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business
introduction to economic

Questions and Answers of Introduction To Economic

An income tax. Suppose the U.S. Congress decides to levy an income tax on both wage income and capital income. Instead of receiving$wL + rK = Y$, consumers receive $(1 - \tau)wL + (1 - \tau)rK = (1 -
A decrease in the investment rate. Suppose the U.S. Congress en-acts legislation that discourages saving and investment, such as the elimination of the investment tax credit that occurred in 1990. As
An increase in the labor force. Shocks to an economy, such as wars, famines, or the unification of two economies, often generate large one-time flows of workers across borders. What are the short-run
4. Suppose there are 100 grain farmers, each with identical cost structures as shown in the following table:Production Costs (per farm) Demand Output Total Cost Price Quantity Demanded(bushels per
3. Assume that the unregulated supply schedule for milk is the following:Price (per pound) 5¢ 7¢ 8¢ 10¢ 14¢Quantity supplied 42 53 63 76 103(billions of pounds per year)(a) Draw the supply and
2. Suppose that consumers’ incomes fall 20 percent, which results in a 3 percent drop in consumption of farm goods at current prices. What is the income elasticity of demand for farm goods?
1. Suppose the market price of wheat is $2 per bushel.(a) Would a farmer sell wheat to the market or to the government (CCC)? (See Table 28.2.)(b) How much of a countercyclical payment per bushel
8. Has President Obama succeeded in triming farm subsidies(News, p. 627)? Why or why not? LO3
7. You need a government permit (allotment) to grow tobacco.Who gains or loses from such regu lation? LO2
Who pays for farm subsidies?
How do government subsidies affect farm production, prices, and incomes?
Why do farmers need any subsidies?
L03. Describe how subsidies affect farm prices, output, and incomes.
L02. Identify some mechanisms used to prop up farm prices and incomes.
L01. Explain what makes the farm business different from others.
7. The following cost schedule depicts the private and social costs associated with the daily production of apacum, a highly toxic fertilizer. The sales price of apacum is $22 per ton.Output (in
6. Suppose three firms confront the following costs for pollution control:Total Costs of Control Emissions Reduction (tons per year) Firm A Firm B Firm C 1 $ 40 $ 50 $ 30 2 85 130 140 3 160 220 280 4
5. How much more per ton is New York City paying to recycle rather than just dump its garbage (News, p. 609)?
4. Using the high estimate of costs and low estimate of benefits for pollution controls (News, p. 608), what is the average benefit per dollar spent?
3. Most people pay nothing for each extra pound of garbage they create. Yet the garbage imposes external costs on a community. In view of this factor, what’s an appropriate price for garbage
2. In some states, mining for coal leaves large mounds of rubble, which poses flooding problems, causes land damage, and is unsightly. The following table shows the estimated annual social benefits
1. How high would its pollution-control costs have to be before a firm would “pay to pollute” a ton of carbon dioxide? (see World View, p. 606) $
8. If a high per-bag fee were charged for garbage collection, how would consumers respond? LO3
5. Suppose we established a $100,000 fine for water pollution. Would some companies still find that polluting was economical? Under what conditions? LO3
4. Does anyone have an incentive to maintain auto-exhaust control devices in good working order? How can we ensure that they will be maintained? Are there any costs associated with this policy? LO1
3. Why would auto manufacturers resist higher fuel efficiency standards? How would their costs, sales, and profits be affected? LO1
1. What are the economic costs of the externalities caused by air toxins? Or beach closings? (See News, p. 596.)How would you measure their value? LO1
How can government policy best ensure an optimal environment?
What are the costs of greater environmental protection?
How do (unregulated) markets encourage pollution?
LO3. Recommend alternative strategies for reducing pollution.
LO2. Explain why zero pollution may not be desirable.
LO1. Describe how markets encourage pollution.
6. Suppose a corporation has two subsidiaries, one of which is unregulated and sells all of its output to the other, regulated subsidiary. Permitted profits at the regulated subsidiary are equal to
5. If the average U.S. worker produces $100,000 of output per year, what is the annual opportunity cost of the federal regulatory workforce ( Table 26.1 )?
