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microeconomics principles applications

Questions and Answers of Microeconomics Principles Applications

1. Suppose there are three buyers of candy in a market: Tex, Dex, and Rex. The market demand and the individual demands of Tex, Dex, and Rex for candy are given in the table below. [LO3.2]a. Fill in
8. Suppose the total demand for wheat and the total supply of wheat per month in the Winnipeg grain market are as shown in the table here. Suppose also that the government establishes a price ceiling
6. Critically evaluate the following statement: “In comparing the two equilibrium positions in Figure 3-7b, I note that a smaller amount is actually demanded at a lower price. This refutes the law
5. Suppose that in the market for computer memory chips, the equilibrium price is $50 per chip. If the current price is$55 per chip, there will be of memory chips. [LO3.4]a. A shortageb. A surplusc.
1. Demand curve D in Figure 3-6 is downsloping becausea. Producers offer less product for sale as the price of the product falls.b. Lower prices of a product create income and substitution effects,
LOA3.1 (Appendix) Illustrate how supply and demand analysis can provide insights into actual-economy situations.
LO3.6 Identify what government-set prices are and how they can cause surpluses and shortages.
3. Let us put dollar amounts on the flows in the circular flow diagram of Figure 2-2. [LO2.5]a. Suppose that businesses buy a total of $100 billion of the four resources (labour, land, capital, and
2. With current technology, suppose a firm is producing 400 loaves of banana bread daily. Also assume that the least-cost combination of resources in producing those loaves is 5 units of labour, 7
1. Suppose Natasha currently makes $50,000 per year working as a manager at a cable TV company. She develops two possible entrepreneurial business opportunities. In one, she will quit her job to
7. Franklin, John, Henry, and Harry have decided to pool their financial resources and business skills in order to open up and run a coffee shop. They will share any profits or losses that the
5. Identify each of the following quotes as being an example of either the coordination problem, the invisible hand, creative destruction, or the incentive problem. [LO2.4]a. “If you compare a list
4. Assume that a business firm finds that its profit is greatest when it produces $40 worth of product A. Suppose also that each of the three techniques shown in the table below will produce the
2. Match each term with the correct definition. [LO2.2]private property self-interest freedom of enterprise competition mutually agreeable market freedom of choicea. An institution that brings buyers
1. Decide whether each of the following describes a command system, a market system, or a laissez-faire system. [LO2.1]a. A woman cannot open a flower shop unless the central government decides to
11. Distinguish between the factor market and the product market in the circular flow model. In what way are businesses and households both sellers and buyers in this model? What are the flows in the
10. In market economies, firms rarely worry about the availability of inputs to produce their products, whereas in command economies input availability is a constant concern. Why is there a
9. In a sentence, define the phrase invisible hand. [LO2.3]
7. Some large hardware stores such as Canadian Tire boast of carrying as many as 20,000 different products in each store.What motivated the producers of those individual products to make them and
6. Evaluate and explain each of the following hypothetical statements: [LO2.2]a. The market system is a profit-and-loss system.b. Competition is the disciplinarian of the market economy.
4. What are the advantages of using capital goods in the production process? What is meant by the term division of labour?What are the advantages of specialization in the use of human and material
3. Why is private property, and the protection of property rights, essential to the success of the market system? How do property rights encourage cooperation? [LO2.2]
5. What explains why millions of economic resources tend to get arranged logically and productively rather than haphazardly and unproductively?
4. In Figure 2-2,a. Households spend income in the product market.b. Firms sell resources to households.c. Households receive income through the product market.d. Households produce goods
3. In Figure 2-2,a. Money flows counterclockwise.b. Resources flow counterclockwise.c. Goods and services flow clockwise.d. Households are on the selling side of the product market.
1. The factor market is wherea. Households sell products and businesses buy products.b. Businesses sell factors of production and households sell products.c. Households sell factors of production and
LO2.4 Explain the operation of the “invisible hand” and why market economies usually do a better job than command economies at transforming economic resources into desirable output.
8. In the accompanying graph, is the slope of curve AA′ positive or negative? Does the slope increase or decrease as we move along the curve from A to A′? Answer the same two questions for curve
7. The accompanying graph shows curve XX′ and tangents at points A, B, and C. Calculate the slope of the curve at these three points. [LOA1.1]
6. Suppose that C = a + bY, where C = consumption, a = consumption at zero income, b = slope, and Y = income. [LOA1.1]a. Are C and Y positively related or negatively related?b. If graphed, would the
4. Construct a table from the data shown in the accompanying graph. Which is the dependent variable and which the independent variable? Summarize the data in equation form. [LOA1.1]5. Suppose that
3. The following table contains data on the relationship between saving and income. Rearrange these data into a meaningful order and graph them on the accompanying grid. What is the slope of the
2. Indicate how each of the following might affect the data shown in Figure A1-2 of this appendix: [LOA1.1]a. IU’s athletic director schedules higher-quality opponents.b. A National Basketball
1. Graph and explain the relationships you would expect to find between the following: [LOA1.1]a. The number of centimetres of rainfall per month and the sale of umbrellasb. The amount of tuition and
2. Erin grows pecans. The number of bushels (B) that she can produce depends on the number of centimetres of rainfall (R)that her orchards get. The relationship is given algebraically as follows: B =
1. Indicate whether each of the following relationships is usually a direct relationship or an inverse relationship.[LOA1.1]a. A sports team’s winning percentage and attendance at its home gamesb.
3. Look back at Figure A1-2, which shows the inverse relationship between ticket prices and game attendance at Informed University (IU). [LOA1.1]a. Interpret the meaning of both the slope and the
2. Describe the graphical relationship between ticket prices and the number of people choosing to visit amusement parks. Is that relationship consistent with the fact that, historically, park
1. Briefly explain the use of graphs as a means of representing economic relationships. [LOA1.1]
8. Because investment and capital goods are paid for with savings, higher savings rates reflect a decision to consume fewer goods for the present in order to be able to invest in more goods for the
7. Referring to the table in Problem 5, suppose that improvement occurs in the technology of producing forklifts but not in the technology of producing automobiles. Draw the new production
6. Look at Figure 1-3. Suppose that the cost of cheese falls, so that the marginal cost of producing pizza decreases. Will the MC curve shift up or down? Will the optimal amount of pizza increase or
5. Below is a production possibilities table for consumer goods(automobiles) and capital goods (forklifts). [LO1.7]a. Show these data graphically. Upon what specific assumptions is this production
4. Suppose that you are on a desert island and possess exactly 20 coconuts. Your neighbour, Friday, is a fisher, and he is willing to trade 2 fish for every 1 coconut you are willing to give him.
3. Suppose you won $15 on a lottery ticket at the local 7-Eleven and decided to spend all the winnings on candy bars and bags of peanuts. Candy bars cost $0.75 each while bags of peanuts cost $1.50
2. Pham can work as many or as few hours as she wants at the university bookstore for $9 per hour. But due to her hectic schedule, she has just 15 hours per week that she can spend working either at
1. Potatoes cost Janice $1 per kilogram, and she has $5 that she could possibly spend on potatoes or other items. If she feels that the first kilogram of potatoes is worth $1.50, the second kilogram
7. What are the two major ways in which an economy can grow and push out its production possibilities curve? [LO1.8]a. Better weather and nicer carsb. Higher taxes and lower spendingc. Increases in
6. Explain how (if at all) each of the following events affects the location of a country’s production possibilities curve: [LO1.7]a. The quality of education increases.b. The number of unemployed
5. For each of the following situations involving marginal cost (MC)and marginal benefit (MB), indicate whether it would be best to produce more, fewer, or the current number of units. [LO1.5]a. 3000
4. Suppose that you are given a $100 budget at work that can be spent only on two items: staplers and pens. If staplers cost$10 each and pens cost $2.50 each, then the opportunity cost of purchasing
3. Suppose that you initially have $100 to spend on books or movie tickets. The books start off costing $25 each and the movie tickets start off costing $10 each. For each of the following
2. Indicate whether each of the following statements applies to microeconomics or macroeconomics: [LO1.3]a. The unemployment rate in Canada was 5.9 percent in January 2018.b. A software firm
1. Match each term with the correct definition. [LO1.2]economics opportunity cost marginal analysis utilitya. The next-best thing that must be forgone in order to produce one more unit of a given
10. Suppose that, on the basis of a nation’s production possibilities curve, an economy must sacrifice 10,000 pizzas domestically to get the one additional industrial robot it desires, but that it
9. Specify and explain the typical shapes of marginal benefit and marginal cost curves. How are these curves used to determine the optimal allocation of resources to a particular product? If current
8. Why is money not considered a capital resource in economics? Why is entrepreneurial ability considered a category of economic resource, distinct from labour? What are the major functions of the
7. What are economic resources? What categories do economists use to classify them? Why are resources also called factors of production? Why are they called inputs? [LO1.6]
6. How does the slope of a budget line illustrate opportunity costs and trade-offs? How does a budget line illustrate scarcity and the effect of limited incomes? [LO1.5]
5. State (a) a positive economic statement of your choice, and then (b) a normative economic statement relating to your first statement. [LO1.4]
4. What are the key elements of the scientific method and how does this method relate to economic principles and laws? [LO1.3]
3. What is meant by the term utility and how does the idea relate to purposeful behaviour? [LO1.2]
2. Cite three examples of recent decisions that you made in which you (at least implicitly) weighed marginal cost and marginal benefit. [LO1.2]
1. What is an opportunity cost? How does the idea relate to the definition of economics? Which of the following decisions would entail the greater opportunity cost: allocating a square block in the
LOA1.1 (Appendix) Understand graphs, curves, and slopes as they relate to economics.
