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macroeconomics principles

Questions and Answers of Macroeconomics Principles

13. A firm in a monopolistically competitive environment discovers that in the long run it faces inverse demand P = 10 - 11>22Q, which means its marginal revenue is MR = 10 - Q. The firm’s marginal
12. Suppose all you know about Boeing and Airbus is that Boeing sells about 40 percent of all comercial aircraft, while Airbus sells around 25 percent.a. Based on this information, what is the
11. Suppose there are five firms in an industry. Their sales (that is, total revenue) are as follows: • Firm 1: $90 million • Firm 2: $50 million • Firm 3: $36 million • Firm 4: $14 million
10. Suppose the world demand schedule for oil is as follows: Price per Barrel Quantity Demanded $50 40 $75 30 $125 20 There are two oil-producing countries, A and B. Each will produce either 10 or 20
9. Telesource and Belair are two of the largest firms in the wireless carrier market in a certain country. Together, these firms account for more than 80 percent of the market.a. Given that both
8. Major league baseball teams have imposed what is commonly called the “luxury tax” on themselves. A team is subject to the tax if its payroll exceeds a specified level. The annual threshold
7. Coke and Pepsi each choose one of two prices: “Low” 1P = $22 or “High” 1P = $32. There are 50 buyers who will pick the lowest price option. However, if the prices are the same, 25 will buy
6. Tobacco companies have often argued that they advertise to attract more people who already smoke and not to persuade more people to begin smoking. Suppose there were just two cigarette
5. Make three copies of the following diagram and label them (i), (ii) and (iii). Add three different residual demand curves faced by a monopolist: (i) very steep (inelastic), (ii) relatively flat
4. The diagram below shows the short-run demand curve (D), marginal revenue curve (MR), average total cost curve (ATC), and marginal cost curve (MC) for a firm in a monopolistically competitive
3. Consider a duopoly with homogeneous products, where two competing firms pick price (Bertrand duopoly). In this chapter you learned that both firms will choose price equal to the marginal cost
2. With the growth of the Internet, there are many online retailers and many buyers who shop online.a. Why, given the growth of the Internet, would you expect to find that different firms would
1. Acme is currently the only grocery store in town. Bi-Rite is thinking of entering this market. They will play the following game. First, Bi-Rite will decide whether or not to enter. If it does
13. Decide whether each of the following statements is true or false for each of three different types of markets: perfect competition, monopoly, and monopolistic competition.a. Firms equate price
12. Suppose the refrigerator industry has an HHI of 2,500 while the aluminum industry’s HHI is 6,850. Is this information sufficient to conclude that the aluminum market is more concentrated than
11. When is a collusive agreement between two firms likely to break down?
10. Suppose there are four firms in a market and each of them sells differentiated products. Does it make sense for these firms to engage in a price war? Why or why not?
9. How do oligopolistic firms that sell differentiated products determine their prices?
8. In the model of an oligopoly with identical (homogeneous) products, what is the price likely to be?
7. Consider a noncollusive duopoly model with both firms supplying bottled drinking water. The firms choose prices simultaneously. The marginal cost for each firm is $1.50. The market demand is shown
6. What happens in a monopolistically competitive market with the entry of new firms?
5. Monopolistically competitive firms earn zero economic profit in the long run as do perfectly competitive firms. Does this mean that total surplus is maximized in a monopolistically competitive
4. Will a monopolistically competitive firm continue to operate in the short run despite earning negative economic profit? Explain your answer.
3. Both monopolies and monopolistically competitive firms set marginal revenue equal to marginal cost to maximize profit. Given the same cost curves, would you expect prices to be higher in a
2. How is a monopolistically competitive market similar to a perfectly competitive market? Do monopolistically competitive markets and monopolies share any common features?
1. How are the products sold by a monopolistically competitive firm different from the products sold in a perfectly competitive market?
