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principles of economics

Questions and Answers of Principles Of Economics

4 Under what circumstances does a government have a budget surplus?
3 Describe the main sources of revenues and outlays in the budget of the UK government?
2 What are the goals of fiscal policy?
1 What are the functions of a government’s budget?
1 Visit the Penn World Table and obtain data on real GDP per person and consumption as a percentage of real GDP for the United States, China, South Africa and Mexico since 1960. a In a spreadsheet,
2 You are a research assistant working for the government. You’ve been asked to draft a note for the Minister of Finance that explains the power and limitations of the multiplier. The Minister
1 Study Reading Between the Lines on pp. 546–547 and then answer the following questions. a What has happened to the real interest rate in the Eurozone economies between 1999 and 2002? b What is
8 Suppose that in problem 6 the price level is 100 and real GDP equals potential GDP. If investment increases by a50 billion, a What is the change in the quantity of real GDP demanded? b In the short
*7 Suppose that in problem 5 the price level is 100 and real GDP equals potential GDP. If investment increases by a100 billion, a What is the change in the quantity of real GDP demanded? b In the
6 You are given the following information about the economy of Antarctica: autonomous consumption expenditure is a1 billion, and the marginal propensity to consume is 0.95. Investment is a4 billion,
*5 In the economy of Zee, autonomous consumption expenditure is a100 billion and the marginal propensity to consume is 0.9. Investment is a460 billion, government expenditures on goods and services
4 The spreadsheet figure lists the components of aggregate planned expenditure in Spice Bay. The numbers are in billions of cloves, the currency of the Bay.In Spice Bay, what is: a Autonomous
*3 Turtle Island has no imports or exports, the people of Turtle Island pay no income taxes, and the price level is fixed. The figure illustrates the components of aggregate planned expenditure on
2 You are given the following information about the economy of Spendthrift Island:Disposable income Saving (millions of euros per year) 0 –100 500 –50 1,000 0 1,500 50 2,000 100 2,500 150 3,000
*1 You are given the following information about the economy of Heron Island: Disposable Consumption income expenditure (millions of euros per year) 0 5 10 10 20 15 30 20 40 25 Calculate Heron
Never Pay Retail Again Not only has scouring the Web for the best possible price become standard protocol before buying a big-ticket item, but more consumers are employing creative strategies for
Explain and illustrate graphically how the diaper service market has been affected by the decrease in the North American birth rate and the development of disposable diapers.Competition and
If in the long run, the market demand for paper remains the same as in Problem 8,a. What is the long-run equilibrium price of paper, the market output, and the economic profit or loss of each firm?b.
The pizza market is perfectly competitive, and all pizza producers have the same costs as Pat’s Pizza Kitchen in Problem 4.a. At what price will some firms exit the pizza market in the long run?b.
Fuel Prices Could Squeeze Cheap Flights Airlines are having difficulty keeping prices low, especially as fuel prices keep rising. Airlines have raised fares to make up for the fuel costs.American
In Problem 7, as more and more computer users read documents online rather than print them, the market demand for paper decreases and in the short run the demand schedule becomes Price Quantity
The market for paper is perfectly competitive and there are 1,000 firms that produce paper.The table sets out the market demand schedule for paper.Price Quantity demanded (dollars per box) (thousands
Derive Pat’s supply curve.
Calculate Pat’s profit-maximizing output and economic profit if the market price is(i) $14 a pizza.(ii) $12 a pizza.(iii) $10 a pizza.
What is the elasticity of demand for Lin’s fortune cookies and how does it differ from the elasticity of the market demand for fortune cookies?
Starbucks Unit Brews Up Self-Serve Espresso Bars Automated, self-serve espresso kiosks have appeared in many grocery stores. The machines, which grind their own beans, crank out lattes, and drip
After you have studied Reading Between the Lines on pp. 266–267 answer the following questions.a. Sketch the AFC, AVC, ATC, and MC curves for electricity production using the six technologies shown
Explain what might be the source of the diseconomies of scale that ProPainters experiences.
If ProPainters paints 12 houses a week, calculate its total cost, average total cost, and marginal cost. At what output is average total cost a minimum?
