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survey of economics

Questions and Answers of Survey Of Economics

12. What was the major intent of the Freedom to Farm Act of 1996? Do you agree with the intent? Why or why not? Did the law succeed in reducing overall farm subsidies? Why or why not? LO22.5
11. Use public choice theory to explain the persistence of farm subsidies in the face of major criticisms of those subsidies. If the special-interest effect is so strong, what factors made it
10. What are the effects of farm subsidies such as those of the United States and the European Union on (a) domestic agricultural prices, (b) world agricultural prices, and(c) the international
9. Do you agree with each of the following statements? Explain why or why not. LO22.3, LO22.4a. The problem with U.S. agriculture is that there are too many farmers. That is not the fault of farmers
8. Explain the economic effects of price supports. Explicitly include environmental and global impacts in your answer. On what grounds do economists contend that price supports cause a misallocation
7. If in a given year the indexes of prices received and paid by farmers were 120 and 165, respectively, what would the parity ratio be? Explain the meaning of that ratio. LO22.3
6. “Because consumers as a group must ultimately pay the total income received by farmers, it makes no real difference whether the income is paid through free farm markets or through price supports
5. Explain and evaluate: “Industry complains of the higher taxes it must pay to finance subsidies to agriculture. Yet the trend of agricultural prices has been downward, while industrial prices
4. The key to efficient resource allocation is shifting resources from low-productivity to high-productivity uses. In view of the high and expanding physical productivity of agricultural resources,
3. Explain how each of the following contributes to the farm problem: LO22.1, LO22.2a. The inelasticity of demand for farm products.b. The rapid technological progress in farming.c. The modest
2. What relationship, if any, can you detect between the facts that farmers’ fixed costs of production are large and the supply of most agricultural products is generally inelastic? Be specific in
1. Carefully evaluate: “The supply and demand for agricultural products are such that small changes in agricultural supply result in drastic changes in prices. However, large changes in
LO22.5 List the main elements of existing federal farm policy.
LO22.4 Describe major criticisms of the pricesupport system in agriculture.
LO22.3 Relate the rationale for farm subsidies and the economics and politics of price supports(price floors).
LO22.2 Discuss why there has been a huge employment exodus from agriculture to other U.S. industries over the past several decades.
LO22.1 Explain why agricultural prices and farm income are unstable.
2. Carrot Computers and its competitors purchase touch screens for their tablet computers from several suppliers. The six makers of touch screens have market shares of, respectively, 19 percent, 18
1. Suppose that there are only three types of fruit sold in the United States. Annual sales are 1 million tons of blueberries, 5 million tons of strawberries, and 10 million tons of bananas. Suppose
5. True or false: Economists believe that social regulation is an exception to the MB = MC rule because social regulation should in every case extend as far as possible in order to ensure safe
4. Which of the following is the correct name for the idea that certain firms prefer government regulation because regulation shields them from the pressures of competition and, in effect, guarantees
3. When confronted with a natural monopoly that restricts output and charges monopoly prices, the two methods that governments have for promoting better outcomes are:LO21.3a. Public ownership and
2. How would you expect antitrust authorities to react to: LO21.2a. A proposed merger of Ford and General Motors.b. Evidence of secret meetings by contractors to rig bids for highway construction
1. True or false: Under the “rule of reason” that was established by the Supreme Court in the U.S. Steel case, a monopoly seller should be found guilty of violating antitrust laws even if it is
13. last word On what basis were the airlines found guilty of violating antitrust laws in the Airline Tariff Publishing case?What was the remedy? By contrast, why might it be hard to prosecute
12. Use economic analysis to explain why the optimal amount of product safety may be less than the amount that would totally eliminate the risk of accidents and deaths. Use automobiles as an example.
11. How does social regulation differ from industrial regulation?What types of benefits and costs are associated with social regulation? LO21.4
10. In view of the problems involved in regulating natural monopolies, compare socially optimal (marginal-cost) pricing and fair-return pricing by referring again to Figure 12.9. Assuming that a
9. What types of industries, if any, should be subjected to industrial regulation? What specific problems does industrial regulation entail? LO21.3
8. “The social desirability of any particular firm should be judged not on the basis of its market share but on the basis of its conduct and performance.” Make a counterargument, referring to the
7. Why might a firm charged with violating the Clayton Act, Section 7, try arguing that the products sold by the merged firms are in separate markets? Why might a firm charged with violating Section
6. In the 1980s, PepsiCo Inc., which then had 28 percent of the soft-drink market, proposed to acquire the Seven-Up Company.Shortly thereafter, the Coca-Cola Company, with 39 percent of the market,
5. Suppose a proposed merger of firms would simultaneously lessen competition and reduce unit costs through economies of scale. Do you think such a merger should be allowed?LO21.2
4. Why might one administration interpret and enforce the antitrust laws more strictly than another? How might a change of administrations affect a major monopoly case in progress?LO21.2
3. Contrast the outcomes of the Standard Oil and U.S. Steel cases.What was the main antitrust issue in the DuPont cellophane case? In what major way do the Microsoft and Standard Oil cases differ?
