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foundations of economics

Questions and Answers of Foundations Of Economics

4 Evaluate the efficiency of the alternative methods of allocating resources.
3 Distinguish between cost and price and define producer surplus.
2 Distinguish between value and price and define consumer surplus.
define and explain the features of an efficient allocation.
1 Describe the alternative methods of allocating scarce resources and
c. What would you need to know to effectively determine the price elasticity of demand and the elasticity of supply in this market?
b. What does the fact that the album went for a high price imply about the elasticity of demand for autographed Beatles’ albums?
a. What does the fact that the album went for a high price imply about the elasticity of supply of autographed Beatles’ albums?
3. Signed Beatles album Sgt. Pepper sells for $290,000 A signed copy of The Beatles’ album Sgt. Pepper’s Lonely Hearts Club Band has been bought at auction in the U.S. for $290,500.Source: BBC
e. Provide an example of a substitute for travel on Ryanair.
d. If the demand for Ryanair flights changed, what elasticities would we need to measure the change?
c. Is the demand for Ryanair flights elastic or inelastic?
b. M aking the necessary assumption, what is Ryanair’s price elasticity of demand?
a. What must you assume to use the information in this news clip to determine the price elasticity of demand for Ryanair seats?
2. Ryanair makes loss as low fares hit R yanair made a loss in the final three months of last year. Average fares were 9% lower and passenger numbers were 6% higher.Source: BBC News, February 3, 2014
c. Could the data be used to find the elasticity of supply of nickel? Explain your answer.
b. What additional information would you need to find the price elasticity of demand?
a. Why are the data reported in this news clip insufficient for us to be able to determine the price elasticity of demand for nickel?
$10,000 per tonne but it increased through 2006 and peaked at $52,179 per tonne in May 2007. In 2011 the price was $26,015 per tonne.Source: INSG, December 17, 2013
World nickel consumption increased from 1.1 million tonnes in 2001 to 1.6 million tonnes in 2011. The increase was not smooth: in 2007, consumption fell to 1.3 million tonnes. From 2001 to 2003 the
8. If the price of almonds changed as a result of a change in the supply of almonds, is the demand for almonds elastic or inelastic? Explain your answer.
7. Was the price of almonds expected to rise or fall? Did a change in the supply of or demand for almonds bring about this expected change in the price?
The quantity of almonds harvested in 2008–2009 was expected to increase by 22 percent, while total receipts of growers was expected to increase by 17 percent.Source: Almond Board of California
Use the following information to work Problems 7 and 8.Almonds galore!
6. “In a market in which demand is price inelastic, producers can gouge consumers and the government must set high standards of conduct for producers to ensure that consumers gets a fair deal.”
5. Drought cuts the quantity of wheat grown by 2 percent. If the price elasticity of demand for wheat is 0.5, by how much will the price of wheat rise?If pasta makers estimate that this change in the
4. The income elasticity of demand for haircuts is 1.5, and the income elasticity of demand for food is 0.14. You take a weekend job, and the income you have to spend on food and haircuts doubles. If
3. When rain ruined the banana crop in Central America, the price of bananas rose from $1 to $2 a pound. Growers sold fewer bananas, but their total revenue was unchanged. By what percentage did the
2. Compare the elasticity implied by the data for the period from September 2004 to September 2005 with that implied by most studies. What might explain the difference?
1. Calculate the price elasticity of demand for gasoline implied by what most studies have found.
10. Read Eye on the Price of Gasoline on p. 159 and then explain why the demand for gasoline is more inelastic in the short run than in the long run. Which is likely to be more inelastic, the demand
9. Calculate the world price elasticity of supply of corn.
8. Calculate the U.S. price elasticity of supply of corn. Is this supply elastic?
Use the following information to work Problems 8 and 9.Record U.S. corn crop, up 24%, is forecast The USDA reported that world corn production will be 9.9 percent greater than last year’s, while
7. A survey found that when incomes increased by 10 percent, the following changes in quantities demanded occurred: spring water up by 5 percent;sports drinks down by 2 percent; cruises up by 15
6. Given the rise in the price of a plane ride, what percentage change in the price of a train ride will leave the quantity demanded of train rides unchanged?
5. Calculate the percentage changes in the quantity demanded of plane rides and train rides.
The price of a plane ride rises by 10 percent. The price elasticity of demand for plane rides is 0.5 and the price elasticity of demand for train rides is 0.2. The cross elasticity of demand for
4. The price elasticity of demand for Pete’s chocolate chip cookies is 1.5. Pete wants to increase his total revenue. Would you recommend that Pete raise or lower his price of cookies? Explain your
3. Figure 1 shows the demand for movie tickets. Is the demand for movie tickets elastic or inelastic over the price range $7 to $9 a ticket? If the price falls from $9 to $7 a ticket, explain how the
2. If the price of a wool sweater did not change, calculate the cross elasticity of demand for wool sweaters with respect to the price of home heating oil. Are home heating oil and wool sweaters
1. Use the total revenue test to determine whether the demand for home heating oil is elastic or inelastic.
2. When income rises by 5 percent and other things remain the same, the quantity demanded of good C increases by 1 percent. Is good C a normal good or an inferior good? Describe how the demand for
