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modern principles of economics

Questions and Answers of Modern Principles Of Economics

Each firm must now pay to cut pollution levels by 4 units. A cap-and-trade policy gives each of these firms two permits and allows them to trade permits if they choose. Based on the table below which
To do this, the government caps each firm’s allowed pollution level at
Two firms, Cappcore and Tradiola, are each emitting 6 units of pollution, and the government wants to reduce the total level of pollution from the current level of 12 to
Suppose the nation of Valencia must decide which project to fund: public transportation, construction of a seaport, or a national Wi-Fi network. The nation has the available funds to finance only one
Refer to the previous question but assume that the government has imposed a per-unit tax on this product which is exactly equal to the marginal damage costs. Use the diagram to show what will happen
The following diagram represents the profit-maximizing price and output for a firm in a perfectly competitive industry with no externalities. Use this diagram to explain what will happen if the
[Related to the Economics in Practice on p. 341] The United Nations Climate Change Conference was scheduled to be held in Cancun, Mexico, from November 29–December 10, 2010. Search the Internet to
The recent economic growth resulting from government policies of newly industrializing nations such as India and China has increased environmental strains on global air and water systems. The
The Coase theorem implies that we never need to worry about regulating externalities because the private individuals involved will reach the efficient outcome through negotiations. Is that statement
Government involvement in general scientific research has been justified on the grounds that advances in knowledge are public goods—once produced, information can be shared at virtually no cost. A
Assuming that the public good can be produced at a constant marginal cost of $6, what is the optimal level of output? How much would you charge A and B?
Society is made up of two individuals, A and B, whose demands for public good X are given in Figure
Explain why you agree or disagree with each of the following statements:a. The government should be involved in providing housing for the poor because housing is a “public good.”b. From the
[Related to the Economics in Practice on p. 338] The Economics in Practice suggests that children impose negative externalities. What does that imply about discounts for children’s meals at
A paper factory dumps polluting chemicals into the Snake River.Thousands of citizens live along the river, and they bring suit, claiming damages. You are asked by the judge to testify at the trial as
It has been argued that the following are examples of “mixed goods.” They are essentially private but partly public. For each example, describe the private and public components and discuss
Which of the three arguments do you find to be most persuasive?
The existence of “public goods” is an example of potential market failure and suggests that a government or public sector can improve the outcome of completely free markets. Write a brief summary
Many people are concerned with the problem of urban sprawl.As the development of new housing tracts and suburban shopping malls continues over time, metropolitan areas have become more congested and
It has been proposed that toll collection on the Massachusetts Turnpike, a key commuter route into Boston from the west, be discontinued. Proponents argue that tolls have long ago paid for the cost
If government imposes on the firms in a polluting industry penalties (taxes) that exceed the actual value of the damages done by the pollution, the result is an inefficient and unfair imposition of
Explain the relationship between price and marginal revenue for a purely competitive firm and for a monopolistically competitive firm. Why is the relationship different for these markets?
The following diagram shows the structure of cost and demand facing a monopolistically competitive firm in the short run.a. Identify the following on the graph and calculate each one.i.
Conduct an online search for “Chicago restaurants.” You will find over 40 million entries. Now try “Chicago Chinese Restaurants.”You will find nearly half a million entries. Try to estimate
In the area around a local university, a number of food vendors gather each lunchtime to sell food to university students who are tired of dorm food. The university and the town have no license fees
The table shows the relationship for a hypothetical firm between its advertising expenditures and the quantity of its output that it expects it can sell at a fixed price of $5 per unit.a. In economic
[Related to Economics in Practice on p. 321] The news story tells us that some restaurant owners oppose the labeling requirement. Why? Since restaurants compete with one another, would you not expect
[Related to Economics in Practice on p. 318] If you look at the prices listed in the Economics in Practice on p. 318, you will see that the more well-known brands are being sold for a lower price
In a market in which there is vertical differentiation, we always see price differences among the products. In markets with horizontal differentiation, sometimes the products differ but prices are
Write a brief essay explaining this statement: The Beatles were once a monopolistically competitive firm that became a monopolist.
Consider the local music scene in your area. Name some of the local live bands that play in clubs and music halls, both on and off campus. Look in your local newspaper for advertisements of upcoming
For each of the following, state whether you agree or disagree.Explain your answer.a. Monopolistically competitive firms produce their economic profits protected by barriers to entry.b.
Explain whether you agree or disagree with the following statement. If all firms in an industry successfully engage in collusion, the resulting profit-maximizing price and output would be the same as
Bernie and Leona were arrested for money laundering and were interrogated separately by the police. Bernie and Leona were each presented with the following independent offers. If one confesses and
The following table represents the market share percentage for each firm in a hypothetical industrya. Calculate the four-firm concentration ratio for this industry.b. Calculate the
For each of the following, state whether you agree or disagree.Explain your reasoning.a. Oligopolies are always bad for society.b. The beer industry has a few large firms and many small firms.
