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intermediate microeconomics

Questions and Answers of Intermediate Microeconomics

1. 9.1 In the Challenge Solution, we could predict the change in the equilibrium price of crops but not the quantity when firms start selling GM seeds. For what shape supply and demand curves (or for
1. 8.1 Are predictions using the supply-and-demand model likely to be reliable in each of the following markets?Why or why not?a. Applesb. Convenience storesc. Electronic games (a market dominated by
1. *7.4 An increase in the minimum wage could raise the total wage payment, W = wL(w), where w is the minimum wage and L(w) is the demand function for labor, despite the fall in demand for labor
1. *7.3 Usury laws place a ceiling on interest rates that lenders such as banks can charge borrowers. Low income households in states with usury laws have significantly lower levels of consumer
1.8. When to Use the Supply-and-Demand Model 85 Exercisesb. Show how the increase in the minimum wage and higher rental fees at major shopping malls and retail outlets affected the supply curve of
1. 7.2 The Thai government actively intervenes in markets(Nophakhun Limsamarnphun, “Govt Imposes Price Controls in Response to Complaints,” The Nation, May 12, 2012).a. The government increased
1.7.1 Severe disruptions to the supply of petroleum caused by international events or natural disasters can result in sharp spikes in prices within an economy for petroleum products such as gasoline.
1. 6.10 The estimated demand function for coffee is Q = 12- p (Equation 2.3), and the estimated sup ply function is Q = 9 + 0.5p (Equation 2.7).a. Write equations for the equilibrium price and
1.6.9 The United Kingdom had a drinking problem. Brit ish per capita consumption of alcohol rose 19%between 1980 and 2007, compared with a 13%decline in other developed countries. Worried about
1. *6.8 Use calculus to show that the less elastic the demand curve, an increase in a specific sales tax t reduces quantity less and tax revenue more. (Hint: The quan tity demanded depends on its
1. 6.7 Canada provided a 35% subsidy of the wage of video game manufacturers’ employees in 2011.a. What is the effect of a wage subsidy on the equi librium wage and quantity of workers?b. What
1. 6.6 Figure 2.12 shows the effects of a specific tax of$2.40 per unit on equilibrium price and quantity.What is the equation of demand curve, D1, and sup ply curve, S1? A subsidy is a negative tax.
1. 6.5 Green, Howitt, and Russo (2005) estimated that for almonds, the demand elasticity was -0.47 and the long-run supply elasticity was 12.0. The corre sponding elasticities were -0.68 and 0.73 for
1. *6.4 Do you care whether a 15¢ tax per gallon of milk is collected from milk producers or from consumers at the store? Why or why not?
1. 6.3 If a tax is introduced and the full burden or incidence of the tax is borne by producers, what can we say about the shape of the market supply and demand curves, or the demand and supply
1. 6.2 If a tax is introduced and the full burden or incidence of the tax is borne by consumers, what can we say about the shape of the market supply and demand curves, or the demand and supply
1.6.1 What effect does a $1 specific tax have on equilib rium price and quantity, and what is the incidence on consumers, if the following is true:a. The demand curve is perfectly inelastic.b. The
1. 5.11 In 2018, President Trump proposed opening nearly all offshore water to oil and gas drilling. The Bureau of Ocean Energy Management, which oversees gov ernment offshore leasing, estimated that
1. 5.10 Solved Problem 2.5 claims that a new war in the Persian Gulf could shift the world oil supply curve to the left by 24 million barrels a day or more, causing the world price of oil to soar
1. 5.9 Show that the supply elasticity of a linear supply curve that cuts the price axis is greater than 1 (elas tic), and the coefficient of elasticity of any linear sup ply curve that cuts the
1. *5.8 Calculate the price and cross-price elastici ties of demand for coconut oil. The coconut oil demand function (Buschena and Perloff, 1991) is Q = 1,200- 9.5p + 16.2pp + 0.2Y, where Q is the
1. 5.7 In July 2012 a group of airline operators in the United Kingdom commissioned PricewaterhouseC oopers LLP (PwC) to estimate the impact of Air Passenger Duty (APD) on the economy of the United
1. 5.6 The World Health Organization has found that youth are more responsive than adults to tobacco tax increases (http://www.who.int/tobacco/economics/meetings/dublin_demand_for_tob_feb2012.pdf).
1. 5.5 According to Borjas (2003), immigration to the United States increased the labor supply of working men by 11.0% from 1980 to 2000, and reduced the wage of the average native worker by 3.2%.