LO1.8 Explain how economic growth and international trade increase consumption possibilities.
LO1.7 Apply the concepts of production possibilities analysis, increasing opportunity costs, and economic growth.
LO1.6 List the categories of scarce resources and delineate the economic problem.
LO1.5 Explain the individual’s economic problem and how trade-offs, opportunity costs, and attainable combinations can be illustrated with budget lines.
LO1.4 Distinguish microeconomics from macroeconomics, and positive economics from normative economics.
LO1.3 Describe the role of economic theory in economics.
LO1.2 Define economics and the features of the economic way of thinking.
LO1.1 List the ten key concepts to retain for a lifetime.
3. The total opportunity cost of 7 units of robots isa. 1 unit of pizzasb. 2 units of pizzasc. 3 units of pizzasd. 4 units of pizzas
2. The marginal opportunity cost of the second unit of pizzas isa. 2 units of robotsb. 3 units of robotsc. 7 units of robotsd. 9 units of robots
1. 12. You must decide whether to eat at Burger Hut or Pizza King, two local restaurants that are right next to each other. You have heard a few good things about Burger Hut, so your prior is that
1. 10. A field experiment was conducted to see how others’ opinions affect a user’s ratings online. Whenever a comment was added on a certain social news site, researchers randomly assigned an up
1. 8. What if the Trust Game were played in reverse? Gary first decides whether to cooperate (Gary gets $15, Jen gets $15) or defect(Gary gets $30, Jen gets $0). Jen then decides whether to accept
1. 7. Consider the Ultimatum Game played in reverse: The Responder moves first and decides preemptively whether to accept or reject whatever split the Proposer eventually determines. If the Responder
1. 6. In Mario Puzo’s The Godfather, Michael Corleone (played by Al Pacino in the movie version of the book) would like to meet with Virgil “The Turk” Sollozzo. Michael is concerned that if he
1. 5. Assume that a charity hired you to improve its results on donations. You decide to mail letters asking for donations. You use three different types of letters:Letter A: Control—standard
1. 4. Let’s add a twist to the Ultimatum Game: there is $10.00 to be split, but if the Responder rejects the offer, then he gets $2.00 and the Proposer gets $4.00. Use backward induction to
1. 3. There are five people in a village. Each has $10. The village is prone to flooding. Flooding is reduced if people contribute to flood-control efforts. In particular, each person in the village
1. 2. Consider a three-person version of the Ultimatum Game: The Responder does not receive any money but instead decides whether to accept on behalf of a third-party bystander. Otherwise the
1. 13. What is an information cascade? Explain with examples.
1. 12. What does herding mean? Why do individuals decide to herd?
1. 11. What does it mean to say that a good exhibits network externalities? Can you think of a good that you use because it has network externalities?
1. 10. How does indoctrination affect our preferences? Explain with an example.
1. 5. In the context of this chapter, what is meant by having a preference for fairness?
1. 9. The Johnson Steel Company generates water pollution when it makes steel. It could eliminate this pollution at a cost of $700.The Smith family lives downstream. It suffers $1,000 of damages from
1. 8. Consider what would happen in the ultimatum game (with offers between $0 and $10) if the Responder were able to fully commit in advance. It would be as if the Responder had moved first; he
1. 4. A town wants to build a new bridge. Construction firms are asked to submit sealed bids. The town will award the contract to the firm that submits the lowest bid and will pay the firm the amount
1. 2. According to this chapter, in a first-price sealed bid auction (or a Dutch auction), a bidder should multiply her willingness to pay by the number of other bidders, then divide by the total
1. 13. Explain why in situations where the Coase Theorem applies, bargaining power does not influence whether the efficient outcome is reached, but it does affect the distribution of gains.
1. 12. How does the ultimatum game work? What does experimental evidence show about the outcome of the ultimatum game?
1. 11. What is meant by bargaining power? What are the two factors that determine an individual’s bargaining power?
1. 10. What does the revenue equivalence theorem state?
1. 9. What are the similarities between an English auction and a Dutch auction?
1.7. What is meant by risk neutrality?
1. 6. What is a Dutch auction?

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