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microeconomics principles applications

Questions and Answers of Microeconomics Principles Applications

4.5 Recessions lower incomes and reduce rental prices for beachfront properties. Suppose that the demand function for renting a beachfront property in Barcelona, Spain, during the first week of
*4.4 The demand function is Q = 220 - 2p, and the supply function is Q = 20 + 3p - 20r, where r is the rental cost of capital. How do the equilibrium price and quantity vary with r? (Hint: See Solved
4.3 Production of ethanol in the European Union (EU), primarily from wheat, increased more than 2.4 times from 570 million gallons in 2007 to 1,387 million gallons in 2015
4.2 The 9/11 terrorist attacks caused the U.S. airline travel demand curve to shift left by an estimated 30% (Ito and Lee, 2005). Use a supply-and-demand diagram to show the likely effect on price
*4.1 Use a figure to explain the fisher’s comment about the effect of a large catch on the market price in the cartoon about catching lobsters in this chapter. What is the supply shock?
3.4 The demand function for milled rice in India in Question 1.1 is Q = 17 - 3p + 5pw + 6pm + 0.1Y and the supply function in Question 2.1 is Q = 8 + 9p - 12pr. Solve for the equilibrium price and
3.3 Suppose that the supply function for copra (dried coconut meat) for processing into coconut oil in the Philippines is ln Q = 0.2 + 0.22ln p, where Q is the quantity of copra in millions of tons
3.2 If the demand function is Q = 110 - 20p, and the supply function is Q = 20 + 10p, what are the equilibrium price and quantity? M
3.1 Use a supply-and-demand diagram to explain the statement “Talk is cheap because supply exceeds demand.” At what price is this comparison being made?
*2.4 Various governments have, from time to time, set limits on how much of certain goods produced in ?
2.3 If the supply curve for fresh oranges in Egypt is Qe = 0.7 + 5p and the supply curve for fresh oranges for the rest of the world is Qrow = 38.2 + 10p, what is the world supply curve? M
2.2 Given an estimated supply function for avocados of Q = 58 + 15p - 20pf, determine how much the supply curve for avocados shifts if the price of fertilizer rises by $1.10 per lb. Illustrate this
2.1 Suppose that the supply function for milled rice in India is Q = 8 + 9p - 12pr, where Q is the quantity in millions of tons of rice per year, p is the price of milled rice in thousands of rupees
1.6 Based on information in the Application “The Demand Elasticities for Google Play and Apple Apps,” the demand function for mobile applications at the Apple App Store is QA = 1.4p-2 and the
1.5 Soybean oil is sold directly to consumers and used as an ingredient in a wide variety of processed foods. Soybean meal, the residue from producing soybean oil, is used as animal feed. Suppose the
*1.4 Suppose that the demand function for movies is Q1 = 120 - p for college students and Q2 = 60 - 0.5p for other town residents. What is the town’s total demand function (Q = Q1 + Q2 as a
1.3 Given an estimated demand function for avocados of Q = 104 - 40p + 20pt + 0.01Y, show how the demand curve shifts as per capita income, Y, increases by $1,000 a year. Illustrate this shift in a
1.2 Using the demand function for milled rice from Question 1.1, show how the quantity demanded at a given price changes if per capita income, Y, increases by 10,000 rupees. M
1.1 Suppose that the demand function for milled rice in India is Q = 17 - 3p + 5pw + 6pm + 0.1Y, where Q is the quantity in millions of tons of rice per year, p is the price of milled rice in
Would there be economic rent?3. Suppose a company owns a computer that costs$5,000 and depreciates $1,000 per year. If the interest rate is 5 percent, what is the implicit rental price of the
Suppose that Marshall’s stones were dropped all over the earth and finding them was difficult. Would the supply curve for capital still be perfectly inelastic?
What do economists mean when they say that financial markets are efficient?
What is diversification? How does it affect risk?
What does it mean for an individual to be risk averse?
What determines the rate of return on stocks? On bonds?
What is the difference between a stock and a bond?
What is the difference between physical capital and financial capital?
