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principles of microeconomics

Questions and Answers of Principles Of Microeconomics

4. Based on your answers to the WipeOut Ski Company in Exercise 7.3, now imagine a situation where the firm produces a quantity of 5 units that it sells for a price of $25 each.a. What will be the
3. The WipeOut Ski Company manufactures skis for beginners. Fixed costs are $30. Fill in Table 7.7 for total cost, average variable cost, average total cost, and marginal cost. Variable Fixed Total
2. Continuing from Exercise 7.1, the firm’s factory sits on land owned by the firm that could be rented out for$30,000 per year. What was the firm’s economic profit last year?
1. A firm had sales revenue of $1 million last year. It spent $600,000 on labor, $150,000 on capital and $200,000 on materials. What was the firm’s accounting profit?
31. If a 10% decrease in the price of one product that you buy causes an 8% increase in quantity demanded of that product, will another 10% decrease in the price cause another 8% increase (no more
30. Praxilla, who lived in ancient Greece, derives utility from reading poems and from eating cucumbers.Praxilla gets 30 units of marginal utility from her first poem, 27 units of marginal utility
29. What assumptions does the model of intertemporal choice make that are not likely true in the real world and would make the model harder to use in practice?
28. What do you think accounts for the wide range of savings rates in different countries?
27. Visit the BLS website and determine if education level, race/ethnicity, or gender appear to impact labor versus leisure choices.
26. What would be the substitution effect and the income effect of a wage increase?
25. Think about the backward-bending part of the labor supply curve. Why would someone work less as a result of a higher wage rate?
24. In the labor-leisure choice model, what is the price of leisure?
23. Income effects depend on the income elasticity of demand for each good that you buy. If one of the goods you buy has a negative income elasticity, that is, it is an inferior good, what must be
22. The rules of politics are not always the same as the rules of economics. In discussions of setting budgets for government agencies, there is a strategy called “closing the Washington
21. Think back to a purchase that you made recently.How would you describe your thinking before you made that purchase?
20. As a general rule, is it safe to assume that a lower interest rate will encourage significantly lower financial savings for all individuals? Explain.
19. According to the model of intertemporal choice, what are the major factors which determine how much saving an individual will do? What factors might a behavioral economist use to explain savings
18. As a general rule, is it safe to assume that a higher wage will encourage significantly more hours worked for all individuals? Explain.
17. How will a utility-maximizer find the choice of leisure and income that provides the greatest utility?
16. Why does a change in income cause a parallel shift in the budget constraint?
15. As a general rule, is it safe to assume that a change in the price of a good will always have its most significant impact on the quantity demanded of that good, rather than on the quantity
14. What is the rule relating the ratio of marginal utility to prices of two goods at the optimal choice? Explain why, if this rule does not hold, the choice cannot be utility-maximizing.
13. If people do not have a complete mental picture of total utility for every level of consumption, how can they find their utility-maximizing consumption choice?
12. Is it possible for total utility to increase while marginal utility diminishes? Explain.
11. Would you expect marginal utility to rise or fall with additional consumption of a good? Why?
10. Would you expect total utility to rise or fall with additional consumption of a good? Why?
9. Who determines how much utility an individual will receive from consuming a good?
8. How would a decrease in expected interest rates over one’s working life affect one’s intertemporal budget constraint? How would it affect one’s consumption/saving decision?
7. How would an increase in expected income over one’s lifetime affect one’s intertemporal budget constraint? How would it affect one’s consumption/saving decision?
6. In Siddhartha’s problem, calculate marginal utility for income and for leisure. Now, start off at the choice with 50 hours of leisure and zero income, and a wage of $8 per hour, and explain, in
5. Siddhartha has 50 hours per week to devote to work or leisure. He has been working for $8 per hour. Based on the information in Table 6.12, calculate his utility-maximizing choice of labor and
4. As a college student you work at a part-time job, but your parents also send you a monthly “allowance.” Suppose one month your parents forgot to send the check. Show graphically how your
3. Explain all the reasons why a decrease in the price of a product would lead to an increase in purchases of the product.
2. Take Jeremy’s total utility information in Exercise 6.1, and use the marginal utility approach to confirm the choice of phone minutes and round trips that maximize Jeremy’s utility.
1. Jeremy is deeply in love with Jasmine. Jasmine lives where cell phone coverage is poor, so he can either call her on the land-line phone for five cents per minute or he can drive to see her, at a
40. Assume that the supply of low-skilled workers is fairly elastic, but the employers’ demand for such workers is fairly inelastic. If the policy goal is to expand employment for low-skilled
39. When someone’s kidneys fail, the person needs to have medical treatment with a dialysis machine (unless or until they receive a kidney transplant) or they will die.Sketch a supply and demand
38. Say that a certain stadium for professional football has 70,000 seats. What is the shape of the supply curve for tickets to football games at that stadium? Explain.
37. The supply of paintings by Leonardo Da Vinci, who painted the Mona Lisa and The Last Supper and died in 1519, is highly inelastic. Sketch a supply and demand diagram, paying attention to the
36. The equation for a supply curve is P = 3Q – 8. What is the elasticity in moving from a price of 4 to a price of 7?
35. The equation for a supply curve is 4P = Q. What is the elasticity of supply as price rises from 3 to 4? What is the elasticity of supply as the price rises from 7 to 8?Would you expect these
34. The equation for a demand curve is P = 2/Q. What is the elasticity of demand as price falls from 5 to 4?What is the elasticity of demand as the price falls from 9 to 8? Would you expect these
33. The equation for a demand curve is P = 48 – 3Q.What is the elasticity in moving from a quantity of 5 to a quantity of 6?
32. Suppose you could buy shoes one at a time, rather than in pairs. What do you predict the cross-price elasticity for left shoes and right shoes would be?
31. Normal goods are defined as having a positive income elasticity. We can divide normal goods into two types: Those whose income elasticity is less than one and those whose income elasticity is
30. In a market where the supply curve is perfectly inelastic, how does an excise tax affect the price paid by consumers and the quantity bought and sold?
29. A city has built a bridge over a river and it decides to charge a toll to everyone who crosses. For one year, the city charges a variety of different tolls and records information on how many
28. Would you expect supply to play a more significant role in determining the price of a basic necessity like food or a luxury like perfume? Explain. