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foundations of economics

Questions and Answers of Foundations Of Economics

2. Polar ice cap shrinks further and thins With global warming of the planet, the polar ice cap is shrinking. As the Arctic Sea expands, more underwater mineral resources will be accessible.
1. The price of gasoline in Europe is about three times that in the United States, mainly because the European gas tax is higher than the U.S. gas tax. How would an increase in the gas tax in the
9. Global solutions for local gridlock Gridlock in Toronto already costs the region $6 billion a year, with average commute times of 80 minutes, among the highest in North America. By 2031, commute
8. If the government offers vouchers to students, what is the value of the voucher that will encourage the efficient number of students to enroll?
7. If the government subsidizes colleges and sets the subsidy so that the efficient number of students enroll, what is the subsidy per student, how many students enroll, and what is the cost to
6. With no government involvement in college education, how many students enroll, what is the tuition, and what is the deadweight loss created?
Use Table 3 and the following information to work Problems 6 to 8.The marginal cost of educating a college student is $5,000 a year. Table 3 shows the marginal benefit schedule from a college
5. If Tom’s marginal benefit from a cigar a day is $25 and Larry’s marginal benefit from a smoke-free environment is $20 a day, what is the outcome if they meet at Tom’s home? What is the
4. If Tom’s marginal benefit from a cigar a day is $20 and Larry’s marginal benefit from a smoke-free environment is $25 a day, what is the outcome if they meet at Tom’s home? What is the
Tom and Larry must spend a day working together. Tom likes to smoke cigars and the price of a cigar is $2. Larry likes a smoke-free environment.
3. If the government levies a pollution tax such that the utility generates the efficient quantity of electricity, calculate the quantity of electricity generated, the price of electricity, the size
2. With no pollution control, calculate the quantity of electricity produced, the marginal social cost of the electricity generated, and the deadweight loss.
1. With no pollution control, calculate the quantity of electricity produced, the price of electricity, and the marginal external cost of the pollution generated.
Vouchers can also achieve a more efficient provision of health care and at the same time contain health care costs.
Vouchers or subsidies to private schools or the provision of public education below cost can achieve a more efficient provision of education.
External benefits from education arise because better-educated people are better citizens, commit fewer crimes, and support social activities.
External benefits are benefits that are received by people other than the consumer of a good or service. Marginal social benefit equals marginal private benefit plus marginal external benefit.
2. Explain why positive externalities lead to inefficient underproduction and how public provision, subsidies, and vouchers can achieve a more efficient out-come.
When property rights cannot be assigned, governments might overcome a negative externality by mandating clean technologies, imposing pollution taxes, or using a cap-and-trade program.
Sometimes it is possible to overcome a negative externality by assigning a property right.
Producers take account only of marginal private cost and produce more than the efficient quantity when there is a marginal external cost.
External costs are costs of production that fall on people other than the producer of a good or service. Marginal social cost equals marginal private cost plus marginal external cost.
1. Explain why negative externalities lead to inefficient overproduction and how property rights, pollution charges, and taxes can achieve a more efficient outcome.
4. A pollution tax of $50 a ton paid by the factories achieves the efficient quantity of pesticide because the pollution tax equals the external cost.
3. The factories produce the efficient quantity: 20 tons a week.
2. The quantity of pesticide produced is the efficient quantity, 20 tons a week, and the town charges the factories $50 a ton of pesticide, which is the marginal external cost of the pollution
1. In Figure 2, production is 30 tons a week, the efficient quantity is 20 tons a week, and the deadweight loss is the area of the gray triangle.
4. If no one owns the lake and the government levies a pollution tax, what is the tax per ton of pesticide that achieves the efficient outcome?
3. If the pesticide factories own the lake, how much pesticide is produced?
2. If the town owns the lake, what is the quantity of pesticide produced and how much does the town charge the factories to dump waste?
1. What is the quantity of pesticide produced if no one owns the lake and what is the efficient quantity of pesticide? What is the deadweight loss?
2 Explain why positive externalities lead to inefficient underproduction and how public provision, subsidies, and vouchers can achieve a more efficient outcome
1 Explain why negative externalities lead to inefficient over-production and how property rights, pollution charges, and taxes can achieve a more efficient outcome.
Explain why it is in the self-interest of China and Australia to conclude a free-trade deal.
5. PM seeks to fast-track China free-trade deal Prime Minister Tony Abbott has set down an ambitious deadline of just 12 months to conclude deadlocked free-trade talks with China.Source: Sydney
c. Draw a diagram to illustrate your answer to part a.
b. What other methods could the Chinese government use to decrease wine imports into China?
a. Who gains and who loses when Australia decreases its wine exports to China?
4. Australian wine sales hit hard by Chinese austerity drive Australian winemakers might have to wait until 2015 to see a return to growth in China. Until 2012, Chinese drinkers had been devouring
3. Japanese companies relocate their operations abroad to lower the costs of production. Yet, goods continue to be produced in Japan. Why? Why doesn’t Japan just import all those products it does
What could be the argument(s) offered by the car maker in persuading the Malaysian government to postpone the date of tariff removal?
2. The creation of the ASEAN Free Trade Area (AFTA) is proceeding smoothly.In Malaysia, a car maker wants to delay the lowering of the tariff on cars.
e. Is there any deadweight loss created by this ban? Explain your answer.
d. Who is the loser with this ban? Will current miners in Indonesia have to shut down their operations due to losses incurred? Explain your answer.
c. Who is the winner with this ban? Explain your answer.
b. If Indonesia was producing only 1% of the world’s nickel ore, would the world price of ore change?
a. What will happen to the world price of nickel ore, assuming that Indonesia is the largest supplier in the world?
1. Indonesia bans mineral ore exports Indonesia’s ban on mineral ore exports is part of a wider policy to boost state revenue by turning Indonesia from an exporter of raw commodities into a
