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microeconomics principles

Questions and Answers of Microeconomics Principles

Which components of aggregate expenditure are influenced by real GDP?
In an economy, when income increases from $400 billion to $500 billion, consumption expenditure increases from $420 billion to $500 billion. Calculate the marginal propensity to consume, the change
What is the relationship between aggregate planned expenditure and real GDP at equilibrium expenditure?
Explain how an increase in business investment at a constant price level changes equilibrium expenditure.
Calculate the marginal propensity to save.You are given the following information about the economy of Australia: Saving (billions of dollars per year) Disposable
What is the multiplier? What does it determine? Why does it matter?
An economy has a fixed price level, no imports, and no income taxes. An increase in autonomous expenditure of $200 billion increases equilibrium expenditure by $800 billion. Calculate the multiplier
Explain the link between equilibrium expenditure and the quantity of real GDP demanded.
Calculate consumption at each level of disposable income. Calculate the marginal propensity to consume.You are given the following information about the economy of Australia: Saving (billions of
How does a change in the price level influence the AE curve and the AD curve?
In the short run, does the price level remain at 100? Explain why or why not.Suppose that the economy is at full employment, the price level is 100, and the multiplier is 2. Investment increases by
a. Compare the change in real GDP in the long run with the increase in investment.b. Explain how the price level changes in the long run.Suppose that the economy is at full employment, the price
Are the values of the multipliers in the short run and the long run larger or smaller than 2?Suppose that the economy is at full employment, the price level is 100, and the multiplier is 2.
Explain why higher share prices and house prices are equivalent to saving.Gains in stock markets and increased house prices boosted Canadians’ wealth in the first quarter of 2014. On a per capita
Explain how a rise in household wealth would be expected to influence consumption expenditure and saving and how the consumption function and the saving function would change.Gains in stock markets
Draw a graph to illustrate how a rise in household wealth would change the consumption function and the saving function.Gains in stock markets and increased house prices boosted Canadians’ wealth
The U.S. Commerce Department reported that wholesale inventories fell 1.3 percent in August for a record 12th consecutive month, evidence that companies are trimming orders to factories, which helped
On January 27, 2009, the government announced a stimulus package, which included $12 billion earmarked for infrastructure—the construction of roads, bridges, public transit, broadband Internet
President Obama’s proposal to jolt a listless economic recovery with $180 billion worth of tax breaks and transportation projects left economists largely unimpressed Tuesday. If taxes fall by $90
Compare the multiplier in the short run and the long run and explain why they are not identical.Statistics Canada reported that in the second quarter of 2014 Canadian exports increased by $24 billion.
For each of the expenditures listed in the news clip, say which is part of induced expenditure and which is part of autonomous expenditure.Consumer sentiment was up in August, helped by merchant
Which of the events reported in the news clip would change aggregate demand and which would change the quantity of real GDP demanded? Provide a graphical illustration of the distinction.Consumer
Explain and draw a graph to illustrate how increasing consumer confidence influences aggregate expenditure and aggregate demand.Consumer sentiment was up in August, helped by merchant discounts,
In Japan, consumer prices slid at a faster pace in July and industrial production unexpectedly slumped.Contrast what the news clip says is happening in Japan with what is happening in Canada in
How does a nonrival good differ from a nonexclusive good?
The accompanying figure illustrates the change in consumer surplus, given by area ABEC, when the price decreases from P1 to P2. This area can be divided into the rectangle ABDC and the triangle BDE.
Gina lives in Chicago and very much enjoys traveling by air to see her mother in Italy. On the accompanying graph, x denotes her number of round trips to Italy each year. The composite good y
Emily purchases food (measured by x) and clothing (measured by y). Her preferences are described by the quasilinear utility function U(x, y) 32 √x 2y, withMUx = 16 / √x and MUy = 2.
Catrina buys two goods, food F and clothing C, with the utility function U = FC + F. Her marginal utility of food is MUF = C + 1 and her marginal utility of 213 clothing is MUC = F. She has an income
Raymond consumes leisure (L hours per day) and other goods (Y units per day), with preferences described by U(L,Y ) L + 2 √Y . The associated marginal utilities are MUY = 1 and MUL = 1/L. The
Julie buys food and other goods. She has an income of $400 per month. The price of food is initially $1.00 per unit. It then rises to $1.20 per unit. The prices of other goods do not change. To help
A firm has a production function Q = 10L + 30K. Suppose the price of labor services w is $5 per unit, and the price of capital services r is also $5 per unit. Using the method of Lagrange, find the
Suppose that in the twenty-first century the production of semiconductors requires two inputs: capital (denoted by K) and labor (denoted by L). The production function takes the form Q = √KL.
