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microeconomics principles

Questions and Answers of Microeconomics Principles

1.4. There are two special cases that might result in indifference curves that look a little different from the ones discussed in the text.a. If two goods are perfect substitutes, that means the
1.3. Currently, if you join Columbia House's DVD club, you get 3 DVDs for $1 each, but you have to commit to buying at least 3 more DVDs at $20 each over the next year. Suppose the normal market
1.2. Refer to Thinking and Problem-Solving question 1. In that question, we assumed that the consumer earned $50 in period 1 and $150 in period 2, and that saving and borrowing were both
1.1. This chapter argues that the ideal membership fee from Costco's point of view would leave consumers indifferent between shopping at Costco and shopping elsewhere. Do you think most of the
1.4. There are two special cases that might result in indifference curves that look a little different from the ones discussed in the text.a. If two goods are perfect substitutes, that means the
1.3. Currently, if you join Columbia House's DVD club, you get 3 DVDs for $1 each, but you have to commit to buying at least 3 more DVDs at $20 each over the next year. Suppose the normal market
1.2. Refer to Thinking and Problem-Solving question 1. In that question, we assumed that the consumer earned $50 in period 1 and $150 in period 2, and that saving and borrowing were both
1.1. This chapter argues that the ideal membership fee from Costco's point of view would leave consumers indifferent between shopping at Costco and shopping elsewhere. Do you think most of the
1.6. In this chapter, we focused a lot on budget constraints, but time is an additional constraint that consumers face. Jackson has $40 per week to spend on leisure activities. He likes to bowl and
1.5. eMusic is a popular subscription MP3 Web site. For a monthly membership fee, you can download MP3s for a price that's about half of what MP3s cost at iTunes or Amazon.Consider someone with $50
1.4. With inferior goods (like ramen noodles), the income effect works in the opposite direction from the income effect discussed in the text. If a consumer feels richer, she would buy less of an
1.3. Consider Facts and Tools question 2. Explain the income and substitution effects of the price changes on your optimal consumption bundle when the latte and scone prices increased, but your
1.2. In Major League Baseball, teams in the American League use a designated hitter (DH)to bat in place of the pitcher, while teams in the National League require their pitchers to bat. Sports
1.1. Suppose we wanted to investigate the saving and borrowing behavior of consumers. It's not that difficult to extend our basic model. We can use the same framework as before, but define our two
1.7. Is marginal utility always diminishing? Con ider playing cards. If playing cards were purchased one at a time, what would be true about the marginal utility of the 51st playing card compared
1.6. The utility-maximizing bundle of goods is found at the point of tangency between the budget constraint and an indifference curve.In the diagram below, the utility-maximizing bundle is the one
1.5. Suppose Haya has $120 of income left each week after she pays her bills and puts some money away in a savings account, and she has two ways to spend this extra money: go to the movies, which
1.4. Fill in the blanks below with either "good X"or "goodY," where good X is measured on the x-axis and good Y is measured on the y-axis.a. If the price of __ is $8 and the price of __ is $12, then
1.3. You learned in the chapter that the process of utility maximization involves a comparison of marginal utilities per dollar, which are calculated as marginal utility divided by price.Consider two
1.2. Imagine that for the past two years, you've con umed only two goods: lattes and scones. As you're probably aware, prices tend to go up over time. If the price of your latte increased from$2 to
1.1. The table at right shows the marginal On-Demand Marginal Movies 23 Utility Thai Takeout Marginal Meals 50 30 20 45 67 utility a consumer receives from the weekly consumption of On-Demand movie
1.1. What is so bad about bubbles? If the price of Internet stocks or housing rises and then falls, is that such a big problem? Mter all, some people say, most of the gains going up are "paper aains"
1.5. You own shares in a pharmaceutical company, PillCo. R eading the Yahoo! Finance W eb site, you see that PillCo wa sued this morning by u ers ofPillCo's new heart drug, Amphlistatin.PillCo's
1.4. Warren Buffett often says that he doesn't want a lot of diver ification in his portfolio. He says that diversification means buying stocks that go up along with stocks that go down; but he only
1.2. In most of your financial decisions early in life, you'll be a buyer, but let's think about the incentives of people who sell stocks, bonds, bank accounts, and other financial products.a.
