Questions and Answers of Economics Principles and Policy

7. A firm has fixed costs of $60 and variable costs as indicated in the table at the bottom of this page. Complete the table and check your calculations by referring to question 4 at the end of
6. List several fixed and variable costs associated with owning and operating an automobile. Suppose you are considering whether to drive your car or fly 1000 miles to Florida for spring break. Which
5. Why can the distinction between fixed costs and variable costs be made in the short run? Classify the following as fixed or variable costs: advertising expenditures, fuel, interest on
4. Complete the table directly below by calculating marginal product and average product.Plot the total, marginal, and average products and explain in detail the relationship between each pair of
3. Which of the following are short-run and which are longrun adjustments? LO1a. Wendy’s builds a new restaurant.b. Harley-Davidson Corporation hires 200 more production workers.c. A farmer
2. Distinguish between accounting profit, economic profit, and normal profit. Does accounting profit or economic profit determine how entrepreneurs allocate resources between different business
1. Distinguish between explicit and implicit costs, giving examples of each. What are some explicit and implicit costs of attending college? LO1
4. The long-run ATC curve is often called the firm’s:a. planning curve.b. capital-expansion path.c. total-product curve.d. production possibilities curve.
3. The long-run ATC curve in this figure derives its shape from:a. decreasing, then increasing, short-run returns.b. increasing, then decreasing, short-run returns.c. economies, then diseconomies, of
2. The unlabeled red curves in this figure derive their shapes from:a. decreasing, then increasing, short-run returns.b. increasing, then decreasing, short-run returns.c. economies, then
1. The unlabeled red curves in this figure illustrate the:a. long-run average-total-cost curves of various firms constituting the industry.b. short-run average-total-cost curves of various firms
4. When the marginal-cost curve lies:a. above the ATC curve, ATC rises.b. above the AVC curve, ATC rises.c. below the AVC curve, total fixed cost increases.d. below the ATC curve, total fixed cost
3. ATC is:a. AVC 2 AFC.b. MC 1 AVC.c. AFC 1 AVC.d. (AFC 1 AVC) 3 Q.
2. The vertical distance between ATC and AVC measures:a. marginal cost.b. total fixed cost.c. average fixed cost.d. economic profit per unit.
1. The marginal-cost curve first declines and then increases because of:a. increasing, then diminishing, marginal utility.b. the decline in the gap between ATC and AVC as output expands.c.
4. Average product in graph (b):a. rises when it is less than marginal product.b. is the change in total product divided by the change in the quantity of labor.c. can never exceed marginal product.d.
3. Marginal product in graph (b) is zero when:a. average product in graph (b) stops rising.b. the slope of the marginal-product curve in graph (b) is zero.c. total product in graph (a) begins to rise
2. Marginal product is:a. the change in total product divided by the change in the quantity of labor.b. total product divided by the quantity of labor.c. always positive.d. unrelated to total product.
1. Which of the following is an assumption underlying these figures?a. Firms first hire “better” workers and then hire “poorer”workers.b. Capital and labor are both variable, but labor
4. Use economies of scale to link a firm’s size and its average costs in the long run.
3. Describe the distinctions between fixed and variable costs and among total, average, and marginal costs.
2. Relate the law of diminishing returns to a firm’s short-run production costs.
1. Explain why economic costs include both explicit(revealed and expressed) costs and implicit(present but not obvious) costs.
3. ADVANCED ANALYSIS First, graphically illustrate a doubling of income without price changes in the indifference curve model. Next, on the same graph, show a situation in which the person whose
2. Explain graphically how indifference analysis can be used to derive a demand curve. LO6
1. Assume that the data in the accompanying table give an indifference curve for Mr. Chen. Graph this curve, putting A on the vertical axis and B on the horizontal axis. Assuming that the prices of A
3. Using Figure 4 , explain why the point of tangency of the budget line with an indifference curve is the consumer’s equilibrium position. Explain why any point where the budget line intersects an
2. What information is contained in an indifference curve?Why are such curves ( a ) downsloping and ( b ) convex to the origin? Why does total utility increase as the consumer moves to indifference
1. What information is embodied in a budget line? What shifts occur in the budget line when money income ( a ) increases and ( b ) decreases? What shifts occur in the budget line when the price of
7. Suppose that with a budget of $100, Deborah spends $60 on sushi and $40 on bagels when sushi costs $2 per piece and bagels cost $2 per bagel. But then, after the price of bagels falls to $1 per
6. ADVANCED ANALYSIS Let MU A 5 z 5 10 2 x and MU B 5 z 5 21 2 2y , where z is marginal utility per dollar measured in utils, x is the amount spent on product A, and y is the amount spent on product
5. You are choosing between two goods, X and Y, and your marginal utility from each is as shown in the table below. If your income is $9 and the prices of X and Y are $2 and $1, respectively, what
4. Columns 1 through 4 in the table at the top of the next page show the marginal utility, measured in utils, that Ricardo would get by purchasing various amounts of products A, B, C, and D. Column 5
3. Suppose that Omar’s marginal utility for cups of coffee is constant at 1.5 utils per cup no matter how many cups he drinks. On the other hand, his marginal utility per doughnut is 10 for the
2. John likes Coca-Cola. After consuming one Coke, John has a total utility of 10 utils. After two Cokes, he has a total utility of 25 utils. After three Cokes, he has a total utility of 50 utils.