A researcher claims to have estimated input demand curves in an industry in which the production technology involves two inputs, capital and labor. The input demand curves he claims to have estimated
A firm uses two inputs, labor services whose quantity is denoted by L and capital services whose quantity is denoted by K. The production function is given by Q = 100LK, and the price of labor w is
The Thai food restaurant business in Evanston, Illinois, is monopolistically competitive. Suppose that each existing and potential restaurant has a total cost function given by TC = 10Q + 40,000,
What is economic rent? How does it differ from economic profit?
What is the Nash equilibrium in the following game? Player I Up Down Player 2 Left 2,6 0,9 Right 8,-5 12,3
What is the size of the deadweight loss in a competitive market with no government intervention?
In the competitive market for hard liquor, the demand is relatively inelastic and the supply is relatively elastic. Will the incidence of an excise tax of $T be greater for consumers or producers?
If an import tariff and an import quota lead to the same price in a competitive market, which one will lead to a larger domestic deadweight loss?
Under which of the programs listed above will the market clear? Briefly explain.
The demand curve for a certain good is P = 100 − Q. The marginal cost for a monopolist is MC(Q) = Q, for Q ⩽ 30. The maximum that can be supplied in this market is Q = 30, that is, the marginal
In the late 1970s, Sony, a manufacturer of video cassette players, and Columbia Pictures, a movie studio, played a game involving the choice of technology. Each firm had to decide whether to use the
Does a firm need to be a monopolist to price discriminate?
In a World Series game, Jacob deGrom is pitching and Mike Trout is batting. The count on Trout is three balls and two strikes. deGrom has to decide whether to throw a fastball or a curveball. Trout
What is the expected value of a lottery? What is the variance?
What is Walras’ Law? What is its significance?
What happens in the graph in Problem 21 if the price rises and rainfall is constant?Data from in Problem 21The table gives data about umbrellas: price, the number purchased, and rainfall in
Draw a graph to show the relationship between the price and the number of umbrellas purchased, holding the amount of rainfall constant at 200 mm. Describe this relationship.The table gives data about
What feature of a PPF illustrates increasing opportunity cost? Explain why Yucatan’s opportunity cost does or does not increase.Suppose that Yucatan’s production possibilities are:
Explain why Hong Kong has experienced faster economic growth than Canada.
Tim Hortons has exploded to become a dominant player among quick-serve restaurants. In 2001, it took the risk by switching to centralized production of baked goods, which lowered its labour costs and
What is the equilibrium price of a good or service?
Explain the approach (expenditure or income) that you used to calculate GDP.The table lists some data for Canada in 2008. Item Wages paid to labour Consumption expenditure Net domestic income at
An island economy produces only fish and crabs.Calculate the island’s chained-dollar real GDP in 2014 expressed in 2013 dollars. Quantities Fish Crabs Prices Fish Crabs 2013 1,000 tonnes 500
Calculate real GDP in 2014 in base-year prices.Tropical Republic produces only bananas and coconuts. The base year is 2013. Quantities Bananas Coconuts Prices Bananas Coconuts 2013 800 bunches 400
Explain in which of the years Canada’s standard of living (i) Increased and(ii) Decreased. Year 2007 2008 2009 2010 Real GDP $1,311 billion $1,320 billion $1,284 billion $1,325
In 2014, flow D was $2 trillion, flow E was –$1 trillion, flow A was $10 trillion, and flow C was $4 trillion. Calculate consumption expenditure.
Explain the approach (expenditure or income) that you used to calculate GDP.The table lists some data for Xanadu in 2014. Item Wages paid to labour Consumption expenditure Profit, interest, and
Describe the alternative measures of unemployment.
If the labour market is working properly, why would there be any unemployment at all?Matching people with available jobs is always difficult after a recession as the economy remakes itself. But
What is the natural unemployment rate?
Calculate the CPI basket and the percentage of the household’s budget spent on juice in 2013.The people on Coral Island buy only juice and cloth. The CPI basket contains the quantities bought in
What are the equilibrium real wage rate and the quantity of labour employed in 2014?The first table describes an economy’s labour market in 2014 and the second table describes its production
South Africa’s real GDP was 1,900 billion rand in 2011 and 1,970 billion rand in 2012. South Africa’s population was 50.5 million in 2011 and 51.0 million in 2012. Calculate:a. The growth rate of
What are the preconditions for labour productivity growth?
