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foundations of microeconomics

Questions and Answers of Foundations Of Microeconomics

1. Explain how consumer surplus is derived from the difference between the willingness to pay and the market equilibrium price. (p. 18)
Do you think the New York bagel tax is an eective tool to raise government revenue?Think about how the tax may or may not aect the purchasing behavior of New Yorkers. (p. 18)
Suppose that because of Alabama’s playing card tax, fewer consumers purchase cards and fewer store owners sell them. What is this loss of economic activity called? (p. 18)
✷ Why do taxes create deadweight loss in otherwise efficient markets? (p. 18)
✷ When is a market efficient? (p. 18)
✷ What are consumer surplus and producer surplus? (p. 18)
14. Suppose a hotel raises the price of the bottled water in the minibar in each room from $3 to$5. The hotel tracks the number of customers who buy the bottled water and finds that consumption drops
13. The TV show Extreme Couponing features coupon users who go to extraordinary measures to save money on their weekly purchases. The show follows these coupon users throughout the week as they
12. A private university notices that in-state and out-of-state students seem to respond differently to tuition changes.As the price of tuition rises from $15,000 to$20,000, what is the price
11. A local golf course is considering lowering its fees in order to increase its total revenue.Under what conditions will the fee reduction achieve its goal? (p. 18)✷
10. The cross-price elasticity of demand between American Eagle and Hollister is 2.0. What does that coefficient tell us about the relationship between these two stores? (p. 18)
9. A worker eats at a restaurant once a week. He then gets a 25% raise. As a result, he decides to eat out twice as much as before and cut back on the number of frozen lasagna dinners from one frozen
8. Do customers who visit convenience stores at 3 a.m. have a price elasticity of demand that is more elastic or less elastic than those who visit at 3 p.m.? (p. 18)
7. At a price of $200, a cell phone company manufactures 300,000 phones. At a price of$150, the company produces 200,000 phones.What is the price elasticity of supply? (p. 18)
6. A local paintball business receives a total revenue of $8,000 a month when it charges $10 per person and $9,600 in total revenue when it charges $6 per person. Over that range of prices, does the
5. Characterize the demand for each of the following goods or services as perfectly elastic, relatively elastic, relatively inelastic, or perfectly inelastic.a. a lifesaving medicationb. photocopies
4. If a 20% increase in price causes a 10% drop in the quantity demanded, is the price elasticity of demand for this good elastic, unitary, or inelastic? (p. 18)
3. Black Friday, the day after Thanksgiving, is the largest shopping day of the year. Do the early shoppers, who often wait in line for hours in the cold to get doorbuster sale items, have elastic or
2. College logo T-shirts priced at $15 sell at a rate of 25 per week, but when the bookstore marks them down to $10, it finds that it can sell 50 T-shirts per week. What is the price elasticity of
1. If the government decided to impose a 50%tax on gray T-shirts, would this policy generate a large increase in tax revenues or a small increase? Use elasticity to explain your answer. (p. 18)
10. Define the cross-price elasticity of demand.Give an example of a good with negative crossprice elasticity, another with zero cross-price elasticity, and a third with positive cross-price
9. Give an example of a normal good. What is the income elasticity of a normal good? Give an example of a luxury good. What is the income elasticity of a luxury good? Give an example of a necessity.