1.1. Your brother calls you on the phone telling you that Google's share price has fallen by about 25% over the past few days. Now you can own one small slice of Coogle for only $430 a share(the
1.6.a. If you talk to a broker selling the high-fee mutual fund, what will he or she probably tell you when you ask them, "Am I getting my money's worth when I pay your high fees?"b. According to
1.5. Let's see how fee can hurt your investment strategy. Let's assume that your mutual fund grows at an average rate of 7% per year-before subtracting off the fees. Using the rule of70:a. How many
1.4. In the United States, high-level corporate officials have to publicly state when they buy or sell a large number of shares in their own company. They have to make these statement a few days
1.3. Consider the supply and demand for oranges.Orange crops can be destroyed by below-freezing temperatures.a. If a weather report states that oranges are likely to freeze in a storm later this
1.2. Let's do something boring just to drive home a point: Count up the number of years in Figure 22.1 in which more than half of the mutual funds managed to beat the S&P 500 index. (Recall that the
1.1. Before we plunge into the world of finance, let's review the rule of 70. Suppose your rich aunt hands you a $3,000 check at the end of the school year. She tells you it's for your education. But
1.5. In most big cities, taxicab fares are fairly standardized, and they are regulated by local governments. For the sake of simplicity, assume that a cab driver works for a licensed taxicab company,
1.4.a. Many HMOs pay their doctors based, in part, on how many patients the doctor sees in a day. What problems does this incentive system create?b. IfHMOs pay their doctors a fixed salary, what
1.3. In his path-breaking book Managerial Dilemmas, political scientist Gary Miller says that a good corporate culture is one that gets workers to work together even when they face prisoner's
1.2. What type of systems in the United States help overcome the incentives of physicians to order medically unnecessary tests?
1.1. Let's tie together this chapter's story on incentives with Chapter 15's story about cartels.Suppose your economics professor grades on a curve: The average score on each test becomes a B- . If
1.10. In early 2004, Donald Trump took the idea of using a tournament for hiring executives to a whole new level with the premiere of the TV how The Apprentice. On the show, a group of contestants
1.9. Waiters and waitresses are generally paid very low hourly wages and receive most of their compensation from customer tips.a. As the owner of a restaurant, what do you want from your wait
1.8.a. Why do so many charitable activities like marathons, walks, and SK runs give the participants "free" t-shirts, wristbands, hats, bumper stickers, and so forth?b. Charitable organizations could
1.7. When an accused defendant is brought before a judge to schedule a trial, the judge may release the defendant on his or her "own recognizance"or the judge may demand that the defendant post bail,
1.6. Let's return to the question we posed in the chapter: Suppose that the big environment risk is not bad professors but rather hard material.Imagine, for example, that some classes are more
1.5. In the movie business, character actors are typically paid a fixed fee, while movie "stars"are typically paid a share of the box office revenues. Why the difference? Try to give two explanations
1.4. In the short, readable classic Congress: The Electoral Connection, David Mayhew uses the basic ideas of incentives and information as a pair of lenses through which to view members of Congress.
1.3. Who do you think is in favor of forbidding baseball player contracts from including bonuses based on playing skill? Owners or players? Why?
1.2. One reason it's difficult for a manager to set up good incentives is because it's easy for employees to lie about how they'll respond to incentives. For example, Simple Books pays Mary Sue to
1.1. In 1975, economist Sam Peltzman publi hed a study of the effects of recent safety regulations for automobiles. His re ults were surprising:Increased safety standards for automobiles had no
1.8. The typical corporate executive's incentive package offers higher pay when the company's stock does well. One proposal for such executive merit pay is to instead pay executives based on whether
1.7. Unlike in the previous question, sometimes, piece rates don't work so well. Why might the following incentive mechanisms turn out to be more trouble than they're worth?a. An industrial materials
1.6. Why are salespeople so much more likely than other kinds of workers to be paid on a "piece rate" (i.e., on commission)? What is it about the kind of work they do that makes the high commission +
1.5. Let's return to Big Idea Four (thinking on the margin) back in Chapter 1. Why are calls to give harsher penalties to drug dealers and kidnappers often met with warnings by economists?
