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macroeconomics principles

Questions and Answers of Macroeconomics Principles

3. Education is considered as a consumer good with positive externality, in which other non-consuming parties in the society also tend to benefit from it. Why does the invisible hand fail to
2. Explain whether the following are examples of positive or negative externalities:a. Thomas drives an old car and his neighbors complaint of air pollution.b. Sonya is a good student and she works
11. Suppose domestic demand is QD = 16 - P and domestic supply is Qs = P. The world price is $2 and the import tariff is $3 per unit. First make a sketch, and then find the following values. Each
10. Suppose a decrease in the world demand for desktop computers causes the price of desktop computers to fall from $600 to $500. Before the fall in demand, Juna, a local computer dealer in Japan,
8. Suppose the Indonesian government decides to open its market for rice and rubber. The world price for rice is higher than its domestic price and the world price for rubber is lower than its
7. The remote island nations of Nearway and Farway produce fish and coconuts and have recently decided to engage in trade with one another. Use the table to answer the following questions. Coconuts
6. Consider two individuals, Teresa and Justin, who produce vegetables. Each uses the same number of workers to produce tomatoes or peppers. Production per lot (in kilograms) is shown in the table
5. Julia is a dressmaker and runs her own business. She has 10 employees working 8 hours a day. Now assume that Julia is enters into an agreement to make 25 shirts and 25 skirts for a company in 2
4. There are 10 workers in Thailand, and each can produce either 2 computers or 30 tons of rice. There are 20 workers in the United States, and each can produce either 5 computers or 40 tons of
3. Suppose a school has 150 first-year and 100 secondyear students to work in its greenhouse for practical training. A first-year student can clean either 2 pots or 2 planters; a second-year student
2. Suppose you and your classmate, Janet, are only studying two subjects, economics and mathematics, this semester. The opportunity cost of solving questions for both subjects are as
1. John and Aria run a bookbinding business together. They each work in shifts of 6 hours a day. John binds 10 books or 12 scripts a day and Aria binds 8 books or 10 scripts a day.a. Sketch the
14. Consider the following diagram. The discussion in the text implies that if this country imposes a tariff, social surplus will fall by the sum of area A and area B. Intuitively, why is A part of
12. The infant industry argument relies on the idea that in industries with economies of scale, it is important for the government to protect newborn companies in their development. What are the
11. As tariff is imposed on imported goods, who will be better off? Explain your answer.
10. Explain the concept of protectionism. Define one method of protectionism.
8. Do both producers and consumers of an exported good gain from international trade? Explain.
7. Outsourcing business processes has become increasingly common with globalization. The immediate gain it offers a transnational company is a reduction in the use of domestic labor in the
6. How does the relationship between the domestic equilibrium price and the world price of a good explain whether a country is an importer or an exporter of that good?
5. Explain the impact, if any, of each of the following on the PPC.a. Brazil’s population suffers from water shortages even though the country has about a fifth of the water reserves of the
4. What do the points to the left, right, and on a production possibilities curve (PPC) signify? Which of these points are attainable, and why?
3. What is meant by complete specialization? How does it affect the total level of output produced by both trading partners?
2. Can a country have comparative advantage in producing all goods and services? Can it have an absolute advantage in producing all goods and services?
1. Consider the figure at the right. The blue line shows how many units of goods A and B a worker in Taiwan can produce, and the tan line shows the number of units of goods A and B that a worker in
13. Ashley is willing to pay $7, Bill is willing to pay $5, and Carrie is willing to pay $1.a. Sketch the demand curve.b. Write out the demand schedule for each integer price up to $8 ($0, $1, $2, .
12. According to reports in the Chinese media, commuters in Beijing are facing a somewhat paradoxical situation: they find it difficult to get a cab while hundreds of cabs lie idle during rush hour.
11. The equilibrium rent in a town is $500 per month, and the equilibrium number of apartments is 100. The city now passes a rent control law that sets the maximum rent at $400. The diagram that
10. Suppose a market for cheap sunglasses is in a long-run competitive equilibrium and that the price is $10. Every producer of sunglasses sells 5,000 pairs. A cloudy summer decreases the demand for
9. Masumi is a Japanese company producing 10,000 pairs of chopsticks every month in Madagascar at the average total cost of $0.8. The manager of the company has found that while the average total
8. The following tables show a small firm’s long-run average cost of manufacturing a good at two different plants: Plant 1 Quantity Total Cost Average Cost Marginal Cost 1 $50 2 $106 3 $164 4 $224
6. The market for electric drills in a certain country is characterized by a large number of buyers and sellers, and every buyer who wants a drill and can afford one has bought one. In other words,
4. Let us continue with the electric car example from Problem 3. Suppose the market for electric cars is competitive.a. Show that the equilibrium price in this market is $40,000.b. Which firms will
3. There are four consumers willing to pay the following amounts for an electric car: Consumer 1: Consumer 2: Consumer 3: Consumer 4: $70,000 $20,000 $80,000 $40,000 There are four firms that can
2. Suppose the market for live lobsters is perfectly competitive. After the lobsters are caught, the fishermen have to sell them as soon as they can before the lobsters die. Assume that no one buys
12. Imagine you are a buyer in a double oral auction with a reservation value of $10, and there is a seller asking for $8.a. How much will you gain from accepting this offer?b. If you are the only
10. Is the introduction of unemployment insurance a policy to increase efficiency or equity? Explain.
9. Sofia, a political science student, thinks that the government should intervene to revive declining industries like video stores and print newspapers. The government, she reasons, can resolve the
8. Suppose the need for babysitters increases in all countries. How does it cause different consequences in the market economies and the planned economies?