13. Two competing firms must choose their quantity of production simultaneously. Each firm can choose either a High quantity of 3 or a Low quantity of 2. The price for both firms is 9 − Q, where Q
12. Pat’s and Geno’s are two rival cheesesteak restaurants in Philadelphia, Pennsylvania, that are located across the street from each other. Since they serve almost the same food, they are
11. While at the airport, you hear over the loudspeaker an offer to be bumped off your current flight in exchange for $100 travel credit. After it becomes clear nobody will take this offer, the offer
10. Jones TV and Smith TV are the only two stores in your town that sell flat-panel TV sets. First, Jones will choose whether to charge high prices or low prices. Smith will see Jones’s decision
9. Consider a game with two players, 1 and 2. They play the extensive-form game summarized in the following game tree:a. Suppose Player 1 is choosing between Green and Red for his second move. Which
8. Two gas stations, A and B, are locked in a price war. Each player has the option of raising its price (R) or continuing to charge the low price (C). They will choose strategies simultaneously. If
7. Use a matrix to model a two-player game of rock-paperscissors with a payoff of 1 if you win, –1 if you lose, and 0 if you tie.a. Draw the payoff matrix for this game.b. Is there an equilibrium
6. We might suppose a soccer player has three options when taking a penalty kick: Kick right (KR), kick left (KL), or kick down the center (KC). The goalie can choose to dive right (DR), dive left
5. A Beautiful Mind, a movie about John Nash, fails to properly demonstrate a Nash equilibrium. It attempts to do so in a bar scene where men at a bar (Nash and his friends) plan to ask women to
4. It is possible for two-player games to be quite asymmetric: Each player might have a different set of options, and the payoffs may be quite different. Consider the following example between a
3. In the movie The Princess Bride, the hero disguised as the pirate Westley is engaged in a game of wits with the villain Vizzini. Westley puts poison in either his own glass of wine or in
2. Suppose Russia is deciding to Invade or Not Invade its neighbor Ukraine. The United States has to decide to Be Tough or Make Concessions. They will make their decisions simultaneously. Their
1. Suppose the cable TV companies Astounding Cable and Broadcast Cable are in your city. They both must decide on a high advertising budget, a moderate advertising budget, or a low advertising
12. The trust game shown in Exhibit 13.15 is a sequential prisoners’ dilemma; as the payoff matrix shows, the outcome of the game is not socially efficient. What factors could cause this
11. What is meant by the first-mover advantage? How does commitment matter in a game with a first-mover advantage?a. Some games have a first-mover advantage and other games do not. Suppose you were
10. When can backward induction be used to arrive at the equilibrium for a game?
9. Although there are many examples of game theory in the real world, how well do you think specifics like payoff matrices, Nash equilibria, and dominant strategies translate to reality?
8. Suppose that a player has a dominant strategy. Would she choose to play a mixed strategy (such as playing two strategies, each with probability 50-50)? Why or why not?
7. What is the difference between a pure strategy and a mixed strategy?
6. What is a zero-sum game? Can you think of any zero-sum games in real life?
5. How can the tragedy of the commons be modeled as a prisoners’ dilemma game?
4. What is a Nash equilibrium? How is a Nash equilibrium different from a dominant strategy equilibrium?
3. What is meant by the “prisoners’ dilemma”? Do the players in the prisoners’ dilemma game have a dominant strategy?
2. Is a player’s best response in a game the same as his dominant strategy? Explain.
1. What is a dominant strategy equilibrium?
1. 5. Mat ea concept in Column A with an example in Column B.Column A Column Ba. Negative externality 1. You should spend more time studying economics b.An essential economic activity2. A fair
1. 4. Suppose that society could produce the following combinations of pizzas and books:Alternativeantity of pizzasantity of books A50 0B 40 10 C30 18 D20 24 E10 28 F0 30a. Using graph paper
1. 3. How is the concept of efficiency related to the concept of scarcity? Consider, for example, your own use of time. When do you feel that time is more, and when less, scarce? Do you think about
1. 2. e notion of scarcity reflects the idea that resources cannot be streted to aieve all the goals that people desire. But what makes a particular resource “scarce”? If a resource
1.1. In ea of the following, indicate whi of the four essential economic activities is taking place, and in whi sphere.a. Ms. Katar, an executive at Acme Manufacturing, directs the cleanup
1. 17. What do we mean when we speak of economic activity “in context”?