1.4. The basketball player Tim Hardaway was once promised a big bonus if he made a lot of assists.Can you think of any problems that such an incentive scheme might cause? Many professional athletes
1.3. Punishments can be an incentive, not just rewards. Consider an assembly line. Why wouldn't you necessarily want to reward the fastest worker on the assembly line? What other incentive system
1.2. An American church sends 10 missionaries to Panama for three years to find new converts.Every six months, the missionary with the most new converts gets to be the supervising missionary for the
1.1. This chapter had three big lessons. Each of the following situations illustrates one and (we think) only one of those lessons. Which one?a. Militaries throughout the world give medals,
1.8. Let's say that Tom, who is 25 years old, wants to smoke a cigarette. Consider the following two situation .a. Tom is moking. Suddenly, the government comes along and tells Tom that he cannot do
1.7. Sometimes poor countries have a lot of people;India has more than 1 billion re ident . Indian are relatively poor, and we know that as families become wealthy, they tend to limit their number of
1.6. Some people feel inequality is ju tified if the people with unequal outcomes accepted risks voluntarily; it was simply the case that orne won and some lost. Imagine two people, each spending
1.5. You would probably sacrifice yourself to save all ofhumanity, but you probably wouldn't sacrifice yourself to save the life of one random stranger. What number is your cutoff: How many lives
1.4. If the rich countries were able to send individual cash payments to people in poor countries, bypassing possibly corrupt governments, would you let rich countries pay people in poor countries to
1.3. Philosopher Alastair Norcross poses the following question. Suppose that 1 billion people are suffering from a moderately severe headache that will last a few hours. The only way to alleviate
1.2.a. In your view, when should governments enforce a "live and let live" rule: on issues that matter most to people (e.g., matters oflife and death, matters of how much income to give to the
1.1. Should responsible adults be allowed to sell a kidney? Why or why not? If so, what restrictions would you place on such sales, if any?
1.8. Compare a Rawlsian view with a utilitarian view on the question of whether it should be legal to copy movies and music freely.
1.7. Based on the tools from this chapter, how could a person reasonably justify a ban on gambling?
1.6. What do you think best describes the reason that trade in recreational drugs is illegal: fear of exploitation, meddlesome preferences, notions of fairness, paternalism, concerns about equality,
1.5.a. The "trolley problem" is a famous ethical puzzle created by Philippa Foot: You are the conductor of a trolley (or subway or streetcar or train) that is heading out of control down a track.
1.4. Let's see how a utilitarian dictator would arrange things for Adam, Eve, and Lilith.One heroic assumption that utilitarians make is that you can actually compare happiness and misery across
1.3. The line between "having a meddlesome preference" and "recognizing an externality"is not always clear. Both are way of saying,"What you're doing bother me." A we used it in this chapter, a
1.2. Some people say that the right to equal treatment ha no price. But it seems that most people don't really believe that: Those are just polite words that we tell one another. Consider the
1.1. To a Rawl ian, would the world be better off without the Harry Potter novels and one additional billionaire?
1.6. Would a "global utilitarian" (someone who values the utility of everyone in the world equally, without giving more weight to people in their own country) who lives in America want more
1.5. Rawlsians upport government income redistribution to the worst-off members of" ociety." If "society" means the whole world, how much redistribution might be involved?In other words, what
1.4.a. Just thinking about yourself, if you did not know in advance whether you were a Red, Blue, or Green person, would you rather live in ociety A, B, C, or D that are discussed in the Rawl's
1.3. One ofNozick's arguments against utilitarianism was the "utility monster":a person who always gets enormous happiness from every extra dollar, more happiness than anyone else in society. If such
1.2. Of the three ethical theories we discuss(Rawlsian, utilitarian, and Nozickian), which two are most different from the third? In what way are the two different from the third?