4. According to the News on page 582, how much will annual shipping costs increase for each saved life?
3. Suppose a natural monopolist has fixed costs of $24 and a constant marginal cost of $2. The demand for the product is as follows:Price (per unit) $10 $9 $8 $7 $6 $5 $4 $3 $2 $1 Quantity
2. Do total profits (A) decrease, (B) increase, or (C) stay the same when new technology reduces average total costs (shifts ATC downward in Figure 26.2 ) in(a) An unregulated natural monopoly?(b) A
1. In Figure 26.2 ,(a) How much profit does an unregulated monopolist earn?(b) How much profit would be earned if MC pricing were imposed?
10. Who gains or loses by denying Virgin American access to gates at Chicago’s O’Hare airport (News p. 586)? LO2
5. How would you put dollar values on the benefits and costs of truck safety regulations (News, p. 582)? Do benefits exceed costs? LO2
2. Why would a profit-regulated firm want to sell itself inputs at inflated prices? Or increase wages? LO3
LO3. Discuss the costs associated with regulation.
LO2. Identify the regulatory dilemmas posed by natural monopoly.
LO1. List the characteristics of natural monopoly.
7. On the accompanying graph, identify each of the following market outcomes:(a) Short-run equilibrium output in competition. (c) Long-run equilibrium output in monopoly.(b) Long-run equilibrium
6. According to the News on page 560,(a) By how much could unit sales at Starbucks decline after the 2006 price increase without reducing total revenue? %(b) If the price elasticity of demand for
5. (a) In the short -run equilibrium of the previous problem, what is(i) The price of the product?(ii) The opportunity cost of producing the last unit?(b) In long -run equilibrium what is(i) The
4. (a) Use the accompanying graph to illustrate the short-run equilibrium of a monopolistically com-petitive firm.(b) At that equilibrium, what is
3. In Figure 25.1 (b),(a) At what output rate is economic profit equal to zero?(b) At what output rate(s) are positive economic profits available?(c) At what output rate(s) do economic losses occur?
2. If Starbucks raises its price by 5 percent and McDonald’s experiences a 0.4 percent increase in demand for its coffee, what is the cross-price elasticity of demand?
1. What is the concentration ratio in an industry with the following market shares:Firm A 11.1 Firm C 5.2 Firm E 3.7 Firm G 1.6 Firm B 7.4 Firm D 4.1 Firm F 2.2 Other firms 32.1
10. According to the World View on page 568, what gives brand names their value? LO1
6. How do new product offerings like breakfast sandwiches (News, p. 563) affect Starbucks’ sales and profits? What is the “saturation point” referred to in the News on page 566? LO3
5. The News article on page 567 suggests that most consumers can’t identify their favorite cola in blind taste tests.Why then do people stick with one brand? What accounts for brand loyalty in
3. Name three products each for which you have ( a ) high brand loyalty. ( b ) low brand loyalty. LO1
2. Why do 4,000 new pizzerias open every year? Why do just as many close? LO3
1. What is the source of Starbucks’ “confidence” in the News on page 560? LO1
LO3. Explain why economic profi ts tend toward zero in monopolistic competition.
LO2. Describe how monopolistically competitive fi rms maximize profi ts.
LO1. Differentiate the unique characteristics of monopolistic competition.
8. If the price elasticity of demand for oil is 0.2, by how much would oil prices increase as the result of the 2009 OPEC production cuts (World View, p. 546)?
7. What is the price elasticity of demand in Figure 24.2 ?
6. Suppose that the following schedule summarizes the sales (demand) situation confronting an oligopolist:Price (per unit) $8 $10 $12 $14 $16 $17 $18 $19 $20 Quantity demanded(units per period) 10 9
5. Suppose the payoff to each of four strategic interactions is as follows:Rival Response Action Reduce Price Don’t Reduce Price Reduce price Loss 5 $300 Gain 5 $30,000 Don’t reduce price Loss 5
4. How large would the probability of a “don’t match” outcome have to be to make a Universal price cut statistically worthwhile? (See expected payoff, p. 544.)
