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microeconomics

Questions and Answers of Microeconomics

2.25. The demand for dinners in the only restaurant in town has a unitary price elasticity of demand when the current average price of a dinner is $8. At that price 120 people eat dinners at the
2.24. Suppose that in 2011, the global market for hard drives for notebook computers consists of a large number of producers. It is relatively easy for new producers to enter the industry, and when
2.23. For each of the following, discuss whether you expect the elasticity (of demand or of supply, as specified)to be greater in the long run or the short run.a) The supply of seats in the local
Cigarettes are being purchased at a rate of 10 million per year.Find a linear demand that fits this information, and graph that demand curve.Qd A " 10,000 ! 100PA # 99PU Qd U " 10,000 ! 100PU # 99PA
Current price of cigarettes is $0.05 per cigarette.
Price elasticity of demand for cigarettes at current prices is !0.5.
2.22. You are given the following information:
2.21. Suppose that the market for air travel between Chicago and Dallas is served by just two airlines, United and American. An economist has studied this market and has estimated that the demand
2.20. For the following pairs of goods, would you expect the cross-price elasticity of demand to be positive, negative, or zero? Briefly explain your answer.a) Red umbrellas and black umbrellasb)
2.19. For the following pairs of goods, would you expect the cross-price elasticity of demand to be positive, negative, or zero? Briefly explain your answers.a) Tylenol and Advilb) DVD players and
2.18. In Metropolis only taxicabs and privately owned automobiles are allowed to use the highway between the airport and downtown. The market for taxi cab service is competitive. There is a special
2.17. Consider the following demand and supply relationships in the market for golf balls: Qd ! 90 # 2P # 2T and Qs ! #9 " 5P # 2.5R, where T is the price of titanium, a metal used to make golf
2.16. Gina usually pays a price between $5 and $7 per gallon of ice cream. Over that range of prices, her monthly total expenditure on ice cream increases as the price decreases. What does this imply
2.15. A firm currently charges a price of $100 per unit of output, and its revenue (price multiplied by quantity)is $70,000. At that price it faces an elastic demand(!Q,P $ #1). If the firm were to
2.14. Suppose that the quantity of steel demanded in France is given by Qs ! 100 # 2Ps " 0.5Y " 0.2PA, where Qs is the quantity of steel demanded per year, Ps is the market price of steel, Y is real
2.13. Consider a linear demand curve, Q ! 350 # 7P.a) Derive the inverse demand curve corresponding to this demand curve.b) What is the choke price?c) What is the price elasticity of demand at P ! 50?
2.12. Recall that when demand is perfectly inelastic,!Q, P ! 0.a) Sketch a graph of a perfectly inelastic demand curve.b) Suppose the supply of 1961 Roger Maris baseball cards is perfectly inelastic.
2.11. Suppose that the quantity of corn supplied depends on the price of corn (P) and the amount of rainfall (R). The demand for corn depends on the price of corn and the level of disposable income
2.10. Explain why a good with a positive price elasticity of demand must violate the law of demand.
2.9. Suppose that, over a period of 6 months, the price of corn increased. Yet, the quantity of corn sold by producers decreased. Does this contradict the law of supply?If not, why not?
2.8. You have decided to study the market for freshpicked cherries. You learn that over the last 10 years, cherry prices have risen, while the quantity of cherries purchased has also risen. This
2.7. Every year there is a shortage of Super Bowl tickets at the official prices P0. Generally, a black market(known as scalping) develops in which tickets are sold for much more than the official
2.6. Granny’s Restaurant sells apple pies. Granny knows that the demand curve for her pies does not shift over time, but she wants to learn more about that demand. She has tested the market for her
2.5. The demand curve for ice cream in a small town has been stable for the past few years. In most months, when the equilibrium price is $3 per serving for the most popular ice cream, customers buy
2.4. Suppose that demand for bagels in the local store is given by equation Qd ! 300 " 100P. In this equation, P denotes the price of one bagel in dollars.a) Fill in the following table:P 0.10 0.45
2.3. The demand and supply curves for coffee are given by Qd ! 600 " 2P and Qs ! 300 # 4P.a) Plot the supply and demand curves on a graph and show where the equilibrium occurs.b) Using algebra,
2.2. Suppose the demand curve in a particular market is given by Q ! 5 " 0.5P.a) Plot this curve in a graph.b) At what price will demand be unitary elastic?
