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microeconomics

Questions and Answers of Microeconomics

1. Agriculture and Agri-Food Canada at provides an overview of Canadian agriculture and the agrifood business. What are Canada’s top five agricultural exports? Which country imports the largest
12. (The Last Word) How many eggs does the average Canadian laying hen produce? Which country is the largest producer of eggs?
11. Use public choice theory to explain the persistence of farm subsidies in the face of major criticisms of these subsidies.
10. What are the effects of farm subsidies such as those of Canada and the European Union on (a) domestic agricultural prices, (b) world agricultural prices, and (c) the international allocation of
9. Do you agree with each of the following statements? Explain why or why not.a. “The problem with Canadian agriculture is that there are too many farmers. This is not the fault of farmers but the
8. Use supply and demand curves to depict equilibrium price and output in a competitive market for some farm product. Then show how an above-equilibrium price floor(price support) would cause a
7. KEY QUESTION 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
6. “Because consumers as a whole must ultimately pay the total incomes received by farmers, it makes no real difference whether the income is paid through free farm markets or through price
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. KEY QUESTION Explain how each of the following contributes to the farm problem:a. the inelastic demand for farm productsb. the rapid technological progress in farmingc. the modest long-run growth
2. What relationship, if any, can you detect between the fact that the farmer’s fixed costs of production are large and the fact that the supply of most agricultural products is generally
1. KEY QUESTION 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
Does a lower rate with greater delivery options mean greater efficiency? Why or why not?
1. Some economists contend that public agencies generally are less efficient than private businesses. Federal Express, , competes directly with Canada Post, , for delivery of express mail and
11. (The Last Word) What are the merits of a single rate of taxation? What is the main drawback of a single rate of taxation?
8 – .6Q and the supply curve is P = 2 + .4Q.What are the equilibrium price and quantity?Now suppose an excise tax is imposed on X such that the new supply equation is P = 4 +.4Q. How much tax
10. Advanced analysis Suppose the equation for the demand curve for some product X is P =
9. KEY QUESTION What is the incidence of an excise tax when demand is highly inelastic? elastic? What effect does the elasticity of supply have on the incidence of an excise tax? What is the
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 your assumption concerning tax
7. KEY QUESTION Suppose a tax is such that an individual with an income of$10,000 pays $2000 of tax, a person with an income of $20,000 pays $3000 of tax, a person with an income of $30,000 pays
6. Distinguish between the benefits-received and the ability-to-pay principles of taxation.Which philosophy is more evident in our present tax structure? Justify your answer.To which principle of
5. Explain: “Politicians would make more rational economic decisions if they weren’t running for re-election every few years.”
4. KEY QUESTION How does the problem of limited and bundled choice in the public sector relate to economic efficiency?Why are public bureaucracies alleged to be less efficient than private
3. KEY QUESTION Suppose there are only five people in a society and each favours one of the five highway construction options in Table 18-2 (include no highway construction as one of the options).
2. KEY QUESTION Explain the paradox of voting through reference to the accompanying table, which shows the ranking of three public goods by voters Larry, Curley, and Moe:Rankings Public good Larry
1. Explain how affirmative and negative majority votes can sometimes lead to inefficient allocations of resources to public goods. Is this problem likely to be greater under a benefits-received or
1. Government can use direct controls in the form of legislation to reduce negative externalities such as water pollution. Environment Canada, , is responsible for getting environmental results on
14. (The Last Word) Explain how a global positioning antitheft device installed by one car owner can produce a positive spillover to thousands of others in a city.
13. KEY QUESTION Place an M beside those items in the following list that describe a moral hazard problem and an A beside those that describe an adverse selection problem.a. A person with a terminal
12. Why is it in the interest of new homebuyers and builders of new homes to have government building codes and building inspectors?
11. Explain why there may be insufficient recycling of products when the externalities associated with landfills and garbage incinerators are not considered. What demand and supply incentives might
10. Explain how marketable emission credits add to overall economic efficiency, compared to across-the-board limitations on maximum discharges of air pollutants by firms.
