the income effect and the substitution effect cause you to want to consume more pizza. If pizza were an inferior good, how would the
What is the definition of marginal utility? What is the law of diminishing marginal utility? Why is marginal utility more useful than total utility in consumer decision making?
What is meant by a consumer's budget constraint? What is the rule of equal marginal utility per dollar spent?
How does a change in the price of a product cause both a substitution effect and an income effect?
Does the law of diminishing marginal utility hold true in every situation? Is it possible to think of goods for which consuming additional units, at least initially, will result in increasing
If consumers should allocate their income so that the last dollar spent on every product gives them the same amount of additional utility, how should they decide the amount of their income to save?
You have six hours to study for two exams tomorrow. The following table shows the relationship between hours of study and test scores:a. Use the rule for determining optimal purchases to decide how
Joe has $16 to spend on Twinkies and Ho-Hos. Twinkies have a price of $1 per pack, and Ho-Hos have a price of $2 per pack. Use the information in these graphs to determine the number of Twinkies and
Joe has $55 to spend on apples and oranges. Given the information in the following table, is Joe maximizing utility? Briefly explain.
Explain how a downward-sloping demand curve results from consumers adjusting their consumption choices to changes in price.
In early 2015, gasoline prices in many parts of the United States had fallen to below $2.00 per gallon, which a news story called "one of the swiftest declines on record." Is gasoline likely to be an
According to the U.S. Energy Information Administration, the average price of heating oil fell to under $3.00 a gallon during the winter of 2014-2015, the lowest price in more than four years. About
How is the market demand curve derived from consumers' individual demand curves?
What would need to be true for a demand curve to be upward sloping?
Considering only the income effect, if the price of an inferior good declines, would a consumer want to buy a larger quantity or a smaller quantity of the good? Does your answer mean that the demand
The chapter states that "when the price of an inferior good falls, the income effect and substitution effect work in opposite directions." Explain what this statement means.
Suppose the market for ice cream cones is made up of three consumers: Tiago, Terrell, and Tim. Use the information in the following table to construct the market demand curve for ice cream cones.
Marty and Ann discussed the rule of equal marginal utility per dollar spent, a topic that was recently covered in the economics course they were both taking: Marty: "When I use my calculator to
Consider two goods: pizza and Coke. Along an individual's demand curve for pizza, as the price of pizza falls, does the marginal utility per dollar spent on pizza always equal the marginal utility
In studying the consumption of very poor families in China, Robert Jensen and Nolan Miller found that in both Hunan and Gansu, "Giffen behavior is most likely to be found among a range of households
In which of the following situations are social influences on consumer decision making likely to be greater: choosing a restaurant for dinner or choosing which brand of toothpaste to buy? Briefly
What are network externalities? For what types of products are network externalities likely to be important? What is path dependence?
How does the fact that consumers apparently value fairness affect the pricing decisions that businesses make?
Which of the following products are most likely to have significant network externalities? Briefly explain. a. Smartwatches b. Dog food c. Board games d. LCD televisions e. 3D televisions
Writing about a trip to Switzerland in an article in the New York Times, economist Daniel Hamermesh noted that electrical outlets in Switzerland use an unusual three-prong plug. Adapters for that
According to an opinion survey, Snoopy is the most appealing celebrity endorser. The beagle from the popular Peanuts comic strip appears in commercials for the insurance company MetLife. What
Las Vegas is one of the most popular tourist destinations in the United States. Several years ago, the Rio Hotel and Casino in Las Vegas dropped the price of its breakfast buffet to $5.99 for local
An article in the New York Times notes that classic rock star Tom Petty likes to perform in smaller venues that don't have as many seats as large venues such as Madison Square Garden in New York.
Suppose that Uber decides that its strategy of using surge pricing during times of high demand is causing the company to receive too much bad publicity. It decides that it will maintain its regular
The Washington National Football League team paid a very high price to select Baylor quarterback Robert Griffin III in the 2012 player draft. In addition to paying Griffin a high salary, the team
Andrea grew up enjoying her Italian grandmother's home-cooked meals. Chicken and pasta with meatballs were her favorite foods. But after Andrea graduated from college, found a job, and got married,
In an article in the Quarterly Journal of Economics, Ted O'Donoghue and Matthew Rabin make the following observation: "People have self-control problems caused by a tendency to pursue immediate
The Economist offered the following two options for subscribing: 1. $56 per year for an online-only subscription 2. $125 per year for print plus online access subscription A large majority of
An article in the New York Times about J.C. Penney's pricing strategy under former CEO Ron Johnson observes, "Penney had pulled up the anchor, only to see many of its customers sail away." a. In
Define behavioral economics. What are the three common mistakes that consumers often make? Give an example of each mistake.
Does using rules of thumb increase or decrease the likelihood of a consumer making an optimal choice? Briefly explain.
What is anchoring? How might a firm use anchoring to influence consumer choices so as to increase sales?
Marvin visits his aunt and uncle who live in Milwaukee. The Milwaukee Bucks basketball team is scheduled to play a home game against the Golden State Warriors during Marvin's visit. An online broker
Richard Thaler, an economist at the University of Chicago, is the person who first used the term endowment effect to describe placing a higher value on something already owned than would be placed on
Suppose that you are a big fan of the Harry Potter books. You would love to own a copy of the very first printing of the first book, but unfortunately you can't find it for sale for less than $5,000.
