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introduction to microeconomics

Questions and Answers of Introduction To Microeconomics

The market for meat pies is characterised by a downward-sloping demand curve and an upwardsloping supply curve.a Draw the competitive market equilibrium. Label the price, quantity, consumer surplus
If a policymaker wants to raise revenue by taxing goods while minimising the deadweight losses, he should look for goods with ________ elasticities of demand and ________ elasticities of supply.a
The Laffer curve illustrates that, in some circumstances, the government can reduce a tax on a good and increase the a deadweight loss.b government’s tax revenue.c equilibrium quantity.d price paid
Peanut butter has an upward-sloping supply curve and a downward-sloping demand curve. If a 10 cent per kilo tax is increased to 15 cents, the government’s tax revenue a increases by less than 50
Eggs have a supply curve that is linear and upward-sloping and a demand curve that is linear and downward-sloping. If a 2 cent per egg tax is increased to 3 cents, the deadweight loss of the tax a
Jane pays Chuck $50 to mow her lawn every week. When the government levies a mowing tax of$10 on Chuck, he raises his price to $60. Jane continues to hire him at the higher price. What is the change
A tax on a good has a deadweight loss if a the reduction in consumer and producer surplus is greater than the tax revenue.b the tax revenue is greater than the reduction in consumer and producer
Why do experts disagree about whether labour taxes have small or large deadweight losses?
How do the elasticities of supply and demand affect the deadweight loss of a tax? Why do they have this effect?
Draw a supply-and-demand diagram with a tax on the sale of the good. Show the deadweight loss. Show the tax revenue.
What happens to consumer and producer surplus when the sale of a good is taxed? How does the change in consumer and producer surplus compare with the tax revenue? Explain.
Producing a quantity larger than the equilibrium of supply and demand is inefficient because the marginal buyer’s willingness to pay is a negative.b zero.c positive but less than the marginal
When a market is in equilibrium, the buyers are those with the ________ willingness to pay, and the sellers are those with the ________ costs.a highest, highest b highest, lowest c lowest, highest d
An efficient allocation of resources maximises a consumer surplus.b producer surplus.c consumer surplus plus producer surplus.d consumer surplus minus producer surplus.
John has been working as a tutor for $300 a semester. When the university raises the price it pays tutors to $400, Emily enters the market and begins tutoring as well. How much does producer surplus
The demand curve for cookies is downward sloping. When the price of cookies is $2, the quantity demanded is 100. If the price rises to $3, what happens to consumer surplus?a It falls by less than
Jen values her time at $60 an hour. She spends two hours giving Colleen a massage. Colleen was willing to pay as much as $300 for the massage, but they negotiate a price of $200. In this transaction,
Name two types of market failure. Explain why each may cause market outcomes to be inefficient.
What is efficiency? Is it the only goal of economic policymakers?
In a supply-and-demand diagram, show producer and consumer surplus in the market equilibrium.
Explain how sellers’ costs, producer surplus and the supply curve are related.
Explain how buyers’ willingness to pay, consumer surplus and the demand curve are related.
The government has decided that the free-market price of milk is too low.a Suppose the government imposes a binding price floor in the milk market. Use a supplyand-demand diagram to show the effect
When a good is taxed, the burden of the tax falls mainly on consumers if a the tax is levied on consumers.b the tax is levied on producers.c supply is inelastic and demand is elastic.d supply is
Which of the following would increase quantity supplied, increase quantity demanded and decrease the price that consumers pay?a the imposition of a binding price floor b the removal of a binding
Which of the following would increase quantity supplied, decrease quantity demanded and increase the price that consumers pay?a the imposition of a binding price floor b the removal of a binding
A $1 per unit tax levied on consumers of a good is equivalent to a a $1 per unit tax levied on producers of the good.b a $1 per unit subsidy paid to producers of the good.c a price floor that raises
In a market with a binding price ceiling, an increase in the ceiling will ________ the quantity supplied, ________ the quantity demanded, and reduce the ________.a increase, decrease, surplus b
When the government imposes a binding price floor, it causes a the supply curve to shift to the left.b the demand curve to shift to the right.c a shortage of the good to develop.d a surplus of the
Explain why a subsidy can be thought of as a negative tax. How do the insights developed in our analysis of taxes extend to subsidies?
What determines how the burden of a tax is divided between buyers and sellers? Explain your answer.
How does a tax on a good affect the price paid by buyers, the price received by sellers and the quantity sold?
Suppose the government removes a tax on buyers of a good, and levies a tax of the same size on sellers of the good. How does this change in tax policy affect the price that buyers pay sellers for
Explain why economists usually oppose controls on prices.
What mechanisms allocate resources when the price of a good is not allowed to bring supply and demand into equilibrium?
