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Questions and Answers of Sports Economics

on page 414, the price elasticity of demand for salt is 0.10, so if we increase the price of salt by 20 percent, the quantity demanded will decrease by 2 percent." What's wrong with this statement?
Use the Correct Elasticity. Your company currently sells 50 units of salt per year and has decided to increase its price from $1.00 to $1.20. In a meeting, one person says, "As shown in Table
Meeting the Teenage Smoking Target. Recall the example "Cigarette Prices and Teenagers" from the chapter. One of the stated objectives of the federal Tobacco Agreement of 1997 was to reduce teenage
MADD Beer Tax. Recall the example "Beer Prices and Highway Deaths," from the chapter. The organization Mothers Against Drunk Driving (MADD) has a goal of reducing the number of highway deaths among
If the price elasticity of demand is 0.60, a 10 percent increase in price will the quantity demanded by. percent.
Recall the example "Cigarette Prices and Teenagers" from the chapter. A 20 percent increase in the price of cigarettes will reduce the quantity of cigarettes demanded by teenagers by. percent.
Recall the example "Beer Prices and Highway Deaths," from the chapter. A doubling of the tax on beer will reduce the number of highway deaths among young adults by. percent.
Demand is relatively elastic if the product has (many/few) substitutes, a (long/short) time passes, and the consumer spends a (large/small) fraction of his or her bud- get on the product.132
In the long run, a 20 percent increase in the price of gasoline will decrease traffic volume by percent and increase fuel efficiency by. percent. (Related to Application 1 on page 415.)
Over time, the price elasticity of demand for gasoline (increases/decreases). (Related to Application 1 on page 415.)
As the number of substitutes for a particular product increases, the price elasticity of demand for the product (increases/decreases).
If demand is elastic, the percentage change in exceeds the percentage change in
When the price of CDs increased from $10 to $11, the quantity of CDs demanded decreased from 100 to 80. The price elasticity of demand for CDs is. and demand is (elastic/inelastic).
If a 10 percent increase in price decreases the quantity demanded by 12 percent, the price elasticity of demand is
To compute the price elasticity of demand, we divide the percentage change in by the percent- age change in and then take the value of the ratio.
The Dollar and the Financial Crisis. It is gener- ally recognized that the world-wide financial crisis in 2008 originated in the United States, as its finan- cial institutions were most active in
Argentina after the Crisis. Use the Web to find data on economic growth and well-being for Argentina today. (Try searching for "Argentina and recovery.") How has Argentina fared after its financial
In the 1990s, Argentina pegged its currency to the dollar. As the dollar appreciated in world markets, this caused an increase in Argentina's trade.
Milton Friedman is the economist who believed that the Asian financial crisis was an example of market overreac- tion that could have been avoided by bolder actions from world organizations.
If a country borrows in dollars, a depreciation of its own currency against the dollar will burden of its debt. the
When prices rose in Mexico faster than in the United States and the nominal exchange rate remained con- stant, the real exchange rate.
Contagion. When investors decided that Greek debt was too risky and Greece could potentially default on its obligations, interest rates on Greek securities rose substantially. At the same time, Spain
Uncovering U.S. Exchange Rate Policy. Suppose the United States reported that the U.S. Treasury had increased its holdings of foreign currencies from last year. What does this tell you about the
Dollarization. Some countries have simply decided to let the U.S. dollar or another foreign currency serve as their local currency. This is called "dollarization." Why would a country decide to
percent. From this data, what do you think the market believes is the expected rate of depreciation of the Turkish lira against the U.S. dollar? Explain.
percent, or they could invest in Turkish bonds that would pay returns in U.S. dollars but earn only
Expectations of Depreciation and Investing. Individuals wishing to invest in Turkey in 2006 had two choices. They could invest in bonds that would pay returns in 2007 in Turkish lira and earn
When European countries joined together to create the euro, they no longer were able to conduct inde- pendent fiscal policy. (True/False)
The Bretton Woods agreement broke down during the decade of the.