2. Describe the major provisions of the Sherman and Clayton acts. What government entities are responsible for enforcing those laws? Are firms permitted to initiate antitrust suits on their own
1. Both antitrust policy and industrial regulation deal with monopoly.What distinguishes the two approaches? How does government decide to use one form of remedy rather than the other? LO21.1, LO21.3
LO21.4 Discuss the nature of “social regulation,” its benefits and costs, and its optimal level.
LO21.3 Identify and explain the economic principles and difficulties relating to the setting of prices (rates) charged by so-called natural monopolies.
LO21.2 Describe some of the key issues relating to the interpretation and application of antitrust laws.
LO21.1 List and explain the core elements of the major antitrust (antimonopoly) laws in the United States.
3. For tax purposes, “gross income” is all the money a person receives in a given year from any source. But income taxes are levied on “taxable income” rather than gross income. The
2. Suppose in Fiscalville there is no tax on the first $10,000 of income, but a 20 percent tax on earnings between $10,000 and$20,000 and a 30 percent tax on income between $20,000 and$30,000. Any
1. Suppose a tax is such that an individual with an income of $10,000 pays $2,000 of tax, a person with an income of $20,000 pays$3,000 of tax, a person with an income of $30,000 pays $4,000 of tax,
5. The efficiency loss of imposing an excise tax is due to: LO20.7a. Paying a higher price per unit.b. Producing and consuming fewer units.6. True or false. The incidence of property taxes that are
3. The nation of Upstandia uses kroner for money and its tax code is such that a person making 100,000 kroner per year pays 40,000 kroner per year in income taxes; a person making 200,000 kroner per
2. Suppose George made $20,000 last year and that he lives in the country of Harmony. The way Harmony levies income taxes, each citizen must pay 10 percent in taxes on their first $10,000 in earnings
1. The city of Joslyn has three sources of revenue: borrowing, proprietary income from running the local electric power utility, and taxes. If it received $10 million from running the electric power
13. last word Does a progressive tax system by itself guarantee that resources will be redistributed from the rich to the poor? Explain. Is the tax system in the United States progressive,
12. Is it possible for a country with a regressive tax system to have a tax-spending system that transfers resources from the rich to the poor? LO20.8
11. advanced analysis Suppose the equation for the demand curve for some product X is P = 8 − 0.6Q and the supply curve is P = 2 + 0.4Q. What are the equilibrium price and quantity?Now suppose an
10. Given the inelasticity of cigarette demand, discuss an excise tax on cigarettes in terms of efficiency loss and tax incidence.LO20.7
9. What is the tax incidence of an excise tax when demand is highly inelastic? Highly elastic? What effect does the elasticity of supply have on the incidence of an excise tax? What is the efficiency
8. What is meant by a progressive tax? A regressive tax? A proportional tax? Comment on the progressivity or regressivity of each of the following taxes, indicating in each case where you think the
7. Distinguish between the benefits-received and the ability-topay principles of taxation. Which philosophy is more evident in our present tax structure? Justify your answer. To which principle of
6. How do the top two categories of federal employment differ from the top two categories of local and state employment? LO20.5
5. For state and local governments, what are the three most important sources of revenue and types of expenditure? LO20.4
4. What is the most important source of revenue and the major type of expenditure at the federal level? LO20.3
3. What are the main categories of government spending? What are the main categories of government revenue? LO20.2
2. What do economists mean when they say government purchases are “exhaustive” expenditures whereas government transfer payments are “nonexhaustive” expenditures? Cite an example of a
1. Use a circular flow diagram to show how the allocation of resources and the distribution of income are affected by each of the following government actions. LO20.1a. The construction of a new high
LO20.7 Explain the principles relating to tax shifting, tax incidence, and the efficiency losses caused by taxes.
LO20.6 Summarize the different philosophies regarding the distribution of a nation’s tax burden.
LO20.5 Discuss the magnitude and distribution across job categories of government employment at the local, state, and federal levels.
LO20.4 List the main categories of state and local revenue and spending.
LO20.3 List the main categories of federal revenue and spending and describe the difference between marginal and average tax rates.
LO20.2 Identify the main categories of government spending and the main sources of government revenue.
LO20.1 Use a circular flow diagram to illustrate how the allocation of resources is affected by government’s revenue and expenditure decisions.
