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microeconomics principles applications

Questions and Answers of Microeconomics Principles Applications

1.3 At the beginning of 2015 I bought a fire insurance policy for my vacation home in Aspen; at the end of the year, my vacation home had not burned down. Was my purchase a mistake? Explain.
3.1 Iceland faced a problem of overfishing and witnessed their cod and herring populations nearly disappearing in the 1960s and 1970s. The overuse of a common resource like fish is often referred to
2.6 The recent economic growth resulting from government policies of newly industrializing nations such as India and China has increased environmental strains on global air and water systems. The
2.5 Government involvement in general scientific research has been justified on the grounds that advances in knowledge are public goods—once produced, information can be shared at virtually no
2.4 Bonnie and Clyde share a street on their way to their homes and wish to illuminate it. Bonnie’s demand for street lamps is given by P = $4, while Clyde’s demand for streetlamps is given by P
2.3 Explain why you agree or disagree with each of the following statements:a. The government should be involved in providing health care for all citizens because health care is a “public
2.2 For the following goods state whether each falls in the category of private goods, mixed goods or public goods by employing the criteria of exclusivity and rivalry in consumption. Explain your
1.11 Velma, a book editor for a local publishing company, and Daphne, an opera singer in a local opera company, share a townhouse in Miami. Velma enjoys reading and editing books at home, and Daphne
1.10 Two firms, Vesuvius and Etna, are each emitting 9 units of pollution, and the government wants to reduce the total level of pollution from the current level of 18 to 6. To do this, the
1.7 [related to the Economics in Practice on p. 363] The Economics in Practice suggests that economists often distinguish between short-run and long-run effects of policies or actions when adjusting
1.6 The Coase theorem implies that we never need to worry about regulating externalities because the private individuals involved will reach the efficient outcome through negotiations. Is that
1.5 [related to the Economics in Practice on p. 371]Microsoft and Disney are just two of a growing number of organizations using internal carbon taxes in an attempt to reduce carbon emissions, and
1.4 A paper factory dumps polluting chemicals into the Snake River. Thousands of citizens live along the river, and they bring suit, claiming damages. You are asked by the judge to testify at the
1.1 In October, 2015, a 5p carrier plastic bag charge went into effect in England for supermarkets and major retailers; similar charges were already in effect in Wales, Scotland, and Ireland that had
1. Why might the social cost of capital be a good carbon fee to use from an economic efficiency perspective?
1. Why do you think adjustment to the Dust Bowl was so slow?
4.1 For each of the following, state whether you agree or disagree. Explain your answer.a. Monopolistically competitive firms generate economic profits because they are protected by barriers to
3.3 Explain the relationship between price and marginal revenue for a perfectly competitive firm and for a monopolistically competitive firm. Why is the relationship different for these markets?
3.2 The following diagram shows the structure of cost and demand facing a monopolistically competitive firm in the short run.a. Identify the following on the graph and calculate each one.i.
3.1 Raul is operating a studio house in La Palma de Majorca.Hundreds of hotels, motels, villas, apartment, and studio houses are offered as tourist accommodations in the area.Raul opened up his
2.7 If one were to do a research on olive oil and its producers around the world, they would come up with many varieties and producers of olive oil. Carry out such a search for Greek olive oil from
1.1 Plaza Mayor, one of Madrid’s central squares, attracts many young people who frequent its many stores for entertain and to meet new people. As friendships and partnerships are created, this can
3.4 Simon likes to watch movies and his Internet service provider offers streaming movies on a pay-per-view basis for$3 each. The provider also offers a service for unlimited streaming of movies for
3.3 The issue of misinformation is news has acquired a greater importance in the age of the Internet. In a 2013 Oxford Internet Survey, traditional media like TV and the radio ranked lower than the
3.2 The five busiest airports in the United States are in Atlanta, Chicago, Los Angeles, Dallas-Ft. Worth, and Denver. At these airports there are more than 450 food outlets, with each airport
3.1 In the past 15–20 years there have been numerous business/accounting scandals with fraudulent behaviour amounting to billions of dollars. In discussing incentive mechanisms the textbook
2.7 One way insurance companies reduce adverse selection problems is by offering group medical coverage to large firms and requiring all employees to participate in the coverage. Explain how this
2.6 Valentino wants to purchase a classic motorcycle and sees a 1974 Triumph Bonneville T140 listed on Cycletrader.com for $5,950. He is willing to pay $7,500 if the motorcycle is reliable, but only
2.5 [related to the Economics in Practice on p. 390] Do you think companies that issue health insurance should be allowed to inquire about family medical history and the results of genetic testing
2.4 [related to the Economics in Practice on p. 392] Find a product advertisement in a magazine, in a newspaper, or on a Web site, for which the missing information tells you something important
2.3 Signals are also used in social settings. In a new place, what signals do you look for to find people who share your interests?