Draw a scatter diagram of the inflation rate and the interest rate. Describe the relationship.The spreadsheet provides the economic data: Column A is the year, column B is the inflation rate, column
Draw a graph of the relationship between the revenue per theatre on the y -axis and the number of theatres on the x -axis. Describe the relationship.LEGO Tops the Box Office Movie The LEGO
Draw a scatter diagram of the growth rate and the unemployment rate. Describe the relationship.The spreadsheet provides the economic data: Column A is the year, column B is the inflation rate, column
Draw a scatter diagram of the interest rate and the unemployment rate. Describe the relationship.The spreadsheet provides the economic data: Column A is the year, column B is the inflation rate,
Calculate the slope of the relationship in Problem 4 between 3,775 and 2,253 theatres.LEGO Tops the Box Office Movie The LEGO Movie About Last Night RoboCop The Monuments
Calculate the slope of the following relationship. 10 8 6 4 2 0 у 4.0 8.0 12.0 X
Calculate the slope of the relationship in Problem 4 between 2,253 and 3,372 theatres.LEGO Tops the Box Office Movie The LEGO Movie About Last Night RoboCop The Monuments
The Russian government spent $6.7 billion on Olympic facilities and $16.7 billion upgrading Sochi area infrastructure. Sponsors spent $27.6 billion on hotels and facilities hoping to turn Sochi into
What happens in the graph in Problem 10 if the temperature rises to 30°C?The table gives the price of a balloon ride, the temperature, and the number of rides a day. Price (dollars per
Draw a scatter diagram of the price of oil and the quantity of oil produced. Describe the relationship.The spreadsheet provides data on oil and gasoline: Column A is the year, column B is the
Which of the following statements is positive, which is normative, and which can be tested?a. Canada should cut its imports.b. China is Canada’s largest trading partner.c. The federal government
Draw a graph to show the relationship between the price and the number of rides when the temperature is 20°C. Describe this relationship.The table gives the price of a balloon ride, the temperature,
Eminem will hit the road with Rihanna offering an awesome deal—buy one and get one free! Mstars News , February 24, 2014 When Eminem gave away tickets, what was free and what was scarce?
Draw a scatter diagram of the price of gasoline and the quantity of gasoline refined. Describe the relationship.The spreadsheet provides data on oil and gasoline:Column A is the year, column B is the
When Costco opened a gas bar just off Highway 401, the neighbourhood was swamped with cars as drivers lined up to get the discount of 10 cents a litre.a. What is the opportunity cost of a litre of
Draw a scatter diagram of the quantity of oil produced and the quantity of gasoline refined. Describe the relationship.The spreadsheet provides data on oil and gasoline:Column A is the year, column B
a. Is the relationship positive or negative?b. Does the slope of the relationship become steeper or flatter as the value of x increases?c. Think of some economic relationships that might be similar
Calculate the slope of the relationship between x and y when x equals 3.Draw a graph that shows the relationship between the two variables x and y: x y 012 3 4 25 24 22 18 12 5 0
Calculate the slope of the relationship across the arc as x increases from 4 to 5.Draw a graph that shows the relationship between the two variables x and y: x y 012 3 4 25 24 22 18 12 5 0
Calculate the slope of the curve in the figure in the next column at point A. 18 10 0 4 A 9 X
What happens in the graph in Problem 21 if the rainfall increases from 200 mm to 400 mm?Data from in Problem 21The table gives data about umbrellas: price, the number purchased, and rainfall in
The table describes the preferences in Yucatan.a. What is the marginal benefit from sunscreen and how is it measured?b. Use the table in Problem 11. What does Yucatan produce to achieve allocative
Explain how we “read” the three scatter diagrams in Figs. A1.3 and A1.4 .Data from in Figure A1.3 FIGURE A1.3 A Scatter Diagram Movie Iron Man 3 The Hunger Games: Catching Fire Despicable Me
Music retailing is changing: Sony Music and Amazon are selling online, discount stores are selling at low prices, and downtown music re tailers are all struggling.a. Draw the PPF curves for downtown
Toyota will continue to produce 3 million cars per year and will use the balance of its resources to upgrade its workers’ skills and create new technology. In three years’ time, Toyota plans to
Draw a graph of two variables whose relationship shows (i) A maximum (ii) A minimum.
After you have studied Economics in the News on pp. 46 – 47, answer the following questions.a. How does the discovery of new oil and gas reserves change Canada’s PPF ?b. How do technological
How does the production possibilities frontier illustrate production efficiency?
Why is opportunity cost a ratio?
What is marginal cost? How is it measured?
What is marginal benefit? How is it measured?
What is the opportunity cost of economic growth?
In April 2014, the money price of a litre of milk was $2.01 and the money price of a litre of gasoline was $1.30. Calculate the real price of a litre of gasoline in terms of milk.

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