1.5.4 When a disease like bovine spongiform encephalopa thy (mad cow disease) is found, export markets for a country’s beef products close down so that the supply for the domestic market increases
1. 5.3 Based on information in the Application “The Demand Elasticities for Google Play and Apple Apps,” the demand function for mobile applica tions at the Apple App Store is QA = 1.4p-2 and the
1.5.2 Calculate the elasticity of demand, if the demand function isa. Q = 120- 2p + 4Y, at the point where p =10, Q = 20. (Hint: See Solved Problem 2.2.)b. Q = 10p-2. (Hint: See Solved Problem 2.3.) M
1.5.1 According to the World Health Organization, the number of countries with tax shares represent ing more than 75% of the retail price of the most popular brand of cigarettes increased
1. 4.12 Bentonite clay, which consists of ancient volcanic ash, is used in kitty litter, to clarify wine, and for many other uses. One of the major uses is for drill ing mud, a material pumped down
1. 4.11 The Aguiar et al. (2017) study concluded that a revo lution in the video game market—better games at a lower price—dramatically increased the amount of time young men spend playing video
1. 4.10 Use calculus to illustrate how increased use of opi oids, O, affects the equilibrium quantity of labor, L, as described in the Application “The Opioid Epi demic’s Labor Market Effects,”
1.4.9 Use a figure to illustrate the wage (price) and quan tity effects of the opioid as described in the Applica tion “The Opioid Epidemic’s Labor Market Effects.”
1. 4.8 Suppose the demand function for carpen ters is Q = 100- w, and the supply curve is Q = 10 + 2w- T, where Q is the number of carpenters, w is the wage, and T is the test score required to pass
1. *4.7 Given the answer to Exercise 2.4, what effect does a quota of Q 7 0 have on the equilibrium in the market? (Hint: The answer depends on whether the quota binds: is low enough to affect the
1.4.6 Colchero et al (2015) estimated the price elasticity of demand for sugar-sweetened beverages (SSB) in Mexico to be -1.16. Assume that in Mexico City, the annual per capita demand of SSB is
1. 4.5 Recessions lower incomes and reduce rental prices for beachfront properties. Suppose that the demand function for renting a beachfront property in Bar celona, Spain, during the first week of
1.*4.4 The demand function is Q = 220- 2p, and the supply function is Q = 20 + 3p- 20r, where r is the rental cost of capital. How do the equilibrium price and quantity vary with r? (Hint: See Solved
1. 4.3 Production of ethanol in the European Union (EU), primarily from wheat, increased more than 2.4 times from 570 million gallons in 2007 to 1,387 million gallons in 2015
1. 4.2 The coronavirus pandemic caused the European natural gas demand curve to shift left by an esti mated 7% (IEA (2020), Gas 2020, IEA, Paris https://www.iea.org/reports/gas-2020). Use a
1. *4.1 Use a figure to explain the fisher’s comment about the effect of a large catch on the market price in the cartoon about catching lobsters in this chapter. What is the supply shock?
1.3.5 The demand function for a good is Q =a- bp, and the supply function is Q = c + ep, wherea, b,c, and e are positive constants. Solve for the equi librium price and quantity in terms of these
1. 3.4 The demand function for milled rice in India in Question 1.1 is Q = 17- 3p + 5pw + 6pm + 0.1Y and the supply function in Question 2.1 is Q = 8 + 9p- 12pr. Solve for the equilibrium price and
1. *3.3 Suppose that the supply function for copra (dried coconut meat) for processing into coconut oil in the Philippines is ln Q = 0.2 + 0.22 ln p, where Q is the quantity of copra in millions of
1. 3.2 If the demand function is Q = 110- 20p, and the supply function is Q = 20 + 10p, what are the equi librium price and quantity? M
1. *3.1 Use a supply-and-demand diagram to explain the statement “Talk is cheap because supply exceeds demand.” At what price is this comparison being made?
