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foundations of microeconomics

Questions and Answers of Foundations Of Microeconomics

Explain how a price support in the market for an agricultural product creates a surplus, inefficiency, and unfairness.
What will be the effects of the minimum wage if the employers’ offer is equal to the equilibrium wage? What will be the effects of the minimum wage if the labor unions’ demand is equal to the
Hong Kong introduces a minimum wage Hong Kong’s first minimum wage is set at $HK28 an hour—$HK5 less than labor unions wanted, but $HK5 more than the employers had offered. About 315,000 people
Explain how a price floor works and show how the minimum wage creates unemployment, inefficiency, and unfairness.
Explain how raising the price ceiling on fuel will change consumer surplus, producer surplus, and deadweight loss.
Beijing loosens fuel prices in boon to refiners China moved to raise the price ceiling on gasoline and diesel on Tuesday. Lin Boqiang of Xiamen University advised the government on pricing reform and
3. With a strictly enforced rent ceiling of $600 a month, is the housing market efficient? What is the deadweight loss? Is the housing market fair? Explain.
2. If the city government imposes a rent ceiling of $600 a month, what is the rent and how many apartments are rented? If a black market develops, how high could the black market rent be? Explain.
1. What is the rent and how many apartments are rented? If a rent ceiling of$900 a month is set, what is the rent and how many apartments are rented?
3 Explain how a price support in the market for an agricultural product creates a surplus, inefficiency, and unfairness.
2 Explain how a price floor works and show how the minimum wage creates unemployment, inefficiency, and unfairness.
1 Explain how a price ceiling works and show how a rent ceiling creates a housing shortage, inefficiency, and unfairness.
Was the timber industry efficient before the auction and did logging companies operate in the social interest or self-interest? What effect has private ownership had on efficiency of the timber
9. New Zealand’s private forests In the early 1990s, the government auctioned half the national forests, converting these forests from public ownership to private ownership. The government’s
1. Describe the alternative methods of allocating scarce resources and define and explain the features of an efficient allocation.
2. Is the allocation efficient? Is the allocation fair?
1. Who gets to use the candles? Who receives the consumer surplus and who receives the producer surplus on candles?
Senate votes to end ethanol subsidies The Senate has voted to end the $6 billion a year in subsidies paid to the ethanol industry for the past three decades. Refiners would lose the 45-cent-a-gallon
Is Australia’s ski season headed for a wipeout?
3. If the price of a DVD rises to $20, what is the change in consumer surplus?
What method was used to allocate AC/DC concert tickets? Was it efficient?
AC/DC’s “Black Ice” tour breaks records down under The 40,000 tickets for the March 6 gig sold out in seven minutes—a record. Many people who camped out overnight missed getting a ticket.
1. The fluctuating market for nickel 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
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.”
Use the following information to work Problems 1 and 2.Why the tepid response to higher gasoline prices?Most studies report that when U.S. gasoline prices rise by 10 percent, the quantity purchased
The USDA reported that world corn production will be 9.9 percent greater than last year’s, while U.S. corn production will be 24 percent larger. The price of corn is expected to be 46 percent
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
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
When the price of home heating oil increased by 20 percent, the quantity demanded decreased by 2 percent and the quantity of wool sweaters demanded increased by 10 percent. Use this information to
Are luxury goods normal goods or just not necessities? Explain your answer.
China will become the world’s largest luxury goods market With their fast-rising incomes, Chinese consumers will overtake those in today’s rich economies to become the world’s biggest spenders
Describe how the demand for good C changes and calculate the income elasticity of demand for good C.
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 good A changes and calculate the cross elasticity of demand.
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?
Calculate the price elasticity of supply of coal. Is the supply of coal elastic or inelastic?
Weak coal prices hit China’s third-largest coal miner The chairman of Yanzhou Coal Mining, Wang Xin, reported that the demand for coal has fallen by 11.9 percent from a year earlier, despite the
2. What is the price elasticity of supply after one year? Has the supply of this good become more elastic or less elastic? Why?
1. Is the supply of this good elastic, unit elastic, or inelastic? Is this good likely to be produced using factors of production that are easily obtained? What is the price elasticity of supply of
A 10 percent increase in the price of a good increased the quantity supplied of the good by 1 percent after one month and by 25 percent after one year.
What was Universal Music’s estimate of the price elasticity of demand for CDs? Was the demand estimated to be elastic or inelastic?
Music giant chops price to combat downloads In 2003, when music downloading first took off, Universal Music slashed the price of a CD from $21 to $15. The company said that it expected the price cut
How would you expect the rise in the price of onions to affect the supply of chicken and tomatoes?
How would you expect the rise in the price of onions to affect the demand for chicken and tomatoes?
Provide a detailed step-by-step account of the process.
Why does a drought lead to a rise in the price of onions?
8. Alabama food prices jump in May Alabama Farmers Federation announced that food prices in May will increase. In previous unprofitable years, farmers reduced their herds with the result that in 2009
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:• The demand for new homes?• The supply of new
6. During Valentine’s week, more people buy chocolates and chocolatiers offer their chocolates in special red boxes, which cost more to produce than the everyday box. Set out the three-step process
5. If the price of chocolates is $17.00 a box, describe the situation in the market.Explain how market equilibrium is restored.
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,