Suppose we have an industry with two firms producing the same product. Firm A produces 90 units, while firm B produces 10 units. The price in the market is $100, and both firms have marginal costs of
Between 2008 and 2010, dozens of lawsuits were brought or reinstated against U.S. firms for conspiracy to fix prices of things as diverse as pharmaceuticals, baby products, digital music, and eggs.
The payoff matrixes in Figure 2 on the following page show the payoffs for two games. The payoffs are given in parentheses. The figure on the left refers to the payoff to A; the figure on the right
The matrix in Figure 1 on the following page shows payoffs based on the strategies chosen by two firms. If they collude and hold prices at $10, each firm will earn profits of $5 million. If A cheats
Assume that you are in the business of building houses. You have analyzed the market carefully, and you know that at a price of $120,000, you will sell 800 houses per year. In addition, you know that
Which of the following markets are likely to be perfectly contestable? Explain your answers.a. Shipbuildingb. Truckingc. Housecleaning servicesd. Wine production
[Related to the Economics in Practice on p. 296] In the last decade, many movie theaters have closed and others have seen a fall in yearly revenues. Use the Five Forces apparatus to analyze why this
Which of the following industries would you classify as an oligopoly? Which would you classify as monopolistically competitive? Explain your answer. If you are not sure, what information do you need
Suppose Gloria has the only franchise for a McDonald’s restaurant in Laughlin, Nevada, a city with a population of roughly 8,100. Does the fact that Gloria has the only McDonald’s in town
The diagram below shows a firm (industry) that earns a normal return to capital if organized competitively. Price in the market place is Pc under competition. We assume at first that marginal cost is
Black Eyed Peas was a rock band that stood at the top of the charts for sales in 2010 when its song “I Gotta Feeling” was downloaded over 7 million times. The path to success for a rock band
[Related to the Economics in Practice on p. 287] Explain how the Supreme Court ruling in American Needle v. NFL exemplifies the “rule of reason” provision of the Sherman Act of 1890.
[Related to the Economics in Practice on p. 280] When cable television was first introduced, there were few substitutes for it, particularly in areas with poor reception of network TV. In the current
One of the big success stories of recent years has been Google.Research the firm and write a memorandum to the head of the Antitrust Division of the Justice Department presenting the case for and
In Taiwan, there is only one beer producer, a governmentowned monopoly called Taiwan Beer. Suppose that the company were run in a way to maximize profit for the government. That is, assume that it
Consider the following monopoly that produces paperback books:a. Draw the average total cost curve and the marginal cost curve on the same graph.b. Assume that all households have the same demand
The following diagram shows the cost structure of a monopoly firm as well as market demand. Identify on the graph and calculate the following:a. Profit-maximizing output levelb. Profit-maximizing
The following diagram illustrates the demand curve facing a monopoly in an industry with no economies or diseconomies of scale and no fixed costs. In the short and long run MC = ATC. Copy the diagram
Recall that marginal revenue is the added revenue from an additional unit of production/sales and assume that MR is constant within each interval.If marginal cost is constant at $20 and fixed cost is
Willy’s Widgets, a monopoly, faces the following demand schedule (sales in widgets per month):Calculate marginal revenue over each interval in the schedule—for example, between q = 40 and q =
Assume that the potato chip industry in the Northwest in 2009 was competitively structured and in long-run competitive equilibrium; firms were earning a normal rate of return. In 2010, two smart
Do you agree or disagree with each of the following statements?Explain your reasoning.a. For a monopoly, price is equal to marginal revenue because a monopoly has the power to control price.b.
Explain the difference between a positive externality and a negative externality. Can both types of externalities result in market failure? Why or why not?
Briefly explain whether each of the following represents a public good.a. A chef salad sold at the cafeteria in the county courthouseb. Palm trees planted along the median of the Pacific Coast
James lives on a cul-de-sac where he and all his neighbors park on the street. After his car was vandalized, James decided to install motion-sensitive lighting on the front of his house. Now any
Two factories in the same town hire workers with the same skills. Union agreements require factory A to pay its workers$10 per hour, while factory B must pay $6 per hour. Each factory hires the
Each instance that follows is an example of one of the four types of market failure discussed in this chapter. In each case, identify the type of market failure and defend your choice briefly.a. An
Which of the following are actual Pareto-efficient changes?Explain briefly.a. You buy three oranges for $1 from a street vendor.b. You are near death from thirst in the desert and must pay a passing
Assume that there are two sectors in an economy: goods (G)and services (S). Both sectors are perfectly competitive, with large numbers of firms and constant returns to scale. As income rises,
Suppose two passengers end up with a reservation for the last seat on a train from San Francisco to Los Angeles. Two alternatives are proposed:a. Toss a coinb. Sell the ticket to the highest bidder
A major source of chicken feed in the United States is anchovies, small fish that can be scooped out of the ocean at low cost. Every 7 years, when the anchovies disappear to spawn, producers must
Which of the following are examples of Pareto-efficient changes? Explain your answers.a. Cindy trades her laptop computer to Bob for his old car.b. Competition is introduced into the electric
The point of scalping is to find someone who wants a ticket more than the person who presently has it. Whenever two different prices exist in a market, arbitrage opportunities (buy and then sell at a
Do you agree or disagree with each of the following statements?Explain your answer.a. Housing is a public good and should be produced by the public sector because private markets will fail to produce
Country A has soil that is suited to corn production and yields 135 bushels per acre. Country B has soil that is not suited for corn and yields only 45 bushels per acre. Country A has soil that is
A medium-sized bakery has just opened in Slovakia. A loaf of bread is currently selling for 14 koruna (the Slovakian currency)over and above the cost of intermediate goods (flour, yeast, and so on).