Someone who owns a townhouse wrote to a real estate advice columnist to ask whether he should sell his townhouse or wait and sell it in the future, when he hoped that prices would be higher. The
Rob Neyer is a baseball writer for sbnation.com. He has described attending a Red Sox game at Fenway Park in Boston and having a seat in the sun on a hot, humid day: "Granted, I could have moved
What are the two assumptions economists make about consumer preferences?
Dave has $300 to spend each month on DVDs and CDs. DVDs and CDs both currently have a price of $10, and Dave is maximizing his utility by buying 20 DVDs and 10 CDs. Suppose Dave still has $300 to
The following graph illustrates the combination of apples and oranges (point A) that maximizes Yolanda's total utility, given her budget. Suppose the price of oranges doubles, while the price of
An article in the Wall Street Journal noted that as a result of lower gasoline prices, sales "improved notably over the last two months at Back Yard Burgers, a dining chain based in Nashville, Tenn."
What is an indifference curve? What is a budget constraint?
How do consumers choose the optimal consumption bundle?
Jacob receives an allowance of $5 per week. He spends all his allowance on ice cream cones and cans of Lemon Fizz soda.a. If the price of ice cream cones is $0.50 per cone and the price of cans of
Suppose that Jacob's allowance in problem 10A.4 climbs from $5 to $10 per week.a. Show how the increased allowance alters Jacob's budget constraint.b. Draw a set of indifference curves showing how
Suppose that Calvin considers Pepsi and Coke to be perfect substitutes. They taste the same to him, and he gets exactly the same amount of enjoyment from drinking a can of Pepsi or a can of Coke. a.
In the following budget constraint-indifference curve graph, Nikki has $200 to spend on blouses and skirts.a. What is the price of blouses? What is the price of skirts? b. Is Nikki making the optimum
Marilou and Hunter both purchase milk and doughnuts at the same Quik Mart. They have different tastes for milk and doughnuts and different incomes. They both buy some milk and some doughnuts, but
Sunsweet decides that prune juice has a bad image, so it launches a slick advertising campaign to convince young people that prune juice is very hip. The company hires Taylor Swift, Jay-Z, and Trick
What is the difference between technology and technological change?
Is it possible for technological change to be negative? If so, give an example.
Briefly explain whether you agree with the following observation: "Technological change refers only to the introduction of new products, so it is not relevant to the operations of most firms."
Which of the following are examples of a firm experiencing positive technological change? a. A fall in the wages it pays its mechanics leads United Airlines to lower its ticket prices. b. A training
UPS has reorganized the routes its drivers take to deliver packages to homes. According to an article in the Wall Street Journal, "The company can save $50 million a year by reducing by one mile the
What is the difference between the short run and the long run? Is the amount of time that separates the short run from the long run the same for every firm?
A study analyzed the costs to a pharmaceutical firm of developing a prescription drug and receiving government approval. An article in the Wall Street Journal noted that included in the firm's costs
Distinguish between a firm's fixed costs and variable costs and give an example of each.
What are implicit costs? How are they different from explicit costs?
According to an article in Forbes, the cost of materials in Apple's iPhone 6 with 16 gigabytes of memory was estimated to be $227. Apple was selling the iPhone 6 for $650. Most phone carriers, like
Small business owner Jay Goltz described several decisions he made to reduce the fixed costs of his businesses, including replacing halogen lamps with LED lamps. Goltz noted, "I'm guessing that many
For Jill Johnson's pizza restaurant, explain whether each of the following is a fixed cost or a variable cost: a. The payment she makes on her fire insurance policy b. The payment she makes to buy
The Statistical Abstract of the United States was published for many years by the U.S. Census Bureau. The Abstract provided a summary of business, economic, social, and political statistics. It was
Suppose that Bill owns an automobile collision repair shop. The following table shows how the quantity of cars Bill can repair per month depends on the number of workers he hires. Assume that he pays
Draw a graph that shows the usual relationship between the marginal product of labor and the average product of labor. Why do the marginal product of labor and the average product of labor curves
The following table shows the quantity of workers and total output for a local pizza parlor. Answer the following questions based on this table: Quantity of Workers Total
What is the law of diminishing returns? Does it apply in the long run?
Fill in the missing values in the following table.
Use the numbers from problem 3.4 to draw one graph that shows how total output increases with the quantity of workers hired and a second graph that shows the marginal product of labor and the average
A student looks at the numbers in Table 11.3 and draws this conclusion:The marginal product of labor is increasing for the first two workers hired, and then it declines for the next four workers. I
Briefly explain whether you agree with the following argument: Adam Smith's idea of the gains to firms from the division of labor makes a lot of sense when the good being manufactured is something
Sally looks at her college transcript and asks you, "How is this possible? My grade point average for this semester's courses is higher than my grade point average for last semester's courses, but my
What is the difference between the average cost of production and the marginal cost of production?
Using symbols, we can write that the marginal product of labor is equal to ΔQ/ΔL. Marginal cost is equal to ΔC/ΔQ. Because fixed costs by definition don't change, marginal cost is also equal to
If the marginal product of labor is rising, is the marginal cost of production rising or falling? Briefly explain.
Explain why the marginal cost curve intersects the average total cost curve at the level of output where average total cost is at a minimum.

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