10. In recent years, we have heard much about the rise of extremely ideologically rigid attachments of segments of the population to particular political parties. Suppose that 25 percent of the
9. Use the set of preferences for Ali, Betty, and Camilla shown in the following table to show that the paradox of voting does not always occur. First Second Third Ali Betty Camilla CAB BAC ABC
8. The world’s oceans are in trouble. Recently, experts have noted that stocks of fish are declining as the seas’ resources are overused. Governments are increasingly becoming interested in ways
7. After September 11, the media paid closer attention to the potential use of shipped cargo containers to smuggle weapons and terrorists into the United States.a. Discuss why there may be a negative
6. Consider two college roommates, one who smokes and one who does not. The smoker wishes to smoke in the room, and the nonsmoker dislikes smoking in the room. Suppose the smoker would be willing to
5. Is public education a public good? Does it have positive externalities? Explain what the implications are for whether public education should be provided by the government. Could the same outcomes
8. The following table gives hours worked and the welfare payment received.a. Calculate the missing data in the table, given that the hourly wage is $5 and total income is the sum of the wage payment
Why is the demand for labor downward-sloping?
Why do we say that the demand for labor is a derived demand?
6. Why is it better to break up monopolies that are not natural monopolies rather than regulate them, even if it is possible to regulate them?
5. In 2007, the European Union sued Apple under its antitrust laws. Apple has established country-specific web sites for European customers of iTunes. The music inventory and prices vary among the
3. Consider Al’s gasoline station, which sells Texaco at a busy intersection along with three other stations selling Shell, Conoco, and Chevron.a. Draw the marginal cost, average total cost,
How does price discrimination reduce deadweight loss?
What is price discrimination?
What is the deadweight loss from a monopoly?
What forces tend to cause monopolies?
What market power does a monopoly have?
8. List some external economies of scale that might be realized by a computer manufacturing firm that locates in a high-tech industrial park. List some diseconomies of scale that might be realized by
7. Since there are zero profits in the long run for any firm in a competitive industry, what incentive is there for a firm in a competitive industry to pursue cost-cutting measures?
6. Suppose the government imposes a sales tax on a good sold by firms in a competitive industry.Describe what happens to the price of the good in the short run and in the long run when firms are free
3. What are the key characteristics of an economy that is in a long-run competitive equilibrium?
2. What are some possible sources of the rise of industries? Of the fall of industries?
1. What is the definition of an industry?
3. Draw a diagram with an isocost line and an isoquant next to a diagram with a budget line and an indifference curve from the appendix to Chapter 5.List the similarities and differences. How are the
2. Sketch a typical isocost line and isoquant where the firm has chosen the combination of capital and labor that minimizes total costs for a given quantity of output. Now suppose the price of
1. Graph the isocost line associated with a wage of $10 per hour and a price of capital of $50 for total costs of $200, $240, and $300. Suppose the wage rises to$15 and the price of capital stays at
4. Why does the firm minimize cost for a given level of output by choosing capital and labor at the point where the isocost line is tangent to the isoquant?
3. What determines the slope of the isocost line?
2. Why does the isocost line slope downward?
1. Why does the isoquant slope downward?
8. High international prices for soybeans in recent years led many Argentinean farmers to switch land that had been used as pasture to raise cattle to soybean production. This resulted in a shortfall
7. Suppose that an unanticipated bout of good weather results in almost ideal growing conditions, leading to a substantial increase in the supply of wheat in the United States.a. Draw a supply and
6. Consider the following supply and demand schedule for candy bars:a. Sketch the market supply and demand curves.Show the equilibrium quantity and price.b. Graphically show the producer surplus and
5. Suppose that in the ukulele market described in problem 2, the government imposes a $40 sales tax, which causes the equilibrium price to go up to $100.Calculate the following:a. The quantity
4. Firm A and firm B both produce the same product with the following total costs:Consider a situation in which the market price is $3 and 4 units are produced in total: Firm A produces 2 units, and
3. Using the answers you provided above for problems 1 and 2, verify that the three efficiency conditions are satisfied for the ukulele market.
1. Suppose that in a competitive market for ukuleles, there are three buyers (Peter, Paul, and Mary) with the marginal benefit (MB) schedules below.If the equilibrium price is $80, calculate the
10. How does the imposition of a tax create deadweight loss for the economy?
9. How does the imposition of a price floor create deadweight loss for the economy?
8. Why is the sum of consumer surplus and producer surplus maximized in the competitive market?
7. How does a competitive market satisfy the conditions that are needed for Pareto efficiency to hold?
6. What are the conditions that are needed for Pareto efficiency to hold? Why would the violation of any one of those conditions bring about a situation that is not Pareto efficient?
5. What is the meaning of Pareto efficiency?
4. How does the competitive equilibrium model explain the decisions of individual consumers and producers?
3. What is the relationship between the competitive equilibrium model and the supply and demand model?
2. Why is it difficult for one person or group of persons to perform the functions listed in question 1? How does the market perform these functions?
