Questions and Answers of Issues in economics

Explain how the data in Figures 36.2 through 36.5 (increasing real spending per pupil, decreasing class sizes, decreasing SATs, and increasing graduation rates) can be occurring at the same time?
Which lag described in Chapter 9 did the concept of “shovel-ready” intend to combat?
What externalities exist when there is a casino, and how might those externalities be dealt with in a way that would allow a casino while also mitigating the externalities?
Suppose you were in a political argument with someone who wanted to locate a casino in your city (supposing that it had none), because there was a large city across the river in another state (also
If you were in a political argument with some- one taking the side of the casino industry and she pointed out that casinos pay significant taxes, how would you (being on the other side) respond?
What is the gain to consumer surplus associated with a new large retailer, and why might that not be enough to overcome the losses associated with it?
What are the strategies that grocery stores use to survive when a new Walmart locates in their area?
Give an example of a “pull effect” that you have seen with a new large retail operation in your city or town, and explain whether this is simply an example of local substitution?
Theory suggests that Walmart might be able to come in, drive out competitors, and then raise prices. Data suggest that it doesn’t happen. What would explain why Walmart doesn’t do this?
Use the context of the monopoly-monopsony tension to explain why public employees are so heavily unionized?
Explain why there has been such a reduction in the number of work stoppages?
Explain why, in a negotiation between a monopolistic union and a monopsonistic company in a town, there would not be a single outcome of wage and quantity like there is if only one of those two
Explain why the marginal resource cost rises faster than the supply curve for labor?
Explain how the “bubble” process, in which expectations get way out in front of reality on the upside, can be duplicated on the downside, causing a stock to fall below a reasonable level?
Explain why a stock market must exist for the resale of stock first issued many years ago for newly issued stock (an IPO) to garner significant interest among investors?
Explain why, if a company’s profits are growing at rates greater than the current interest rates and have been expected to continue doing so for several more years, a stock price can greatly exceed
Explain why the announcement of higher interest rate targets by the Federal Reserve (if they were at least somewhat of a surprise) would likely result in lower stock prices?
If someone from the arts community were to argue for a subsidy to garner an arts festival, how would the local substitution argument apply and how might the external benefits argument apply?
Use the local substitution argument to consider what the economic value of your college’s basketball team truly is?
How did the reserve clause serve to allow owners to pay something close to the players’ reservation wage rather than their marginal revenue product of labor?
Why might the cartel model still make sense even when OPEC produces less than half of the world’s oil?
What would be the principal obstacle preventing a cartel from emerging in the production of beef?
At the height of the 2008 financial crisis, in the time it took a completely full oil tanker to travel from Saudi Arabia to the United States, the price of oil fell nearly $50 per barrel. Use the
There have been other cartels through history: most notably drug cartels in the 1980s in Colombia and during more recent times in Mexico. They never suffered from cheating. Why?
Explain why an across-the-board tax cut would benefit those at the higher end of the income scale more than it would affect those at the bottom end?
Explain why someone who cared about the poor and energy savings would advocate for a tax credit rather than a tax deduction if $100 billion was going to be devoted to tax cuts to promote
Use the tax tables in the chapter to compute the taxes of someone taking the standard deduction, having a spouse, three children, and $80,000 in income?
Suppose someone were to say that they earned $100,000 per year, that they paid less than $10,000 in federal income taxes, but that their marginal tax rate was 25 percent. Could that be true?
What economic concept do you use to compare benefits received in the distant future with taxes paid in the past, currently, and in the near future?
How much would an individual receive in benefits if she had a constant (wage-inflation adjusted) monthly income of $6,000, and how would that compare to someone who had an income one-third that size?
How would a change in immigration policy affect the projected solvency of the Social Security system?
Why would comparing the benefit and tax structure of Social Security to what might be achieved in a private investment alternative be valid, and why might it not be valid?
What measure of poverty would give you the lowest possible estimate of the amount of money you would need to solve the nation’s poverty problem? Why would only spending that amount not likely be a
What do the data suggest with regard to poverty and the age profile of those in poverty relative to the age profile generally?
Compare the data on who is in poverty to whatever stereotype you may have had prior to reading this chapter?
Suppose you were to find yourself between an advocate for education who claimed that you have to pay teachers more in order to get more qualified teachers and an advocate for education reform who
Provide an explanation for why it is possible that average SATs that are declining might be consistent with the assertion that more people are prepared for college than ever before?
Use the production function “flat of the curve” explanation to describe why more money spent on education may not have a significant impact?
Suppose you need a ticket to a sold-out event for which your spouse had asked you to buy tickets a long time ago (and you forgot). Would you be made better off with or without anti-scalping laws when
Suppose you have a ticket to an event that is on a very important day to your spouse and you know it will cost you if you go to the event. How is the scalper good for you?
Explain why it is not a contradiction for a ticket scalper to carry a sign that says “Need Tickets” on one side when it says “Have Tickets” on the other side (indicating he is both buying and
What is the difference between StubHub and a ticket scalper walking in front of a stadium?
Suppose you knew that there was going to be 20 percent inflation between now and five years from now, and suppose you knew that the minimum wage was only enough to get a family of three to 80 percent
Who is most likely to lose from an increase in the minimum wage? Who of those might have thought an increase was in their best interests?
Who is most likely to benefit from an increase in the minimum wage?
During the 1980s many considered urban sprawl to be a serious problem for farmland. What would the mechanism be for “farm sprawl” reversing that?