2.1. The demand for beer in Japan is given by the following equation: Qd ! 700 " 2P " PN # 0.1I, where P is the price of beer, PN is the price of nuts, and I is average consumer income.a) What
10. Explain why a shift in the demand curve identifies the supply curve and not the demand curve.
9. What does the sign of the cross-price elasticity of demand between two goods tell us about the nature of the relationship between those goods?
8. Explain why the price elasticity of demand for an entire product category (such as yogurt) is likely to be less negative than the price elasticity of demand for a typical brand (such as Dannon)
7. Many business travelers receive reimbursement from their companies when they travel by air, whereasn vacation travelers typically pay for their trips out of their own pockets. How would this
6. Explain why we might expect the price elasticity of demand for speedboats to be more negative than the price elasticity of demand for light bulbs.
5. A linear demand curve has the equation Q !50 " 100P. What is the choke price?
4. A 10 percent increase in the price of automobiles reduces the quantity of automobiles demanded by 8 percent. What is the price elasticity of demand for automobiles?
3. Suppose we observe that the price of soybeans goes up, while the quantity of soybeans sold goes up as well.Use supply and demand curves to illustrate two possible explanations for this pattern of
2. Use supply and demand curves to illustrate the impact of the following events on the market for coffee:a) The price of tea goes up by 100 percent.b) A study is released that links consumption of
1. Explain why a situation of excess demand will result in an increase in the market price. Why will a situation of excess supply result in a decrease in the market price?
Use “back-of-the-envelope” techniques to determine key properties of demand and supply curves with only fragmentary data on prices, quantities, or elasticities.
Indicate why the short-run price elasticities of demand and supply may differ from the long-run price elasticities of demand and supply.
Explain and contrast other elasticities: the income elasticity of demand, the cross-price elasticity of demand, and the price elasticity of supply.
Contrast the market-level price elasticity of demand with the brand-level price elasticity of demand.
Discuss the factors that determine the price elasticity of demand.
Explain how price elasticity of demand is related to total revenue.
Calculate the price elasticity of demand for specific demand curves.
Explain the concept of price elasticity.
Analyze how changes in exogenous variables shift the demand and supply curves and thus change the equilibrium price and quantity.
Describe the three main building blocks of supply and demand analysis––demand curves, supply curves, and the concept of market equilibrium.
1.21. Which of the following statements suggest a positive analysis and which a normative analysis?a) If the United States lifts the prohibition on imports of Cuban cigars, the price of cigars will
1.20. Consider the comparative statics of the farmer’s fencing problem in Learning-By-Doing Exercise 1.4, where L is the length of the pen, W is the width, and A ! LW is the area.a) Suppose the
1.19. The worldwide demand curve for pistachios is given by Qd ! 10 $ P, where P is the price of pistachios in U.S. dollars and Qd is the quantity in millions of kilograms per year. The world supply
1.18. The demand curve for peaches is given by the equation Qd ! 100 $ 4P, where P is the price of peaches expressed in cents per pound and Qd is the quantity of peaches demanded (expressed in
1.17. An electricity producer has two power plants, each of which emits carbon dioxide (CO2), a greenhouse gas. Each plant is currently emitting 1 million metric tons of CO2 per year. However, new
1.16. A major automobile manufacturer is considering how to allocate a $2 million advertising budget between two types of television programs: NFL football games and PGA tour professional golf
1.15. Reconsider the problem of the video acquisitions officer in Problem 1.14. Suppose the officers of your residence hall give you a specified amount of money to spend, and want you to maximize the
1.14. You are the video acquisitions officer for your residence hall. The other officers of your hall will tell you how many videos they would like to rent during the year.Your job is to find the
1.13. Consider the market for wool described by the supply and demand equations in Problem 1.12. Suppose income rises from I1 ! 20 to I2 ! 24.a) Using comparative statics analysis, find the impact of
1.12. Suppose the supply curve for wool is given by Qs! P, where Qs is the quantity offered for sale when the price is P.Also suppose the demand curve for wool is given by Qd !10 " P # I, where Qd is
