Questions and Answers of Economics Principles and Policy

4. Apply cross elasticity of demand and income elasticity of demand.
3. Describe price elasticity of supply and how it can be applied.
2. Explain the usefulness of the total revenue test for price elasticity of demand.
1. Discuss price elasticity of demand and how it can be applied.
3. Use the table below to answer the questions that follow: LO6a. If this table reflects the supply of and demand for tickets to a particular World Cup soccer game, what is the stadium capacity?b. If
2. The table below shows two demand schedules for a given style of men’s shoe—that is, how many pairs per month will be demanded at various prices at a men’s clothing store in Seattle called
1. Demand and supply often shift in the retail market for gasoline.Here are two demand curves and two supply curves for gallons of gasoline in the month of May in a small town in Maine. Some of the
7. 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
6. 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. LO6
5. 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
4. 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
3. Go to the Web site of the Energy Information Administration, www.eia.doe.gov, and follow the links to find the current retail price of gasoline. How does the current price of regular gasoline
2. 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
1. Why are shortages or surpluses more likely with preset prices, such as those on tickets, than flexible prices, such as those on gasoline? LO6
7. Suppose that the demand and supply schedules for rental apartments in the city of Gotham are as given in the table below. LO5a. What is the market equilibrium rental price per month and the market
6. ADVANCED ANALYSIS Assume that demand for a commodity is represented by the equation P 5 10 2 .2 Q d and supply by the equation P 5 2 1 .2 Q s , where Q d and Q s are quantity demanded and quantity
5. 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. LO4
4. 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
3. Refer to the expanded table below from question 11. LO3a. What is the equilibrium price? At what price is there neither a shortage nor a surplus? Fill in the surplus-shortage column and use it to
2. The figure below shows the supply curve for tennis balls, S 1, for Drop Volley Tennis, a producer of tennis equipment .Use the figure and the table below to give your answers to the following
1. Suppose there are three buyers of candy in a market: Tex, Dex, and Rex. The market demand and the individual demands of Tex, Dex, and Rex are shown on the next page. LO1a. Fill in the table for
13. LAST WORD In some countries, such as France, every corpse is available for doctors to “harvest” for organs unless the deceased, while still alive, signed a form forbidding the organs to be
12. What do economists mean when they say “price floors and ceilings stifle the rationing function of prices and distort resource allocation”? LO5
11. 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 table below. Suppose that the government establishes a price ceiling
10. 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,
9. 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. This refutes the law of demand.” LO4
8. In 2001 an outbreak of hoof-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
7. “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
6. What effect will each of the following have on the supply of auto tires? LO2a. A technological advance in the methods of producing tires.b. A decline in the number of firms in the tire industry.c.
2. 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 movement along a fixed demand curve,
6. (Appendix) Illustrate how supply and demand analysis can provide insights on actual-economy situations.
5. Identify what government-set prices are and how they can cause product surpluses and shortages.
4. Explain how changes in supply and demand affect equilibrium prices and quantities.
3. Relate how supply and demand interact to determine market equilibrium.
2. Describe supply and explain how it can change.
1. Describe demand and explain how it can change.
4. Let’s put dollar amounts on the flows in the circular flow diagram of Figure 2.2 . LO5a. Suppose that businesses buy a total of $100 billion of the four resources (labor, land, capital, and
3. 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
2. Suppose Natasha currently makes $50,000 per year working as a manager at a cable TV company. She then develops two possible entrepreneurial business opportunities. In one, she will quit her job to
1. Table 2.1 contains information on three techniques for producing$15 worth of bar soap. Assume that we said “$15 worth of bar soap” because soap cost $3 per bar and all three techniques produce
13. LAST WORD What explains why millions of economic resources tend to get arranged logically and productively rather than haphazardly and unproductively?
11. 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? LO4
10. In a sentence, describe the meaning of the phrase “invisible hand.” LO4
9. What is meant by the term “creative destruction”? How does the emergence of MP3 (or iPod) technology relate to this idea? LO3
8. 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
7. 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 to the right will produce
3. Why is private property, and the protection of property rights, so critical to the success of the market system? How do property rights encourage cooperation? LO2
4. In this circular flow diagram:a. households spend income in the product market.b. firms sell resources to households.c. households receive income through the product market.d. households produce
3. In this circular flow diagram:a. money flows counterclockwise.b. resources flow counterclockwise.c. goods and services flow clockwise.d. households are on the selling side of the product market.