If the price floor for corn is $3 per bushel and it is raised to $4 per bushel, what is the impact of that policy if the market price of corn is $6.50 per bushel?
Given what you know about the relationship be- tween corn and beef and corn and soybeans and corn and gasoline, an increase in the price of corn (due to a new insect that eats the roots out of corn)
Suppose an establishment has absolutely no overt history of employment discrimination but has a goal of reducing race or gender gaps in its employment. What are the legal means by which it may reduce
What are the reasons that income gaps between men and women and whites and nonwhites may persist even in the absence of sexism or racism by business owners?
Describe the process by which greed, absent sexism or bigotry on the part of business owners, can lead to the reduction in wage gaps between men and women and between whites and nonwhites?
What other policy changes could you make now that would have a similarly delayed impact on crime several years from now?
Why is it important to use marginal analysis in examining crime policies rather than “average” (cost and benefit) analysis?
How could you use marginal benefit and marginal cost analysis to determine whether money would be better spent keeping prisoners incarcerated or on employing more police?
How would you use marginal benefit and marginal cost analysis to determine the correct sentence length for a particular crime?
In 2011 the Supreme Court heard a case in which lawyers were attempting to certify that all women who worked for Walmart were a single class. What would make you skeptical of such a large
What are the potential costs and benefits associated with allowing for intellectual property rights? Do they always motivate innovation? Could they inhibit innovation? How?
Mortgages are a form of contract. Why might it not be in the best interests of the borrower, the lender, or the house buyer that such a contract be enforced if the value of the house is much less
What is lost in terms of societal welfare if, in the cause of safety, a drug or medical device has its approval delayed by a year or two?
Why might legalizing drug re-importation be equivalent to limiting drug prices?
What are the reasons why, even if it is in the best interests of every other country to limit prescription drug prices, it might not be in the best interests of the United States to limit those
What reasons are there for not limiting the price, or at least the increase in the price, of prescription drugs that have already been invented?
What are the benefits and costs associated with reimbursing hospitals based on their actual services performed rather than based on the problems the patients have when they come to the hospital?
Why is the Medicare Trust Fund estimated date of fund exhaustion so dependent on the assumption made with regard to economic growth, interest rates, and political changes?
How might the elasticity of demand for a health care service be used to estimate the demand created for a health care service when there is a new program for government coverage?
How might you apply the notion of “moral hazard” to decisions you make about exercise?
Why is it more likely that health expenses will rise faster in the United States than in Canada or the United Kingdom?
For whom would a mini-med health insurance policy be a good policy to have relative to the alternative and why?
Why would risk-averse people be more likely to buy insurance?
Why would eliminating the ability to deny coverage to those with pre-existing conditions require mandation to accompany it?
Why would “cap-and-trade” be more aligned with those who wish to use private market innovations to solve environmental problems than a regulatory-based environmental system?
Why would saving some species be worth the cost of saving them while another species might not be?
Why would an increasing marginal cost of producing oil lead to a more spread-out utilization plan?
What does the “legalize and tax” method of dealing with currently illegal drugs imply about how proponents of this approach view the ability to put a dollar value on human life?
If the United States were to eliminate the drinking age, what might you predict the outcome to be in terms of externalities?
If the United States were to legalize marijuana production, what might the negative externalities be and what current negative externalities might be lessened?
If the United States is able to continue reducing the incidence of children smoking, how might that end up costing more in the long run in terms of health-related expenses?
Why would free-trade agreements be easier to negotiate between similar countries than with ones that had very different methods of production, safety standards, and wages?
Why might an agreement like NAFTA increase GDP but not be favored by union members?
Why might it be easier to see a job lost because of NAFTA than to see a job created by it?
What issues will China face if it wants to continue to grow?
What is the long-term consequence to U.S. economic growth of having an education system that lags behind that of other countries?
What does Mexico have to do in order to grow economically? What does Germany need to do to grow economically? Why are those likely to be different answers?
What would be the problems associated with the ECB being allowed to purchase the debt of member nations?
When would be the right time and what would be the correct mechanism for getting a country out of the euro?
What should the Maastricht Treaty have included to allow for an adequate response to the various European economic crises?
If you were a U.S. politician seeking to strengthen the dollar, how might you accomplish that, and what would the consequence be of the attempt?
If you had $1,000 and wanted to get the most for it and you believed that the dollar would get weaker relative to the yen by 10 percent and that you could earn 5 percent in the United States and only
Explain or illustrate why it is that if $1 will buy you .8€ that 1€ must equal $1.25?
Explain why the current account and the trade balance are so closely aligned?
Explain why a tariff on imported oil would be better than an import quota as a means by which to achieve energy independence?
Construct an argument against “energy independence” as a policy goal for the United States using the notion of comparative advantage?
List some reasons why the United States might import and export cars, airplanes, chemicals, and petroleum products?
Use the concept of comparative and absolute advantage to illustrate why a fast-typing business executive might dictate letters on a digital audio recorder for her secretary to type rather than type
Is Social Security closer to a defined benefit plan or a defined contribution plan?
Why would the Pension Guaranty Trust or some- thing like it be necessary in defined benefit plans?
Why would a schoolteacher be a better candidate for a defined benefit pension than a computer programmer?
Why does it matter whether you have a defined contribution plan or a defined benefit plan in terms of whether there is a degree of underfunding that your boss might not be telling you about?
Explain why an economist would focus on real GDP rather than nominal GDP.
Describe why there is pressure on the price to fall when P < ATC. Is there a long- and short-run distinction in the answer?

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