1. What are the information-processing, coordination, and motivation functions that arise when buyers and sellers interact?
10. What is the relationship between producer surplus, profits, and fixed costs? In what types of industries would you expect producer surplus to be high while profits are low? Provide one or two
9. Consider the following information about a firm that sells ice cream–making machines:On the same diagram, plot the total revenues and total costs curves for this firm. What are the maximum
8. Suppose you are able to mow lawns at $12 per hour.The only cost to you is the opportunity cost of your time. For the first 3 hours, the opportunity cost of your time is $9 per hour. But after 3
7. Consider the following information:Daily Production and Costs at Jill’s Bread Bakers Quantity Produced Total Costs(dozens of loaves) (dollars)0 20 1 22 2 26 3 32 4 40 5 50 6 62 7 76a. Calculate
6. Suppose a price-taking producer of barrels for storing wine has the following total costs schedule:Quantity Total Costs 0 20 1 30 2 42 3 55 4 75 5 100 6 130a. Calculate marginal cost. If the price
5. The following table shows the total costs of producing strawberries on a small plot of land.Pounds of Strawberries Total Costs (dollars)0 10 1 11 2 14 3 18 4 25 5 34a. Calculate the marginal cost
4. Consider the example of the cost of pumpkins in Table 4. Compute the total revenue, total costs, and profits when the price of a crate of pumpkins is $60.How many crates of pumpkins will maximize
3. Before the Industrial Revolution, people lived in agricultural societies. What are the two primary inputs to production in an agricultural society?Which one of these inputs is variable and which
2. Does the assumption that firms are price-takers in a market seem less valid than the assumption that consumers are price-takers in that market? Explain why. Would your answer change if you were
1. Name three businesses in which firms are pricetakers.Name three businesses in which firms are not price-takers. Suppose you set up a business where you tutor students on campus. Would you be a
10. How does producer surplus differ from profits?
What is a firm?
4. Sarah has $20 to spend on slices of pizza and cans of diet cola. Pizza costs $1 per slice, and diet cola costs $.50 per can.a. Graph Sarah’s budget line for pizza and diet cola.b. Suppose
3. Suppose that the prices of two goods consumed by an individual are reduced by the same percentage. What change will happen to the budget line? What change will happen to the consumer’s
2. Suppose you are having a party in half an hour and you have two 6-packs of beer in your refrigerator. One is an imported premium beer, and the other is a standard domestic beer. A neighbor comes
1. Darnell has $30 to spend on either muffins, which cost $3 each, or cartons of orange juice, which cost $1.50 each.a. Graph Darnell’s budget line for muffins and orange juice.b. What is the
12. In 1992, the federal government placed a tax of 10 percent on goods like luxury automobiles and yachts. The yacht-manufacturing industry had huge declines in orders for yachts and laid off many
11. Compare a market in which supply and demand are very (but not perfectly) inelastic to one in which supply and demand are very (but not perfectly)elastic. Suppose the government decides to impose
10. The board of directors of an airline wishes to increase revenue. One group favors cutting airfares, and the other group favors raising airfares. What are the assumptions each group is making
8. Calculate the cross-price elasticity for the following goods. Are they substitutes or complements?a. The price of movie theater tickets goes up by 10 percent, causing the quantity demanded for
6. Consider the following data for a supply curve:Price Quantity Supplied 2 10 3 20 4 30 5 40 6 50 7 60 8 70 9 80a. Use the midpoint formula to calculate the price elasticity of supply between a
5. Consider the following data for a demand curve:Price Quantity 11 10 10 20 9 30 8 40 7 50 6 60 5 70 4 80 3 90a. Use the midpoint formula to calculate the elasticity between a price of $10 and
4. Donors of organs for transplantation or medical research are prohibited from charging a price for these organs (there is a price ceiling of zero). Will this result in a shortage? How will the
3. More than 20 states have laws outlawing price gouging during a state of emergency, which might be declared after a hurricane or an earthquake. These laws prohibit price increases on basic
2. In 1991 the price of milk fell 30 percent. Senator Leahy of Vermont, a big milk-producing state, supported a law in the U.S. Congress to put a floor on the price. The floor was $13.09 per hundred
1. Consider the market for automatic teller machine services in a city. The price is the fee for a cash withdrawal.a. Sketch the demand curve and the supply curve for ATM transactions.b. How is the

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