Which causes a shortage of a good – a price ceiling or a price floor? Which causes a surplus?
Give an example of a price ceiling and of a price floor.
The price of coffee rose sharply last month, while the quantity sold remained the same. Each of five people suggests an explanation:Tom: Demand increased, but supply was perfectly inelastic.Dick:
An increase in the supply of a good will decrease the total revenue producers receive if a the demand curve is inelastic.b the demand curve is elastic.c the supply curve is inelastic.d the supply
The ability of firms to enter and exit a market over time means that, in the long run, a the demand curve is more elastic.b the demand curve is less elastic.c the supply curve is more elastic.d the
A linear, downward-sloping demand curve is a inelastic.b unit elastic.c elastic.d inelastic at some points, and elastic at others.
The price of a good rises from $8 to $12, and the quantity demanded falls from 110 to 90 units.Calculated with the midpoint method, the elasticity is a 1=5 .b 1=2 .c 2.d 5.
A life-saving medicine without any close substitutes will tend to have a a small elasticity of demand.b a large elasticity of demand.c a small elasticity of supply.d a large elasticity of supply.
A cyclone destroys half of Australia’s banana crop. Is this event more likely to hurt banana growers if the demand for bananas is very elastic or very inelastic? Explain your answer.
If a fixed quantity of a good is available, and no more can be made, what is the price elasticity of supply? Explain your answer.
How is the price elasticity of supply calculated? Explain what this measures.
What do we call a good with an income elasticity less than 0?
If demand is elastic, how will an increase in price change total revenue? Explain.
On a supply-and-demand diagram, show total spending by consumers. How does this compare with total revenue received by producers?
If the elasticity is greater than 1, is demand elastic or inelastic? If the elasticity equals 0, is demand perfectly elastic or perfectly inelastic?
List and explain some of the determinants of the price elasticity of demand.
Define the price elasticity of demand and the income elasticity of demand.
An article in The New York Times (18 October 1990) described a successful marketing campaign by the French champagne industry. The article also noted: ‘Many executives felt giddy about the
Suppose that the price of tickets at your local cinema is determined by market forces. Currently, the demand and supply schedules are as follows:Price ($) Quantity demanded Quantity supplied 4 1000
Consider the following events: Scientists reveal that eating oranges decreases the risk of diabetes, and at the same time, farmers use a new fertiliser that makes orange trees produce more oranges.
The market for pizza has the following demand and supply schedules:Price ($) Quantity demanded Quantity supplied 4 135 26 5 104 53 6 81 81 7 68 98 8 53 110 9 39 121 a Graph the demand and supply
Tomato sauce is a complement (as well as a condiment) for hot dogs. If the price of hot dogs rises, what happens to the market for tomato sauce? For tomatoes? For tomato juice? For orange juice?
Using supply-and-demand diagrams, show the effect of the following events on the market for woollen jumpers:a An outbreak of ‘foot-and-mouth’ disease hits sheep farms in New Zealand.b The price
Over the last 30 years, technological advances have reduced the cost of computer chips. How do you think this affected the market for computers? For computer software? For typewriters?
Consider the markets for film-streaming services, TVs and cinema tickets.a For each pair, identify whether they are complements or substitutes.– film-streaming services and TVs– film-streaming
Consider the market for SUVs. For each of the events listed here, identify which of the determinants of demand or supply are affected. Also indicate whether demand or supply is increased or
‘An increase in the demand for notebooks raises the quantity of notebooks demanded, but not the quantity supplied.’ Is this statement true or false? Explain.
Explain each of the following statements using supply-and-demand diagrams.a When a cyclone hits Queensland, the price of bananas rises in supermarkets throughout the country.b On Tuesdays, cinemas
Which of the following might lead to an increase in the equilibrium price of meat pies and a decrease in the equilibrium quantity of meat pies sold?a an increase in the price of tomato sauce, a
If the economy goes into a recession and incomes fall, what happens in the markets for inferior goods?a Prices and quantities both rise.b Prices and quantities both fall.c Prices rise, quantities
The discovery of a large, new reserve of crude oil will shift the _______ curve for petrol, leading to a _______ equilibrium price.a supply, higher b supply, lower c demand, higher d demand, lower
Movie tickets and DVDs are substitutes. If the price of DVDs increases, what happens in the market for movie tickets?a The supply curve shifts to the left.b The supply curve shifts to the right.c The
A change in which of the following will NOT shift the demand curve for hamburgers?a the price of meat pies b the price of hamburgers c the price of hamburger buns d the income of hamburger consumers
Beer and pies are complements because they are often enjoyed together. When the price of beer rises, what happens to the supply, demand, quantity supplied, quantity demanded and the price in the
Does a change in producers’ technology lead to a movement along the supply curve or to a shift in the supply curve? Does a change in price lead to a movement along the supply curve or to a shift in
Harry’s income declines, and as a result, he buys more carrot juice. Is carrot juice an inferior or a normal good? What happens to Harry’s demand curve for carrot juice?
