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microeconomics principles applications

Questions and Answers of Microeconomics Principles Applications

How does private ownership affect the use of resources? Will private owners pay any attention to the desires of others?
Why do people engage in exchange?
What is opportunity cost? Why do economists place so much emphasis on it?
What is the “invisible hand” principle?
How do markets adjust to changes in demand? How do they adjust to changes in supply?
How is the market price of a good determined?
What role do profits and losses play in an economy? What must a firm do to make a profit?
How do buyers and sellers respond to changes in the price of a good?
How do consumers decide whether to purchase a good? How do producers decide whether to supply it?
What are the laws of demand and supply?
What is the Laffer curve? What does it indicate about the relationship between tax rates and tax revenues?
How does a tax or subsidy affect a market?What determines the distribution of the tax burden (or subsidy benefit) between buyers and sellers?
What are “black markets”? How does the lack of a well-structured legal environment affect their operation?
How do rent controls affect the maintenance and quality of rental housing? How do minimum-wage rates influence the job opportunities of low-skilled workers?
What happens when prices are set by law above or below the market equilibrium level?
How are the markets for products and resources related?
If the market has shortcomings, does this mean that government intervention will improve things?
Why might markets fail to allocate goods and services efficiently?
What are externalities? What are public goods?
Why is it generally undesirable to pursue any goal to perfection?
What is economic efficiency and how can it be used to evaluate markets?
What is crony capitalism, and is it an increasing problem in the United States?
Why will there sometimes be a conflict between winning politics and economic efficiency?
When is democratic representative government most likely to lead to economic efficiency?
What insights can economics provide about the behavior of voters, politicians, and bureaucrats? How will their actions affect political outcomes?
What are the similarities and differences between political and market allocation of goods?
How large is the government sector, and what are the main activities undertaken by government?
In the 1990s, the world price of wool decreased by about 30 percent, and prices have remained relatively low since then. Based on the law of supply, we would expect the quantity of wool supplied from
Consider the incentives to buy a hybrid vehicle, which is more fuel efficient but more expensive than a gas-powered vehicle. Between 2000 and 2007, the number of hybrid vehicles increased from fewer
As an illustration of the role of prices in an economy, consider the experience of Cuba without housing prices. In 1960, the government confiscated most housing and outlawed its sale and rental.
The federal subsidy for hybrid cars was responsible for roughly _________ of the hybrid cars purchased in 2007. (Related to Application 1) Application 1 ABSOLUTE DISADVANTAGE AND COMPARATIVE
The inability of Cuban homeowners to sell their dwellings led to less investment in ____________. (Related to Application 2) Application 2 HOUSING PRICES IN CUBA APPLYING THE CONCEPTS #2: What is the
Suppose you run a lawn-cutting business and use solar powered ! equipment (mower, edger, blower, truck) that you could sell tomorrow for $5,000. Instead of cutting lawns, you!could work as a janitor
Consider the decision about how fast to sail an ocean cargo ship. As the ship’s speed increases, fuel consumption increases. For example, a 70,000-ton cargo ship burns 16.5 tons of fuel per!day at
Should Rory McIlroy whack his own weeds? The swinging skills that make Rory McIlroy one of the world’s best golfers also make him a skillful weed whacker. His large estate has a lot of weeds, and
Arrows up or down: The decision about how fast to sail a cargo ship is based on the __________ benefit and the __________ cost. (Related to Application 2 on page 34.) Application 2 HOW FAST TO
Meteorites travel from Mars to science laboratories on Earth with the help of markets that involve __________. (Related to Application 2 on page 53.) Application 2 THE MARKET FOR METEORITES APPLYING
Suppose you finish college with $20,000 in student loans and start a job that pays a salary of $40,000 in the first year. In 10 years, you must repay your college loans. Which would you prefer:
Molly’s Espresso Shop has become busy, and the more hours Ted works, the more espressos Molly can sell.The price of espressos is $2 and Ted’s hourly wage is $11. Complete the following table:
The establishment of property rights for urban squatters in Peru increased ____________. (Related to Application 3 on page 56.) Application 3 PROPERTY RIGHTS AND URBAN SLUMS APPLYING THE CONCEPTS #3:
Although Latvia had an absolute disadvantage in most products relative to EC countries, trade was mutually beneficial because Latvia had a __________ advantage in __________. (Related to Application
If a decrease in the price of drugs is accompanied by a decrease in quantity, the decrease in price was caused by a change in __________ (supply, demand). (Related to Application 6) Application 6 WHY
Between 2006 and 2009, Chinese imports of U.S. pecans increased from 9 million pounds per year to 88 million pounds. The increase in demand from China is roughly 30 percent of the total annual crop.
