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microeconomics principles

Questions and Answers of Microeconomics Principles

How does monopoly arise?
GM will temporarily lay off 1,300 employees as the company stops production of the electric car, Chevy Volt, for five weeks. GM had hoped to sell 10,000 Volts last year, but ended up selling just
Executive compensation, based on performance, can theoretically constrain pay, but companies are paying their top executives more and more. The median compensation of a CEO in 2013 was $13.9 million,
What are the two ways in which economic activity can be coordinated?
Under what conditions do the measures of concentration give a good indication of the degree of competition in a market?
What is a firm’s fundamental goal and what happens if the firm doesn’t pursue this goal?
Sara’s income is $12 a week. The price of popcorn rises from $3 to $6 a bag, and the price of a smoothie is unchanged at $3. Explain how Sara’s budget line changes with smoothies on the x-axis.
If the price of a normal good falls, what happens to the quantity demanded of that good?
When a consumer chooses the combination of goods and services to buy, what is she or he trying to achieve?
What does a household’s budget line show?
Add two columns to your table in Problem 6 and list Max’s marginal utility per dollar from windsurfing and from snorkeling.Hours per dayTotal utility from windsurfingTotal utility from
Make a table of the combinations of hours spent windsurfing and snorkeling that Max can afford.Hours per dayTotal utility from windsurfingTotal utility from
Which does Max enjoy more: his 6th hour of windsurfing or his 6th hour of snorkeling? Hours per dayTotal utility from windsurfingTotal utility from
Calculate Max’s marginal utility from snorkeling at each number of hours per day. Does Max’s marginal utility from snorkeling obey the principle of diminishing marginal utility? Hours per
Calculate Max’s marginal utility from windsurfing at each number of hours per day. Does Max’s marginal utility from windsurfing obey the principle of diminishing marginal utility?
a. What is the TPP?b. Who in the United States would benefit and who would lose from a successful TPP?c. Illustrate your answer to part (b) with an appropriate graphical analysis assuming that
Explain who in the United States gains from the quota on beef imports and who loses.
Suppose that in 2015 tomato growers in Florida lobby the U.S. government to impose an import quota on Mexican tomatoes. Explain who in the United States would gain and who would lose from such a
Explain the effects of an import quota on domestic production, consumption, and price.
Explain the effects of a tariff on domestic production, the quantity bought, and the price.
How is the gain from exports distributed between consumers and domestic producers?
How is the gain from imports distributed between consumers and domestic producers?
a. When a state raises its minimum wage above the federal minimum, what would you expect to happen to unemployment in that state? Illustrate your answer with a graph.b. The news article reports that
If the government subsidizes growers at $4 a pound, who gains and who loses from the subsidy? What is the deadweight loss? Could the subsidy be regarded as being fair?
If the government subsidizes growers at $4 a pound, what is the quantity produced, the quantity demanded, and the subsidy paid to growers? FIGURE 6.6 12 10 8 4 1 3 4 Quantity (billions of pounds
If the college put a price ceiling on meals at $4 a meal, what is the quantity bought, the shortage of meals, and the maximum price that someone is willing to pay for the last meal available?
The table sets out the demand and supply schedules for college meals.a. What are the equilibrium meal price and equilibrium quantity of meals? b. If the college put a price ceiling on meals at
Calculate the equilibrium wage rate, the hours worked, and the quantity of unemployment. Quantity Quantity supplied (hours per month) Wage rate (dollars per hour) demanded 2,500 5 1,500 2,000 2,000
If there’s one thing that can set home heating costs soaring, it’s a long, frigid blast from one of the coldest winters in 20 years and people are going to use 10 to 12 per cent more natural gas
What is each owner’s minimum supply-price of 10 rides a day? Price Quantity supplied (rides per week) (dollars Rick Sam Tom per ride) 10.00 12.50 15.00 10 5 15 17.50 10 10 20.00 20 15
Under the deal, Netflix will buy Internet service from Comcast, rather than connect directly for free with some smaller ISPs like Cablevision as it does now. a. How will Netflix’s decision to
a. Looking at Fig. 1 on p. 99, explain what must have happened in 2014 to the supply of coffee.b. Given the information in Fig. 1 and the estimated elasticity of demand for coffee, by what percentage
Given the prices of the two holidays, is the income elasticity of demand for exotic holidays positive or negative? Are exotic holidays a normal good or an inferior good? Are local holidays a normal
a. What would happen to the price of bananas if TR4 spread to Central America?b. What are some of the substitutes for bananas and what would happen to demand, supply, price, and quantity in the
With the new way to tap maple trees, farmers could produce 10 times as much maple syrup per acre.Will the new method change the supply of maple syrup or the quantity supplied of maple syrup, other
When a timber mill makes logs from trees it also produces sawdust, which is used to make plywood.a. Explain how a rise in the price of sawdust influences the supply of logs.b. Explain how a rise in
In 2013, the price of corn fell and some corn farmers will switch from growing corn in 2014 to growing soybeans.a. Does this fact illustrate the law of demand or the law of supply? Explain your
As the average income in China continues to increase, explain how the following would change:a. The demand for beefb. The demand for rice
Which of the following goods are likely substitutes and which are likely complements? (You may use an item in more than once.): coal, oil, natural gas, wheat, corn, pasta, pizza, sausage,
In April 2014, the money price of a carton of milk was $2.01 and the money price of gallon of gasoline was $3.63. Calculate the relative price of a gallon of gasoline in terms of milk.