9. What is the global-warming problem? How is it being addressed? Using an example other than those given in the text, explain how global warming might hurt one particular region or country but help
8. Relate the law of conservation of matter and energy to (a) the air-pollution problem and(b) the solid-waste disposal problem. What is the tragedy of the commons, as it relates to pollution?
7. KEY QUESTION Explain the following statement using the MB curve in Figure 18-6 to illustrate: “The optimal amount of pollution abatement for some substances, say, water from storm drains, is
6. Explain: “Without a market for pollution rights, dumping pollutants into the air or water is costless; in the presence of the right to buy and sell pollution rights, dumping pollution creates an
5. An apple grower’s orchard provides nectar to a neighbour’s bees, while the beekeeper’s bees help the apple grower by pollinating the apple blossoms. Use Figure 18-2(b) to explain why this
4. KEY QUESTION Why are spillover costs and spillover benefits also called negative and positive externalities? Show graphically how a tax can correct for a spillover cost and how a subsidy to
3. KEY QUESTION The following table shows the total costs and total benefits in billions for four different antipollution programs of increasing scope. Which program should be undertaken?
2. KEY QUESTION Use your demand schedule for a public good, determined in question 1, and the following supply schedule to ascertain the optimal quantity of this public good. Why is this the optimal
1. KEY QUESTION Based on the following three individual demand schedules for a particular good, and assuming these three people are the only ones in the society, determine(a) the market demand
b. Is the poverty rate (in percent) higher or lower than the previous year for the general population and children under 18 and the elderly?
a. Is the percentage of the population living below Statistics Canada’s low income cutoff higher or lower than in the previous year reported? Compared to a decade earlier?
1. Statistics Canada at compiles information about low income in Canada. Use that site to answer the following questions:
10. (The Last Word) How do poor people describe “well being” and “ill-being”?
9. KEY QUESTION The following table contains three hypothetical public assistance plans.a. Determine the minimum income, the benefit-reduction rate, and the break-even income for each plan.b. Which
f. “The incentives created by the attempt to bring about a more equal distribution of income are in conflict with the incentives needed to generate increased income.”
e. “Capitalism and democracy are really a most improbable mixture. Maybe that is why they need each other—to put some rationality into equality and some humanity into efficiency.”
8. Comment on or explain:a. “To endow everyone with equal income will certainly make for very unequal enjoyment and satisfaction.”b. “Equality is a superior good: the richer we become, the more
7. Analyze in detail: “There need be no tradeoff between equality and efficiency. An efficient economy that yields an income distribution many regard as unfair may cause those with meagre income
6. Should a nation’s income be distributed to its members according to their contributions to the production of that total income or according to the members’ needs? Should society attempt to
5. Use the leaky-bucket analogy to discuss the equality–efficiency tradeoff.
4. KEY QUESTION Briefly discuss the major causes of income inequality. With respect to income inequality, is there any difference between inheriting property and inheriting a high IQ? Explain.
3. Why is the lifetime distribution of income more equal than the distribution in any specific year?
2. KEY QESTION Assume Syed, Beth, Sabine, David, and Mikkel receive incomes of $500, $250, $125, $75, and $50 respectively. Construct and interpret a Lorenz curve for this five-person economy. What
1. Using quintiles, briefly summarize the degree of income inequality in Canada.
Repeat the process for the one-month Treasury Bills and the CPI rate of change for the past one month. Is there a difference between the 1- month and the 12-month real interest rates? If so, why is
1. The real interest rate is the nominal rate less the rate of inflation. Assume the Consumer Price Index (CPI) is a proxy for the inflation rate and one-year Treasury Bill rates represent the
What would the interest rate be if you were required to repay the loan in 12 equal monthly installments?
12. (The Last Word) Assume that you borrow$5000 and pay back the $5000 plus $250 in interest at the end of the year. Assuming no inflation, what is the real interest rate? What would the interest
11. What is the rent, interest, and profit share of national income if proprietors’ income is included within the labour (wage) share?
10. Explain the absence of economic profit in a purely competitive, static economy. Realizing that the major function of profit is to allocate resources according to consumer preferences, describe
9. Why is the distinction between insurable and uninsurable risks significant for the theory of profit? Carefully evaluate: “All economic profit can be traced to either uncertainty or the desire to
8. KEY QUESTION 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?
7. Historically, usury laws that put belowequilibrium ceilings on interest rates have been used in the United States to make credit available to poor people who could not otherwise afford to borrow.