When several provinces in eastern Canada cut their cigarette taxes, the price of cigarettes decreased by roughly 50 percent, and the youth smoking rate increased by roughly __________ (1, 17, 50, 90)
Arrows up or down: In the 1990s, the world price of wool __________ and the quantity of wool supplied __________ (Related to Application 2) Application 2 LAW OF SUPPLY AND WOOLYMPICS APPLYING THE
Every year around harvest time for the cocoa crop in West Africa, the harmattan, a dry dusty wind from the Sahara desert, sweeps through cocoa plantations in Ghana and Ivory Coast, drying the pods
Between 2006 and 2009 the equilibrium price of pecans increased by roughly __________ (15, 50, 70) percent, a result of increased __________ (demand, supply) from China. (Related to Application 4)
Use a demand and supply graph to illustrate the effects of relaxing a minimum-price policy by allowing the price to decrease and narrow the gap between the controlled price and the equilibrium price.
Use a demand and supply graph of the youth smoking market to show the effects of the tax cut in eastern Canada. Assume that the initial price is $6.00, the initial quantity is 100 units, and each
Ted Koppel, host of the ABC news program Nightline, once said, “Do you know what’s happened to the price of drugs in the United States? The price of cocaine, way down, the price of marijuana, way
Arrows up or down: The harmattan (dry wind) _______ the supply of cocoa from West Africa and _______ the world price of cocoa. (Related to Application 5) Application 5 THE HARMATTAN AND THE PRICE OF
Use a demand and supply graph to illustrate the effects of the increase in the demand for pecans from Chinese consumers. Assume that the initial equilibrium price is $6 per unit. (Related to
Use a demand and supply graph to show that Ted Koppel’s proposed explanation of a decrease in drug prices is incorrect. (Related to Application 6) Application 6 WHY LOWER DRUG PRICES? APPLYING THE
We’ve seen that the demand for gasoline is more elastic in the long run, when consumers have more opportunity to respond to changes in price. A recent study explores two sorts of responses to
A recent study suggests that in New York City, rent control causes roughly ________ percent of rent controlled apartment mismatch. (Related to Application 2) Application 2 RENT CONTROL AND
The radio quiz show Wait Wait!.!.!.!Don’t Tell Me! recently asked the following question: Which state has the highest number of vanity license plates? The correct answer is Virginia, where over 10
A firm will never operate _________ (above, below) the midpoint of a linear demand curve, where demand is ________ (elastic, inelastic). (Related to Application 3) Application 3 DRONES AND THE LOWER
Suppose a firm that produces hobby drones (for civilian use) has a linear demand curve for its product, with a vertical intercept of $800. The firm currently charges a price of $300. Do you have any
In the case of the broken gasoline pipeline, the decrease in supply and the resulting increase in price caused a decrease in _________ and an increase in _________. (Related to Application 6)
The short-run elasticity of supply of coffee is ______ than the long-run elasticity because in the short run, ______. (Related to Application 5) 5 Application THE SHORT-RUN AND LONG-RUN ELASTICITY OF
Suppose in the production of pears, the short-run supply elasticity is 0.20, while the long-run supply elasticity is 3.5. Predict the effects of a 15% increase in price on the quantity of pears
The coffee industry provides a good example of the difference between the short-run and long-run price elasticity of supply. The price elasticity of supply over a 1-year period is relatively low. If
In the chapter opener, a pipeline break decreased the supply of gasoline to the city of Phoenix by 30 percent and increased the equilibrium price by only 40 percent. Given a short-run price
Suppose a firm that produces clown wigs has a linear demand for its product, with a vertical intercept of $6. If the firm currently charges a price of $1, what’s your advice? (Related to
Consider a city that gets its natural gas from two pipelines, with each pipeline supplying half the city’s natural gas. Suppose the price elasticity of supply is 0.70 and the price elasticity of
The 1990 tax on yachts and other luxury goods was shifted forward to ___________ and backward to ___________. (Related to Application 5) Application 5 RESPONSE TO A LUXURY TAX APPLYING THE CONCEPTS
What is the consumer surplus from Internet service? Two recent studies compute consumers’ willingness to pay for Internet service. For Japanese consumers, the average willingness to pay for
Under rent control, the government sets a maximum price for housing, decreasing the quantity supplied and the total value of the market. Rent control and other maximum prices cause inefficiency of
During World War II, the U.S. government used a system of price controls to set maximum prices on all sorts of products, including candy bars. Consumer Reports compared the weights of candy bars in
In Figure 6.1 Tupak’s consumer surplus is ___________, compared to ___________ for Thurl. Figure 6.1 Price per lawn $25 22 19 16 13 10 7 + 0 1 1 1 1 1 1 Juan Tupak Thurl Forest 2 3 4 5 Number of