1.1.a. In this chapter, we never actually defined"exploitation." What is one dictionary definition of the word?b. Decide whether the six cases of alleged ex ploitation we discussed earlier in the
1.6. In the 1998 Minnesota gubernatorial election, there were three main candidates: Norm Coleman (the Republican), Jesse "The Body"Ventura (an Independent), and Hubert Humphrey (the Democrat).
1.5. In the previous question, you showed that sometimes there may be no policy that beats every other policy in a majority rule election and, as a result, the agenda can determine the outcome. In
1.4. We mentioned that the median voter theorem doesn't always work, and sometimes a winning policy doesn't exist. This fact has driven economists and political scientists to write thousands of
1.3. Political scientist Jeffrey Friedman and law professor Ilya Somin say that since voters are largely ignorant, that is an argument for keeping government simple. Government, they say, should
1.2.a. When a drought hits a country, and a famine is possible, what probably falls more: the demand for food or the demand for haircuts? Why?b. Who probably suffers more from a deep drought: people
1.1.Is rational ignorance the whole explanation for why voters allow programs like the sugar quota to persist? Perhaps not. In the early 1900s, the government of New York City was controlled by a
1.8. Let's rewrite a sentence from the chapter concerning the Roman Empire: "As the American Empire grew, courting politicians Political Economy and Public Choice • CHAPTER 19 • 381 in Washington
1.7. The following figure shows the political leanings of 101 voters. Voters will vote for the candidate who is closest to them on the spectrum, as in the typical median voter story. Again as usual,
1.6. Driving along America's interstates, you'll notice that few rest areas have commercial businesses.Vending machines are the only reliable source of food or drink, much to the annoyance of the
1.5. In the television show Scrubs, the main character J. D. is a competent and knowledgeable doctor.He also has very little information outside of the field of medicine, admitting he doesn't know
1.4. In his book The Myth if the Rational Voter, our GMU colleague Bryan Caplan argues that not only can voters be rationally ignorant, they can even be rationally irrational. People in general seem
1.3. We mentioned that voters are myopic, mostly paying attention to how the economy is doing in the few months before a presidential election.If they want to be rational, what should they do
1.2. An initiative on Arizona's 2006 ballot would have handed out a $1 million lottery prize every election: The only way to enter the lottery would be to vote in a primary or general election. How
1.1. David Mayhew's classic book Congress:The Electoral Connection argued that members of Congress face strong incentives to put most of their efforts into highly visible activities like foreign
1.8. Perhaps it was in elementary school that you first realized that if everyone in the world gave you a penny, you'd become fantastically rich. This insight is at the core of modern politics. Sort
1.7. Let's walk through the median voter theorem in a little more detail. Consider a town with three voters, Enrique, Nandini, and Torsten. The big issue in the upcoming election is how high the
1.6. The "median voter theorem" is sometimes called the "pivotal voter theorem." This is actually a fairly good way to think of the theorem. Why?
1.5. True or false?a. During Bangladesh's worst famine, average food per person was much lower than usual.b. Democracies are less likely to kill their own citizens than other kinds of governments.c.
1.4. If a particular government policy-like a decision to go to war or to raise taxes-only works when citizens are informed, is that an argument for that policy or against that policy?
1.3. Around 130 million voters participated in the 2008 U.S. presidential election. Imagine that you are deciding whether to vote in the next presidential election. What do you think is the
1.2.a. How many famines have occurred in functioning democracies?b. What percentage of famines occurred in countries without functioning democracies?
1.1. Which of the following is the smallest fraction of the U.S. federal budget? Which are the two largest categories of federal spending?Welfare Interest on the federal debt Defense Foreign aid
1.The experience that was had in this common course and condition, tried sundry years and that amongst godly and sober men, may well evince the vanity of that conceit ofPlato's and other ancients

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