a. How has “fracking” changed U.S. production possibilities? b. How have advances in technologies for producing other goods and services changed the U.S. production possibilities?c. If
How do we graph a relationship among more than two variables?
Which of the following statements is positive, which is normative, and which can be tested?a. The United States should cut its imports.b. China is the largest trading partner of the United States.c.
The health insurance reform signed into law by President Obama in 2010 included the following two provisions: i. Insurance companies must offer health insurance to everyone who applies and
Explain why majority rule respects the preferences of the median voter rather than the average voter.
What unusual property of voting did Condorcet notice?
Five consumers have the following marginal utility of apples and pears:The price of an apple is $1, and the price of a pear is $2. Which, if any, of these consumers are optimizing over their choice
Carlos consumes only cheese and crackers.a. Could cheese and crackers both be inferior goods for Carlos? Explain.b. Suppose that cheese is a normal good for Carlos while crackers are an inferior
The poverty rate would be substantially lower if the market value of in-kind transfers were added to family income. The largest in-kind transfer is Medicaid, the government health program for the
Table 3 shows that the percentage of children in families with income below the poverty line far exceeds the percentage of the elderly in such families. How might the allocation of government money
What has happened to the income share of the richest fifth of the U.S. population over the past 40 years?
Does the richest fifth of the U.S. population earn closer to three, six, or twelve times the income of the poorest fifth?
How might education raise a worker’s wage without raising the worker’s productivity?
In what sense is education a type of capital?
Classify the following markets as perfectly competitive, monopolistic, or monopolistically competitive, and explain your answers.a. Wooden no. 2 pencilsb. Copperc. Local electricity serviced. Peanut
What gives the government the power to regulate mergers between firms? Give a good reason and a bad reason (from the perspective of society’s welfare) that two firms might want to merge.
An industry currently has 100 firms, each of which has fixed cost of $16 and average variable cost as follows:Quantity Average Variable Cost1....................
What is the marginal tax rate on a lump-sum tax?How is this related to the efficiency of the tax?
Over the past century, has the government’s tax revenue grown more or less slowly than the rest of the economy?
There are three industrial firms in Happy Valley.The government wants to reduce pollution to 60 units, so it gives each firm 20 tradable pollution permits.a. Who sells permits and how many do they
Suppose that your demand schedule for pizza is as follows:a. Use the midpoint method to calculate your price elasticity of demand as the price of pizza increases from $8 to $10 if (i) your income is
Draw a circular-flow diagram. Identify the parts of the model that correspond to the flow of goods and services and the flow of dollars for each of the following activities.a. Selena pays a
What is the effect of a subsidy of s per hour on labor in only one sector of the economy on the equilibrium wage, total employment, and employment in the covered and uncovered sectors?
As discussed in the previous question, Lewis Wolff and his investment group bought the Oakland A’s baseball team for $180 million in 2005. Reportedly, Hall-of-Famer Reggie Jackson offered $25
Discussing the $350 price of a ticket for one of her concerts, Barbra Streisand said, “If you amortize the money over 28 years, it’s $12.50 a year. So is it worth $12.50 a year to see me sing? To
The website http://www.timetravelfund.com discusses investing $1 at 5% interest, which it says will be worth $39,323,261,827.22 in 500 years. Is its calculation correct, and, if so, for what
Show that advertising is a dominant strategy for both firms in both panels of Table 14.4. Explain why that set of strategies is a Nash equilibrium.Table 14.4 Firm 1 Do Not Enter Enter Do Not Enter
Electric power is often generated by burning oil or gas to create steam. That steam is used to drive the turbines and produce electricity. One barrel of crude oil produces about 5.6 million BTUs of
Algebraically solve for the after-tax equilibrium price and quantity in the corn market if the government collects a specific tax of t = $2.40 from customers, as panel b of Figure 3.6 illustrates.
