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microeconomics

Questions and Answers of Microeconomics

Who benefits and who loses from tariffs? Explain your answer.
Identify the directional change in consumers’ surplus and producers’ surplus when we move from free trade to tariffs.Is the change in consumers’ surplus greater than, less than, or equal to the
What is a major difference between the effects of a quota and the effects of a tariff?
Outline the details of the infant industry argument for trade restriction.
Good economics turns out to be no more than common sense. If an economic doctrine doesn’t make common sense, then it can’t be good economics.Hear what and how the economist thinks:This is a
In the foreign exchange market, how is the demand for dollars linked to the supply of pesos?
What could cause the U.S. dollar to appreciate against the Mexican peso on the foreign exchange market?
Suppose that the U.S. economy grows and that the Swiss economy does not. How will this difference affect the exchange rate between the dollar and the Swiss franc? Why?
What does the purchasing power parity theory say? Give an example to illustrate your answer.
Identify the directional change in consumers’ surplus and producers’ surplus when we move from free trade to tariffs. Is the change in consumers’ surplus greater than, less than, or equal to
How does an overvalued dollar affect U.S. exports and imports?
In each of the following cases, identify whether the U.S.dollar is overvalued or undervalued:a. The fixed exchange rate is \($2\) 5 £1, and the equilibrium exchange rate is \($3\) 5 £1.b. The fixed
Good economics turns out to be no more than common sense. If an economic doctrine doesn’t make common sense, then it can’t be good economics.Hear what and how the economist thinks:This is a
What is the major difference between the market output and the socially optimal output?
For an economist, is the socially optimal output always preferred to the market output?
What does it mean to internalize an externality?
Are the transaction costs of buying a house higher or lower than those of buying a hamburger at a fast-food restaurant? Explain your answer.
Does the property rights assignment a court makes matter to the resource-allocative outcome?
What condition must be satisfied for a tax to adjust correctly for a negative externality?
Why is it likely that tradable pollution permits will eliminate a given level of pollution at lower cost than a command-and-control system which mandates that each polluter eliminate the same amount
Emission taxes and tradable pollution permits create different kinds of uncertainty. Explain.
Under both emission taxes and tradable pollution permits, polluters must pay to pollute. Explain.
Why does the market fail to produce nonexcludable public goods?
Identify each of the following goods as a nonexcludable public good, an excludable public good, or a private good:a. A composition notebook used for writingb. A Shakespearean play performed in a
Give an example, other than a movie in a movie theater or a play in a theater, of a good that is nonrivalrous and excludable.
Give an example that illustrates how asymmetric information can lead to more of a good being consumed than if there is symmetric information.
Adverse selection has the potential to eliminate some markets. How so?
Give an example of moral hazard that is not used in the text.
The economist reads what a student has written on a course evaluation form:I like the course and have learned a lot this semester. However, I find myself getting distracted when students come into
How can government change the distribution of income?
“Income inequality at one point in time is sometimes consistent with income equality over time.” Comment.
Smith and Jones have the same income this year: $40,000.Does it follow that their income came from the same sources? Explain your answer.
Starting with the top fifth of income earners and proceeding to the lowest fifth, suppose the income share of each group is 40 percent, 30 percent, 20 percent, 10 percent, and 5 percent. Can these
Country A has a Gini coefficient of 0.45. What does that statement mean?
Jack and Harry work for the same company, but Jack earns more than Harry. Is this evidence of wage discrimination?Explain your answer.
A person decides to assume a lot of risk in earning an income. How could this decision affect her income?
“Poor people will always exist.” Comment.
What percentage of the U.S. population was living in poverty in 2015?
What is the general description of a disproportionate percentage of the poor?
Define each of the following:a. In-kind transfer paymentb. Lorenz curvec. Wage discrimination
Why does the price for loanable funds tend to equal the return on capital goods?
Why does the real interest rate, not the nominal interest rate, matter to borrowers and lenders?
What is the present value of $1,000 two years from today if the interest rate is 5 percent?
Give an example to illustrate that economic rent varies with the perspective from which a factor is viewed.
Nick’s salary is pure economic rent. What does this statement imply about Nick’s next-best alternative salary?
What are the social consequences of firms competing for artificial rents, as opposed to competing for real rents (in an environment in which there are no barriers to competing for real rents)?
Why does profit exist?
“Profit is not simply a dollar amount; it is a signal.”Comment.
What are two majors ways of increasing trade?
The economist reads about a survey of people picked at random who were asked the question: What percent profit on each dollar of sales do you think the average company earns after taxes? The average