1. The quantity demanded of good A increases by 5 percent when the price of good B rises by 10 percent and other things remain the same. Are goods A and B complements or substitutes? Describe how the
3. Calculate the price elasticity of demand for this good; explain how the total revenue from the sale of the good has changed; and explain which of the following goods this good is most likely to
2. Does this good have close substitutes or poor substitutes? Is this good more likely to be a necessity or a luxury and to be narrowly or broadly defined?Why?
1. Is the demand for this good elastic, unit elastic, or inelastic?
3 Define the cross elasticity of demand and the income elasticity of demand, and explain the factors that influence them
2 Define and calculate the price elasticity of supply, and explain the factors that influence it.
1 Define and calculate the price elasticity of demand, and explain the factors that influence it.
Why does the price of an old iPhone keep falling after the announcement of a new model?
Why is waiting for the actual announcement leaving it to too late?
Does the anticipation of an announcement of a new iPhone change the demand for iPhones or the supply of iPhones, or both demand and supply, and in which direction?
3. Selling your old iPhone? Do it now.Old iPhones hold their price well, but the resale price of an old iPhone drops right before Apple announces a new version. Waiting until the actual announcement
How would you expect the rise in the price of onions to affect the prices and quantities of chicken and tomatoes?
Why does a drought lead to a rise in the price of onions?Provide a detailed step-by-step account of the process.How would you expect the rise in the price of onions to affect the demand for chicken
Why, when shoppers cut back on buying onions, does the demand for onions not change?
Source: CNN Money, September 12, 2013
2. Rising onion prices bring India woes home Indians normally consume more than 15 million tons of onions a year but severe drought has brought a sharp rise in the price of onions, leading shoppers
Answer by explaining the effects of the high price of a car on the demand for cars and train travel, on the quantity of cars and train travel demanded, and on the equilibrium quantities of cars and
How does the high price of a car in Singapore encourage more people to travel by train?
1. BMW at $213,000 is Singapore way to encourage train rides The price of a BMW 328i sedan in Singapore is six times its price in the United States. The Singaporean government wants a larger
Explain how the cancellation of orders change the market for steel. What happens to the equilibrium price of steel?
10. Steel output set for historic drop Steel producers expect to cut output by 10 percent in response to cancelled orders from construction companies and car and appliance producers.Source: Financial
9. “As more people buy cell phones, the demand for cell-phone service increases and the price of cell service falls, which decreases the supply of cell service.” Is this statement true or false?
Draw a graph to illustrate.
Explain why the reduction of herds will lead to a rise in meat prices today.
In previous unprofitable years, farmers reduced their herds with the result that in 2009 meat production will fall. Bacon is expected to rise by 32 cents a pound to $4.18 and steaks by 57 cents to
8. Alabama food prices jump in May Alabama Farmers Federation announced that food prices in May will increase.
The price of new homes?Illustrate your answer with a graphical analysis.
The supply of new homes?
The demand for new homes?
7. After a severe bout of foreclosures and defaults on home loans, banks made it harder for people to borrow. How does this change influence:
Explain the effect of the fall in the wheat price on the market for cereals.Table 1 shows the demand and supply schedules for boxes of chocolates in an average week. Use this information to work
4. Rain falls on wheat parade The price of wheat has fallen from $9 a bushel to $7 a bushel in the past seven months as rain and snow fell on the southern states.Source: The Wall Street Journal,
9. Read Eye on Tuition on p. 139 and explain how we know that tuition has risen because the demand for college places has increased and not because the supply has decreased?
8. Use graphs to show why the price of corn has risen and show its effect on the price of cereals.
7. Explain why the drought will lead to a rise in the price of bread.
6. OPEC deadlocked on oil production hike Oil prices exceeded the $100-a-barrel mark Wednesday after OPEC said it could not reach an agreement about raising crude production.
Explain how market equilibrium is restored. If a rise in income increases the demand for running shoes by 100 pairs a day at each price, explain how the market adjusts to its new equilibrium.
4. Table 1 shows the demand and supply schedules for running shoes. What is the market equilibrium? If the price is $70 a pair, describe the situation in the market.
Use the laws of demand and supply to explain whether the statements in Problems 2 and 3 are true or false. In your explanation, distinguish between a change in demand and a change in the quantity
The price of a pound of air cargo increases.
The price of train travel falls.
People expect airfares to increase next summer.
Airlines reduce the number of flights each day.
The price of jet fuel rises.
Airfares tumble, while long-distance bus fares don’t change.
1. Explain how each of the following events changes the demand for or supply of air travel.
Other things remaining the same, the quantity demanded increases as the price falls and decreases as the price rises—the law of demand.
3. What are the new equilibrium price and equilibrium quantity and how have they changed?
2. Does the event increase or decrease demand or supply—shift the demand curve or the supply curve rightward or leftward?
1. Does the event influence demand or supply?
Productivity
Number of sellers
Expected future prices
Prices of resources and other inputs
Prices of related goods
3. Does any event (or events) illustrate the law of demand?
2. Use a graph to illustrate the effect of each event.

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