Questions and Answers of Economics Principles and Policy

Macroeconomics studies long-run economic growth and short-run economic fluctuations.
Interpret how macroeconomics studies both longrun economic growth and short-run fluctuations in output and unemployment.
4. In 2008, an estimated 7.8 million Mexican-born immigrants were employed in the United States. LO3a. If 60 percent of the Mexican-born immigrants remitted money to family members in Mexico in 2008,
12. LAST WORD What were the five main features of the proposed immigration reform of 2007? Which of these features, as general principles, do you support? Which do you oppose? Explain your reasoning.
11. If someone favors the free movement of labor within the United States, is it inconsistent for that person to also favor restrictions on the international movement of labor? Why or why not? LO5
10. Why are so many state and local governments greatly concerned about the Federal government’s allegedly lax enforcement of the immigration laws and congressional proposals to grant legal status
9. Why is each of these statements somewhat misleading?( a ) “Illegal immigrants take only jobs that no American wants.” ( b ) “Deporting 100,000 illegal immigrants would create 100,000 job
6. Suppose initially that immigrant labor and native-born labor are complementary resources. Explain how a substantial immigration might change the demand for native-born workers, altering their
3. Suppose that the projected lifetime earnings gains from migration exceed the costs of moving. Explain how the decision to move might be reversed when a person considers present value. LO2
5. Demonstrate how economics can inform current immigration discussions and attempts to reform immigration laws.
4. Relate how illegal immigration affects employment and wages in low-wage labor markets and impacts state and local budgets.
3. Explain how immigration affects average wages, resource allocation, domestic output, and group income shares.
2. Discuss why economists view economic immigration as a personal human capital investment.
1. Describe the extent of legal and illegal immigration into the United States.
LAST WORD What are the three major cost-reducing features of the Singapore health care system? Which one do you think has the largest effect on holding down the price of medical care in Singapore?
What were the objections made by opponents of the PPACA? LO5
How does the PPACA attempt to ensure affordable insurance for the poor? LO5
How is the moral hazard problem relevant to the health care market? LO4
Using the concepts in Chapter 6’s discussion of consumer behavior, explain how health care insurance results in an overallocation of resources to the health care industry. Use a demand and supply
How do advances in medical technology and health insurance interact to drive up the cost of medical care? LO4
8. Briefly discuss the demand and supply factors that contribute to rising health costs. Specify how ( a ) asymmetric information,( b ) fee-for-service payments, ( c ) defensive medicine, and( d )
7. What are the estimated income and price elasticities of demand for health care? How does each relate to rising health care costs? LO4
6. List the special characteristics of the U.S. health care market and specify how each affects health care problems. LO3
5. What are the main groups without health insurance? LO3
4. What are the implications of rapidly rising health care prices and spending for ( a ) the growth of real wage rates,( b ) government budgets, and ( c ) offshoring of U.S. jobs?Explain. LO2