1. Mylie’s total utility from singing the same song over and over is 50 utils after one repetition, 90 utils after two repetitions, 70 utils after three repetitions, 20 utils after four
11. LAST WORD What do you think of the ethics of using unconscious nudges to alter people’s behavior? Before you answer, consider the following argument made by economists Richard Thaler and Cass
10. You just accepted a campus job helping to raise money for your school’s athletic program. You are told to draft a fundraising letter. The bottom of the letter asks recipients to write down a
9. Suppose that Ike is loss averse. In the morning, Ike’s stockbroker calls to tell him that he has gained $1000 on his stock portfolio. In the evening, his accountant calls to tell him that he
8. ADVANCED ANALYSIS A “mathematically fair bet” is one in which the amount won will on average equal the amount bet, for example, when a gambler bets, say, $100 for a 10 percent chance to win
7. Using the utility-maximization rule as your point of reference, explain the income and substitution effects of an increase in the price of product B, with no change in the price of product A. LO4
6. Many apartment-complex owners are installing water meters for each apartment and billing the occupants according to the amount of water they use. This is in contrast to the former procedure of
5. In the last decade or so, there has been a dramatic expansion of small retail convenience stores (such as 7-Eleven, Kwik Shop, and Circle K), although their prices are generally much higher than
4. Explain: LO2a. Before economic growth, there were too few goods; after growth, there is too little time.b. It is irrational for an individual to take the time to be completely rational in economic
3. How can time be incorporated into the theory of consumer behavior? Explain the following comment: “Want to make millions of dollars? Devise a product that saves Americans lots of time.” LO2
2. Mrs. Simpson buys loaves of bread and quarts of milk each week at prices of $1 and 80 cents, respectively. At present she is buying these products in amounts such that the marginal utilities from
1. Complete the following table and answer the questions below: LO1a. At which rate is total utility increasing: a constant rate, a decreasing rate, or an increasing rate? How do you know?b. “A
4. Suppose the person represented by these graphs experienced a diminished taste for tacos. As a result the:a. TU curve would get steeper.b. MU curve would get flatter.c. TU and MU curves would shift
3. When marginal utility is zero in graph (b), total utility in graph(a) is:a. also zero.b. neither rising nor falling.c. negative.d. rising, but at a declining rate.
2. Marginal utility in Figure 6.1b is positive, but declining, when total utility in Figure 6.1a is positive and:a. rising at an increasing rate.b. falling at an increasing rate.c. rising at a
1. Marginal utility:a. is the extra output a firm obtains when it adds another unit of labor.b. explains why product supply curves slope upward.c. typically rises as successive units of a good are
6. (Appendix) Relate how the indifference curve model of consumer behavior derives demand curves from budget lines, indifference curves, and utility maximization.
5. Relate how behavioral economics and prospect theory shed light on many consumer behaviors.
4. Discuss how the utility-maximization model helps highlight the income and substitution effects of a price change.
3. Explain how a demand curve can be derived by observing the outcomes of price changes in the utility-maximization model.
2. Describe how rational consumers maximize utility by comparing the marginal utility-to-price ratios of all the products they could possibly purchase.
1. Define and explain the relationship between total utility, marginal utility, and the law of diminishing marginal utility.
7. Look at Tables 5.1 and 5.2 , which show, respectively, the willingness to pay and willingness to accept of buyers and sellers of bags of oranges. For the following questions, assume that the
6. Use your demand schedule for a public good, determined in problem 5, and the following supply schedule to ascertain the optimal quantity of this public good. LO3 P $19 16 13 Q 10 642 27 10 8 4
5. On the basis of the three individual demand schedules at the top of the next page, and assuming these three people are the only ones in the society, determine (a) the market demand schedule on the
4. ADVANCED ANALYSIS Assume the following values for Figures 5.4a and 5.4b . Q 1 5 20 bags. Q 2 5 15 bags. Q 3 5 27 bags. The market equilibrium price is $45 per bag. The price at a is $85 per bag.
3. Look at Tables 5.1 and 5.2 together. What is the total surplus if Bob buys a unit from Carlos? If Barb buys a unit from Courtney? If Bob buys a unit from Chad? If you match up pairs of buyers and
2. Refer to Table 5.2 . If the six people listed in the table are the only producers in the market and the equilibrium price is $6(not the $8 shown), how much producer surplus will the market
1. Refer to Table 5.1 . If the six people listed in the table are the only consumers in the market and the equilibrium price is$11 (not the $8 shown), how much consumer surplus will the market
13. LAST WORD Distinguish between a carbon-tax and a cap-and-trade strategy for reducing carbon dioxide and other so-called greenhouse gases (that are believed by many scientists to be causing global
12. Explain why zoning laws, which allow certain land uses only in specific locations, might be justified in dealing with a problem of negative externalities. Explain why in areas where buildings sit
11. Explain the following statement, using the MB curve in Figure 5.9 to illustrate: “The optimal amount of pollution abatement for some substances, say, dirty water from storm drains, is very low;
10. The LoJack car recovery system allows the police to track stolen cars. As a result, they not only recover 90 percent of LoJack-equipped cars that are stolen but also arrest many auto thieves and
9. An apple grower’s orchard provides nectar to a neighbor’s bees, while the beekeeper’s bees help the apple grower by pollinating his apple blossoms. Use Figure 5.6b to explain why this
8. Why are spillover costs and spillover benefits also called negative and positive externalities? Show graphically how a tax can correct for a negative externality and how a subsidy to producers can
7. What divergences arise between equilibrium output and efficient output when (a) negative externalities and (b) positive externalities are present? How might government correct these divergences?