Import restrictions for softwood lumber increase ________ and decrease ________, and the cost per protected job is roughly $________ (10,000, 50,000, 1 million, 10 million). (Related to Application
What is the cost of using import restrictions to protect jobs in the softwood lumber industry? Softwood lumber is subject to import quotas (quantity restrictions) and tariffs (import taxes) that
In Figure 6.3 the sixth lawn is not cut because the ________ of the sixth consumer (Siggy, in Figure 6.1) is ________ the ________ of the sixth producer (Efrin, in Figure 6.2). Figure 6.1 Figure
During World War II, candy producers responded to maximum prices by , leading to prices per ounce. (Related to Application 3) Application 3 PRICE CONTROLS AND THE SHRINKING CANDY BAR APPLYING THE
How will a tax on yachts and other luxury goods affect consumers and workers? Under a luxury tax imposed in 1990, the tax on a $300,000 boat increased by $20,000. The idea behind the tax was to
For U.S. consumers, the average consumer surplus for Internet service is ___________ (10, 45, 80, 100) per month. (Related to Application 1) 1 CONSUMER SURPLUS OF INTERNET SERVICE APPLYING THE
Consider the demand for Internet service in the United States. Assume that the demand curve is linear, the monthly price is $40, and the equilibrium number of consumers is 50 million. For the average
Based on Figure 7.1 on page 143, fill in the blanks in the following table to identify different points on the consumer’s budget line.Figure 7.1 Quantity of movies Quantity of books 2 4 6 8
Neuroscientists have used brain imaging techniques to provide some insights into the law of diminishing marginal utility. The scientists offered subjects in an experiment varying monetary rewards,
The key region of the brain for the valuation of benefits is the ________.
In Figure 7.5 on page 150, suppose the price of movies increases from $3 to $6. The increase in price shifts the benefit curve (marginal utility per dollar) for movies ________ (upward/downward). For
The introduction of cognition into a consumer’s choice between healthy and unhealthy food shifts the ________ curve downward, causing the marginal utility per dollar of ________ to be less than the
Suppose the national government imposes a new tax of $3 per gallon of gasoline, which will bring gasoline taxation in the United States closer to the levels experienced in European countries. And
In Figure 7.1 on page 143, suppose the price of movies increases to $9. Draw a new budget line. The horizontal intercept of the budget line is ________ and the slope of the budget line is
In the dopamine learning system, learning happens when the ________ about the pleasure from a product are ________ (correct/wrong).
Suppose a consumer has a budget of $100 to spend on concerts (price = $6) and carnival rides (price = $2). For each of the following pairs of points in the figure below, indicate whether the pair (i)
Consumers are subject to present bias in the sense that they systematically underestimate the strength of ________.
In the “Pepsi Challenge” advertisements of the 1970s and 1980s, randomly chosen consumers tasted Pepsi and Coke, and a majority preferred Pepsi. Despite the apparent preference in favor of Pepsi,
In Figure 7.2 on page 144, if the total utility from seven movies is 294 utils, the marginal utility of the seventh movie is ________ utils, which is ________ than the marginal utility of the sixth
The key region of the brain for the valuation of costs is the _________.
The present bias that leads some people to smoke cigarettes raises an important policy question: Can we use taxes on cigarettes to offset present bias and actually make people better off in the
The introduction of cognition into a consumer’s choice between consumption now and saving shifts the ________ curve upward, causing the marginal utility per dollar of ________ to exceed the the
As the consumption of a product increases, utility ________ (increases/decreases) at a ________ (increasing/decreasing/constant) rate, so the marginal utility curve is sloped. This illustrates the
Arrow up or down: The substitution effect is that a decrease in the price of movies ________ the relative price of movies and ________ the consumption of movies.
In the Iowa Gambling Task, the brain sends an alarm to avoid drawing from the unfavorable decks after about _________ (3, 10, 25, 50, 75) cards, but the typical subject doesn’t switch to the
In Figure 7.3 on page 145, suppose the price of movies decreases to $2. The marginal utility per dollar of the sixth movie is ________ utils.Figure 7.3 Utils 36 27 29 12 9 Marginal utility MU per $:
Compared to a cash purchase, a credit-card purchase generates ________ activity in the ________, which is responsible for valuation of the ________ (benefits/costs) of a product.
The key region of the brain responsible for comparing benefits and costs is the _________.
The organization stickK.com gives people the opportunity to exercise self-control by ________.
To show the substitution effect of a decrease in price, we ________ (increase/decrease) a consumer’s nominal income so the consumer can just afford ________.

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