3. Briefly describe the main features of Medicare and Medicaid, indicating how each is financed. LO1
2. What are the “twin problems” of the health care industry as viewed by society? How are they related? LO1
5. Summarize the goals of the Patient Protection and Affordable Care Act and the major changes that it institutes.
4. List the demand and supply factors explaining rising health care costs.
3. Discuss the problem of limited access to health care for those without insurance.
2. Relate the economic implications of rising health care costs.
1. Convey important facts about rising health care costs in the United States.
3. In 2010, many unskilled workers in the United States earned the Federal minimum wage of $7.25 per hour. By contrast, average earnings in 2010 were about $22 per hour, and certain highly skilled
2. Imagine an economy with only two people. Larry earns$20,000 per year, while Roger earns $80,000 per year. As shown in the following figure, the Lorenz curve for this two-person economy consists of
1. In 2010 Forbes magazine listed Bill Gates, the founder of Microsoft, as the richest person in the United States. His personal wealth was estimated to be $53 billion. Given that there were about
14. Use a demand-and-supply model to explain the impact of occupational segregation or “crowding” on the relative wage rates and earnings of men and women. Who gains and who loses from the
11. What are the essential differences between social insurance and public assistance programs? Why is Medicare a social insurance program, whereas Medicaid is a public assistance program? Why is the
6. What factors have contributed to increased income inequality since 1970? LO3
5. Briefly discuss the major causes of income inequality. With respect to income inequality, is there any difference between inheriting property and inheriting a high IQ? Explain. LO2
4. Why is the lifetime distribution of income more equal than the distribution in any specific year? LO1
1. Use quintiles to briefly summarize the degree of income inequality in the United States. How and to what extent does government reduce income inequality? LO1
7. Discuss labor market discrimination and how it might affect hiring decisions and wages.
6. Identify the major components of the incomemaintenance program in the United States.
5. Relate how poverty is measured and its incidence by age, gender, ethnicity, and other characteristics.
4. Debate the economic arguments for and against income inequality.
3. Demonstrate how income inequality has changed since 1970.
2. Discuss the extent and sources of income inequality.
1. Explain how income inequality in the United States is measured and described.
4. In 2009, it was estimated that the total value of all cornproduction subsidies in the United States totaled about $4 billion. The population of the United States was approximately 300 million
3. Suppose that 10 workers were required in 2010 to produce 40,000 bushels of wheat on a 1000-acre farm. LO2a. What is the average output per acre? Per worker?b. If in 2020 only 8 workers produce
2. Suppose that both wheat and corn have an income elasticity of .1. LO1a. If the average income in the economy increases by 2 percent each year, by what percentage does the quantity demanded of
15. LAST WORD What groups benefit and what groups lose from the U.S. sugar subsidy program?
13. What was the major intent of the Freedom to Farm Act of 1996? Do you agree with the intent? Why or why not? Did the law succeed in reducing overall farm subsidies? Why or why not? LO5
12. Use public choice theory to explain the persistence of farm subsidies in the face of major criticisms of those subsidies. If the special-interest effect is so strong, what factors made it
11. What are the effects of farm subsidies such as those of the United States and the European Union on ( a ) domestic agricultural prices, ( b ) world agricultural prices, and ( c ) the
10. Do you agree with each of the following statements?Explain why or why not. LO3 , LO4a. The problem with U.S. agriculture is that there are too many farmers. That is not the fault of farmers but
9. Use supply and demand curves to depict equilibrium price and output in a competitive market for some farm product.Then show how an above-equilibrium price floor(price support) would cause a
8. Explain the economic effects of price supports. Explicitly include environmental and global impacts in your answer.On what grounds do economists contend that price supports cause a misallocation
7. If in a given year the indexes of prices received and paid by farmers were 120 and 165, respectively, what would the parity ratio be? Explain the meaning of that ratio. LO3
4. The key to efficient resource allocation is shifting resources from low-productivity to high-productivity uses. In view of the high and expanding physical productivity of agricultural resources,
3. Explain how each of the following contributes to the farm problem: LO1 , LO2a. The inelasticity of demand for farm products.b. The rapid technological progress in farming.c. The modest long-run
2. What relationship, if any, can you detect between the facts that farmers’ fixed costs of production are large and the supply of most agricultural products is generally inelastic? Be specific in
1. Carefully evaluate: “The supply and demand for agricultural products are such that small changes in agricultural supply result in drastic changes in prices. However, large changes in
5. List the main elements of existing Federal farm policy.
4. Describe major criticisms of the price-support system in agriculture.
3. Relate the rationale for farm subsidies and the economics and politics of price supports (price floors).
2. Discuss why there has been a huge employment exodus from agriculture to other U.S. industries over the past several decades.