If there is an excess supply of a country's currency at the fixed exchange rate, there is a balance of payments
The government foreign currency for dollars if it wants to peg the exchange rate at a higher rate than would normally prevail in the market.
A Debt Puzzle for the United States. As we dis- cussed in the chapter, the United States is a net inter- national debtor that is, U.S. ownership of foreign assets is less than foreign ownership of
Understanding Sovereign Investment Funds. China, Kuwait, and other countries that have had large current account surpluses are now investing some of their funds abroad in the private sector. through
Calculating the Capital and Current Account. During the year, a country (including its government), acquires an additional $100 billion of foreign assets. At the same time, foreign residents acquire
The United States has a large current account but a large. cial account. on the on the finan-
According to latest data on the U.S. international investment position, the United States is a net
The current, financial, and capital accounts must sum to
Net transfers from abroad are a(n). on the current account. entry
Hong Kong dol- lars were equal to 1 U.S. dollar and the euro (used in Paris) cost $1.54.a. At what exchange rates would the batteries sell in New York, Hong Kong, and Paris for the same dollar
Energizer Batteries around the World. According to the Wall Street Journal on August 5, 2008, a pack of four AA batteries sold for $2.33 in Hong Kong, S6.05 in New York, and $8.24 in Paris (prices
Big Macs in Switzerland. Traditionally, the Swiss franc has been a "safe" currency for investors around the world. Explain how this fact might help explain why Big Macs are more expensive in
euro per dollar, the dollar price of latts in the euro area was $3.70. (Related to Application 1 on page 392.)a. At what exchange rate between the dollar and the euro would a latt cost the same in
euros. Because the exchange rate at this time was
Tall Latts and the Real Exchange Rate between the Euro and the Dollar. According to the Economist, in early 2004 the average price of a tall latt in Starbucks in the United States was $2.80. In the
marks per dollara. By what percent did the dollar depreciate against the mark over this period?b. Using the formula for the real exchange rate, real exchange rate (exchange rate x U.S. price index)
119.6
marks per dollar 1990
76.0
The Real Exchange Rate between Germany and the United States. Consider the following data for the United States and Germany: German GDP U.S. GDP Price Year Price Deflator Deflator Market Exchange
The theory of. -(True/False) states that the exchange rate between two countries should be determined by the price levels in those two countries.
The law of one price provides accurate predictions of current exchange rates.
When the U.S. and foreign price levels remain the same but the dollar appreciates, the real exchange rate will
When the US. price level increases but the nominal exchange rate remains the same, the real exchange rate will
Exchange Rates and Rumors of Default on Government Debt. Suppose there are rumors that a country undergoing financial difficulties is planning to default on its debt. Explain what you think will
The Effects of Policy Changes in Japan. Until the early 1980s, Japan required its large insurance compa- nies to invest all of their vast holdings in Japanese securities. At the prompting of the
Using Demand and Supply Analysis. Draw a demand and supply graph for British pounds to deter- mine the effects of the following on the exchange rate between the British pound and the Japanese yen.
A shift in the demand for euros and away from dollars the dollar against the euro. will
The dollar. inflation rate in the United States increases. against the euro when the
If the dollar appreciates against the euro, then the against the dollar. euro also
The dollar against the euro when the European central bank lowers interest rates.
What Do the Poor and the Rich Buy? In Application 4, we highlighted research showing that the nondurable goods the poor buy have gone up in price less than those purchased by the rich and that the
A Dumping Calculation. To produce 100 units of a good, a firm needs $40,000 in labor, $60,000 in mater- ial and capital cost, and requires a 10 percent profit. rate. What would be the hypothetical
Blinder versus Bhagwati on Outsourcing of Services. In an essay in the journal Foreign Affairs, Princeton economist Alan Blinder warned that the United States potentially faces great dangers from
Trade in Genetically Modified Crops. Suppose the residents of a country become fearful of using geneti- cally modified crops in their food supply Consider the following two possible scenarios:a.
Under a scheme of, pricing, a firm cuts its price to drive out rivals and then raises its price later.