8. Give an example of a good that has elastic supply. What is the value of the price elasticity if supply is elastic? Give an example of a good that has an inelastic supply. What is the value of the
7. What are the two determinants of the price elasticity of supply? (p. 18)
6. Define the price elasticity of supply. (p. 18)
5. Explain why slope is different from elasticity. (p. 18)
4. What is the connection between total revenue and the price elasticity of demand? Illustrate this relationship along a demand curve. (p. 18)
3. Give an example of a good that has elastic demand. What is the value of the price elasticity if demand is elastic? Give an example of a good that has inelastic demand. What is the value of the
2. What are the four determinants of the price elasticity of demand? (p. 18)
1. Define the price elasticity of demand. (p. 18)
For business owners, why is it important to understand whether demand for their products is elastic or inelastic? (p. 18)
Why is demand for coee relatively inelastic? (p. 18)
✷ How do the price elasticities of demand and supply relate to each other? (p. 18)
✷ What is the price elasticity of supply? (p. 18)
✷ How do changes in income and the prices of other goods affect elasticity? (p. 18)
✷ What is the price elasticity of demand, and what are its determinants? (p. 18)
2. Every Valentine’s Day, the price of roses spikes.Using your understanding of the factors that shift both demand and supply, draw the equilibrium in the rose market on January 31 and then draw
1. Assume that, over time, consumer incomes generally increase but also that technological advancements in oil extraction lead to lower prices of crude oil (the primary input for gasoline).a. If
2. Is there more than one potential equilibrium point when supply and demand change at the same time? Explain. (p. 18)
1. What happens to price and quantity when supply and demand change at the same time? (p. 18)
10. If the price of alcohol decreases, what happens to the demand for red Solo (plastic) cups? (p. 18)
9. Let’s take a look at two real-world episodes in the market for gasoline and try to figure out why the price fluctuates so much.a. In the summer of 2008, the price of regular gasoline in the
8. Demand and supply curves can also be represented with equations. Suppose that the quantity demanded, QD, is represented by the following equation:QD = 90 - 2P The quantity supplied, QS, is
7. The Seattle Mariners baseball team wishes to determine the equilibrium price for seats for✷each of the next two seasons. The supply of seats at the ballpark is fixed at 45,000.Quantity Quantity
6. Starbucks Entertainment announced in a 2007 news release that Dave Matthews Band’s Live Trax CD was available only at the company’s coffee shops in the United States and Canada.The compilation
5. The market for ice cream has the following demand and supply schedules:Quantity Quantity Price demanded supplied(per quart) (quarts) (quarts)$2 100 20$3 80 40$4 60 60$5 40 80$6 20 100a. What are
4. Are laser pointers and cats complements or substitutes? (Not sure? Search for videos of cats and laser pointers online.) Discuss. (p. 18)
3. For each of the following scenarios, determine if there is an increase or a decrease in supply for the good in italics.a. The price of silver increases.b. Growers of tomatoes experience an
2. For each of the following scenarios, determine if there is an increase or a decrease in demand for the good in italics.a. The price of oranges increases.b. The cost of producing tires increases.c.
1. In the song “Money, Money, Money” by ABBA, one of the lead singers, Anni-Frid Lyngstad, is tired of the hard work that life requires and plans to marry a wealthy man. If she is successful, how
9. What roles do shortages and surpluses play in the market? (p. 18)
8. What happens in a competitive market when the price is above the equilibrium price? Below the equilibrium price? (p. 18)
7. Describe the process that leads a market toward equilibrium. (p. 18)
6. Does a price change cause a movement along a supply curve or a shift of the entire curve?What factors cause the entire supply curve to shift? (p. 18)
5. Why does the supply curve slope upward? (p. 18)
4. Describe the difference between inferior goods and normal goods. Give an example of each type of good. (p. 18)
3. Does a price change cause a movement along a demand curve or a shift of the entire curve?What factors cause the entire demand curve to shift? (p. 18)
2. Why does the demand curve slope downward? (p. 18)
1. What is a competitive market, and why does it depend on the existence of many buyers and sellers? (p. 18)
✷ How do supply and demand interact to create equilibrium? (p. 18)
✷ What determines supply? (p. 18)
✷ What determines demand? (p. 18)
✷ What are the fundamentals of markets? (p. 18)
11. Suppose that you must decide between attending a Taylor Swift concert or a Maroon 5 concert. The concerts are at the same time on the same evening, so you cannot see both. You love Taylor Swift
10. Read the poem “The Road Not Taken,” by Robert Frost. What line(s) in the poem capture the opportunity cost of decision-making? (p. 18)