If the nominal interest rate is 12 percent and the inflation rate is 8 percent, what is the real rate of interest?
6. KEY QUESTION Distinguish between nominal and real interest rates. Which is more relevant in making investment and R&D decisions?
How might the fact that many businesses finance their investment activities internally affect the efficiency with which the interest rate performs its functions?
5. What are the major economic functions of the interest rate?
Explain the equilibrium interest rate. List some factors that might cause it to change.
4. KEY QUESTION Why is the supply of loanable funds upsloping? Why is the demand for loanable funds downsloping?
What considerations account for the fact that interest rates differ greatly on various types of loans? Use those considerations to explain the relative sizes of the interest rates on the
3. If money is not an economic resource, why is interest paid and received for its use?
2. KEY QUESTION Explain why economic rent is a surplus payment when viewed by the economy as a whole but as a cost of production from the standpoint of individual firms and industries. Explain:
1. How does the economist’s use of the term “rent” differ from everyday usage? Explain: “Though rent need not be paid by society to make land available, rental payments are very useful in
What are the general differences in earnings between the male and female golfers? Can you explain them?
What are the earnings of the top 10 female golfers on the LPGA tour?
1. Go to and select Tours, Rankings, and Money leaders. What are the annual earnings to date of the top 10 male golfers on the PGA tour?
20. (The Last Word) What two types of discrimination are represented by the discrimination evidenced in this chapter’s The Last Word?
19. If a person favours the free movement of labour within Canada, is it then inconsistent to also favour restrictions on the international movement of labour? Why or why not?
18. Evaluate: “If Canada deported, say, 100,000 illegal immigrants, the number of unemployed workers in Canada would decline by 100,000.”
17. KEY QUESTION Use graphical analysis to show the gains and losses resulting from the migration of workers from a lowincome country to a high-income country.Explain how your conclusions are
16. Suppose Ann and Becky are applicants to your university and that they have identical admission qualifications. Ann who is a member of a visible minority, grew up in a public housing development;
15. “Current employment equity programs are based on the belief that to overcome discrimination, we must practise discrimination. That perverse logic has created a system that undermines the
14. KEY QUESTION Use a demand and supply model to explain the effect of occupational segregation or crowding on the relative wage rates and earnings of men and women.Who gains and who loses from the
f. Suppose visible minorities as a group increase their labour services in that occupation, collectively offering 14 more units of labour at each visible-minority wage rate. Disregarding the changes
e. Suppose employers as a group become less prejudiced against visible minorities and demand 14 more units of visibleminority labour at each visible-minority wage rate in the table. What are the new
Will that employer hire visible-minority or white workers at the visible minority–white wage ratio indicated in part (c)?Explain.
d. Suppose a particular employer has a discrimination coefficient d of $5 per hour.
c. Suppose the white wage rate in this occupation is $16. What is the visible minorityto-white wage ratio?
b. What are the equilibrium visible minority wage rate and quantity of visible minority employment?
12. KEY QUESTION The labour demand and supply data in the table below relate to a single occupation. Use them to answer the questions that follow. Base your answers on the taste-for-discrimination
11. What is the principal–agent problem? Have you ever worked in a setting where this problem arose? If so, do you think increased monitoring would have eliminated the problem? Why don’t firms
10. What is meant by investment in human capital? Use this concept to explain (a) wage differentials, and (b) the long-run rise of real wage rates in Canada.
6. KEY QUESTION 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. Draw the firm’s labour supply and
4. KEY QUESTION Complete the following labour supply table for a firm hiring labour competitively:Total Marginal Units of Wage labour cost resource labour rate (wage bill) (labour) cost 0 $14
3. KEY QUESTION Describe wage determination in a labour market in which workers are unorganized and many firms actively compete for the services of labour. Show this situation graphically, using W1
2. Why is a firm in a purely competitive labour market a wage-taker? What would happen if that firm decided to pay less than the going market wage rate?
1. Explain why the general level of wages is high in Canada and other industrially advanced countries. What is the single most important factor underlying the long-run increase in average real-wage

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