For each of the following, tell a story about what is likely to happen in labor and capital markets using the model of the whole economy that we developed over the first 11 chapters.a. A sharp drop
[Related to the Economics in Practice on p. 257] The Economics in Practice in this chapter describes the adjustment of the corn and wheat markets to the massive U.S. subsidy given to ethanol
Numerous times in history, the courts have issued consent decrees requiring large companies to break up into smaller competing companies for violating the antitrust laws. The two best-known examples
How would your answers to the previous question change if the annual payments changed to $2,000,000 per year for 15 years?
Teresa won the Florida lottery and was given the option of receiving $22 million immediately or $1,250,000 per year for 30 years.a. If Teresa opts for the 30 annual payments, how much in total will
Assume that I promise to pay you $100 at the end of each of the next 3 years. Using the following formula, X = 100/(1 + r) + 100/(1 + r)2 + 100/(1 + r)3 if r = 0.075, then X = $260.06.Assuming that
Assume that the present discounted value of an investment project(commercial development) at a discount rate of 7 percent is$234,756,000. Assume that the building just sold for $254 million. Will the
Based on your answers to questions 5 and 6, state whether each of the following is true or false:a. Ceteris paribus, the price of a bond increases when the interest rate increases.b. Ceteris paribus,
What should someone be willing to pay for each of the bonds in question 5 if the interest rate is 10 percent?
Determine what someone should be willing to pay for each of the following bonds when the market interest rate for borrowing and lending is 5 percent.a. A bond that promises to pay $3,000 in a
Would you buy the machine if the interest rate were 8 percent? if the interest rate were 10 percent?
Calculate the present value of the income streams A to E in Table 1 at an 8 percent interest rate and again at a 10 percent rate.Suppose the investment behind the flow of income in E is a machine
A special task force has determined that the present discounted value of the benefits from a bridge project comes to $23,786,000.The total construction cost of the bridge is $25 million. This implies
Currently, the annual rate of interest that can be obtained by buying 10-year bonds is 6.5 percent. Your brother offers you $6,000 cash right now to sign over your inheritance. Should you do it?
Your Uncle Joe just died and left $10,000 payable to you when you turn 30 years old. You are now
Suppose you were offered $2,000 to be delivered in 1 year. Further suppose you had the alternative of putting money into a safe certificate of deposit paying annual interest at 10 percent. Would you
[Related to the Economics in Practice on p. 241] The text states that in terms of value, the majority of stock in the United States is held by households through institutions and the percentage of
Bailey, Kaylee, Haley, and Joyce are sorority sisters who have discovered an opportunity to purchase an Internet café. Each of the women would have to put up $80,000 to make the purchase.The revenue
Celia, an analyst with a venture capital firm, is approached by Wanda about financing her new business venture, a company which will build electricity-generating windmills for residential use. What
Lending institutions charge different interest rates for different classifications of mortgages. Two of these mortgage types are Alt-A mortgages and subprime mortgages.Alt-A mortgages generally carry
On October 29, 2007, the Red Sox won the World Series. That same day the stock market rose. The S&P 500 index (an index of the stock prices of the 500 largest corporations in the United States)
In March 2008, the General Motors building, a skyscraper in Manhattan, was up for bid. At the time, the skyscraper was expected to fetch more than $3 billion, a record for a single building. If you
Describe the capital stock of your college or university. How would you go about measuring its value? Has your school made any major investments in recent years? If so, describe them.What does your
[Related to Economics in Practice on p. 243] Venture capital funds have been very active in rapidly developing countries such as China and India. Explain why this is so.
From a newspaper such as The Wall Street Journal, from the business section of your local daily, or from the Internet, look up the prime interest rate, the corporate bond rate, and the interest rate
The Federal Reserve Board of Governors has the power to raise or lower short-term interest rates. Between 2005 and 2006, the Fed aggressively increased the benchmark federal funds interest rate from
The board of directors of the Quando Company in Singapore was presented with the following list of investment projects for implementation in 2010:Sketch total investment as a function of the interest
You and 99 other partners are offered the chance to buy a gas station. Each partner would put up $10,000. The revenues from the operation of the station have been steady at $420,000 per year for

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