Questions and Answers of Economics Today The Macro View

LO2. How market wage rates are established.
LO1. What factors shape labor supply and demand.
7. You need a government permit (allotment) to grow tobacco. Who gains or loses from such regulation? LO
6. If two-thirds of all U.S. farms fail to earn a profit, why do they stay in business? LO3
5. Why do farmers prefer price supports to direct payments? LO2
4. Farmers can eliminate the uncertainties of fluctuating crop prices by selling their crops in futures markets (agreeing to a fixed price for crops to be delivered in the future). Who gains or loses
3. Why doesn’t the United States just give its crop surpluses to poor countries? What problems might such an approach create? LO3
2. Are large price movements inevitable in agricultural markets? What other mechanisms might be used to limit such movement? LO1
1. Would the U.S. economy be better off without government intervention in agriculture? Who would benefit? Who would lose? LO3
LO3. How subsidies affect farm prices, output, and incomes.
LO2. What mechanisms are used to prop up farm prices and incomes.
LO1. What makes the farm business different from others.
10. Might the exemption of China from Kyoto CO 2 limits give it an incentive to increase CO 2 emissions, whose later reduction it could sell (tradable permits)? LO1
9. Should the United States have signed the Kyoto treaty? What are the arguments for and against U.S. participation? LO3
8. If a high per-bag fee were charged for garbage collection, would illegal dumping increase? LO3
7. “The issuance of a pollution permit is just a license to destroy the environment.” Do you agree? Explain. LO3
6. What economic costs are imposed by mandatory sorting of trash? LO3
5. Suppose we established a $10,000 fine for water pollution. Would some companies still find that polluting was economical? Under what conditions? LO3
4. Does anyone have an incentive to maintain auto-exhaust control devices in good working order? How can we ensure that they will be maintained? LO1
3. Why would auto manufacturers resist exhaust control devices? How would their costs, sales, and profits be affected? LO1
2. Should we try to eliminate all pollution? What economic considerations might favor permitting some pollution? LO2
1. What are the economic costs of the externalities caused by air toxins? Or beach closings? (See News, page 569.) How would you measure their value? LO1
LO3. Alternative strategies for reducing pollution.
LO2. Why zero pollution may not be desirable.
LO1. How markets encourage pollution.
10. Who gains or loses by denying Virgin Air permission to fly U.S. air routes (World View, page 560)? LO2
9. Will reregulation of cable TV prices slow or hasten competition from alternative technologies? LO3
8. Why is there resistance to (a) local phone companies providing video and data services and (b) mergers of local cable and telephone companies? LO1
7. If cable TV were completely deregulated, would local monopolies ever confront effective competition? Does profit regulation inhibit or accelerate would-be competition? LO3
6. How could a local phone or cable company reduce service quality if forced to accept price ceilings? LO2
5. The News story on page 551 describes how Nynex inflated its regulated costs. What advantage did Nynex gain from this practice? How else might a regulated company pad its costs? LO2
4. In most cities local taxi fares are regulated. Should such regulation end? Who would gain or lose? LO3
3. Prior to 1982, AT&T kept local phone rates low by subsidizing them from long-distance profits. Was such crosssubsidization in the public interest? Explain. LO1
2. Should the airline industry be reregulated? LO3
1. Given the inevitable limit on airplane landings, how should available airport slots be allocated? How would market outcomes be altered? LO2
LO3. The costs associated with regulation.
LO2. The regulatory dilemmas posed by natural monopoly.
LO1. The characteristics of natural monopoly.
10. According to the World View on page 542, what gives brand names their value? LO1
9. Why are people willing to pay more for Dreyer’s ice cream when it has a Starbucks brand on it? LO1
8. How would our consumption of cereal change if cereal manufacturers stopped advertising? Would we be better or worse off? LO2
7. Why is the mix of output produced in competitive markets more desirable than that in monopolistically competitive markets? LO2
6. How do new product offerings like breakfast sandwiches (News, page 538) affect Starbucks sales and profits? LO1
5. The News article on page 541 suggests that most consumers can’t identify their favorite cola in blind taste tests. Why then do people stick with one brand? What accounts for brand loyalty in
4. If one gas station reduces its prices, must other gas stations match the price reduction? Why or why not? LO2
3. If auto firms eliminated their advertising, could they reduce car prices? What would happen to unit sales? LO1
2. What are the entry barriers to the pizza business? Are they relatively high or low? LO3
1. What is the source of Starbucks’ “confidence” in the News on page 535? LO1
LO3. How interdependence affects oligopolists’ pricing decisions.
LO2. How oligopolies maximize profits.
LO1. The unique characteristics of oligopoly.