1. 2.5 A cartoon in this chapter shows two people in front of a swimming pool discussing whether they want to go swimming. How does colder weather in the winter affect the desire of people to go
1. *2.4 Various governments have, from time to time, set lim its on how much of certain goods produced in other countries may be imported and sold domestically.Such quotas say that no more than Q 7 0
1. 2.3 If the supply curve for fresh oranges in Egypt is Qe = 0.7 + 5p and the supply curve for fresh oranges for the rest of the world is Qrow = 38.2 + 10p, what is the world supply curve? M
1. 2.2 Given an estimated supply function for dairy cows milk production in Jordan, lnQm = 1.304 + 0.564lnPm+ 1.754lnQc - 0.241lnPc- 0.885lnCv, determine how much the supply curve shifts if the price
1. 2.1 Suppose that the supply function for milled rice in India is Q = 8 + 9p- 12pr, where Q is the quan tity in millions of tons of rice per year, p is the price of milled rice in thousands of
1.1.6 thousand reals? (Hint: Review the Application“Aggregating Corn Demand Curves.”) M 1.6 Based on information in the Application “The Demand Elasticities for Google Play and Apple Apps,”
1. 1.5 Soybean oil is sold directly to consumers and used as an ingredient in a wide variety of processed foods.Soybean meal, the residue from producing soybean oil, is used as animal feed. Suppose
1. *1.4 Suppose that the demand function for mov ies is Q1 = 120- p for college students and Q2 = 60- 0.5p for other town residents. What is the town’s total demand function (Q = Q1 + Q2 as a
1. 1.3 Given an estimated demand function for avocados of Q = 104- 40p + 20pt + 0.01Y, show how Exercisesthe demand curve shifts as per capita income, Y, increases from $4,000 to $5,000 per month.
1. *1.2 Using the demand function for milled rice from Question 1.1, show how the quantity demanded at a given price changes if per capita income, Y, increases by 10,000 rupees. M
1. *1.1 Suppose that the demand function for milled rice in India is Q = 17- 3p + 5pw + 6pm + 0.1Y, where Q is the quantity in millions of tons of rice per year, p is the price of milled rice in
7.1 A health insurance company tries to prevent the moral hazard of “excessive” dentist visits by limiting the number of compensated visits that a patient can make in a year. How does such a
5.1 List some necessary conditions for a firm to be able to sort potential employees by providing them with a choice of contracts.6. Checks on Principals 6.1 In the Application “Layoffs Versus Pay
4.7 Adrienne, a manager of a large firm, must decide whether to launch a new product or make a minor change to an existing product. The new product has a 30% chance of being a big success and
4.6 In 2012, Hewlett-Packard Co. announced that its new chief executive, Meg Whitman, would receive a salary of $1 and about $16.1 million in stock options, which are valuable if the stock does
4.5 When rental cars are sold on the used car market they are sold for lower prices than cars of the same model and year that were owned by individuals.Does this price difference reflect adverse
4.4 Starting in 2008, Medicare would not cover the cost of a surgeon leaving an instrument in a patient, giving a patient transfusions of the wrong blood type, certain types of hospital-acquired
4.3 In Exercise 4.2, suppose that, for each extra $1,000 of bonding the firm requires a worker to post, the firm must pay that worker $10 more per period to get the worker to work for the firm. What
4.2 In Solved Problem 19.3, a firm calculates the optimal level of monitoring to prevent stealing. If G = $500 and = 20%, what is the minimum bond that deters stealing? M
3.4 Louisa is an avid cyclist who is currently working on her business degree. She normally rides an$800 bike to class. If Louisa locks her bike carefully—locks both wheels—the chance of theft
3.3 Fourteen states have laws that limit whether a franchisor(such as McDonald’s) can terminate a franchise agreement. Franchisees (such as firms that run individual McDonald’s outlets) typically
3.2 Padma has the rights to any treasure on the sunken ship the Golden Calf. Aaron is a diver who specializes in marine salvage. If Padma is risk averse and Aaron is risk neutral, does paying Aaron a
3.1 Traditionally, doctors have been paid on a fee-forservice basis. Now doctors are increasingly paid on a capitated basis: They get paid for treating a patient for a year, regardless of how much
2.10 Book retailers can return unsold copies to publishers.Effectively, retailers pay for the books they order only after they sell them. Dowell’s Books believes that it will sell, with 12
2.9 In the National Basketball Association (NBA), the owners share revenue but not costs. Suppose that one team, the L.A. Clippers, sells only generaladmission seats to a home game with the visiting
2.8 John manages Rachel’s used CD music store. To provide John with the incentive to sell CDs, Rachel offers him 50% of the store’s profit. John has the opportunity to misrepresent sales by
2.7 Suppose now that the publisher in Exercise 2.6 faces a downward-sloping demand curve. The revenue is R(Q), and the publisher’s cost of printing and distributing the book is C(Q). Compare the
2.6 The author of a science fiction novel is paid a royalty of share of the revenue from sales, where the revenue is R = pq, p is the competitive market price for novels, and q is the number of
2.5 In the duck-carving example with limited information(summarized in the third and fourth columns of Table 19.1), is a fixed-fee contract efficient? If so, why? If not, are there additional steps
2.4 In the duck-carving example with full information(summarized in the second column of Table 19.1), is a contract efficient if it requires Paula to give Arthur a fixed-fee salary of $168 and leaves
2.3 In Solved Problem 19.1, does joint profit increase, decrease, or remain the same as the share of revenue going to Arthur increases?