1.4 Video poker is a popular form of gambling in casinos, second only to slot machines. Some video poker games offer a “double-up” feature, where players receiving a paying hand are offered the
1.3 At the beginning of 2015 I bought a fire insurance policy for my vacation home in Aspen; at the end of the year, my vacation home had not burned down. Was my purchase a mistake? Explain.
1.2 Your current salary is a fixed sum of $115,600 per year.You have an offer for another job. The salary there is a flat$75,000 plus a chance to earn $350,000 if the company does well. Assume that
1.1 Attitudes towards risk for Anna, Bill and Joe are given by the following utility functions:UA = I + 1, UB = 2I2, and UJ = 21I, where U is level of utility and I level of income.Through graphical
2.5 Government involvement in general scientific research has been justified on the grounds that advances in knowledge are public goods—once produced, information can be shared at virtually no
2.3 Explain why you agree or disagree with each of the following statements:a. The government should be involved in providing health care for all citizens because health care is a “public
2.2 For the following goods state whether each falls in the category of private goods, mixed goods or public goods by employing the criteria of exclusivity and rivalry in consumption. Explain your
2.1 The existence of “public goods” is an example of potential market failure and suggests that a government or public sector can improve the outcome of completely free markets. Write a brief
1.11 Velma, a book editor for a local publishing company, and Daphne, an opera singer in a local opera company, share a townhouse in Miami. Velma enjoys reading and editing books at home, and Daphne
1.10 Two firms, Vesuvius and Etna, are each emitting 9 units of pollution, and the government wants to reduce the total level of pollution from the current level of 18 to 6. To do this, the
1.9 Refer to the previous question but assume that the government has imposed a per-unit tax on this product that is exactly equal to the marginal damage costs. Use the diagram to show what will
1.7 [related to the Economics in Practice on p. 363] The Economics in Practice suggests that economists often distinguish between short-run and long-run effects of policies or actions when adjusting
1.4 A paper factory dumps polluting chemicals into the Snake River. Thousands of citizens live along the river, and they bring suit, claiming damages. You are asked by the judge to testify at the
1.1 In October, 2015, a 5p carrier plastic bag charge went into effect in England for supermarkets and major retailers; similar charges were already in effect in Wales, Scotland, and Ireland that had
4.1 For each of the following, state whether you agree or disagree. Explain your answer.a. Monopolistically competitive firms generate economic profits because they are protected by barriers to
3.3 Explain the relationship between price and marginal revenue for a perfectly competitive firm and for a monopolistically competitive firm. Why is the relationship different for these markets?
3.2 The following diagram shows the structure of cost and demand facing a monopolistically competitive firm in the short run.a. Identify the following on the graph and calculate each one.i.
