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microeconomics principles
Questions and Answers of
Microeconomics Principles
True or False. Under the PPACA, Americans are free to decide for themselves whether or not they should have health insurance coverage.
By increasing demand, health insurance creates:a. A deadweight loss related to overconsumption.b. A deadweight loss related to underconsumption.c. Neither of the above.
All MegaCorp employees who stay on the job for more than three years are rewarded with a 10 percent pay increase and coverage under a private health insurance plan that MegaCorp pays for. Tina just
A patient named Jen visits Dr. Jan. Dr. Jan is nearly certain that Jen only has a cold. But because Dr. Jan is afraid of malpractice lawsuits, she orders an extensive battery of tests just to make
Which of the following make a person less likely to have health insurance?Select one or more answers from the choices shown.a. Working for a larger firm.b. Being a low-wage
Which of the following best describes the United States’ level of health care spending as compared to that of other nations?a. The lowest of all nations.b. A bit lower than
What are the three major cost ‐ reducing features of the Singapore health care system? Which one do you think has the largest effect on holding down the price of medical care in Singapore? What
What were the objections made by opponents of the PPACA?
How does the PPACA attempt to ensure affordable insurance for the poor?
Why is the PPACA’s attempt to extend insurance coverage to all Americans so costly? How does the PPACA attempt to obtain the funds needed to extend insurance coverage to all Americans?
The desire to maximize profits can work against racial and other types of discrimination. To see this, consider two equally productive accountants named Ted and Jared. Ted is black, and Jared is
In 2010, many unskilled workers in the United States earned the Federal minimum wage of $7.25 per hour. By contrast, average earnings in 2010 were about $22 per hour and certain highly skilled
Imagine an economy with only two people. Larry earns $20,000 per year while Roger earns $80,000 per year. As shown in the following figure, the Lorenz curve for this two person economy
In 2012, Forbes magazine listed Bill Gates, the founder of Microsoft, as the richest person in the United States. His personal wealth was estimated to be $66 billion. Given that there were about 309
In the taste-for-discrimination model, an increase in employer prejudice against African-American workers would cause the discrimination coefficient to and the demand curve for African-American labor
If women are crowded into elementary education and away from fire fighting, wages in fire fighting will tend to be than if women weren’t crowded into elementary education. a. Higher.b.
Suppose that the last dollar that Victoria receives as income brings her a marginal utility of 10 utils while the last dollar that Fredrick receives as income brings him a marginal utility of 15
Suppose that a society contains only two members, a lawyer named Monique and a handyman named James. Five years ago, Monique made $100,000 while James made $50,000. This year, Monique will make
Some part of income inequality is likely to be the result of discrimination. But other factors responsible for inequality include (select as many as apply):a. Differences in abilities and
Suppose that the United States has a Gini ratio of 0.41 while Sweden has a Gini ratio of 0.31. Which country has a more equal distribution of income?a. The United States.b. Sweden.c. They
In 2009 General Motors (GM) announced that it would reduce employment by 21,000 workers. What does this decision reveal about how GM viewed its marginal revenue product (MRP) and marginal resource
A new production technology for making vitamins is invented by a college professor who decides not to patent it. Thus, it is available for anybody to copy and put into use. The TC per bottle for
When discussing pure competition, the term long run refers to a period of time long enough to allow: a. Firms already in an industry to either expand or contract their capacities.b. New firms to
How can patents speed up the process of creative destruction? How can patents slow down the process of creative destruction? How do differences in manufacturing costs affect which industries would be
“Ninety percent of new products fail within two years—so you shouldn’t be so eager to innovate.” Do you agree? Explain why or why not.
The basic model of pure competition reviewed in this chapter finds that in the long run all firms in a purely competitive industry will earn normal profits. If all firms will only earn a normal
How do the entry and exit of firms in a purely competitive industry affect resource flows and long ‐ run profits and losses?
Relate opportunity costs to why profits encourage entry into purely competitive industries and how losses encourage exit from purely competitive industries.
Karen runs a print shop that makes posters for large companies. It is a very competitive business. The market price is currently $1 per poster. She has fixed costs of $250. Her variable costs are
A purely competitive wheat farmer can sell any wheat he grows for $10 per bushel. His five acres of land show diminishing returns because some are better suited for wheat production than others. The
A purely competitive firm finds that the market price for its product is $20. It has a fixed cost of $100 and a variable cost of $10 per unit for the first 50 units and then $25 per unit for all
Consider a profit-maximizing firm in a competitive industry. For each of the following situations, indicate whether the firm should shut down production or produce where MR = MC. a. P <
A perfectly competitive firm that makes car batteries has a fixed cost of $10,000 per month. The market price at which it can sell its output is $100 per battery. The firm’s minimum AVC is $105 per
If it is possible for a perfectly competitive firm to do better financially by producing rather than shutting down, then it should produce the amount of output at which: a. MR < MC.b. MR =
A purely competitive firm whose goal is to maximize profit will choose to produce the amount of output at which: a. TR and TC are equal.b. TR exceeds TC by as much as possible.c. TC exceeds TR
Suppose that the paper clip industry is perfectly competitive. Also assume that the market price for paper clips is 2 cents per paper clip. The demand curve faced by each firm in the
If a firm's current revenues are less than its current variable costs, when should it shut down? If it decides to shut down, should we expect that decision to be final? Explain using an example that
“That segment of a competitive firm’s marginal-cost curve that lies above its average-variable-cost curve constitutes the short-run supply curve for the firm.” Explain using a graph and words.
