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microeconomics principles applications

Questions and Answers of Microeconomics Principles Applications

1. 3. There are four consumers willing to pay the following amounts for an electric car:Consumer 1:$70,000 Consumer 2:Consumer$20,000 Consumer 3:$80,000 4:$40,000 There are four firms that can
1. 10. Are all efficient outcomes also equitable? Explain.
1. 13. Suppose TC is given by MC=2Q.TC =16+Q2.a. Give the formula for ATC.This implies that MC isb. If the market price were $5, how many units of output would this firm want to supply?c. What will
1. 12. The following table shows the long-run total costs of three different firms:Output Firm I Firm II 12$8$14$5 Firm III$7$12 3$18 4$20$21$12$15$32$24a. Do firms I and II experience economies of
1. 4. Fill in the ATC and MC columns in the following table:Output Total Cost Average Total Marginal Cost 01$14 15 Cost 23 18 24 436a. Use the MC curve to determine how many units this firm would
1.3. You are given the following information about the ABC Widget Company’s short-run costs:Quantity of Widgets Total Fixed Produced 01 23 4Cost$10——Total Variable Cost—Total
1. Consider indifference curves for goods X and Y. Suppose we plot the quantity of good Y on the y-axis and the quantity of good X on the x-axis.a. Why are indifference curves downward-sloping?b.
1. 8. Consider the following demand schedule:Price$9$11 Quantity 52 48$13 40a. Use the midpoint formula to calculate the elasticity of demand (i) when the price rises from $9 to $11 and (ii)when the
1. 7. The total benefit for burgers and beers is given below. Burgers cost $10 and beers cost $20.Total Benefit (Burgers)Total Benefit (Beers)1 215 30 30 34 45 50 60 60 65a. What is the marginal
1. 6. You get a new job in a tropical climate and so you need to buy shorts (s) and T-shirts (t). Your budget constraint is given by$20s +$5t = $60.a. Based on this formula, what must be the price of
1. 3. Suppose the price of X is $40, the price of Y is $50, and a consumer has income of $400.a. Draw the budget constraint for this consumer. What is the opportunity cost of buying one unit of good
1.1. Each school-week night you can play video games, talk on the phone, or watch a movie. You have a total of five nights to spend doing one of these three things.a. Fill out the marginal benefit
1. 5. What is meant by consumer surplus? How is it calculated?
1. Suppose the following table shows the quantity of laundry detergent that is demanded and supplied at various prices in Country 1.Price($)Quantity Demanded Quantity Supplied(million oz.)2 465
1.8. It is possible to use equations to do marginal analysis. Suppose your firm has a marginal revenue given by MR=10−Q.means that the seventh unit of output brings in This 10 −7 =$3 additional
1. 6. Scott loves to go to baseball games, especially home games of the Cincinnati Reds. All else being equal, he likes to sit close to the field. He also likes to get to the stadium early to watch
1. A3.Suppose the following table shows the relationship between revenue that the Girl Scouts generate and the number of cookie boxes that they sell.Number of Cookie Boxes Revenue 50 150$200 250
1. Consider the following data that show the quantity of coffee produced in Brazil from 2004 to 2012.Year Production (in tons)2004 2005 2,465,710 2,140,169 2006 2007 2,573,368 2008 2009 2,249,011
1. How would you represent the following graphically?a. Income inequality in the United States has increased over the past 10 years.b. All the workers in the manufacturing sector in a particular
1.A3.Suppose the following table shows the relationship between revenue that the Girl Scouts generate and the number of cookie boxes that they sell.Number of Cookie Boxes Revenue 50 150$200 250
1. Consider the following data that show the quantity of coffee produced in Brazil from 2004 to 2012.Year Production (in tons)2004 2005 2,465,710 2,140,169 2006 2007 2,573,368 2008 2009 2,249,011
1. How would you represent the following graphically?a. Income inequality in the United States has increased over the past 10 years.b. All the workers in the manufacturing sector in a particular
1. 9. A simple economic model predicts that a fall in the price of bus tickets means that more people will take the bus. However, you observe that some people still do not take the bus even after the
1. 8. Oregon expanded its Medicaid coverage in 2008. Roughly 90,000 people applied, but the state had funds to cover only an additional 30,000 people (who were randomly chosen from the total
1.7. You decide to run an experiment. You invite 50 friends to a party.You randomly select 25 friends and tell them that there will be free food; most of them show up to your party. For the other 25
1. 6. This chapter shows that in general, people with more education earn higher salaries. Economists have offered two explanations of this relationship. The human capital argument says that high
1.5. As the text explains, it can sometimes be very difficult to sort out the direction of causality.a. Why might you think that more police officers would lead to lower crime rates? Why might you
1. 4. Some studies have found that people who owned guns were more likely to be killed with a gun. Do you think this study is strong evidence in favor of stricter gun control laws? Explain.