9. In the 1950s, Ford and General Motors established a small car-producing industry in Australia and argued for a high tariff on car imports. The tariff has remained through the years. Until 2000,
8. What argument might be used to encourage the government of Mexico to introduce a $2,000 tariff on car imports from the United States? Who will gain and who will lose as a result of Mexico’s
7. If the government of Mexico introduces an import quota of 4 million cars a year, what will be the price of a car in Mexico, the quantity of cars produced in Mexico, and the quantity imported?
6. If the government of Mexico introduces a $2,000 tariff on car imports, what will be the price of a car in Mexico, the quantity of cars produced in Mexico, the quantity imported into Mexico, and
Use Figure 1 and the following information to work Problems 6 to 8.Figure 1 shows the car market in Mexico when Mexico places no restriction on the quantity of cars imported. The world price of a car
5. The United States exports services and imports coffee. Why does the United States gain from exporting services and importing coffee? How do economists measure the net gain from this international
Does Brazil export or import sugar and why?
How does the price of sugar in Brazil change? Do Brazilians buy more or less sugar? Do Brazilian sugar growers produce more or less sugar?
4. Suppose that the world price of sugar is 20 cents a pound, Brazil does not trade internationally, and the equilibrium price of sugar in Brazil is 10 cents a pound. Brazil then begins to trade
3. The United States exports wheat. Draw a graph to illustrate the U.S. wheat market if there is free international trade in wheat. On your graph, mark the price of wheat and the quantities bought,
2. Draw a graph of the U.S. market for textiles and show how removing a tariff would change producer surplus, consumer surplus, and the deadweight loss from the tariff.
1. Explain who in the United States would gain and who might lose from dismantling trade barriers between the United States and India.
11. Read Eye on Globalization on p. 239 and draw two graphs to show how U.S.consumers gain from iPads manufactured in China and why Chinese workers also gain.
10. Explain what an anti-dumping tariff is. What argument might NewPage Corp. have used to get the government to raise the tariff to 99.65 percent?
9. What is dumping? Who in the United States loses from China’s dumping of glossy paper?
8. Explain who, in the United States, gains and who loses from this tariff on paper.How do you expect the prices of magazines and textbooks to change?
7. Suppose that the U.S. government puts an import quota on roses. Show on your graph the consumer surplus that is redistributed to producers and importers and also the deadweight loss created by the
6. Who in the United States loses from this trade in roses and would lobby for a restriction on the quantity of imported roses? If the U.S. government put a tariff on rose imports, show on your graph
5. The supply of roses in the United States is made up of U.S.-grown roses and imported roses. Draw a graph to illustrate the U.S. rose market with free international trade. On your graph, mark the
4. Who in the United States loses from free trade in shoes with Brazil? Explain.Use the following information to work Problems 5 to 7.
3. The world price of a pair of shoes is $20. Explain how consumer surplus and producer surplus in Brazil change as a result of international trade. Show the change in Brazil’s consumer surplus
2. The world price of a pair of shoes is $20. Explain how consumer surplus and producer surplus in the United States change as a result of international trade. On the graph, show the change in U.S.
1. Which country has a comparative advantage in producing shoes? With international trade, explain which country would export shoes and how the price of shoes in the importing country and the
3. The United States maintains an import quota on sugar. What is the argument for this import quota? Is this argument flawed? If so, explain why.
2. The United States has, from time to time, limited imports of steel from Europe. What argument has the United States used to justify this quota?Who wins from this restriction? Who loses?
this restriction in trade?
1. Japan sets an import quota on rice. California rice growers would like to export more rice to Japan. What are Japan’s arguments for restricting imports of Californian rice? Are these arguments
3. Suppose that this year, tomato growers in Florida lobby the U.S. government to impose an import quota on Mexican tomatoes. Explain who, in the United States, would gain and who would lose from
2. Explain how the quantity of U.S. exports to Mexico and the U.S. government’s tariff revenue from trade with Mexico have changed.
1. Explain how the price that U.S. consumers pay for goods imported from Mexico and the quantity of U.S. imports from Mexico have changed. Who, in the United States, are the winners and losers from
2. Does China import or export shoes? Who, in China, gains and who loses from international trade in shoes? Does China gain from this trade in shoes?On a graph of the market for shoes in China, show
1. Does China import or export coal? Who, in China, gains and who loses from international trade in coal? Does China gain from this trade in coal? On a graph of the market for coal in China show the
Does India export or import steel?
How does the quantity of steel bought by India change?
How does the quantity of steel produced in India change?
How does the price of steel in India change?
2. Suppose that the world price of steel is $100 a ton, India does not trade internationally, and the equilibrium price of steel in India is $60 a ton. India then begins to trade internationally.
Does the United States export or import sugar?
Do U.S. sugar growers produce more or less sugar?
Do U.S. consumers buy more or less sugar?
How does the price of sugar in the United States change?
1. Suppose that the world price of sugar is 10 cents a pound, the United States does not trade internationally, and the U.S. equilibrium price of sugar is 20 cents a pound. The United States then
4 Explain and evaluate arguments used to justify restricting international trade.
3 Explain the effects of international trade barriers.
2 Identify the gains from international trade and its winners and losers.
1 Explain how markets work with international trade.
c. Do you agree with the new price ceiling? Why or why not?
more people can now afford to buy condoms?
b. Do you think that the price ceiling will increase the sales of condoms because
a. Explain why the manufacturers argued that setting the price ceiling for condoms would have a negative impact on population-control measures.
The Indian government has set a maximum price for a condom at 6.56 rupees.Manufacturers of more expensive “luxury” condom brands have criticized the move, saying it will have a negative impact on
3. Price ceiling for condoms

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