3.1 Raul is operating a studio house in La Palma de Majorca.Hundreds of hotels, motels, villas, apartment, and studio houses are offered as tourist accommodations in the area.Raul opened up his
2.8 Professor Econsmart teaches a course in principles of economics at a large university. This semester hehas decided to enrich his lectures by adding a number of different techniques in addition to
2.7 If one were to do a research on olive oil and its producers around the world, they would come up with many varieties and producers of olive oil. Carry out such a search for Greek olive oil from
2.6 The table shows the relationship for a hypothetical firm between its advertising expenditures and the quantity of its output that it expects it can sell at a fixed price of $12 per
2.5 [related to the Economics in Practice on p. 352] As cities go, Las Vegas is about as “over-the-top” as is imaginable. Where else in the world can you find a 350-foot tall glass pyramid, a
2.4 [related to the Economics in Practice on p. 350] The Economics in Practice mentions that Erzulie products are modestly priced. Do you expect to necessarily find such competitively-priced products
2.3 In a market in which there is vertical differentiation, we always see price differences among the products.In markets with horizontal differentiation, sometimes the products differ but prices are
2.2 Write a brief essay explaining the accuracy of this statement: The Beatles were once a monopolistically competitive firm that became a monopolist.
2.1 Consider the local music scene in your area. Name some of the local live bands that play in clubs and music halls, both on and off campus. Look in your local newspaper for advertisements of
1.1 Plaza Mayor, one of Madrid’s central squares, attracts many young people who frequent its many stores for entertain and to meet new people. As friendships and partnerships are created, this can
5.1 The following table represents the market share percentage for each firm in the prepared baby food industry in the US:2000 2001 2002 2003 2004 2005 2006 2007 2008 Beech-Nut 13% 13% 12% 11% 12%
4.1 Explain whether you agree or disagree with the following statements:a. In all oligopoly models except the contestable-market model, market concentration leads to output below the efficient level,
3.4 Management and union representatives at a firm are bargaining over wages: each side can either concede to the other party’s demands/offers or hold out. If both concede they “split the
3.3 Suppose we have an industry with two firms producing the same product. Acme Corporation produces 19,000 units, while Zoltar Corporation produces 1,000 units.The price in the market is $20, and
3.2 The payoff matrixes in Figure 2 at page bottom show the payoffs for two games. The payoffs are given in parentheses. The values on the left refers to the payoff to A; the values on the right
3.1 The matrix in Figure 1 at page bottom shows payoffs based on the strategies chosen by two firms. If they collude and hold prices at $10, each firm will earn profits of $5 million. If A cheats on
2.5 [related to the Economics in Practice on p. 330]T-Mobile is the fourth-largest wireless communication provider in the United States, behind Verizon, AT&T, and Sprint. In an effort to
2.4 What is the Cournot model? How does the output decision in the Cournot model differ from the output decision in a monopoly?
2.3 Explain whether you agree or disagree with the following statement. If all firms in an industry successfully engage in collusion, the resulting profit-maximizing price and output would be the
2.2 In 2007 Canadian authorities opened an investigation over allegations that major players in the Canadian chocolate market, including Nestle, Hershey, Mars and ITWAL conspired to fix prices and
2.1 Assume that you are in the business of providing medical insurance. You have analyzed the market carefully, and you know that at a price of $6,000 per year, you will sell 40,000 insurance
1.3 Which of the following markets are likely to be perfectly contestable? Explain your answers.a. Coal miningb. Insurancec. Wind Farmsd. Landscapinge. Advertising 14.2 OLIGOPOLy MODELS Learning
1.2 In a significant decision regarding patent eligibility, Alice Corp. v. CLS Bank International, the U.S Supreme Court in June 2004 effectively raised the bar for software patents by declining a
1.1 Which of the following industries would you classify as an oligopoly? Explain your answer. If you are not sure, what information do you need to know to decide?a. Motorcyclesb. Hotelsc. Cruise
5.1 [related to the Economics in Practice on p. 316] One of the big success stories of recent years has been Google.Research the firm and write a memorandum to the head of the Antitrust Division of
4.2 [related to the Economics in Practice on p. 314] Many high street bookstores have adult and teen sections where the adult copies of the same books cost more than children’s copies, the only
4.1 The following diagram illustrates the demand and marginal revenue curves facing a monopoly in an industry with no economies or diseconomies of scale. In the short and long run, MC = ATC.a.