Does a change in consumers’ tastes lead to a movement along the demand curve or to a shift in the demand curve? Does a change in price lead to a movement along the demand curve or to a shift in the
Are the following statements true or false? Explain in each case.a ‘Two countries can achieve gains from trade even if one of the countries has an absolute advantage in the production of all
A German worker takes 400 hours to produce a car and two hours to produce a case of wine.A French worker takes 600 hours to produce a car and X hours to produce a case of wine.a For what values of X
The following table describes the production possibilities of two cities:Maroon shirts per worker per hour Blue shirts per worker per hour Brisbane 3 3 Sydney 2 1 a Without trade, what is the price
England and Scotland both produce scones and jumpers. Suppose that an English worker can produce 50 scones per hour or one jumper per hour. Suppose that a Scottish worker can produce 40 scones per
Suppose that there are 10 million workers in South Korea and that each of these workers can produce either two cars or 30 bags of wheat in a year.a What is the opportunity cost of producing a car in
Monica and Rachel are flatmates. They spend most of their time working, but they leave some time for their favourite activities – making pizza and fine coffee. Monica takes five minutes to make a
Australian and Japanese workers can each produce four cars a year. An Australian worker can produce 10 tonnes of grain a year, whereas a Japanese worker can produce 5 tonnes of grain a year. To keep
Maria can read 20 pages of economics in an hour. She can also read 50 pages of sociology in an hour. She spends five hours per day studying.a Draw Maria’s production possibilities frontier for
Consider Sheldon and Leonard from our example in this chapter. Explain why Sheldon’s opportunity cost of producing one basket of clean clothing is two meals. Explain why Leonard’s opportunity
Mark can cook dinner in 30 minutes and wash the laundry in 20 minutes. His roommate takes half as long to do each task. How should the roommates allocate the work?a Mark should do more of the cooking
Suppose that in Australia, producing a tonne of beef takes 10 hours of labour, while producing a shirt takes two hours of labour. In China, producing 1 tonne of beef takes 40 hours of labour, while
Which goods will a nation typically import?a Those goods in which the nation has an absolute advantage.b Those goods in which the nation has a comparative advantage.c Those goods in which other
When two individuals produce efficiently and then make a mutually beneficial trade based on comparative advantage, a they both obtain consumption outside their production possibilities frontier.b
Once again, in an hour, David can wash two cars or mow one lawn, while Ron can wash three cars or mow one lawn. Who has the comparative advantage in car washing, and who has the comparative advantage
In an hour, David can wash two cars or mow one lawn, while Ron can wash three cars or mow one lawn. Who has the absolute advantage in car washing, and who has the absolute advantage in lawn mowing?a
Is absolute advantage or comparative advantage more important for trade? Explain your answer using the example in your answer to question 2.
Classify each of the following statements as positive or normative. Explain.a Society faces a short-term trade-off between inflation and unemployment.b A reduction in the rate of growth of money will
Classify the following topics as relating to microeconomics or macroeconomics:a a family’s decision about how much income to save.b the effect of government regulations on car emissions.c the
An economy consists of three workers: Larry, Moe and Curly. Each works 10 hours a day and can produce two services: mowing lawns and washing cars. In an hour, Larry can either mow one lawn or wash
The first principle of economics discussed in Chapter 1 is that people face trade-offs. Use a production possibilities frontier to illustrate society’s trade-off between a clean environment and
Imagine a society that produces military goods and consumer goods, which we’ll call ‘guns’ and‘butter’.a Draw a production possibilities frontier for guns and butter. Explain why it most
Draw a circular-flow diagram. Identify the parts of the model that correspond to the flow of goods and services and the flow of dollars for each of the following activities:a Sam pays a shopkeeper $1
One common assumption in economics is that the products of different firms in the same industry are indistinguishable. For each of the following industries, discuss whether this is a reasonable
Describe some of the specialised language used in a field, other than economics, that you are studying. Why are these special terms useful?
Which of the following is a positive, rather than a normative, statement?a Law X will reduce national income.b Law X is a good piece of legislation.c The federal parliament ought to pass law X.d The
All of the following topics fall within the study of microeconomics except a the impact of cigarette taxes on the smoking behaviour of teenagers.b the role of Microsoft’s market power in the
An economy produces hot dogs and hamburgers. If a discovery of the remarkable health benefits of hot dogs were to change consumers’ preferences, it would a expand the production possibilities
The circular-flow diagram illustrates that, in markets for the factors of production, a households are sellers, and firms are buyers.b households are buyers, and firms are sellers.c households and

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