3. What is the effect on the equilibrium in the orange juice market if orange juice becomes more popular and a cheaper robot is used to pick oranges?
2. What is the effect on the equilibrium price and equilibrium quantity of orange juice if the price of apple juice decreases and the wage rate paid to orange grove workers increases?
1. Why can we be confident that the market for college education is competitive and that an increase in demand rather than the greed of college administrators is the reason for the ongoing rise in
Use the following information to work Problems 7 and 8.Pricier bread and cereal. Coming soon?Wheat and corn prices surged last week and could hit the items in your grocery basket by mid-summer.
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.Source: CNN Money, June
5. “As more people buy fuel-efficient hybrid cars, the demand for gasoline will decrease and the price of gasoline will fall. The fall in the price of gasoline will decrease the supply of
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. Explain how market equilibrium is
3. If the price of frozen yogurt falls, the quantity of ice cream consumed will decrease and the price of ice cream will rise.
2. The United States does not allow oranges from Brazil (the world’s largest producer of oranges) to enter the United States. If Brazilian oranges were sold in the United States, oranges and orange
1. Explain how each of the following events changes the demand for or supply of air travel.• Airfares tumble, while long-distance bus fares don’t change.• The price of jet fuel rises.•
2. Distinguish between quantity supplied and supply, and explain what determines supply
After wild weather, higher food prices on horizon After heavy rain this year, the corn harvest will be less than expected while the demand for corn will continue to increase. Food prices will
describe how the equilibrium price and quantity of milk will change.
4. If milk becomes more popular and better feeds increase milk production,
What is the new equilibrium and how does the market adjust to it?
3. A drought decreases the quantity supplied by 45 cartons a day at each price.
2. Describe the situation in the milk market if the price were $1.75 a carton and explain how the market reaches equilibrium.
1. What is the equilibrium price and equilibrium quantity of milk?
Rising wages pose dilemma for China Chinese private-sector wages rose 14 percent in 2012. This trend in rapidly rising wage rates might hurt its manufacturing dominance. Source: The Wall Street
3. Does any event (or events) illustrate the law of supply?
1. Explain the effect of each event on the supply of timber beams.
Lumber companies make timber beams from logs. In the process of making beams, the mill produces sawdust, which is made into pressed wood. In the market for timber beams, the following events occur
Does this news clip imply that the law of demand doesn’t work in the real world? Explain why or why not.
The following events occur one at a time in the market for cell phones:• The price of a cell phone falls.• Producers announce that cell-phone prices will fall next month.• The price of a call
2 Distinguish between quantity supplied and supply, and explain what determines supply.
Is it possible that Italian households are producing inside their production possibilities frontier?
Think about a household’s production possibilities and tradeoffs:What tradeoffs must the members of a household make?
11. Explain how the arrival of inexpensive broadband has changed the PPF.
10. Sketch a PPF for video entertainment and other goods and services before broadband.
9. How has inexpensive broadband changed the production possibilities of video entertainment and other goods and services?
8. In an hour, Sue can produce 40 caps or 4 jackets and Tessa can produce 80 caps or 4 jackets. Who has a comparative advantage in producing caps? If Sue and Tessa specialize and trade, who will
5. The people of Foodland have 40 hours of labor a day to bake pizza and bread. Table 1 shows the maximum quantity of either pizza or bread that Foodland can bake with different quantities of labor.
6. Explain how the following events influence U.S. production possibilities:• Some retail workers are re-employed building dams and wind farms.• More people take early retirement.• Drought
3. What is the opportunity cost of producing an additional unit of entertainment? Explain how the opportunity cost of producing a unit of entertainment changes as more entertainment is produced.Use
1. Table 1 shows the quantities of corn and beef that a farm can produce in a year. Draw a graph of the farm’s PPF. Mark on the graph:• An inefficient combination of corn and beef—label this
Explain why both the United States and Brazil can gain from specialization and trade.
With big boost from sugar cane, Brazil is satisfying its fuel needs Brazil is almost self-sufficient in ethanol. Brazilian ethanol is made from sugar and costs 83¢ per gallon whereas U.S. ethanol,
2. If Tony and Patty specialize and trade, what are the gains from trade?
1. Who has a comparative advantage in producing snowboards? Who has a comparative advantage in producing skis?
Tony and Patty produce skis and snowboards. Tables 1 and 2 show their production possibilities. Each week, Tony produces 5 snowboards and 40 skis and Patty produces 10 snowboards and 5 skis.
2. How does an economy grow? Explain why economic growth is not free.
1. Table 1 shows an economy that produces education services and consumption goods. If the economy currently produces 500 graduates a year and 2,000 units of consumption goods, what is the
Calculate the opportunity cost of reducing the emission level by 1 gram.
Obama drives up miles-per-gallon requirements Emissions from all new vehicles must be cut from 354 grams to 250 grams. To meet this new standard, the price of a new vehicle will rise by $1,300.
Explain how this loss of honeybees affected the Central Valley’s PPF.
4. Which points illustrate a tradeoff? Explain why.Loss of honeybees is less but still a threat Honeybees are crucial for the pollination of almonds in California’s Central Valley. During 2008, 30
What do the trends in economic growth imply about changes in the sizes of the Chinese and American slices in the global production pie in Figure 2.2 (p. 78)?
5. China forecast to overtake U.S. by 2016 China is on track for a fourth consecutive decade of rapid growth and will overtake the U.S. as the world’s biggest economy in 2016.Source: Financial
b. Compare and contrast what is produced in your own economy with what is produced in other economies.

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