Consider a firm that has no fixed costs and that is currently losing money. Are there any situations in which it would want to stay open for business in the short run? If a firm has no fixed costs,
“Even if a firm is losing money, it may be better to stay in business in the short run.” Is this statement ever true? Under what condition(s)?
Strictly speaking, pure competition is relatively rare. Then why study it?
There are economies of scale in ranching, especially with regard to fencing land. Suppose that barbed-wire fencing costs $10,000 per mile to set up. How much would it cost to fence a single property
You are a newspaper publisher. You are in the middle of a one-year rental contract for your factory that requires you to pay $500,000 per month, and you have contractual labor obligations of $1
Imagine you have some workers and some hand-held computers that you can use to take inventory at a warehouse. There are diminishing returns to taking inventory. If one worker uses one computer, he
True or false. The U shape of the long-run ATC curve is the result of diminishing returns.
Linda sells 100 bottles of homemade ketchup for $10 each. The cost of the ingredients and the bottles and the labels was $700. In addition, it took her 20 hours to make the ketchup and to do so she
Does additive manufacturing rely on economies of scale to deliver low costs? What are two ways in which additive manufacturing lowers costs? Besides what's written in the book, might there be
Ted has always had difficulty saving money. So on June 1 st , Ted enrolls in a Christmas savings program at his local bank and deposits $750. That money is totally locked away until December 1 st so
In the algebraic version of prospect theory, the variable x represents gains and losses. A positive value for x is a gain, a negative value for x is a loss, and a zero value for x represents
Angela owes $500 on a credit card and $2,000 on a student loan. The credit card has a 15 percent annual interest rate and the student loan has a 7 percent annual interest rate. Her sense of loss
Investigate how demand elasticities are affected by increases in demand. Shift each of the demand curves in Figures 6.2a, 6.2b, and 6.2c to the right by 10 units. For example, point a in Figure 6.2a
The coffee shop near the local college normally sells 10 ounces of roasted coffee beans for $10. But the shop sometimes puts the beans on sale. During some sales, it offer “33 percent more for
“There’s no such thing as bad publicity.” Evaluate this statement in terms of the recognition heuristic.
Economist Gerd Gigerenzer characterizes heuristics as “fast and frugal” ways of reaching decisions. Are there any costs to heuristics being “fast and frugal”? Explain and give an example of
Why do behavioral economists consider it helpful to base a theory of economic behavior on the actual mental processes that people use to make decisions? Why do neoclassical economists not care about
Suppose that Joe enjoys and repeatedly does stupid things like getting heavily into debt and insulting police officers. Do these actions constitute systematic errors? If he gets what he wants each
Political advertising is often directed at winning over so-called swing voters, whose votes might go either way. Suppose that two political parties-the Freedom Party and the Liberty
Look back at Figures 1a and 1b, which show the costs and benefits to voters Adams, Benson, and Conrad of two different public goods that the government will produce if a majority of Adams, Benson,
Refer to Table 4.2. If the six people listed in the table are the only producers in the market and the equilibrium price is $6 (not the $8 shown), how much producer surplus will the market
Use marginal cost/marginal benefit analysis to determine if the following statement is true or false: “The optimal amount of pollution abatement for some substances, say, dirty water from storm
Suppose that you are the economic advisor to a local government that has to deal with a politically embarrassing surplus that was caused by a price floor that the government recently imposed. Your
Consider the market for coffee beans. Suppose that the prices of all other caffeinated beverages go up 30 percent while at the same time a new fertilizer boosts production at coffee plantations
Anne is a bargain-minded shopper. Normally, her favorite toothpaste costs the same at both of her local supermarkets, but the stores are having competing sales this week. At one store, there is a
You just accepted a campus job helping to raise money for your school’s athletic program. You are told to draft a fund-raising letter. The bottom of the letter asks recipients to write down a
Suppose that Ike is loss averse. In the morning, Ike’s stockbroker calls to tell him that he has gained $1,000 on his stock portfolio. In the evening, his accountant calls to tell him that he owes
One type of systematic error arises because people tend to think of benefits in percentage terms rather than in absolute dollar amounts. As an example, Samir is willing to drive 20 minutes out of his
In the early 1990’s, New Jersey and Pennsylvania both reformed their automobile insurance systems so that citizens could opt for either a less-expensive policy that did not allow people to sue if
Many proposers in the ultimatum game offer half to the responder with whom they are paired. This behavior could be motivated by (select as many as might apply):a. Fear that an unequal split
Erik wants to save more, but whenever a paycheck arrives, he ends up spending everything. One way to help him overcome this tendency would be to:a. Teach him about time inconsistency.b. Tell him
What does behavioral economics have to say about each of the following statements? a. “Nobody is truly charitable-they just give money to show off.”b. “America has a ruthless capitalist
Label each of the following behaviors with the correct bias or heuristic. a. Your uncle says that he knew all along that the stock market was going to crash in 2008.b. When Fred does well at
Do people playing the dictator game show only self-interested behavior? How much divergence is there in the splits given by dictators to the other player?