2. Which of the following would be determined in the product market?a. a manager’s salary.b. the price of equipment used in a bottling plant.c. the price of 80 acres of farmland.d. the price of a
1. The resource market is the place where:a. households sell products and businesses buy products.b. businesses sell resources and households sell products.c. households sell resources and businesses
5. Describe the mechanics of the circular flow model.
4. Discuss how the market system adjusts to change and promotes progress.
3. Explain how the market system decides what to produce, how to produce it, and who obtains it.
2. List the main characteristics of the market system.
1. Differentiate between a command system and a market system.
8. In the accompanying graph, is the slope of curve AA9 positive or negative? Does the slope increase or decrease as we move along the curve from A to A9 ? Answer the same two questions for curve BB9
7. The accompanying graph shows curve XX9 and tangents at points A , B , and C . Calculate the slope of the curve at these three points. LO7 50 50 (12,50) a' c' (16,50) B 40 30 30 20 20 (2,10) A 10 x
6. Suppose that C 5 a 1 bY , where C 5 consumption, a 5 consumption at zero income, b 5 slope, and Y 5 income. LO7a. Are C and Y positively related or are they negatively related?b. If graphed, would
5. 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
4. 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 equation form. LO7 Exam score (points) 100 Graph
3. 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
2. Indicate how each of the following might affect the data shown in the table and graph in Figure 2 of this appendix: LO7a. GSU’s athletic director schedules higher-quality opponents.b. An NBA
1. Graph and label as either direct or indirect the relationships you would expect to find between ( a ) the number of inches of rainfall per month and the sale of umbrellas, ( b ) the amount of
3. Look back at Figure 2 , which shows the inverse relationship between ticket prices and game attendance at Gigantic State University. (a) Interpret the meaning of both the slope and the intercept.
2. Describe the graphical relationship between ticket prices and the number of people choosing to visit amusement parks. Is that relationship consistent with the fact that, historically, park
1. 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? LO7
8. 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
7. Referring to the table in problem 5, suppose improvement occurs in the technology of producing forklifts but not in the technology of producing automobiles. Draw the new production possibilities
6. Look at Figure 1.3 . Suppose that the cost of cheese falls, so that the marginal cost of producing pizza decreases. Will the MC curve shift up or down? Will the optimal amount of pizza increase or
5. To the right is a production possibilities table for consumer goods (automobiles) and capital goods (forklifts): LO5a. Show these data graphically. Upon what specific assumptions is this
4. Suppose that you are on a desert island and possess exactly 20 coconuts. Your neighbor, Friday, is a fisherman, and he is willing to trade 2 fish for every 1 coconut that you are willing to give
3. Suppose you won $15 on a lotto ticket at the local 7-Eleven and decided to spend all the winnings on candy bars and bags of peanuts. The price of candy bars is $0.75 and the price of peanuts is
2. Pham can work as many or as few hours as she wants at the college bookstore for $9 per hour. But due to her hectic schedule, she has just 15 hours per week that she can spend working at either the
1. Potatoes cost Janice $1 per pound, and she has $5.00 that she could possibly spend on potatoes or other items. If she feels that the first pound of potatoes is worth $1.50, the second pound is
12. LAST WORD 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
11. 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
10. Explain how (if at all) each of the following events affects the location of a country’s production possibilities curve: LO5a. The quality of education increases.b. The number of unemployed
9. 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
8. Why is money not considered to be a capital resource in economics? Why is entrepreneurial ability considered a category of economic resource, distinct from labor? What are the major functions of
7. What are economic resources? What categories do economists use to classify them? Why are resources also called factors of production? Why are they called inputs? LO4
6. State (a) a positive economic statement of your choice, and then (b) a normative economic statement relating to your first statement. LO3
5. Indicate whether each of the following statements applies to microeconomics or macroeconomics: LO3a. The unemployment rate in the United States was 9.7 percent in March 2010.b. A U.S. software
4. What are the key elements of the scientific method and how does this method relate to economic principles and laws? LO2
3. What is meant by the term “utility” and how does the idea relate to purposeful behavior? LO1
2. Cite three examples of recent decisions that you made in which you, at least implicitly, weighed marginal cost and marginal benefit. LO1
1. What is an opportunity cost? How does the idea relate to the definition of economics? Which of the following decisions would entail the greater opportunity cost: Allocating a square block in the
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What are the main theories in economics that discuss the entrepreneur? In one of the theories identified, explain the role of the entrepreneur in the economy.
Kirzner’s theory of entrepreneurship revolves around the concept of ‘alertness to opportunity’. Describe and explain the concept and illustrate the idea as applied to entrepreneurs today.
Schumpeter’s theory of economic development presents the entrepreneur as an innovator. Using examples of contemporary businesses, explain the five forms of innovation and explain why they might be
‘Contemporary theory in entrepreneurship has become fragmented.’ Consider this statement critically, assessing the strengths and weaknesses of this diversity in thinking.
What role does entrepreneurship play in stimulating economic development?
Why do levels of entrepreneurship – expressed as new business start-ups – differ between nations, regions and localities?
What role do the concepts of ‘space’ and ‘place’ play in the analysis of entrepreneurship and economic development?
How does culture harness or hold back entrepreneurship?
How can higher levels of entrepreneurship be encouraged through public policy?
Which main form of government action is most likely to help small businesses?
Assess the arguments for segmenting policy to target parts of the small business market.
Has the provision of small business support in Britain since 199 0 provided a coherent and effective package for small firms?

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