Bill’s Bakery has a fire and Bill loses some of his cost data. The bits of paper that he recovers after the fire provide the information in the following table (all the cost numbers are dollars).TP
Coffee King Starbucks Raises Its Prices Starbucks is raising its prices because the wholesale price of milk has risen 70 percent and there’s a lot of milk in Starbucks lattes.Source: USA Today,
By how much will Avalon’s shortrun decision increase its total variable cost? By how much will Avalon’s long-run decision increase its monthly total fixed cost? Sketch Avalon’s short-run ATC
Use the events described in the news clip in Problem
Terri runs a rose farm. One worker produces 1,000 roses a week; hiring a second worker doubles her total product; hiring a third worker doubles her output again; hiring a fourth worker increased her
The Sunk-Cost Fallacy You have good tickets to a basketball game an hour’s drive away. There’s a blizzard raging outside, and the game is being televised. You can sit warm and safe at home and
A Bakery on the Rise Some 500 customers a day line up to buy Avalon’s breads, scones, muffins, and coffee. Staffing and management are worries. Avalon now employs 35 and plans to hire 15 more. Its
Airlines Seek Out New Ways to Save on Fuel as Costs Soar The financial pain of higher fuel prices is particularly acute for airlines because it is their single biggest expense. Airlines pump about
a. Explain how Jackie’s uses its LRAC curve to decide how many canoes to rent.b. Does Jackie’s production function feature economies of scale or diseconomies of scale?
a. On Jackie’s LRAC curve, what is the average cost of producing 40, 75, and 85 rides a week?b. What is Jackie’s minimum efficient scale?
a. To produce 180 surfboards a week, is it efficient to operate one or two plants?b. To produce 160 surfboards a week, is it efficient for Sue’s to operate one or two plants?
Calculate the average total cost of producing 180 and 240 surfboards a week when Sue’s Surfboards operates two plants. Graph these points and sketch the ATC curve.
Grain Prices Go the Way of the Oil Price Every morning millions of Americans confront the latest trend in commodities markets at their kitchen table. Rising prices for crops have begun to drive up
Sue’s Surfboards rents a factory building. If the rent is increased by $200 a week and other things remain the same, how do Sue’s Surfboards’ shortrun average cost curves and marginal cost
Illustrate the connection between Sue’s AP, MP, AVC, and MC curves in graphs like those in Fig.11.6.
Calculate average total cost, average fixed cost, average variable cost, and marginal cost of each output in the table. Plot these points and sketch the short-run average and marginal cost curves
Calculate total cost, total variable cost, and total fixed cost of each output in the table. Plot these points and sketch the short-run total cost curves passing through them.
Business Boot Camp At a footwear company called Caboots, sales rose from $160,000 in 2000 to $2.3 million in 2006, but in 2007 sales dipped to $1.5 million. Joey and Priscilla Sanchez, who run
Explain how it is possible for a firm to experience simultaneously an increasing average product but a diminishing marginal product.
a. Over what output range does Sue’s Surfboards enjoy the benefits of increased specialization and division of labor?b. Over what output range does the firm experience diminishing marginal product
Draw the total product curve.
Maryland Farmers Turn from Tobacco to Flowers Maryland tobacco farmers will be subsidized if they switch from growing tobacco to growing crops such as flowers and organic vegetables.Source: The New
Must Watches Stocks too volatile? Bonds too boring? Then try an alternative investment—one you can wear on your wrist. … [The] typical return on a watch over five to ten years is roughly 10%.
The Colvin Interview: Chrysler The key driver of profitability will be that the focus of the company isn’t on profitability. Our focus is on the customer. If we can find a way to give customers
Lee’s accountant recorded the depreciation on his cottage during 2010 as $7,000. According to the accountant, what profit did Lee make?
Calculate Lee’s opportunity cost of production and his economic profit.
American automakers buy auto parts from independent suppliers rather than produce the parts themselves. In the 1980s, Chrysler got about 70 percent of its auto parts from independent suppliers, while
GameStop Racks Up the Points No retailer has more cachet among gamers than GameStop. For now, only Wal-Mart has a larger market share—21.3% last year. GameStop’s share was 21.1% last year, and
Sales of the firms in the tattoo industry are Sales Firm (dollars per year)Bright Spots 450 Freckles 325 Love Galore 250 Native Birds 200 Other 15 firms 800 Calculate the four-firm concentration
Rewarding Failure Over the past 25 years CEO pay has risen faster than corporate profits, economic growth, or average wages. A more sensible alternative to the current compensation system would
Here It Is. Now, You Design It!The idea is that the most successful companies no longer invent new products and services on their own. They create them along with their customers, and they do it in a
John Deere’s Farm Team Deere opened up the Pune [India] center in 2001. Deere’s move was unexpected: Deere is known for its heavy-duty farm equipment and big construction gear whereas many of
Alternative ways of laundering 100 shirts are Labor Capital Method (hours) (machines)A 1 10 B 5 8 C 20 4 D 50 1a. Which methods are technologically efficient?b. Which method is economically efficient
After you have studied Reading Between the Lines on pp. 216–217 answer the following questions.a. How do you buy books?b. Sketch your budget line for books and other goods.c. Sketch your
Suppose that the price of cola rises to $3.00 a can and the price of popcorn and Sara’s income remain the same.a. What is the substitution effect of this price change and what is the income effect
Suppose that the price of cola rises to $3.00 a can and the price of popcorn and Sara’s income remain the same. What quantities of cola and popcorn does Sara now buy? What are two points on
What quantities of popcorn and cola does Sara buy? What is Sara’s marginal rate of substitution at the point at which she consumes?
a. If Jim changes the quantities that he buys, will he buy more or fewer muffins and more or less coffee?b. When the prices change, will there be an income effect, a substitution effect, or both at
a. Will Jim now be able and want to buy 10 muffins and 20 coffees?b. Which situation does Jim prefer: muffins at$1 and coffee at $2 a cup or muffins at $1.50 and coffee at $1.75 a cup?