10. Why doesn’t Microsoft comply fully with EU edicts about code sharing? (See World View, page 507.)
9. Do price reductions and quality enhancements on Microsoft products prove that Microsoft is a perfectly competitive firm? What should be the test of competitiveness? LO3
8. How might consumers benefit from a merger of XM and Sirius (News, page 503)? How might they lose? LO3
7. What similarities exist between the AT&T and Microsoft antitrust cases? What should the government do? LO3
6. What entry barriers helped protect the following? LO1 (a) The Russian sable monopoly (see World View, page 492). (b) The Ticketmaster monopoly (see News, page 497). (c) The CNN monopoly (see World
5. What would have happened to iPod prices and features if Apple had not faced competition from iPod clones (Chapter 23)? LO1
4. In 1990, a federal court decided that Eastman Kodak had infringed on Polaroid’s patent when it produced similar instant-photo cameras. The court then had to award Polaroid compensation for
3. Why don’t monopolists try to establish “the highest price possible,” as many people allege? What would happen to sales? To profits? LO1
2. Is single ownership of a whole industry necessary to exercise monopoly power? How might an industry with many firms achieve the same result? Can you think of any examples? LO1
1. The objective in the game of Monopoly is to get all the property and then raise the rents. Can this power be explained with market supply and demand curves? LO1
LO3. The pros and cons of monopoly
LO2. How monopoly and competitive outcomes differ.
LO1. How a monopolist sets price.
11. What will drive the price of an iPhone down to $99? How long will it take? LO2
10. Identify two products that have either ( a ) fallen sharply in price or ( b ) gotten significantly better without price increases. How did these changes come about? LO3
9. What would happen to iPod sales and profits if Apple kept price and profit margins high? LO1
8. Is “long-run” equilibrium permanent? What forces might dislodge it? LO2
7. How far are mobile-phone prices likely to fall in India? (See World View, page 483.) LO3
6. As the price of computers fell, what happened to their quality? How is this possible? LO3
5. What might cause catfish prices to rise far enough to eliminate losses in the industry? (See News, page 469.) LO2
4. Why have flat-panel TV prices fallen so much? (See World View, page 472.) LO2
3. What industries do you regard as being highly competitive? Can you identify any barriers to entry in those industries? LO1
2. Why wouldn’t producers necessarily want to produce output at the lowest average cost? Under what conditions would they end up doing
1. Why would anyone want to enter a profitable industry knowing that profits would eventually be eliminated by competition? LO2
LO3. How society benefits from perfect competition.
LO2. Why economic profits approach zero in competitive markets.
LO1. The market characteristics of perfect competition.
9. What is the economic cost of doing this homework? LO1
8. How would your productivity in completing course work be measured? Has your productivity changed since you began college? What caused the productivity changes? How could you increase productivity
7. Why don’t more U.S. firms move to Mexico to take advantage of low wages there? Would an identical plant in Mexico be as productive as its U.S. counterpart? LO1
6. Are colleges subject to economies of scale or diseconomies? LO3
costs down further? LO3
5. Corporate funeral giants have replaced small family-run funeral homes in many areas, in large part because of the lower costs they achieve. (See News, page 439.) What kind of economies of scale
4. Owner/operators of small gas stations rarely pay themselves an hourly wage. How does this practice affect the economic cost of dispensing gasoline? LO3
3. How many cars can GM produce in China? (See World View, page 437.) How many cars will GM want to produce? LO1
2. Suppose all your friends offered to help wash your car. Would marginal physical product decline as more friends helped? Why or why not? LO2
1. What are the production costs of your economics class? What are the fixed costs? The variable costs? What’s the marginal cost of enrolling more students? LO1
LO3. How a competitive firm’s supply curve is derived
LO2. How a competitive firm maximizes profit.
LO1. What a perfectly competitive firm is.
9. What is the economic cost of doing this homework? LO1
8. How would your productivity in completing course work be measured? Has your productivity changed since you began college? What caused the productivity changes? How could you increase productivity
7. Why don’t more U.S. firms move to Mexico to take advantage of low wages there? Would an identical plant in Mexico be as productive as its U.S. counterpart? LO
6. Are colleges subject to economies of scale or diseconomies? LO3
5. Corporate funeral giants have replaced small family-run funeral homes in many areas, in large part because of the lower costs they achieve. (See News, page 439.) What kind of economies of scale
4. Owner/operators of small gas stations rarely pay themselves an hourly wage. How does this practice affect the economic cost of dispensing gasoline? LO3
3. How many cars can GM produce in China? (See World View, page 437.) How many cars will GM want to produce? LO1
2. Suppose all your friends offered to help wash your car. Would marginal physical product decline as more friends helped? Why or why not? LO2
1. What are the production costs of your economics class? What are the fixed costs? The variable costs? What’s the marginal cost of enrolling more students? LO1

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