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microeconomics

Questions and Answers of Microeconomics

=+Do these data provide us with two points on the average household's demand curve for resi- dential electricity in this region? Why or why not? *
=+5. A few years ago, when residential electricity in the state of Washington cost about half as much as in nearby Montana, the average household in Washing- ton used about 1,200 kilowatt-1===+hours
=+ Would you suggest that he buy more jeans and fewer T-shirts, or more T-shirts and fewer jeans?
=+jeans is 60, and the marginal utility of T-shirts is 30. Is this con- sumer maximizing his utility?
=+ 4. A consumer is currently purchasing three pairs of jeans and five T-shirts per year. The price of jeans is $30, and T-shirts cost $10. At the current rate of consumption, the marginal utility of
=+How can the in-come and substitution effects of a price change help explain this finding?
=+3. Recent research confirms that the demand for ciga- rettes is inelastic, but it also indicates that smokers with incomes in the lower half of all incomes re- spond to a given price increase by
=+2. A bus ticket between two cities costs $50 and the trip will take twenty-eight hours, whereas an air- plane ticket costs $300 and takes three hours. Mary values her time at $12 per hour, and
=+ Under what conditions will revenue (a) rise, (b) fall, or (c) remain the same? Explain this, focusing on the relationship between the increased revenue from students who enroll at NSU despite the
=+*1. Suppose that, in an attempt to raise more revenue, Nowhere State University (NSU) increases its tuition. Will this necessarily result in more revenue?
=+ Why is it important?
=+ What does it measure?
=+ What is demand elasticity?
=+ Do you think politicians are very inter- ested in curtailing the power of special interests? Why or why not?
=+How would contributions to political campaigns be affected?
=+18. If the power of special interests were reduced, for example, through the adoption of a supra-majority voting rule, would economic efficiency improve?
=+Has government action in this area im- proved the living standards of Americans? Why or why not?
=+growers at the ex- pense of consumers. Given that there are far more sugar consumers than growers, why aren't the quotas abolished?
=+*16. The United States imposes highly restrictive sugar import quotas that result in a domestic price that is generally about three times as high as the world price. The quotas benefit sugar
=+ When governments become heavily involved in tax- transfer activities, how will this involvement affect economic efficiency?
=+15. Why does representative democracy often tax some people in order to provide benefits to others?
=+Do you think that the po- litical process in general works to the advantage of the poor? Why or why not?
=+14. What percentage of government income transfer payments go to the poor?
=+13. "Since governnient-operated firms do not have to make a profit, they can usually produce at a lower cost and charge a lower price than privately owned enterprises." Evaluate this view.
=+regulated indus- tries such as airlines, railroads, and trucking, will charge excessive prices, products will be unsafe, and the rich would oppress the poor. Government curbs the power of
=+12. What's wrong with this way of thinking? "Public policy is necessary to protect the average citizen from the power of vested interest groups. In the ab- sence of government intervention,
=+yield to the views of the majority when activities are undertaken through government." In your own words, explain the mean- ing of this statement. Is the statement true? Why or why not? "
=+7. "Government action is based on majority rule, whereas market action is based on mutual consent. The market allows for proportional representation of minorities, but minorities must
=+ How does it influence economic efficiency? Explain.
=+5. What is rent seeking? When is it likely to be wide- spread?
=+a democracy governed by majority rule would allo- cate resources efficiently." Evaluate this statement.
=+4. "The political process sometimes leads to economic inefficiency because we elect the wrong people to political office. If the right people were elected,
=+ How will their actions affect political outcomes?
=+ What insights can economics provide about the behavior of voters, politicians, and bureaucrats?
=+When would a government intervention be considered economically inefficient?
=+*14. Apply the economic efficiency criterion to the role of government. When would a government interven- tion be considered economically efficient?
=+ Are her property rights violated? Is an exter- nality present? Explain.
=+ What if the pollution invades Baker's home and harms her health?
=+ 13. Suppose that Abel builds a factory next to Baker's farm, and air pollution from the factory harms Baker's crops. Is Baker's property right to the land being violated? Is an externality present?
=+ In what four situations might a market fail to achieve ideal economic efficiency?
=+12. What are the necessary conditions for economic ef- ficiency?
=+What is the economic explanation for why this statement is frequently said but rarely followed in practice? Explain.
=+ 7. "If it's worth doing, it's worth doing to the best of your ability."
=+Why may market outcomes be less than ideal when externalities are present?
=+5. Explain in your own words what is meant by exter- nal costs and external benefits.
=+Why are public goods difficult for markets to allocate efficiently? *
=+ 3. What are the distinguishing characteristics of "public goods"? Give two examples of a public good.
=+ What are public goods?
