Questions and Answers of Economics Today The Macro View

13. Is the demand for iPhones price inelastic or elastic? Why? Is income elasticity high or low? LO2
12. What would happen to unit sales and total revenue for this textbook if the bookstore reduced its price? LO2
11. If the elasticity of demand for coffee is so low ( Table 20.1 ), why doesn’t Starbucks raise the price of coffee to $10 a cup? LO2
10. How has the Internet affected the price elasticity of demand for air travel? LO2
9. If you owned a movie theater, would you want the demand for movies to be elastic or inelastic? LO2
8. According to the News stories on pages 399 and 400, how does the price elasticity of demand differ for teenagers and adults? Why? LO2
7. Why are per capita advertising expenditures so high in the United States and so low in Brazil? (See World View, page 412.) LO1
6. Why is the demand for New York City cigarettes so much more elastic than the overall market demand for cigarettes? (See News, page 400.) LO1
5. Identify two goods each whose demand exhibits ( a ) high income elasticity, ( b ) low income elasticity, ( c ) high price elasticity, and ( d ) low price elasticity. What accounts for the
transportation be affected? How quickly would these adjustments be made? LO2
3. How does total and marginal utility change as you spend more time surfing the Net? LO3 4. If the price of gasoline doubled, how would consumption of ( a ) gasoline, ( b ) cars, and ( c ) public
2. If the marginal utility of pizza never diminished, how many pizzas would you eat? LO3
1. What does the demand for enrollments in your college look like? What is on the axes? Is the demand price-elastic? Income-elastic? How could you find out? LO1
LO3. How consumers maximize utility
LO2. What price and income elasticities of demand measure.
LO1. The basis for the law of demand.
9. How were each of the following affected by the 2001 terrorist attack on the World Trade Center? LO2 (a) Federal tax revenues (b) Federal spending (c) U.S. imports (d) Short-run GDP growth (e)
8. Suppose the economy is slumping into recession and needs a fiscal policy boost. Voters, however, are opposed to larger federal deficits. What should policymakers do? LO2
7. Suppose the government proposes to cut taxes while maintaining the current level of government expenditures. To finance this deficit, it may either (a) sell bonds to the public or (b) print new
6. Prior to assuming office, President-elect Clinton pledged to propose a tax credit for new investment during the first months of his administration. How might such an announcement affect the
5. In his fiscal 2002 budget, President Bush proposed increases in defense spending while arguing for cutbacks in total spending. Should military spending be subject to macroeconomic constraints?
4. Suppose it’s an election year and aggregate demand is growing so fast that it threatens to set off an inflationary movement. Why might Congress and the president hesitate to cut back on
3. If policymakers have instant data on the economy’s performance, should they respond immediately? Why or why not? LO3
2. Why do policymakers respond so slowly to economic problems? LO3
1. What policies would Keynesian, monetarists, and supplysiders advocate for (a) restraining inflation and (b) reducing unemployment? LO1
LO3. The meaning of “price stability.”
LO2. How inflation redistributes income and wealth.
LO1. How inflation is measured.
10. How can the outsourcing of U.S. computer jobs generate new U.S. jobs in construction or retail trade? (See News, page 120) LO3
9. Identify ( a ) two jobs at your school that could be outsourced and ( b ) two jobs that would be hard to outsource. LO3
8. Why do people expect inflation to heat up when the unemployment rate approaches 4 percent? LO3
7. Why is frictional unemployment deemed desirable? LO2
6. Can you identify three institutional constraints on the use of resources (factors of production)? What has motivated these constraints? LO2
5. If the government guaranteed some income to all unemployed persons, how might the unemployment rate be affected? Who should get unemployment benefits? (See News, page 112) LO2
4. Why might job (re)entrants have a harder time finding a job than job losers? LO2
3. What factors might explain ( a ) the rising labor-force participation rate of women and ( b ) the declining participation of men? (See Figure 6.2 for trends.) LO1
2. If more teenagers stay in school longer, what happens to ( a ) production possibilities? ( b ) unemployment rates? LO1
1. Is it possible for unemployment rates to increase at the same time that the number of employed persons is increasing? How? LO1
LO3. The meaning of “full employment.”
LO2. The major types of unemployment.
LO1. How unemployment is measured.
9. Over 4 million Web sites sell a combined $50 billion of pornography a year. Should these sales be included in (a) GDP and (b) an index of social welfare? LO1
8. Is the Fordham Index of Social Health, discussed in the News on page 103, a better barometer of well-being than GDP? What are its relative advantages or disadvantages? LO1
7. How might the quality of life be adversely affected by an increase in GDP? LO1
6. What jobs are likely part of the underground economy? LO1
5. Why is it important to know how much output is being produced? Who uses such information? LO1
4. Can we increase consumption in a given year without cutting back on either investment or government services? Under what conditions? LO3
3. If gross investment is not large enough to replace the capital that depreciates in a particular year, is net investment greater or less than zero? What happens to our production possibilities?