What does it mean to say that an individual has a positive rate of time preference?
The economist is watching the news on television. A reporter says: “The debate is heating up over the proposed increase in the minimum wage. We asked people at random if they thought a rise in the
What will lower the demand for union labor?
What is the difference between a closed shop and a union shop?
What is the objective of a strike?
What is a major difference between a monopsonist and a factor price taker?
Under what conditions will the minimum wage increase the number of people working?
How could a collectively bargained higher wage rate in the unionized sector of the economy lead to a lower wage rate in the nonunionized sector of the economy?
The objective of labor unions is to obtain higher wages for their members. They just keep pushing wages up, up, and up.What and how the economist thinks:This statement makes me think about a seller
“If a firm is a price taker, it does not have the ability to control the price of the product it sells.” What does this statement mean?
The horizontal demand curve for the perfectly competitive firm signifies that it cannot sell any of its product for a price higher than the market equilibrium price. Why not?
Suppose the firms in a real-world market do not sell a homogeneous product. Does it necessarily follow that the market is not perfectly competitive?
If a firm produces the quantity of output at which MR5MC, does it necessarily earn profits?
In the short run, if a firm finds that its price (P) is less than its average total cost (ATC ), should it shut down its operation?
The layperson says that a firm maximizes profits when total revenue (TR) minus total cost (TC) is as large as possible and positive. The economist says that a firm maximizes profits when it produces
Why are market supply curves upward sloping?
If firms in a perfectly competitive market are earning positive economic profits, what will happen?
If firms in a perfectly competitive market want to produce more output, is the market in long-run equilibrium?
If a perfectly competitive market in long-run equilibrium witnesses an increase in demand, what will happen to price?
Two firms produce computer software. Firm A employs a software genius at the same salary that firm B employs a mediocre software engineer. Will the firm that employs the software genius earn higher
In a perfectly competitive market, do higher costs mean higher prices?
If you see a product advertised on television, does it follow that the product cannot be produced in a perfectly competitive market?
Person 1: When it comes to understanding markets, it is important to remember that, just as there are two teams in football that work against each other, there are two teams in markets. There are
Suppose all firms in a perfectly competitive market are in long-run equilibrium. Illustrate what a perfectly competitive firm will do if market demand rises.
“There are always some close substitutes for the product any firm sells; therefore, the theory of monopoly (which assumes no close substitutes) cannot be useful.” Comment.
How is a movie superstar like a monopolist?
Why does the monopolist’s demand curve lie above its marginal revenue curve?
Is a monopolist guaranteed to earn profits?
Why do you think a monopolist is called a price searcher? What is it searching for?
What are some of the costs, or shortcomings, of monopoly?
What is the deadweight loss of monopoly?
Why must a seller be a price searcher (among other things) before he can price discriminate?
Businesses often price discriminate, charging different customers different prices for the same good. It is usually the case that the customer who pays the higher price is subsidizing the customer
How is a monopolistic competitor like a monopolist? How is it like a perfect competitor?
“Firms have an incentive to form a cartel, but once it is formed, they have an incentive to cheat.” What is the specific incentive to form the cartel? What is the incentive to cheat on the cartel?
Is an oligopolistic firm a price taker or a price searcher? Explain your answer.
You often hear that grade inflation exits in colleges today. Today’s college students receive an A− or B+ for the same work that would have earned them a C+ or C, say, 25 years ago. But I’m not
Why does it matter whether a market is defined broadly or narrowly for purposes of antitrust policy?
Suppose that 20 firms are in an industry and that each firm has a 5 percent market share. What is the four-firm concentration ratio for this industry? What is the Herfindahl index?
What is the advantage of the Herfindahl index over the fourand eight-firm concentration ratios? Explain your answer
State one criticism of average cost pricing.
State the essence of the capture theory of regulation.
Are economists for or against regulation?
Person 1: “Business needs to be regulated. If business firms were not regulated, then prices would be higher, quality would be lower, employees would be treated poorly, and who knows what
When a perfectly competitive firm employs one worker, it produces 20 units of output, and when it employs two workers, it produces 39 units of output. The firm sells its product for $10 per unit.
What is the difference between marginal revenue product (MRP) and value marginal product (VMP)?
How much labor should a firm purchase?
The demand for labor is a derived demand. What could cause a firm’s demand curve for labor to shift rightward?
Suppose the coefficient of elasticity of demand for labor is 3.What does this mean?
What does this mean?

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