=+ What are externalities?
=+How will this tax increase affect (a) the quantity of ciga- rettes sold in New York City, (b) the revenue derived by the city and state from the tax, (c) the Internet purchases of cigarettes by New
=+17. During the summer of 2001, the combination of city and state taxes on cigarettes sold in New York City rose from $1.19 to more than $3.00 per pack.
=+16. Should policy makers seek to set the tax on an eco- nomic activity at a rate that will maximize the revenue derived from the tax? Why or why not? Explain. "
=+ Do you think some workers with large fami- lies might attempt to conceal the fact? Why?
=+*14. Suppose Congress passes legislation requiring that businesses employing workers with three or more children pay these employees at least $10 per hour. How would this legislation affect the
=+careful to distinguish between the total cost to the employer of hiring a worker, the employee's gross wage, and the em- ployee's net wage. Show how the outcome would differ if all 15.3 percent
=+13. Currently, the Social Security payroll tax is legally imposed equally on workers and employers: 7.65 per- cent for employees and 7.65 percent for employers. Show this graphically, being
=+ Demand Supply Quantity Quantity Wage Demanded Wage Supplied $6.50 1,000 $6.50 1,900 $6.00 1,200 $6.00 1,800 $5.50 1,400 $5.50 1,700 $5.00 1,600 $5.00 1,600 $4.50 1,800 $4.50 1,500 $4.00 2,000
=+d. Does it make a difference who is statutorily liable for the tax?
=+ How is this tax burden distributed between employers and workers?
=+ How does this affect the equilibrium wage rate and number of workers hired?
=+c. Now suppose that, rather than being paid by em- ployers, the tax must be paid by workers.
=+ How is this tax burden distributed be- tween employers and workers?
=+What happens to the equilibrium wage rate and number of work- ers hired?
=+b. Suppose that a new law is passed requiring em- ployers to pay an unemployment insurance tax of $1.50 per hour for every employee.
=+a. Find the equilibrium wage and number of work- ers hired.
=+ 12. The demand and supply curves for unskilled labor in a market are given in the accompanying table.
=+ What conditions would cause sellers to bear the full burden? Explain. *
=+10. What conditions must be met for buyers to bear the full burden of a tax?
=+ Explain why the statutory and actual incidence of a tax can be different.
=+9. What is meant by the incidence of a tax?
=+What would be the advantages and disadvantages relative to the current system?
=+8. How do you think the markets for organ donation and child adoption would be affected if they were made fully legal with a well-functioning price mechanism?
=+What are some of the main differences in how black markets operate relative to legal markets?
=+7. What is a black market?
=+d. The demand for high-skilled workers who are good substitutes for low-skilled workers
=+c. The availability of on-the-job training for low- skilled workers
=+b. The unemployment rate of teenagers
=+a. Employment of people previously earning less than $10 per hour
=+6. Analyze the impact of an increase in the minimum wage from the current level to $10 per hour. How would the following be affected?
=+ How will people who are not elderly be affected by this program? Explain. *
=+5. Congress recently passed a new program that will subsidize the purchase of prescription drugs by the elderly. What impact will this program have on the demand for and price of prescription drugs?
=+What impact will a meaningful price ceiling have on the quantity ex- changed? What impact will a meaningful price floor have on the quantity exchanged? Explain.
=+*4. To be meaningful, a price ceiling must be below the market price. Conversely, a meaningful price floor must be above the market price.
=+ If a price ceiling for a good is set below the market equilib- rium, what will happen to the quality and future availability of the good? Explain.
=+ What will happen if a price ceiling is imposed below the market equilibrium?
=+ 3. What is the difference between a price ceiling and a price floor?
=+(d) the amount of racial, gender, and other types of discrimination in the local rental housing market, (e) the ease with which students will be able to find housing, and finally, (f) whether a
=+students who rent housing? In your answer, address how this price ceiling will affect (a) the quality of rental housing, (b) the amount of rental housing available, (c) the incentive of landlords
=+ 2. Suppose that college students in your town per- suaded the town council to enact a law setting the maximum price for rental housing at $200 per month. Will this help or hurt college
=+What does it indicate about the relationship between tax rates and tax revenues?
=+What determines the distribution of the tax burden (or subsidy benefit) between buyers and sellers?
=+ How does a tax or subsidy affect a market?
=+How does the lack of a well-structured legal environment affect their operation?
=+What are "black markets"?
=+ How do minimum-wage rates influence the job opportunities of low-skilled workers?
=+ How do rent controls affect the maintenance and quality of rental housing?
=+Are "good intentions" necessary if individuals are going to engage in actions that are helpful to others? Discuss.
=+ Are they motivated by a strong desire to help consumers?
=+17. Do business firms operating in competitive markets have a strong incentive to serve the interest of con- sumers?
=+ When the market for a product is in equilibrium, how will consumers value an additional unit com- pared to the opportunity cost of producing that unit? Why is this important? *

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