Identify each statement as being associated with neoclassical economics or behavioral economics.a. People are eager and accurate calculators.b. People are often selfless and generous.c. People have
Which of the following are systematic errors?a. A colorblind person who repeatedly runs red lights.b. An accountant whose occasional math errors are sometimes on the high side and sometimes on the
Evaluate the following statement. “We shouldn’t generalize from what people do in the ultimatum game because $10 is a trivial amount of money. When larger amounts of money are on the line, people
What do you think of the ethics of using unconscious nudges to alter people’s behavior? Before you answer, consider the following argument made by economists RichardThaler and Cass Sunstein, who
Suppose that with a budget of $100, Deborah spends $60 on sushi and $40 on bagels when sushi costs $2 per piece and bagels cost $2 per bagel. But then, after the price of bagels falls to $1 per
A “mathematically fair bet” is one in which the amount won will on average equal the amount bet, for example when a gambler bets, say, $100 for a 10 percent chance to win $1,000 ($100 = .10 x
Lorena likes to play golf. The number of times per year that she plays depends on both the price of playing a round of golf as well as Lorenas income and the cost of other types of
Look at the demand curve in Figure 6.2a. Use the midpoint formula and points a and b to calculate the elasticity of demand for that range of the demand curve. Do the same for the demand curves in
Suppose the cross elasticity of demand for products A and B is +3.6 and for products C and D is -5.4. What can you conclude about how products A and B are related? Products C and D?
Let MUA = z = 10 - x and MUB = z = 21 - 2y, where z is marginal utility per dollar measured in utils, x is the amount spent on product A, and y is the amount spent on product B.
In what way is criminal behavior similar to consumer behavior? Why do most people obtain goods via legal behavior as opposed to illegal behavior? What are society's main options for
True or false. The law of diminishing marginal utility predicts the consumption behavior of addicts quite well.
Frank spends $75 on 10 magazines and 25 newspapers. The magazines cost $5 each and the newspapers cost $2.50 each. Suppose that his MU from the final magazine is 10 utils while his MU from
Demand curves slope downward because, other things held equal, a. An increase in a product’s price lowers MU.b. A decrease in a product’s price lowers MU.c. A decrease in a product’s price
Jermaine spends his money on cucumbers and lettuce. If the price of cucumbers falls, the MU per dollar of cucumbers will ______________ and Jermaine will _______________ cucumbers for lettuce.a.
Tammy spends her money on lemonade and iced tea. If the price of lemonade falls, it is as though her income __________________. a. Increasesb. Decreasesc. Stays the same
Mylie’s total utility from singing the same song over and over is 50 utils after one repetition, 90 utils after two repetitions, 70 utils after three repetitions, 20 utils after four repetitions,
John likes Coca-Cola. After consuming one Coke, John has a total utility of 10 utils. After two Cokes, he has a total utility of 25 utils. After three Cokes, he has a total utility of 50 utils. Does
Suppose that Omar’s marginal utility for cups of coffee is constant at 1.5 utils per cup, no matter how many cups he drinks. On the other hand, his marginal utility per doughnut is 10 for the first
True or False. The median voter model explains why politicians so often stake out fringe positions that appeal only to a small segment of the electorate. Why?
The problem with our democratic institutions is that they don’t correctly reflect the will of the people! If the people-rather than self-interested politicians or lobbyists-had control, we
“Majority voting ensures that government will produce only those public goods for which benefits exceed costs.” Why?
Consider a corrupt provincial government in which each housing inspector examines two newly built structures each week. All the builders in the province are unethical and want to increase their
Suppose that there are 1 million federal workers at the lowest level of the federal bureaucracy and that above them there are multiple layers of supervisors and supervisors-of-supervisors. Assume
___________________ occur when politicians commit to making a series of future expenditures without simultaneously committing to collect enough tax revenues to pay for those expenditures. a.
A few hundred U.S. sugar makers lobby the U.S. government each year to make sure that it keeps taxing imported sugar at a high rate. They do so because the policy drives up the domestic price of
Tammy Hall is the mayor of a large U.S. city. She has just established the Office of Window Safety. Because windows sometimes break and spray glass shards, every window in the city will now have to
To an economist, any government program is too big if an analysis of that program finds that MB _______ MC. a. Is greater thanb. Is less thanc. Is equal tod. Is less than twice as large ase. Is
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