1. 3. Suppose you come across a study that has discovered a correlation between reading books and life expectancy: People who read more books live longer. Come up with at least one plausible way that
1. 2. Consider the following situation: your math professor tells your class (of five students) that the mean score on the final exam is 80 but the median is 100. How is that possible? Explain.
1.1. Although the mean and median are closely related, the difference between the mean and the median is sometimes of interest.a. Suppose country A has five families. Their incomes are$10,000,
1. 10. Suppose you had to find the effect of seat belt rules on road accident fatalities. Would you choose to run a randomized experiment, or would it make sense to use natural experiments here?
1. 9. This chapter discussed natural and randomized experiments.How does a natural experiment differ from a randomized one?
1. 8. What is meant by randomization? How does randomization affect the results of an experiment?
1. 7. Give an example of a pair of variables that have a positive correlation, a pair of variables that have a negative correlation, and a pair of variables that have zero correlation.
1.6. Explain why correlation does not always imply causation. Does causation always imply positive correlation? Explain your answer.
1. 5. How does the sample size affect the validity of an empirical argument? When can only one example be enough to prove your point?
1. 4. Suppose 5,000 people bought scoops of ice cream on a hot summer day. If the mean number of scoops bought is 2, how many total scoops were sold that day?
1. 3. What are two important properties of economic models? Models are often simplified descriptions of a real-world phenomenon.Does this mean that they are unrealistic?
1. 2. What is meant by empiricism?
1.1. What does it mean to say that economists use the scientific method? How do economists distinguish between models that work and those that don’t?
1. Do governments and politicians follow their citizens’and constituencies’ wishes?
1.1===+ 1.What is the value of a human life?
1. Do investors chase historical returns?
1. 18 Do people care about fairness?
1. 17 How should you bid in an eBay auction? Who determines how the household spends its money?
1. 16 Why do new cars lose considerable value the minute they are driven off the lot? Why is private health insurance so expensive?
1. 15 Do people exhibit a preference for immediate gratification?
1. 14 How many firms are necessary to make a market competitive?
1. 13 Is there value in putting yourself into someone else’s shoes?
1. 12 Can a monopoly ever be good for society?
1. 11 Is there discrimination in the labor market?
1.10 What is the optimal size of government?
1. 9 How can the Queen of England lower her commute time to Wembley Stadium?
1. 8 Will free trade cause you to lose your job? What can the government do to lower the number of earthquakes in Oklahoma?
1.7 Can markets composed of only self-interested people maximize the overall well-being of society? Do companies like Uber make use of the invisible hand?
1. 6 How would an ethanol subsidy affect ethanol producers?
1. 5 Would a smoker quit the habit for $100 a month?
1. 4 How much more gasoline would people buy if its price were lower?
1. 3 How does location affect the rental cost of housing?
1. 2 How much more do workers with a college education earn? How much do wages increase when mandatory schooling laws force people to get an extra year of schooling?
1.1 Is Facebook free?
1. 9. It is the night before your economics final exam and you must decide how many hours to study. The total benefits in the following table shows how many more points you will earn because of
1. 8. An economist observes that many students spend $100,000 to go to college. This researcher could ask whether such spending is worth it, or she could assume that it is worth it. In other words,
1. 7. In 2014, California was in its third year of a major drought. With water supplies dwindling, Governor Brown issued a plea for a voluntary 20 percent reduction in water use. This target was not
1. 6. Consider the following three statements:a. You can either stand during a college football game or you can sit. You believe that you will see the game very well if you stand and others sit but
1. 5. Suppose you are ready to check out and see two lines: Line A has 3 people, while line B has 5 people.a. Assume people just chose lines at random and have not yet had a chance to switch lines.
1. 4. You have decided that you are going to consume 600 calories of beer and snacks at a party Saturday night. A beer has 150 calories and a snack has 75 calories.a. Create a table that shows the
1. 3. You have 40,000 frequent flier miles. You could exchange your miles for a round-trip ticket to Bermuda over spring break. Does that mean your flight to Bermuda would be free? Explain your
1. 2. You are thinking about buying a house. You find one you like that costs $200,000. You learn that your bank will give you a mortgage for $160,000 and that you will have to use all of your
1.1. You have already purchased (non-refundable and unsellable)tickets to a concert on Friday night. A friend also invites you to her birthday party on Friday. While you like your friend, you
1. 11. Identify cause and effect in the following examples:a. A rise in the worldwide price of peaches and a drought in California;b. A surge in cocoa prices and a pest attack on the cocoa crop.
