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principles of economics

Questions and Answers of Principles Of Economics

For each of the following goods, explain whether there is a free-rider problem. If there is no such problem, how is it avoided?■ July 4th fireworks display■ Interstate 81 in Virginia■ Wireless
Wind Farm Off Cape Cod Clears Hurdle The nation’s first offshore wind farm with 130 turbines will be built 5 miles off the coast. Wind turbines are noisy, stand 440 feet tall, can be seen from the
Explain which of the following events creates an external benefit or an external cost:■ A huge noisy crowd gathers outside the lecture room■ Your neighbor grows beautiful flowers on his apartment
Classify each of the following items as a public good, a private good, a mixed good, or a common resource:■ Firefighting services■ A courtside seat at the U.S. Open (tennis)■ A well-stocked
Classify the following services for computer owners with an Internet connection as rival, nonrival, excludable, or nonexcludable:■ eBay■ A mouse■ A Twitter page■ MyEconLab Web site
Classify each of the following items as a public good, a private good, a natural monopoly good, or a common resource.■ Highway control services■ City sidewalks■ U.S. Postal Service■ FedEx
Classify each of the following items as excludable, nonexcludable, rival, or nonrival.■ A Big Mac■ Brooklyn Bridge■ A view of the Statue of Liberty■ A tsunami warning system
Boeing and Airbus Predict Asian Sales Surge Airlines in the Asia-Pacific region are emerging as the biggest customers for aircraft makers Boeing and Airbus. The two firms predict that over the next
After you have studied Reading Between the Lines on pp. 360–361 answer the following questions.a. What are the strategies of P&G and Energizer in the market for high-tech razors?b. Why, according
Why might the MAP strategy be against the social interest and benefit only the producer?Economics in the News
a. Describe the practice of resale price maintenance that violates the Sherman Act.b. Describe the MAP strategy used by iPod and explain how it differs from a resale price maintenance agreement that
Oil Trading Probe May Uncover Manipulation Amid soaring oil prices the Commodity Futures Trade Commission (CFTC) is looking into manipulation of the oil market—withholding oil in an attempt to
Agile Airlines’ profit on a route on which it has a monopoly is $10 million a year. Wanabe Airlines is considering entering the market and operating on this route. Agile warns Wanabe to stay out
If Bud and Wise in Problem 15 play the game repeatedly, what is the equilibrium of the game?
Can you think of reasons why the three consoles are so different?
a. Thinking of the competition among these firms in the market for consoles as a game, describe the firms’ strategies concerning design, marketing, and price.b. What, based on the information
Why do Coca-Cola and PepsiCo spend huge amounts on advertising? Do they benefit? Does the consumer benefit? Explain your answer by constructing a game to illustrate the choices Coca-Cola and PepsiCo
Suppose that Mozilla and Microsoft each develop their own versions of an amazing new Web browser that allows advertisers to target consumers with great precision. Also, the new browser is easier and
Asian Rice Exporters to Discuss Cartel The rice-exporting nations Thailand, Cambodia, Laos, and Myanmar planned to discuss a proposal by Thailand, the world’s largest rice exporter, that they form
Congress Examines Giant Airline Merger Congress examined a proposed merger between Delta Airlines and Northwest Airlines that would discourage competition, reduce service, and result in higher fares.
Consider a game with two players who cannot communicate, and in which each player is asked a question. The players can answer the question honestly or lie. If both answer honestly, each receives
Sparks Fly for Energizer Energizer is gaining market share against competitor Duracell and its profit is rising despite the sharp rise in the price of zinc, a key battery ingredient.Source:
Under Armour’s Big Step Up Under Armour, the red-hot athletic-apparel brand, has joined Nike, Adidas, and New Balance as a major player in the market for athletic footwear. Under Armour plans to
Assuming that vineyards in these 40 villages are producing the same quality of grapes with or without this plan, why will their land values“jump markedly” if this plan is approved?
If Bianca advertises, will her average total cost increase or decrease at the quantity produced?