6. Use the distinction between the characteristics of private and public goods to determine whether the following should be produced through the market system or provided by government: (a) French
5. Draw a production possibilities curve with public goods on the vertical axis and private goods on the horizontal axis.Assuming the economy is initially operating on the curve, indicate how the
4. What are the two characteristics of public goods? Explain the significance of each for public provision as opposed to private provision. What is the free-rider problem as it relates to public
3. Use the ideas of consumer surplus and producer surplus to explain why economists say competitive markets are efficient. Why are below- or above-equilibrium levels of output inefficient, according
2. Draw a supply and demand graph and identify the areas of consumer surplus and producer surplus. Given the demand curve, what impact will an increase in supply have on the amount of consumer
1. Explain the two causes of market failures. Given their definitions, could a market be affected by both types of market failures simultaneously? LO1
5. Show why we normally won’t want to pay what it would cost to eliminate every last bit of a negative externality such as air pollution.
4. Explain how positive and negative externalities cause under- and overallocations of resources.
3. Describe free riding and public goods, and illustrate why private firms cannot normally produce public goods.
2. Explain the origin of both consumer surplus and producer surplus, and explain how properly functioning markets maximize their sum, total surplus, while optimally allocating resources.
1. Differentiate between demand-side market failures and supply-side market failures.
7. Lorena likes to play golf. The number of times per year that she plays depends on both the price of playing a round of golf as well as Lorena’s income and the cost of other types of
6. ADVANCED ANALYSIS Currently, at a price of $1 each, 100 popsicles are sold per day in the perpetually hot town of Rostin. Consider the elasticity of supply. In the short run, a price increase from
5. What is the formula for measuring the price elasticity of supply? Suppose the price of apples goes up from $20 to $22 a box. In direct response, Goldsboro Farms supplies 1200 boxes of apples
4. Danny “Dimes” Donahue is a neighborhood’s 9-year old entrepreneur. His most recent venture is selling homemade brownies that he bakes himself. At a price of $1.50 each, he sells 100. At a
3. Suppose that the total revenue received by a company selling basketballs is $600 when the price is set at $30 per basketball and $600 when the price is set at $20 per basketball.Without using the
2. Investigate how demand elastiticities are affected by increases in demand. Shift each of the demand curves in Figures 4.2a, 4.2b, and 4.2c to the right by 10 units. For example, point a in Figure
1. Look at the demand curve in Figure 4.2a. Use the midpoint formula and points a and b to calculate the elasticity of demand for that range of the demand curve. Do the same for the demand curves in
11. LAST WORD What is the purpose of charging different groups of customers different prices? Supplement the three broad examples in the Last Word with two additional examples of your own. Hint:
10. Research has found that an increase in the price of beer would reduce the amount of marijuana consumed. Is cross elasticity of demand between the two products positive or negative? Are these
9. The income elasticities of demand for movies, dental services, and clothing have been estimated to be 13.4, 11, and 1.5, respectively. Interpret these coefficients. What does it mean if an income
8. Suppose the cross elasticity of demand for products A and B is 13.6 and for products C and D is 25.4. What can you conclude about how products A and B are related? Products C and D? LO4
7. In 2006, Willem de Kooning’s abstract painting Woman III sold for $137.5 million. Portray this sale in a demand and supply diagram and comment on the elasticity of supply.Comedian George Carlin
6. How would the following changes in price affect total revenue?That is, would total revenue increase, decrease, or remain unchanged? LO2a. Price falls and demand is inelastic.b. Price rises and
5. Calculate total-revenue data from the demand schedule in question 2. Graph total revenue below your demand curve.Generalize about the relationship between price elasticity and total revenue. LO2
4. What effect would a rule stating that university students must live in university dormitories have on the price elasticity of demand for dormitory space? What impact might this in turn have on
3. What are the major determinants of price elasticity of demand?Use those determinants and your own reasoning in judging whether demand for each of the following products is probably elastic or
2. Graph the accompanying demand data, and then use the midpoint formula for Ed to determine price elasticity of demand for each of the four possible $1 price changes.What can you conclude about the
1. Explain why the choice between 1, 2, 3, 4, 5, 6, 7, and 8“units,” or 1000, 2000, 3000, 4000, 5000, 6000, 7000, and 8000 movie tickets, makes no difference in determining elasticity in Table

Showing 800 - 900 of 1182