1. 10. Explain the concept of causation with the help of a simple real-life example.
1. 9. Economists are often concerned with the free-rider problem.a. What is meant by free riding? Explain with an example.b. Explain why dropping trash on a city street is an example of the
1.8. Suppose the market price of corn is $3.50 per bushel. What are the three conditions that will need to be satisfied for the corn market to be in equilibrium at this price?
1. 7. The costs of many environmental regulations can be calculated in dollars—for instance, the cost of “scrubbers” that reduce the amount of air pollution emitted by a coal factory. The
1. 6. This chapter introduced the idea of opportunity cost.a. What is meant by opportunity cost?b. What is the opportunity cost of taking a year after graduating from high school and backpacking
1. 5. What does a budget constraint represent? How do budget constraints explain the trade-offs that consumers face?
1. 4. How does microeconomics differ from macroeconomics? Would the supply of iPhones in the United States be studied under microeconomics or macroeconomics? What about the growth rate of total
1. 3. Examine the following statements and determine whether they are normative or positive in nature. Explain your answers.a. Car sales in Europe rose 9.3 percent from 2014 to 2015.b. The U.S.
1. 2. Many people believe that the study of economics is focused on money and financial markets. Based on your reading of the chapter, how would you define economics?
1.1. Why do we have to pay a price for most of the goods we consume?
7.4 Curtis manages an electronics store in Wichita, Kansas. He considers carrying either cameras from Nikon Americas that come with a U.S. warranty or gray market Nikon cameras from a European
7.3 Adrienne, a manager of a large firm, must decide whether to launch a new product or make a minor change to an existing product. The new product has a 30% chance of being a big success and
7.2 In 2012, Hewlett-Packard Co. announced that its new chief executive, Meg Whitman, would receive
7.1 In the Challenge Solution, show that shareholders’expected earnings are higher with the new compensation scheme than with the original one.
6.1 In the Application “Layoffs Versus Pay Cuts,” the firm uses either a pay cut or layoffs. Can you derive a superior approach that benefits both the firm and the workers? (Hint: Suppose that
5.1 List some necessary conditions for a firm to be able to sort potential employees by providing them with a choice of contracts.
4.6 Many substandard condo developments have been built by small corporations that declare bankruptcy or go out of business when legal actions are started against them by condo buyers. What legal
4.5 Used cars receive lower prices if they were rental cars than if they were owned by individuals. Does this price difference reflect adverse selection or moral hazard? Could car rental companies
4.4 A firm presently fines its employees who steal company property, but is considering paying an efficiency wage as an alternative to discourage theft.Suppose that an employee can gain €800 from
4.3 Suppose a company’s policy is to fine employees if caught stealing from the company. Employees are monitored to prevent theft. If the gain from stealing is ;200 and the probability of being
*4.2 In Solved Problem 19.5 a firm calculates the optimal level of monitoring to prevent stealing. If G = $500 and θ = 20%, what is the minimum bond that deters stealing? M
4.1 Many law firms consist of partners who share profits. On being made a partner, a lawyer must post a bond, a large payment to the firm that will be forfeited on bad behavior. Why?
3.6 A health insurance company tries to prevent the moral hazard of “excessive” dentist visits by limiting the number of compensated visits that a patient can make in a year. How does such a
3.4 Louisa is an avid cyclist who is currently working on her business degree. She normally rides an $800 bike to class. If Louisa locks her bike carefully—locks both wheels—the chance of theft
3.3 If the terms of a franchise agreement are not met, it can damage the reputation of the business. In such a situation, the franchisor may seek to terminate the agreement to recover the trust of
3.2 Padma has the rights to any treasure on the sunken ship the Golden Calf. Aaron is a diver who specializes in marine salvage. If Padma is risk averse and Aaron is risk neutral, does paying Aaron a
2.6 In the duck-carving example with limited information (summarized in the third and fourth columns of Table 19.1), is a fixed-fee contract efficient? If so, why? If not, what additional steps, if
1.5 On detecting public health risks in food, rapid information-sharing between member states in the European Union (EU) is an important tool for maintaining food safety. When a member country

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