If Bianca’s advertising works as she expects, can she increase her economic profit by advertising?
a. Explain why the economic profit that Callaway and Nike make on golf clubs for women is likely to be temporary.b. Draw a graph to illustrate the cost curves and revenue curves of Callaway or Nike
1 Study Reading Between the Lines on pp. 788–789 and then answer the following questions. a What is the reason for the increase in speculative flows of foreign currency into China? b What effect
8 A country’s currency depreciates and its holdings of reserves assets decrease. What can you say about: a Intervention in the foreign exchange market by the country’s central bank? b The
*7 A country’s currency appreciates and its holdings of reserve assets increase. What can you say about: a Intervention in the foreign exchange market by the country’s central bank? b The
6 The following table tells you about Ecfix, whose currency is the rock: Item Billions of rocks GDP 200 Consumption expenditure 120 Government expenditures on goods and services 50 Investment 50
*5 The following tables tell you about Ecflex, whose currency is the band.Item Billions of bands GDP 100 Consumption expenditure 60 Government expenditures on goods and services 24 Investment 22
4 The figure below shows the flows of income and expenditure in Dream Land in 2003. The amounts are in millions of euros. Dream Land’s GDP has increased to a130 million but all the other items
*3 The figure below shows the flows of income and expenditure in Dream Land in 2002. The amounts are in millions of euros. GDP in Dream Land is a120 million. a Calculate Dream Land’s net exports. b
2 Spin, whose currency is the wheel, conducted the following transactions in 2003:Item Billions of wheels Imports of goods and services 100 Exports of goods and services 120 Borrowing from the rest
*1 Silecon, whose currency is the grain, conducted the following transactions in 2003: Item Billions of grains Imports of goods and services 350 Exports of goods and services 500 Borrowing from the
4 What is an optimal currency area?
3 What are the costs of a single currency for Europe?
2 What are the benefits of a single currency for Europe?
1 What is the EMU?
4 What is purchasing power parity and how does it influence exchange rate expectations?
3 How do changes in the expected future exchange rate influence the actual exchange rate in the flexible exchange rate system?
2 How can the Bank of England influence the foreign exchange market?
1 How is the exchange rate determined?
5 How are the current account balance, the government sector balance, and the private sector balance related?
4 What transactions does the current account record? What transactions does the capital account record? What does the change in reserves record?
3 What types of transactions do we record in the balance of payments accounts?
2 When a German manufacturer buys semimanufactured parts from a South Welsh factory, which currency gets used to make the transaction?
1 When a British wine merchant makes an order for a consignment of wine from a French vineyard, which currency gets used to make the transaction?
2 Study the Web Reading Between the Lines on steel dumping, and then answer the following questions: a What is the argument in the news article for limiting steel imports? b Evaluate the argument.
1 Read the EU document on “Facts and Figures” about sugar policy and the Oxfam briefing paper, Dumping on the World. a What are the main differences between the EU facts and figures document and
1 Study Reading Between the Lines on pp. 766–767 and then answer the following questions. a Why is there a gap between the world price of sugar and the EU price of sugar? b Who are the gainers and
10 If the soybean exporting country in problem 7 imposes a VER of 30 million tonnes on its exports of soybeans, a What is the world price of soybean now? b What is the revenue of soybean growers in
*9 If the soybean importing country in problem 7 imposes a quota of 30 million tonnes on imports of soybeans, a What is the price of soybeans in the importing country? b What is the revenue from the
8 If the soybean importing country in problem 7 imposes a tariff of £20 per tonne, what is the world price of soybeans and what quantity of soybeans gets traded internationally? What is the price of
*7 The figure depicts the international market for soybeans. a If the two countries did not engage in international trade, what would be the prices of soybeans in the two countries? b What is the
6 Compare the international trade in problem 3 with that in problem 4. a Why does Virtual Reality export TV sets in one of the cases and import them in the other case? b Do the TV producers or the
*5 Compare the total quantities of each good produced in problems 1 and 2 with the total quantities of each good produced in problems 3 and 4. a Does free trade increase or decrease the total
4 Suppose that with no international trade, Virtual Reality in problem 1 produces and consumes 50 TV sets a day and Vital Signs produces and consumes 20 TV sets a day. Now suppose that the two
*3 Suppose that with no international trade, Virtual Reality in problem 1 produces and consumes 10 TV sets a day and Vital Signs produces and consumes 60 TV sets a day. Now suppose that the two
2 The table provides information about Vital Signs’ production possibilities. TV sets Computers (per day) (per day) 0 and 18.0 10 and 17.5 20 and 16.5 30 and 15.0 40 and 13.0 50 and 10.5 60 and 7.5
*1 The table provides information about Virtual Reality’s production possibilities. TV sets Computers (per day) (per day) 0 and 36 10 and 35 20 and 33 30 and 30 40 and 26 50 and 21 60 and 15 70 and
3 If international trade restrictions are costly, why do we use them? Why don’t the people who gain from international trade organize a political force that is strong enough to ensure their
2 What type of country benefits most from the revenue from tariffs? Do countries in the European Union need to use tariffs to raise revenue for the government?