4. Eric and Kyle are fishermen with different equipment and, as a result, different costs for catching fish. Eric’s costs for catching fish are $1,000 per ton for the first five tons and then$2,500
3. Suppose that Sea Shell oil company (SS) is pumping oil at a field off the coast of Nigeria. At this site, it has an extraction cost of $30 per barrel for the first 10 million barrels it pumps each
2. A coal-fired power plant can produce electricity at a variable cost of 4 cents per kilowatt hour when running at its full capacity of 30 megawatts per hour, 16 cents per kilowatt hour when running
1. Suppose that the current (first) generation consists of 1 million people, half of whom are women. If the total fertility rate is 1.3 and the only way people die is of old age, how big will the
5. Ingvar and Olaf are the only two fishermen in their area. Each has been assigned an ITQ that allows him to catch 20 tons of salmon. Ingvar’s MC of catching salmon is $6 per ton while Olaf’s MC
2. It would cost the town of Irondale $50 million to build a gas-powered generator that could produce a maximum of 5 megawatts of electricity at 15 cents per hour. Another alternative would be for
12. last word The figure in the Last Word section shows that a 10-fold increase in a country’s GDP per person is associated with about a 20-point increase in EPI. On the other hand, GDP per person
11. Aquaculture is the growing of fish, shrimp, and other seafood in enclosed cages or ponds. The cages and ponds not only keep the seafood from swimming away but also provide aquaculturists with
10. Various cultures have come up with their own methods to limit catch size and prevent fishery collapse. In old Hawaii, certain fishing grounds near shore could be used only by certain
9. advanced analysis User cost is equal to the present value of future profits in the model presented in Figure 19.7. Will the optimal quantity to mine in the present year increase or decrease if the
8. advanced analysis Suppose that a government wants to reduce its economy’s dependence on coal and decides as a result to tax coal mining companies $1 per ton for every ton of coal that they mine.
6. Recall the model of nonrenewable resource extraction presented in Figure 19.7. Suppose that a technological breakthrough means that extraction costs will fall in the future(but not in the
3. Resource consumption per person in the United States is either flat or falling, depending on the resource. Yet living standards are rising because of technological improvements that allow more
5. You are currently a worker earning $60,000 per year but are considering becoming an entrepreneur. You will not switch unless you earn an accounting profit that is on average at least as great as
3. To fund its wars against Napoleon, the British government sold consol bonds. They were referred to as “perpetuities” because they would pay £3 every year in perpetuity (forever). If a citizen
2. Suppose that the demand for loanable funds for car loans in the Milwaukee area is $10 million per month at an interest rate of 10 percent per year, $11 million at an interest rate of 9 percent per
1. Suppose that you own a 10-acre plot of land that you would like to rent out to wheat farmers. For them, bringing in a harvest involves $30 per acre for seed, $80 per acre for fertilizer, and$70
5. As shown in Table 18.2, $1,000 invested at 10 percent compound interest will grow into $1,331 after three years.What is the present value of $2,662 in three years if it is discounted back to the
3. The main argument put forth by advocates of the single-tax movement was that: LO18.1a. Taxing only income would make for a more equal society.b. Taxing only land would be very efficient because
13. last word Assume that you borrow $5,000, and you pay back the $5,000 plus $250 in interest at the end of the year.Assuming no inflation, what is the real interest rate? What would the interest
10. How do the concepts of accounting profit and economic profit differ? Why is economic profit smaller than accounting profit?What are the three basic sources of economic profit? Classify each of
6. Here is the deal: You can pay your college tuition at the beginning of the academic year or the same amount at the end of the academic year. You either already have the money in an interestbearing
4. If money is not an economic resource, why is interest paid and received for its use? What considerations account for the fact that interest rates differ greatly on various types of loans? Use
5. Suppose that a car dealership wishes to see if efficiency wages will help improve its salespeople’s productivity. Currently, each worker per day)?salesperson sells an average of one car per day
4. Suppose that low-skilled workers employed in clearing woodland can each clear one acre per month if each is equipped with a shovel, a machete, and a chainsaw. Clearing one acre brings in $1,000 in
3. Assume a firm is a monopsonist that can hire its first worker for$6 but must increase the wage rate by $3 to attract each successive worker (so that the second worker must be paid $9, the third
2. Complete the following labor supply table for a firm hiring labor competitively: LO17.2 Units of Wage Total Labor Marginal Resource Labor Rate Cost (Labor) Cost 0 $14 $ $1 14 2 14 3 14 4 14 5 14 6
1. Workers are compensated by firms with “benefits” in addition to wages and salaries. The most prominent benefit offered by many firms is health insurance. Suppose that in 2000, workers at one
5. On average, 50-year-old workers are paid several times more than workers in their teens and twenties. Which of the following options is the most likely explanation for that huge difference in
4. The market equilibrium wage is currently $12 per hour among hairdressers. At that wage, 17,323 hairdressers are currently employed in the state. The state legislature then sets a minimum wage of
1. Brenda owns a construction company that employs bricklayers and other skilled tradesmen. Her firm’s MRP for bricklayers is$22.25 per hour for each of the first seven bricklayers, $18.50 for an
5. Assume a monopsonistic employer is paying a wage rate of Wm and hiring Qm workers, as indicated in Figure 17.8. Now suppose an industrial union is formed that forces the employer to accept a wage

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