9. Where would you plot unemployment on a production possibilities frontier? Where would you plot full employment on a production possibilities frontier? Now suppose that in a time of crisis everyone
8. Two friends, Rachel and Joey, enjoy baking bread and making apple pie. Rachel takes 2 hours to bake a loaf of bread and 1 hour to make a pie. Joey takes 4 hours to bake a loaf of bread and 4 hours
7. Suppose that a politician tells you about a plan to create two expensive but necessary programs to build more production facilities for solar power and wind power. At the same time, the politician
6. Suppose that an amazing new fertilizer doubles the production of potatoes. How would this invention affect the production possibilities frontier for an economy that produces only potatoes and
5. How does your decision to invest in a college degree add to your human capital? Use a projected production possibilities frontier for 10 years from now to compare your life with and without the
4. Are the following statements positive or normative?a. My dog weighs 75 pounds.b. Dogs are required by law to have rabies shots.c. You should take your dog to the veterinarian once a year for a
3. Think about comparative advantage when answering this question: Should your professor, who has highly specialized training in economics, take time out of his or her teaching schedule to mow the
2. The following table shows scores that a student can earn on two upcoming exams according to the amount of time devoted to study:Hours spent Hours spent studying Economics studying History for
1. Michael and Angelo live in a small town in Italy. They work as artists. Michael is the more productive artist. He can produce 10 small sculptures each day but only 5 paintings.Angelo can produce 6
8. What factors are most important for economic growth? (p. 18)
7. Why does comparative advantage matter more than absolute advantage for trade? (p. 18)
6. What criteria would you use to determine which of two workers has a comparative advantage in performing a task? (p. 18)
5. Does having an absolute advantage mean that you should undertake to produce everything on your own? Why or why not? (p. 18)
4. Why does the production possibilities frontier bow out? Give an example of two goods for which this would be the case. (p. 18)
3. Draw a production possibilities frontier curve.Illustrate the set of points that is feasible, the set of points that is efficient, the set of points that is inefficient, and the set of points that
2. Is it important to build completely realistic economic models? Explain your response. (p. 18)
1. What is a positive economic statement? What is a normative economic statement? Provide an example of each (other than those given in the chapter). (p. 18)
✷ What is the trade-off between having more now and having more later? (p. 18)
✷ What are the benefits of specialization and trade? (p. 18)
✷ What is a production possibilities frontier? (p. 18)
✷ How do economists study the economy? (p. 18)
8. We have talked about how trade creates value.Use the information in each example below to compute the total value created in each exchange:a. Patrick bought an orange pen from Jill for$2.00.
7. Whiplash (2014) is about an aspiring collegeage drummer who wants to become the best drummer in the world. He is willing to sacrifice personal relationships, practices tens of thousands of hours,
6. Would you wait in line three weeks to be the first customer at Best Buy on Black Friday (the day after Thanksgiving, the “official start” of the holiday shopping season)? Two women from
5. After some consideration, you decide to hire someone to help you move from one apartment to another. Wouldn’t it be cheaper to move yourself? Do you think the choice to hire someone is a
4. Suppose that Colombia is good at growing coffee but not very good at making computer software and that Canada is good at making computer software but not very good at growing coffee. If Colombia
3. By referencing events in the news or something from your personal experiences, describe one example of each of the five foundations of economics discussed in this chapter. (p. 18)
2. Compare your standard of living with that of your parents when they were the age you are now. Ask them or somebody you know around their age to recall where they were living and what they owned.
1. What role do incentives play in each of the following situations? Are there any unintended consequences?a. You learn that you can resell a ticket to next week’s homecoming game for twice what
4. Evaluate the following statement: “Trade is like football: one team wins and the other loses.” (p. 18)
3. What is the opportunity cost of reading this textbook? (p. 18)
2. Explain why many seniors often earn lower grades in their last semester before graduation.Hint: This is an incentive problem. (p. 18)
1. How would you respond if your instructor gave daily quizzes on the course readings? Are these quizzes a positive incentive or a negative incentive? (p. 18)
What are four types of incentives discussed in the chapter? Why do incentives sometimes create unintended consequences? (p. 18)
Which of the five foundations explains what you give up when you choose to buy a new pair of shoes instead of attending a concert? (p. 18)

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