1 What are the two main reasons for imposing tariffs on imports?
3 Is there any merit to the view that we should restrict international trade for any reason? What is the main argument against trade restrictions?
2 Is there any merit to the view that we should restrict international trade to save jobs, compensate for low foreign wages, make the economy more diversified, compensate for costly environmental
1 Is there any merit to the view that we should restrict international trade to achieve national security goals, to stimulate the growth of new industries or to restrain foreign monopoly?
5 In the absence of international borrowing and lending, how do tariffs and other international trade restrictions influence the total value of imports and exports and the balance of trade: the value
4 What does a tariff on imports do to the volume of imports and the volume of exports?
3 Which is best for a country: restricted trade, no trade, or free trade? Why?
2 What do international trade restrictions do to the gains from international trade?
1 What are the tools that a country can use to restrict international trade?
2 Visit the IMF's World Economic Outlook Web database and review the latest data on real GDP growth and inflation in the global economy. a What are the major macroeconomic stabilization policy
1 Visit the Bank of England's Web site and look at the latest Inflation Report. Write a summary and critique of this report.
3 Suppose the economy is in a recession and inflation is falling. It is widely agreed that a strong recovery is just around the corner. Weigh the advantages and disadvantages of the Bank of England
2 Suppose the economy is booming and inflation is beginning to rise, but it is widely agreed that a massive recession is just around the corner. Weigh the advantages and disadvantages of the
1 Study Reading Between the Lines pp. 742–743 and then answer the following questions. a Why does the rise in oil prices pose a problem for the European Central Bank? b What is the response of the
8 As the UK economy continued to expand and its stock market soared to new record levels during 1998, the Bank of England cut the interest rate. a Would you describe the Bank of England’s actions
*7 When the economies of Indonesia, South Korea, Thailand, Malaysia and the Philippines entered into recession in 1997, the International Monetary Fund (IMF) made loans but only on condition that the
6 The inflation rate has fallen to 1 per cent a year but the unemployment rate is stubborn and has not fallen much. Real GDP is growing at more than 3 per cent a year. The stock market is at a record
*5 The economy is experiencing inflation of 10 per cent a year and unemployment of 7 per cent. Real GDP growth has sagged to 1 per cent a year. The stock market has crashed. a Explain how the economy
4 The economy shown in the graph is initially on aggregate demand curve AD and short-run aggregate supply curve SAS0. Then short-run aggregate supply decreases and the short-run aggregate supply
*3 The economy shown in the graph is initially on aggregate demand curve AD0 and short-run aggregate supply curve SAS. Then aggregate demand decreases and the aggregate demand curve shifts leftward
2 A nation is experiencing a falling saving rate. Explain its possible origins and describe a policy package that is designed to increase the saving rate?
*1 A productivity growth slowdown has occurred. Explain its possible origins and describe a policy package that is designed to speed up growth again.
2 Why does a recession usually result as inflation is being tamed?
1 Why does a fixed rule provide more effective protection against cost-push inflation than a feedback rule?
5 Why do some economists say that feedback rules do not necessarily deliver a better macroeconomic performance than fixed rules? Do you agree or disagree with them? Why?
4 When might a feedback-rule policy be used? Can you provide two examples of feedback rules in everyday life (other than those in the text)?
3 What is a feedback-rule fiscal policy and a feedback-rule monetary policy?
2 Can you provide two examples of fixed rules in everyday life (other than those in the text)?
1 What is a fixed-rule fiscal policy and a fixed-rule monetary policy?
4 What actions can governments in the European Union take to increase investment in new technologies?
3 What actions can governments in the European Union take to increase investment in human capital?
2 What policies can governments in the European Union take to increase the national saving rate?
1 Why do long-term growth policies focus on increasing saving and increasing investment in human capital and new technologies?
1 Obtain information about the current state of the US economy. Then: a List all of the features of the US economy during the current year that you think are consistent with a pessimistic outlook for
1 Study Reading Between the Lines on pp. 718–719 and then answer the following questions: a What is the reason for the weakness in consumer confidence in Korea? b Why would a slowdown in the
12 Suppose that when the expansion occurs in Vital Signs in problem 2, the economy moves to C, H and K. Which theory of the business cycle, if any, explains this outcome?

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