7. There are always debates on minimum wages between policymakers and economists. While policymakers may support the raise of minimum wage, economists usually object to it. What are the rationales
5. Can the government do a good job of the invisible hand? Explain your answer with the case of Korea discussed in the chapter.
4. How will the social surplus change if the quantity sold is restricted below the equilibrium quantity?
13. Suppose a firm is described by the following: Market demand is P = 50 − Q; ATC = 20 + 4Q; and MC = 30 + 5Q.a. Find the profit maximizing price and quantity.b. What is the firm’s profit?c.
12. The following table shows the long-run total costs of four different firms: Output Firm A Firm B Firm C Firm D Total costs ($) 10 90 100 100 70 12 120 108 96 120 25 200 175 225 225 40 280 320 280
11. Larry Krovitz is a salesman who works at a used-car showroom in Sydney, Australia. It’s the last week of July, but he has not yet met his sales target for the month. A customer, Harold Kumar,
10. This problem asks you to think carefully about sunk costs.a. The International Space Station (ISS) is a habitable satellite that was launched by NASA and space agencies of other countries. In
9. Daniel sells 500 hotdogs in a perfectly competitive market every week. The weekly fixed cost of his shop is $1,000 and the variable cost is $500. If the price of each hotdog is $2, explain whether
8. For the Olympic Games, the demand to watch the sporting event live is always greater than the number of seats available. After the event is sold out officially, people start to trade in the
7. There are many identical firms with a simple cost structure: Total cost for Q = 0 is $6 and total cost for Q = 1 is $8. Each firm is incapable of producing anything more; in other words, total
6. You are one of five identical firms (i.e., you all have the same costs) that sell widgets. Each day you have a fixed cost of $9 to operate. The marginal costs of your first through fifth widgets
5. Jeremy worked at a bank with a monthly salary of $1,500. He decided to quit his job and open a bookstore in his neighborhood. He now pays $500 in rent, $80 in utilities, and $120 in wages every
4. Fill in the ATC and MC columns in the following table: Output Total Cost Average Total Cost Marginal Cost 0 $14 1 15 2 18 3 24 4 36a. Use the MC curve to determine how many units this firm would
3. The following table gives you information on the total cost of Mac’s ice cream production: Quantity of Ice Cream (liter) Total Cost 0 $50 10 $90 20 $110 30 $140 40 $190 55 $260 60 $350a. Is Mac
2. Ethanol has become one of the most important alternative fuels of the world. It is produced mainly from grains and provides energy efficiency and independence. Assume that a small ethanol plant
1. Fixing up old houses requires plumbing and carpentry work. Jack (who is a jack of all trades but is a master of none) is a decent carpenter and a decent plumber but is not particularly good at
13. Explain the concept of zero profits in the long run with an example.
10. What is meant by sunk costs? Are fixed costs or variable costs considered as sunk costs in the short run?
7. Define explicit and implicit costs with examples of each.
3. How does the marginal product change as a firm increases the number of workers employed? Explain your answer.
1. How can you describe a price-taker? If a farmer raises cattle, can he be considered a price-taker? What would happen if all cattle farmers decide to raise sheep? Explain.