1. Explain why agricultural prices and farm income are unstable.
13. Use economic analysis to explain why the optimal amount of product safety may be less than the amount that would totally eliminate risks of accidents and deaths. Use automobiles as an example. LO4
12. How does social regulation differ from industrial regulation?What types of benefits and costs are associated with social regulation? LO4
11. In view of the problems involved in regulating natural monopolies, compare socially optimal (marginal-cost) pricing and fair-return pricing by referring again to Figure 10.9. Assuming that a
10. What types of industries, if any, should be subjected to industrial regulation? What specific problems does industrial regulation entail? LO3
9. “The social desirability of any particular firm should be judged not on the basis of its market share but on the basis of its conduct and performance.” Make a counterargument, referring to the
6. Suppose a proposed merger of firms would simultaneously lessen competition and reduce unit costs through economies of scale. Do you think such a merger should be allowed? LO2
4. Why might one administration interpret and enforce the antitrust laws more strictly than another? How might a change of administrations affect a major monopoly case in progress? LO2
3. Contrast the outcomes of the Standard Oil and U.S. Steel cases. What was the main antitrust issue in the DuPont cellophane case? In what major way do the Microsoft and Standard Oil cases differ?
2. Describe the major provisions of the Sherman and Clayton acts. What government entities are responsible for enforcing those laws? Are firms permitted to initiate antitrust suits on their own
1. Both antitrust policy and industrial regulation deal with monopoly. What distinguishes the two approaches? How does government decide to use one form of remedy rather than the other? LO1 , LO3
4. Discuss the nature of “social regulation,” its benefits and costs, and its optimal level.
3. Identify and explain the economic principles and difficulties relating to the setting of prices (rates)charged by so-called natural monopolies.
2. Describe some of the key issues relating to the interpretation and application of antitrust laws.
1. List and explain the core elements of the major antitrust (antimonopoly) laws in the United States.
2. Domestic sugar producers in the United States have convinced the Federal government to impose price supports and import quotas that keep the domestic price of sugar at more than double the world
11. LAST WORD How do the concepts of pork-barrel politics and logrolling relate to the items listed in the Last Word?
10. Explain: “Politicians would make more rational economic decisions if they weren’t running for reelection every few years.” LO3
9. How does the problem of limited and bundled choice in the public sector relate to economic efficiency? Why are public bureaucracies possibly less efficient than business firms? LO3
6. Suppose there are only five people in a society and each favors one of the five highway construction options listed in Table 5.4 (“No new construction” is one of the five options).Explain
5. Explain the paradox of voting through reference to the accompanying table, which shows the ranking of three public goods by voters Jay, Dave, and Conan: LO2 Public Good Courthouse School Jay
4. Explain how affirmative and negative majority votes can sometimes lead to inefficient allocations of resources to public goods. Is this problem likely to be greater under a benefits-received or an
2. Why is it in the interest of new homebuyers and builders of new homes to have government building codes and building inspectors? LO1
3. Discuss “government failure” and explain why it happens.
2. Explain the difficulties of conveying economic preferences through majority voting.
1. Describe how information failures may justify government intervention in some markets.
3. For tax purposes, “gross income” is all the money a person receives in a given year from any source. But income taxes are levied on “taxable income” rather than gross income.The difference
2. 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
1. Suppose a tax is such that an individual with an income of$10,000 pays $2000 of tax, a person with an income of $20,000 pays $3000 of tax, a person with an income of$30,000 pays $4000 of tax, and
10. LAST WORD Does a progressive tax system by itself guarantee that resources will be redistributed from the rich to the poor? Explain. Is the tax system in the United States progressive,
9. Is it possible for a country with a regressive tax system to have a tax-spending system that transfers resources from the rich to the poor? LO4
8. ADVANCED ANALYSIS Suppose the equation for the demand curve for some product X is P 5 8 2 .6 Q and the supply curve is P 5 2 1 .4 Q . What are the equilibrium price and quantity? Now suppose an
7. Given the inelasticity of cigarette demand, discuss an excise tax on cigarettes in terms of efficiency loss and tax incidence.LO3

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