1.11. This year’s summer is expected to be very sunny.Hence the demand for sunglasses increased and now is given by equation Qd ! 1200 " 4P. How is the equilibrium price going to change compared
1.10. The demand for sunglasses is given by equation Qd ! 1000 " 4P, where P denotes the market price. The supply of sunglasses is given by equation Qs ! 100 # 6P.Fill in the following table and find
1.9. The demand for computer memory chips is given by the equation Qd ! 500 " 2P, while the supply is given by the equation Qs ! 50 # P. In both equations P denotes the market price. For what price
1.8. The demand for computer monitors is given by the equation Qd ! 700 " P, while the supply is given by the equation Qs ! 100 # P. In both equations P denotes the market price. Fill in the
1.7. The price of gasoline in the United States depends on the supply of gasoline and the demand for gasoline.Gasoline is supplied by oil companies that sell it on several markets. Hence the supply
1.6. Ethanol (i.e., ethyl alcohol) is a colorless, flammable liquid that, when blended with gasoline, creates a motor fuel that can serve as an alternative to gasoline.The quantity of ethanol motor
1.5. The supply of aluminum in the United States depends on the price of aluminum and the average price of electricity (a critical input in the production of aluminum). Assume that an increase in the
1.4. A firm produces cellular telephone service using equipment and labor. When it uses E machine-hours of equipment and hires L person-hours of labor, it can provide up to Q units of telephone
1.3. In early 2008, the price of oil on the world market increased, hitting a peak of about $140 per barrel in July 2008. In the second half of 2008, the price of oil declined, ending the year at
1.2. In an article entitled, “Corn Prices Surge on Export Demand, Crop Data,” the Wall Street Journal identified several exogenous shocks that pushed U.S.corn prices sharply higher.15Suppose the
1.1. Discuss the following statement: “Since supply and demand curves are always shifting, markets never actually reach an equilibrium. Therefore, the concept of equilibrium is useless.”
7. What is the difference between positive and normative analysis? Which of the following questions would entail positive analysis, and which normative analysis?a) What effect will Internet auction
6. Why do economists do comparative statics analysis?What role do endogenous variables and exogenous variables play in comparative statics analysis?
5. What is the difference between an exogenous variable and an endogenous variable in an economic model? Would it ever be useful to construct a model that contained only exogenous variables (and no
4. Suppose the market for wheat is competitive, with an upward-sloping supply curve, a downward-sloping demand curve, and an equilibrium price of $4.00 per bushel. Why would a higher price (e.g.,
3. How does the tool of constrained optimization help decision makers make choices? What roles do the objective function and constraints play in a model of constrained optimization?
2. Why is economics often described as the science of constrained choice?
1. What is the difference between microeconomics and macroeconomics?
(Appendixes1) PURCHASES, TRANSPORTATION-IN, AND PURCHASE RETURNS. Alpharack Company sells a line of tennis equipment to retailers. Alpharack uses periodic inventory accounting. Alpharack engaged in
How does a TV broadcast have characteristics of a public good? What about specialty cable services such as the Discovery Channel?
Why do you think buffalo became almost completely extinct on the Great Plains but cattle did not? Why is it possible to buy buffalo burgers in a store or restaurant today?
A factory releases air pollutants that have a negative impact on the adjacent neighbourhood (populated by 2000 households). If the government could assign property rights to the air to either the
What is the free-rider problem with public goods?
What are private goods versus public goods?
What is an ideal pollution-control policy?
What can be done to reduce pollution?
Why is a clean environment not free?
Can externalities be accurately measured?
What are social costs?
Are there nongovernmental solutions to externalities?
What can the government do to correct for positive externalities?
What are positive externalities?
What are negative externalities?
What are externalities?
What government programs help to reduce poverty?
How can we remedy discrimination?
Why do some earn more than others?
Are we overstating the disparity in the distribution of income?
What has happened to income distribution since 1951?
Can unions increase worker productivity?
Why do labour unions exist?
What shifts the labour supply curve?

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