Find the percentage change in price in each of the following examples using the mid-point method.a. The price of a $4.50 sandwich increases to $5.50.b. The sale discounts the price of a sofa from
Create four quadrants using x- and y-axes. Use your graph to plot the following points.a. (0,4)b. (0, -2)c. (1,0)d. (-3, 0)
Create four quadrants using x- and y-axes. Use your graph to plot the following points.a. (1, 4)b. (–2, 1)c. (–3, –3)d. (3, –2)
Suppose you want to buy your significant other tickets to see his or her favorite musical on Broadway in New York City, but you have never purchased tickets to a Broadway musical before and don't
When it comes to making decisions, which of the following statements are true? Select all that apply.a. Individuals will make the same choices no matter how information is presented.b. Anchoring is
Figure 13P-2 shows the marginal cost curve for a firm in a competitive market. The market price is $24. Plot this firm's profit-maximizing price and quantity.
Select all that apply. In a perfectly competitive market, MR equals:a. Priceb. Average revenuec. Total revenued. Δ in total revenue / Δ in quantity
In the United States, public schools are often funded by property taxes levied on the property in surrounding areas. Which of the following statements explains how this can result in a poverty trap?
For each of the scenarios below, determine whether you think it is likely that an employer could be discriminating against a person because of his or her age. Explain why or why not.
A Chinese high technology manufacturing firm has a production function of q = 10L0.28K0.64 (based on Zhang et al., 2012). It faces factor prices of w = 10 and r = 20. What are its short-run marginal
If the cost function for John’s Shoe Repair is C(q) = 100 + 10q - q2 + 1/3q3, and its marginal cost function is MC = 10 - 2q + q2, what is its profit-maximizing condition given that the market
The demand curve Q = A/p, where A is a positive constant, has the property that the elasticity of demand is ε = -1. If a monopoly faces this demand curve, where would it set its price or quantity if
If the inverse market demand function facing a duopoly is p = a - bQ, what are the Nash- Cournot equilibrium quantities if the marginal cost of Firm 1 is m and that of Firm 2 is m + x, where x >
In 2012, the U.S. government sued to block the world’s biggest beer maker, Anheuser-Busch InBev, from buying Mexico’s Grupo Modelo (which manufactures Corona and other beers) for $20 billion
Show how the Nash-Cournot equilibrium for n firms given in Appendix 13A changes if each firm faces a fixed cost of F as well as a constant marginal cost per unit.
In 2016, Tesla introduced a new version of its popular Model S electric sedan, the S 60, starting at $66,000. It comes with a battery pack that can store 75 kilowatt-hours of electricity, but its
College students could once buy a computer at a substantial discount through a campus buying program.The discounts largely disappeared in the late 1990s, when PC companies dropped their prices.
Various services such as Hulu.com that provide television shows and movies over the Internet subject customers to customized commercials, as the firms learn more about their customers’ viewing
The Cobb-Douglas production function for a U.S. tobacco products firm is q = L0.2K0.3 (see the Application “Returns to Scale in Various Industries” in Chapter 6). Derive the marginal revenue
If a monopoly has a Cobb-Douglas production function, Q = LaKb, and faces an inverse demand function of p = Q-d, what is its marginal revenue product of labor?
A competitive firm’s production function is q = 2LK. What is its marginal revenue product of labor?
Suppose that firms are taxed to pay for workers’ medical care. How is the incidence of a specific tax per worker shared between competitive firms and workers? How does your answer change if the
What effect does an ad valorem tax of v on the revenue of a competitive firm have on that firm’s demand for labor?
Starting in 2017, ESPN and Turner are paying the National Basketball Association $24 billion over nine years for the rights to broadcast games. That’s a 160% increase over the previous contract.
Suppose that a modern plague (AIDS, SARS, Ebola virus, avian flu) wipes out or incapacitates a major share of a small country’s work force. If this country’s labor market is monopsonistic, what
Many grocery stores charge manufacturers a slotting fee: a one-time fee to place a given good on the shelf. Although stores sometimes claim that these fees are to cover their transaction costs of
A firm is a monopoly in the output market and a monopsony in the input market. Its only input is the finished good, which it buys from a competitive market with an upward-sloping supply curve. The
If the firm uses a fixed-proportion production process where one unit of labor and one unit of capital produce one unit of output, what is the marginal revenue product of labor?
Can a merger of an upstream and a downstream monopoly help consumers?
Compare the equilibrium in a market in which a firm is both a monopoly and a monopsony (as in the previous question) to the competitive equilibrium.
Suppose that a modern plague (AIDS, SARS, Ebola virus, avian flu) wipes out or incapacitates a major share of a small country’s work force. If this country’s labor market is competitive, what

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