3. Assume an oligopolist confronts two possible demand curves for its own output, as illustrated below.The first ( A ) prevails if other oligopolists don’t match price changes. The second ( B )
2. According to the News on page 540,(a) What is the concentration ratio in the U.S. soda market?(b) What is the maximum value of the Herfindahl-Hirshman Index?
1. According to Table 24.2 , in how many markets do fewer than four firms produce at least 80 percent of total output?
11. Dominos and Pizza Hut hold 66 percent of the deliveredpizza market. Should antitrust action be taken? LO1
10. Using the payoff matrix in Table 24.4 , decide whether Universal should cut its price. What factors will influence the decision? LO3
9. The Ivy League schools defended their price-fixing arrangement (see p. 547) by arguing that their coordination assured a fair distribution of scholarship aid.Who was hurt or helped by this
8. What reasons might rival airlines have for not matching United’s fare increase? (See News, p. 542.) LO3
7. Identify three products you purchase that aren’t listed in Table 24.2 . What’s the structure of those three markets? LO1
6. How might the high concentration ratio in the credit card industry ( Table 24.2 ) affect the annual fees and interest charges on credit card services? LO2
5. If an oligopolist knows rivals will match a price cut, would he ever reduce his price? LO3
4. Why might OPEC members have a difficult time setting and maintaining a monopoly price? (See World View, p. 546.) LO2
3. Why does RC Cola depend on advertising to gain market share? (See News, p. 540.) Why not offer cheaper sodas than Coke or Pepsi? LO3
2. What entry barriers exist in ( a ) the fast-food industry,(b) cable television, (c) the auto industry, ( d ) illegal drug trade, (e) potato chips and ( f ) beauty parlors? LO1
1. How many bookstores are on or near your campus? If there were more bookstores, how would the price of new and used books be affected? LO1
LO3. Explain how interdependence affects oligopolists’ pricing decisions?
LO2. Show how oligopolies maximize profi ts.
LO1. Distinguish the unique characteristics of oligopoly.
7. The following table summarizes the weekly sales and cost situation confronting a monopolist:Average Quantity Total Marginal Total Marginal Total Price Demanded Revenue Revenue Cost Cost Cost$20 0
6. By how much did the price of the heart drug for babies increase when a monopoly was established(News, p. 520)?
5. According to the News on page 524,(a) What was the annual cost saving for the rocket monopoly (in $ millions)?(b) How much of this saving did the FTC expect to be reflected in reduced rocket
4. If the on-campus demand for soda is as follows:Price (per can) $0.25 0.50 0.75 1.00 1.25 1.50 1.75 2.00 Quantity demanded(per day) 100 90 80 70 60 50 40 30 and the marginal cost of supplying a
3. The following table indicates the prices various buyers are willing to pay for a MiniCooper car:Buyer Maximum Price Buyer Maximum Price Buyer A $60,000 Buyer D $30,000 Buyer B 50,000 Buyer E
2. (a) Complete the following table:Price $17 $15 $13 $11 $9 $7 $5 Quantity demanded 1 2 3 4 5 6 7 Marginal revenue(b) If marginal cost is constant at $5, what is the profit-maximizing rate of
1. Use Figures 23.2 and 23.3 to answer the following questions:(a) What is the highest price the monopolist could charge and still sell fish?(b) What is total revenue at that highest price?(c) What
10. How do colleges price discriminate? Why do they do it? LO1
8. How might consumers benefit from the merger of XM and Sirius (News, p. 525)? How might they lose? LO3
6. What entry barriers helped protect the following? LO1(a) The Russian sable monopoly (World View, p. 513).(b) The Live Nation monopoly (News, p. 518).(c) The CNN monopoly (World View, p. 526).(d)
5. What would have happened to iPod prices and features if Apple had not faced competition from iPod clones(Chapter 22)? LO1
4. In 1990, a federal court decided that Eastman Kodak had infringed on Polaroid’s patent when it produced similar instant-photo cameras. The court ordered Kodak to stop producing Polaroid
2. According to the Federal Trade Commission (News, p. 524), how often do monopolies lead to higher prices?Why, then, did the rocket merger get approved? LO1
Are consumers better or worse off when only one firm controls an entire market?
How much output will the monopolist produce?
What price will a monopolist charge?
LO3. Discuss the pros and cons of monopoly.

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