12. Examine the following statements and determine how price elasticity of demand changes:a. Applebee has decided to raise the price of burgers while keeping the price for pizzas and pastas the
11. Starbucks and Dunkin’ Donuts are two of the largest eatery chains that specialize in coffee. Despite being founded 20 years after Dunkin’ Donuts, Starbucks has grown aggressively and is now
10. Three years after graduating from college you get a promotion and a 20 percent raise. Your consumption habits change accordingly. Use the following information to determine your income
9. Calculate the cross-price elasticities in case of a decrease in the price of cabbages with 20 percent, an increase in the demand for tomatoes with 15 percent and a decrease in the demand for
8. Consider Sophia and Marcus’s total expenditure on sandwiches: Price Total expenditure (per month) Sophia Marcus $5 $90 $50 $4 $80 $60a. Use the midpoint formula to calculate the price
7. The total benefit for burgers and beers is given below. Burgers cost $10 and beers cost $20. Total Benefit (Burgers) Total Benefit (Beers) 1 15 30 2 30 50 3 45 60 4 60 65a. What is the marginal
6. Kira will be attending university soon for which she needs new pairs of jeans (j) and shirts (s). Her budget constraint is given by $40j + $20s = $120.a. What are the bundles of her budget
5. Suppose Gia has $800 to spend on art books and design books. The price of an art book is $40 and the price of a design book is $50.a. Draw the budget constraint and show its slope.b. Suppose the
4. Thomas has an income of $500, and he consumes two goods: rods and baits. The price of a rod is $100, and the price of bait is $50.a. Suppose Thomas receives a prize of 4 rods. Draw Thomas’s
3. Jean has a budget of $100, which she wants to spend on pens that are priced at $5 per pen and paper that is priced at $10 per bundle of 100 sheets.a. Draw Jean’s budget constraint. Find its
2. Elisa earns $2,500 per month and spends her income on flowers and vegetables. Suppose the price of flowers is $80 and the price of vegetables is $120.a. Draw a diagram for Elisa’s budget
1. Each school-week night you can play video games, talk on the phone, or watch a movie. You have a total of five nights to spend doing one of these three things. Play Video Games Talk on Phone Watch
16. Examine the accuracy of the following statement: “Given that healthcare services are considered luxury goods based on income elasticity, fewer people can afford to receive assistance to cure
14. Examine the accuracy of the following statement: “Though Apple iPhones and Samsung mobiles are substitute goods, if the price of an iPhone increases, consumers will still buy them because of
13. What does a negative income elasticity of demand mean?
11. How does the number of available substitutes determine the price elasticity of demand?
10. Can a price increase lead to lower revenue? Suppose a bookstore sells 15 books a day. The price of one book increases from $10 to $12. At this price, the store sells 10 books a day. Discuss the
9. Assume that the price of a beverage, Cola, doubles. As a result, the quantity demanded for Cola falls as consumers switch to a less-expensive alternative, Spritzer. What type of elasticity is seen
8. Can consumer surplus be negative? Explain your answer.
7. What happens to consumer surplus when price decreases? Explain with an example and supplement it with a diagram.
6. Consider the following supply and demand diagram:Identify which of the three areas labeled A, B, and C represents consumer surplus in this market.
5. What is meant by consumer surplus? How is it calculated?
2. The buyer’s problem states that consumers spend money to maximize their benefits, which depend on tastes and preferences, and consider trade-offs to achieve it. Is a consumer’s buying
1. What are the three necessary ingredients that help a consumer decide what to buy?
A3. Consider indifference curves for goods X and Y. Suppose we plot the quantity of good Y on the y-axis and the quantity of good X on the x-axis.a. Why are indifference curves downward-sloping?b.
A2. Explain the income and substitution effects of an increase in the price of one good on an individual’s consumption choice.
A1. What is an indifference curve? Can two indifference curves intersect? Explain your answer.
14. Note: This problem requires some basic algebra. The demand for ice cream is QD = 70 - 4P, and the supply of ice cream is QS = 10 + 2P, where P is the price of ice cream.a. Find the equilibrium
13. The equilibrium price of coffee in an economy, measured in dollars, is about $2,000 per ton. To help the coffee farmers earn a higher income, the government set the price to $2,500 per ton.a. How
12. As part of U.S. sugar policy (in 2013), the government offered to buy raw sugar from domestic sugarcane mills at an average price of 18.75 cents per pound. This government offer was made for as
11. Lobsters are plentiful and easy to catch in August but scarce and difficult to catch in November. In addition, vacationers shift the demand for lobsters further to the right in August than in any
10. New York decides to reduce the consumption of sugary soda by imposing a minimum price of $2.50 per soda. The current equilibrium price is $1.50. Sketch the supply and demand for soda and show the
9. Suppose one of your friends offered the following argument: a rightward shift in demand will cause an increase in price. The increase in price will cause a rightward shift of the supply curve,
8. A freshwater aqua farm in Singapore can breed tiger prawns and tilapia. Recently, it was found that there may be a risk of contracting a type of disease from the consumption of tiger prawns –
7. For each of the following situations, sketch the demand curve as accurately as possible.a. Appendectomy is a life-saving operation that some people need. Regardless of the price, the quantity
6. Suppose the energy supply in your country is primarily provided by nuclear reactors. Your country is both sunny and windy at the same time and, therefore, many people have decided to set up sun
5. Thailand is the world’s second-largest producer of Hard Drives after China. In 2011, there were severe floods in Thailand. Because the hard drive manufacturing factories had to shut down due to
4. Sketch generic supply and demand curves for the housing market and label the equilibrium price and quantity.a. A booming economy increases the demand for housing. Show the shift in the demand
3. The following two incidents involve simultaneous shifts in the demand and the supply curves. Analyze the final effects on the equilibrium price and quantity after the changes. Explain your
2. Suppose your country has been doing really well since the end of the global financial crisis and, therefore, the wages have increased by 30 percent since 2008. In parallel, active workers
1. Suppose the following table shows the quantity of laundry detergent that is demanded and supplied at various prices in Country 1. Price ($) Quantity Demanded (million oz.) Quantity Supplied

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