2.2 Zhihua and Pu are partners in a store in which they do all the work. They split the store’s business profit equally (ignoring the opportunity cost of their own time in calculating this profit).
2.1 When I was in graduate school, I shared an apartment with a fellow who was madly in love with a woman who lived in another city. They agreed to split the costs of their long-distance phone calls
1.6 In 2012, a California environmental group found that 14 plum and ginger candies imported from Asia contained 4 to 96 times the level of lead allowed under California law (Lee, Stephanie M.,
1.5 A study by Jean Mitchell found that urologists in group practices that profit from tests for prostate cancer order more of them than doctors who send samples to independent laboratories.
1.4 A flyer from one of the world’s largest brokers says,“Most personal investment managers base their fees on a percentage of assets managed. We believe this is in your best interest because
1.3 A promoter arranges for various restaurants to set up booths to sell Cajun-Creole food at a fair. Appropriate music and other entertainment are provided.Customers can buy food using only “Cajun
1.2 Some sellers offer to buy back a good later at some prespecified price. Why would a firm make such a commitment?
1.1 California provides earthquake insurance. Because the state agency in charge has few staff members, it pays private insurance carriers to handle claims for earthquake damage. These insurance
6.1 What is the minimum fine that the government could levy on firms that do not invest in safety that would lead to a Nash equilibrium in which both firms invest?
5.8 When is statistical discrimination privately inefficient?When is it socially inefficient? Does it always harm members of the discriminated-against group?Explain.6. Challenge
5.7 In Exercises 5.5 and 5.6, describe the equilibrium if cl … ch. (Hint: See Solved Problem 18.4.) M
5.6 In Exercise 5.5, under what conditions is a pooling equilibrium possible? (Hint: See Solved Problem 18.4.) M
5.5 Education is a continuous variable, where eh is the years of schooling of a high-ability worker and el is the years of schooling of a low-ability worker.The cost per period of education for these
5.4 Suppose that you are given wh, wl, and in the education signaling model. For what value of c are both a pooling equilibrium and a separating equilibrium possible? For what value of c are both
5.3 Some firms are willing to hire only high school graduates. Based on past experience or statistical evidence, these companies believe that, on average, high school graduates perform better than
5.2 Some universities do not give letter grades. One rationale is that eliminating the letter-grade system reduces pressure on students, thus enabling them to learn more. Does this policy help or
5.1 In the education signaling model, suppose that firms can pay c* to have a worker’s ability determined by a test. Does it pay for a firm to make this expenditure?
4.2 Sometimes a firm sells the same product under two brand names. For example, the Chevy Tahoe and the GMC Yukon are virtually twins (although the Yukon sells for $490 more than the Tahoe). Give an
4.1 In Solved Problem 18.3, if the vast majority of all consumers knows the true prices at all stores and only a few shoppers have to incur a search cost to learn the prices, would the equilibrium be
3.8 Many wineries in the Napa Valley region of California enjoy strong reputations for producing highquality wines and want to protect those reputations.Fred T. Franzia, the owner of Bronco Wine Co.,
3.7 In the world of French haute cuisine, a three-star rating from the Michelin Red Guide is a widely accepted indicator of gastronomic excellence.French consumers consider Gault Milleau, another
3.6 It costs $12 to produce a low-quality electric stapler and $16 to produce a high-quality stapler. Consumers cannot distinguish good staplers from poor staplers when they make their purchases.
3.5 Suppose that everyone in the used-car example in the text is risk neutral, potential car buyers value lemons at $2,000 and good used cars at $10,000, the reservation price of lemon owners is
3.4 Suppose that the buyers in Exercise 3.3 incur a transaction cost of $200 to purchase a car. This transaction cost is the value of their time to find a car. What is the equilibrium? Is it possible

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