Suppose the United States has a comparative advan- tage in goods that use skilled labor. If we trade with a country that has a comparative advantage in goods using unskilled labor, the wage
Under global trade rules, the United States was allowed to ban Mexican tuna because Mexico used fishing nets that killed dolphins. (True/False)
Pricing below production cost or selling at prices in foreign markets less than those in domestic markets is known as
Trade in Intellectual Property. Trade in interna- tional property (for example, patents, licenses, roy- alty agreements) has been particularly controversial. Go to the intellectual property section
Expansion in the European Union. When the EU originated, member countries generally had similar standards of living. However, with the most recent expansion of the EU, countries that were less devel-
A Major Change in U.S. Trade Policy? In Chapter 7 of the 2006 Economic Report of the President (www.gpoaccess.gov/eop/download.html), the authors of the report discuss the important changes that
The average tariff rate in the United States is roughly -percent
NAFTA is a free-trade agreement between the United States, Mexico, and
The oversee GATT round. was formed in 1995 to
The latest trade round is called the
Unfair Competition. We are amused by candle mak- ers asking for protection from the sun under the guise of unfair competition. How does this differ from U.S. producers of clothing claiming there is
Two Countries Fighting Over Airplane Production. Suppose there are monopoly profits in the production of airplanes, but two countries are each determined to capture the industry. When one country
Learning By Doing? An industry has been operating for 10 years under protection. The government wants to remove the trade protection, but the industry claims that it needs the protection because of
In the 1950s and 1960s, countries in. used tariffs and other policies to nurture domestic industries
If only one firm can exist in a market, a government may try to subsidize the firm so that the country can share in the -profits.
Knowledge gained during production is known as by doing.
The -industry argument is often given to provide a rationale for tariffs for new firms.
Auctioning Import Licenses. In the text we explained that tariffs can be set to have the same effects as import quotas. However, if the government gives import licenses to producers, it will not
Tariffs and the Poor. Historically, apparel and textiles were subject to high tariffs. Explain why this might hurt low-income consumers more than high- income consumers. (Related to Application 1 on
Tariffs on Computer Chips. Suppose a country imposed tariffs on computer chips to protect its chip- making industries. What other types of firms in that economy might object to this policy?
Incentives for Smuggling. If a country bans imports, smugglers may try to penetrate its markets.Suppose Chipland bans shirt imports, causing some importers to bribe customs officials who "look the
Threatening to impose a tariff on a country's exports if it doesn't open up its markets to trade is an example of a -policy.
From the perspective of the government, a (tariff/quota) is better.
The equilibrium price under an import quota is (above/below) the price that occurs with an import ban and price that occurs with free trade. (above/below) the
If a country bans the importation of a particular good, the market equilibrium is shown by the intersection of the. curve and the curve.
Short-Term Employment Effects. Explain how trade can adversely affect employment in a sector of the economy that is suddenly opened to trade. What is likely to happen in the long run?
Measuring the Gains from Trade. Consider two countries, Tableland and Chairland, each capable of producing tables and chairs. Chairland can produce the following combinations of chairs and tables:
Benefits from Trade. In Country U, the opportu- nity cost of a computer is 10 pairs of shoes. In Country C, the opportunity cost of a computer is 100 pairs of shoes.a. Suppose the two countries split
Finding Comparative Advantage. In one minute, Country B can produce either 1,000 TVs and no com- puters or 500 computers and no TVs. Similarly, in one minute Country can produce either 2,400 TVs or
Trade requires absolute advantage to make both par- (True/False) ties better off.
Suppose a country has a comparative advantage in shirts but not computer chips. Workers in the chip with trade. industry will be
The terms of trade is the rate at which two goods can be for one another.
A country has a comparative advantage if it has a lower cost of producing a good.
5.4 Under a scheme of. pricing, a firm cuts its price to drive out rivals and then raises its price later.
5.3 Suppose the United States has a comparative advan- tage in goods that use skilled labor. If we trade with a country that has a comparative advantage in goods using unskilled labor, the wage

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