2. GDP in 1981 was $2.96 trillion. It grew to $3.07 trillion in 1982, yet the quantity of output actually decreased. How is this possible? LO1
1. The manuscript for this book was typed by a friend. Had I hired a secretary to do the s ame job, GDP would have been higher, even though the amount of output would have been identical. Why is
LO3. The major submeasures of output and income.
LO2. Why aggregate income equals aggregate output.
LO1. What GDP measures—and what it doesn’t.
10. Should the government be downsized? Which functions should be cut back? LO
9. How does XM Satellite deter nonsubscribers from listening to its transmissions? Does this make radio programming a private good or a public good? LO1
8. What government actions might cause failures like points G1 , G2 , and G3 in Figure 4.7 ? Can you give examples? LO3
7. The government now spends over $500 billion a year on Social Security benefits. Why don’t we leave it to individuals to save for their own retirement? LO1
6. If smoking generates external costs, why shouldn’t smoking simply be outlawed? How about cars that pollute? LO1
5. What is the specific market-failure justification for government spending on ( a ) public universities, ( b ) health care, ( c ) trash pickup, ( d ) highways, ( e ) police? Would a purely private
4. Why might Fourth of July fireworks be considered a public good? Who should pay for them? What about airport security? LO1
3. Could local fire departments be privately operated, with their services sold directly to customers? What problems would be involved in such a system? LO1
2. If everyone seeks a free ride, what mix of output will be produced in Figure 4.2 ? Why would anyone voluntarily contribute to the purchase of public goods like flood control or snow removal? LO1
1. Why should taxpayers subsidize public colleges and universities? What external benefits are generated by higher education? LO1
LO3. The meaning of government failure.
LO2. How government budgets are financed and spent.
LO1. The nature and causes of market failure.
10. Is there a shortage of on-campus parking at your school? How might the shortage be resolved? LO2
9. The World View on page 61 describes the use of prices to achieve an equilibrium in the kitchen. What happens to the food at more traditional restaurants? LO2
8. What would happen in the apple market if the government set a minimum price of $2.00 per apple? What might motivate such a policy? LO4
7. The shortage in the organ market (Figure 3.8) requires a nonmarket rationing scheme. Who should get the available (qa) organs? Is this fairer than the marketdriven distribution? LO4
6. In Figure 3.8, why is the organ demand curve downwardsloping rather than vertical? LO1
4. Which determinants of pizza demand change when the White House is in crisis (page 49)? LO3 5. Why do Internet ticket resellers make so much money (News, p. 58)? How else might tickets be
3. What would have happened to gasoline production and consumption if the government had prohibited postKatrina price increases (see News, page 55)? LO4
2. With respect to the demand for college enrollment, which of the following would cause (1) a movement along the demand curve or (2) a shift of the demand curve? LO3a. An increase in incomes.b.
1. In our story of Tom, the student confronted with a Webdesign assignment, we emphasized the great urgency of his desire for Web tutoring. Many people would say that Tom had an “absolute need”
LO4. How government price controls affect market outcomes.
LO3. What causes market prices to change.
LO2. How market prices are established.
LO1. The meaning of market demand and supply.
10. How might free markets help reduce global poverty? How might they impede that goal? LO3
9. Why are incomes so much more unequal in poor nations than in rich ones? LO3
8. Should the government try to equalize incomes more by raising taxes on the rich and giving more money to the poor? How might such redistribution affect total output and growth? LO3
7. Why should the government regulate how goods are produced? Can regulation ever be excessive? LO1
6. How many people are employed by your local or state government? What do they produce? What is the opportunity cost of that output? LO1
5. How might the following government interventions affect a nation’s economic growth? LO2a. Mandatory school attendance.b. High income taxes.c. Copyright and patent protection.d. Political
4. The U.S. farm population has shrunk by over 25 million people since 1900. Where did all the people go? Why did they move? LO2
3. Why do people suggest that the United States needs to devote more output to investment goods? Why not produce just consumption goods? LO2
2. Why is per capita GDP so much higher in the United States than in Mexico? LO2
1. Americans already enjoy living standards that far exceed world averages. Do we have enough? Should we even try to produce more? LO1
LO3. How incomes are distributed in the U.S. and elsewhere.
LO2. How America is able to produce so much output.
LO1. The relative size and content of U.S. output (GDP).
8. How many resources should we allocate to space exploration? How will we make this decision? LO2
7. How will the Chinese economy benefit from private property? (See World View, page 17.) Is there any downside to greater entrepreneurial freedom? LO3
6. How does government intervention affect college admissions? Who would go to college in a completely private (market) college system? LO3
5. Markets reward individuals according to their output; communism rewards people according to their needs. How might these different systems affect work effort? LO3
4. How might a nation’s production possibilities be affected by the following? LO2a. A decrease in taxes.b. An increase in government regulation.c. An increase in military spending.d. An increase
3. What’s the real cost of the food in the “free lunch” cartoon on page 5? LO1
2. How much time could you spend on homework in a day? How much do you spend? How do you decide? LO1
1. What opportunity costs did you incur in reading this chapter? If you read four more chapters of this book today, would your opportunity cost (per chapter) increase? Explain. LO1

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