You May Be Paid More (or Less) Than You Think It’s so hard to put a price on happiness, isn’t it?But if you’ve ever had to choose between a job you like and a better-paying one that you like
Do Rashid’s indifference curves display diminishing marginal rate of substitution? Explain why or why not.
a. If Rashid chooses 3 books and 2 CDs, what is his marginal rate of substitution?b. If Rashid chooses 2 books and 6 CDs, what is his marginal rate of substitution?
How does a rise in the price of gasoline change the relative price of a restaurant meal? How does a rise in the price of gasoline change real income in terms of restaurant meals?
a. Sketch a budget line for a household that spends its income on only two goods: gasoline and restaurant meals. Identify the combinations of gasoline and restaurant meals that are affordable and
If the price of cake doubles while the price of coffee remains at $4 a cup and Amy’s income remains at $20, describe the change in her budget line.
If Amy’s income increases to $24 a week and the prices of coffee and cake remain unchanged, describe the change in her budget line.
Calculate the equation for Amy’s budget line(with cups of coffee on the left side).
Draw a graph of Marc’s budget line with the quantity of DVDs on the x-axis. What is the slope of Marc’s budget line? What determines its value?
What is the relative price of root beer in terms of DVDs and what is the opportunity cost of a bottle of root beer?
If the gas price rise has been similar in all regions, compare the marginal rates of substitution in the Northeast and the Southwest. Explain how you have inferred the different marginal rates of
a. Sketch a graph of a preference map and a budget line to illustrate the best affordable combination of gasoline and public transit.b. On your graph in part (a), show the effect of a rise in the
a. Use a graph to illustrate a family’s indifference curves for used clothing and other goods and services.b. In your graph in part (a), draw two budget lines to show the effect of a fall in income
a. According to the news clip, is used clothing a normal good or an inferior good?b. If the price of used clothing falls and income remains the same, explain how the quantity of used clothing bought
a. Sketch a consumer’s preference map between Memorial Day trips and other goods and services. Draw a consumer’s budget line prior to the rise in the price of gasoline and mark the consumer’s
Describe the degree of substitutability between Memorial Day trips and other trip-related goods and services and sketch a consumer’s preference map that illustrates your description.
Explain how the marginal rate of substitution changes as an allergy sufferer increases the consumption of Sudafed.
Discuss the shape of the indifference curve for each of the following pairs of goods:■ Orange juice and smoothies■ Baseballs and baseball bats■ Left running shoe and right running shoe■
Draw figures that show your indifference curves for the following pairs of goods:■ Right gloves and left gloves■ Coca-Cola and Pepsi■ Tylenol and acetaminophen (the generic form of Tylenol)■
What is the slope of Sara’s new budget line if it is drawn with smoothies on the x-axis?
What is the effect of the fall in Sara’s income on the relative price of a smoothie in terms of popcorn?
What is the effect of the fall in Sara’s income on her real income in terms of smoothies?
Draw a graph of Sara’s budget line with the quantity of smoothies on the x-axis. What is the slope of Sara’s budget line? What determines its value?
a. What does the news clip imply about how the total utility from consumption changes over time?b. What does the news clip imply about how the marginal utility from consumption changes over time?
According to the news clip, how do widespread increases in living standards influence total utility?
Five Signs You Have Too Much Money When a bottle of water costs $38, it’s hard not to agree that bottled water is a fool’s drink. The drink of choice among image-conscious status seekers and
How does the potential conflict between selfinterest and the social interest complicate setting a financial threshold for Medicare treatments?
What conflict might exist between a person’s valuation of his or her own life and the rest of society’s valuation of that person’s life?
Why might Medicare ration health care according to treatment that is “financially worthwhile”as opposed to providing as much treatment as is needed by a patient, regardless of costs?
Blu-Ray Format Expected to Dominate, but When?Blu-ray stomped HD DVD to become the standard format for high-definition movie discs, but years may pass before it can claim victory over the good old
Cindy’s tennis club raises its price of an hour of tennis to $10. The price of golf remains at $10 an hour and Cindy continues to spend $70 on tennis and golf.a. List the combinations of hours
Make a table that shows Cindy’s affordable combinations of hours playing golf and tennis. If Cindy increases her expenditure to $100, describe how her consumption possibilities change.

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