1.16. How can we classify economic actors into three spheres?
1. 15. What is the circular flow model of economic activity?
1. 14. What is a model?
1. 13. What is the relationship between a society’s PPF and resource management?
1. 12. What kinds of decisions would make a PPF expand over time? What kinds of decisions would make it contract over time?
1. 11. Draw a societal PPF, and use it to explain the concepts of tradeoffs (opportunity cost), aainable and unaainable output combinations, and efficiency.
1. 10. How do abundance and scarcity create the possibility of, and the necessity for, economic decision making?
1.9. Define negative and positive externalities, and give examples of ea.
1. 8. What is an economic actor?
1. 7. What are some examples of final goals?
1. 6. What is the goal of efficiency?
1. 5. Is the aainment of wealth a final goal?
1. 4. What is the difference between final and intermediate goals?
1. 3. What is the difference between positive and normative questions? Give a couple of examples of ea.
1. 2. Name the four essential economic activities.
1.1. What is the definition of economics?
1. 2. Model building is sometimes compared to map making. If you wanted to give people directions for reaing the place where you live, what would you put on the map that you drew for them? What
1.1. Describe three situations in whi economic activities could affect its environmental context and three ways in whi economic behavior could affect its social context. How might these
1. 2. Consider the following possible productive activities. Whi ones do you think will tend to expand the PPF in the future? Whi ones will tend to contract it?(ere may be room for
1.1. Suppose that your “resources” for studying can be devoted to either or both of two subjects: this class and another class you are taking. Would the PPF for your “production” have the
1. 2. Imagine that an engineer, an artist, and an economist are all observing the construction of a new office building. Considering the three basic economic questions discussed in this section, what
1.1. e admissions office at your college decides who will be admied and who will not be. Is this an economic activity? Of what kind? (ere may be more than one correct answer.)
1. 3. For whom should economic activity be undertaken?
1. 2. How should production take place?
1.1. What should be produced?
1. 2. How can economic systems deal with the problems caused when some goals conflict with others? For example, what if a goal of increased consumption causes growing environmental damage, with some
1.1. You have evidently made a decision to dedicate some of your personal resources in time and money to studying college economics. Whi of the goals listed in Table 1.1 was most important to you
1. 2. In what ways do you think economics might help to provide solutions to social problems and improve overall well-being? And are there ways in whi the workings of the economic system may
1.1. What current issues are you most interested in? How do you think economics might help you understand these issues?
What is a steady-state economy?
What is a debt-for-nature swap?
How can economic growth be represented using the AS/AD graphs discussed in Chapter 13?
Are there tax policies that can reduce the deficit while also addressing environmental problems? REVIEW QUESTIONS
Do you think that we can reduce deficits while also avoiding an increase in tax rates? Why would political leaders consider tax hikes? Should everyone experience the same increase?
What would you think about a proposal to tax financial transactions? Would you prefer it to an income or a sales tax? Why or why not? REVIEW QUESTIONS
What is "quantitative easing"? Can you think of anything you learned earlier in the book to which it is related? What do you think are the main advantages and disadvantages of such a policy?
Classify each of the following as a trade flow; income flow, or asset transaction:a. A U.S. software company sells its products to European consumersb. A Saudi investor buys real estate in Europe C.
Singapore is a natural-resource-poor country that has built its economy on the basis of massive imports of commodities and raw materials and similarly massive exports of refined and manufactured
What reforms have been suggested for the international financial system? EXERCISES
Which do you think gives a better description of economic realities: classical or Keynesian macroeconomic theory? Explain.
What is the effect of expansionary fiscal and monetary policies in the classical model?
How does the issue of time lags affect fiscal and monetary policy?
What are some arguments in favor of having the Fed follow a money supply rule? What are some arguments against it?

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