3.1 The diagram below shows a firm (industry) that earns a normal return to capital if organized competitively. Price in the market place is Pc under competition. We assume at first that marginal
2.10 Taylor Swift is a singer-songwriter whose pop album 1989 was the top-selling album of 2014, with 3.66 million copies sold in just its first 9 weeks of release. The path to success for pop
2.9 [related to the Economics in Practice on p. 300] When the 2001 Toyota Prius was introduced in the United States, it was the first mass-produced hybrid gas/electric car in the U.S. market. At the
2.8 [related to the Economics in Practice on p. 307] What would have been the wider implications of a favourable Supreme Court NFL ruling in other industries like credit card networks and chain
2.7 Prior to 1995, Taiwan had only one beer producer, a government-owned monopoly called Taiwan Beer.Suppose that while it was a monopoly, the company was run in a way to maximize profit for the
2.6 The following diagram shows the cost structure of a monopoly firm as well as market demand. Identify on the graph and calculate the following:a. Profit-maximizing output levelb. Profit-maximizing
2.5 The following diagram illustrates the demand curve facing a monopoly in an industry with no economies or diseconomies of scale and no fixed costs. In the short and long run, MC = ATC. Copy the
2.4 Edible Entomology, a monopoly, faces the following demand schedule for its chocolate-covered grasshoppers(sales in pounds per week):
2.3 There are a large number of pharmaceutical stores in the city of Medicovia, and certain chemists are in the business of supplying illegal medical goods. Over the course of three years, one
2.2 Explain why the marginal revenue curve facing a competitive firm differs from the marginal revenue curve facing a monopolist.
2.1 Do you agree or disagree with each of the following statements? Explain your reasoning.a. For a monopoly, price is equal to marginal revenue because a monopoly has the power to control price.b.
1.1 EasyJet is the only airliner serving the route Manchester, UK—Thessaloniki, Greece. Do you think that this airliner has a monopoly in serving this particular route? Explain.
18. A firm that charges the maximum amount that buyers are willing to pay for each unit is practicing perfect price discrimination.
17. Charging different prices to different buyers is called price discrimination. The motivation for price discrimination is fairly obvious: If a firm can identify those who are willing to pay a
16. Actions that firms take to preserve positive profits, such as lobbying for restrictions on competition, are called rent seeking. Rent-seeking behavior consumes resources and adds to social cost,
15. When firms price above marginal cost, the result is an inefficient mix of output. The decrease in consumer surplus is larger than the monopolist’s profit, thus causing a net loss in social
14. When a firm exhibits economies of scale so large that average costs continuously decline with output, it may be efficient to have only one firm in an industry. Such an industry is called a
13. Forms of barriers to entry include economies of scale, patents, government rules, ownership of scarce factors, and network effects.
12. Barriers to entry prevent new entrants from competing away industry excess profits.
11. Compared with a competitively organized industry, a monopolist produces too little output, charges higher prices, and earns economic profits. Because MR always lies below the demand curve for a
10. In the short run, monopolists are limited by a fixed factor of production, just as competitive firms are. Monopolies that do not generate enough revenue to cover costs will go out of business in
9. Monopolies have no identifiable supply curves. They simply choose a point on the market demand curve. That is, they choose a price and quantity to produce, which depend on the shapes of both the
8. A profit-maximizing monopolist will produce up to the point at which marginal revenue is equal to marginal cost (MR = MC).
7. For a monopolist, an increase in output involves not just producing more and selling it but also reducing the price of its output to sell it. Thus, marginal revenue, to a monopolist, is not equal
6. In perfect competition, many firms supply homogeneous products. With only one firm in a monopoly market, however, there is no distinction between the firm and the industry—the firm is the

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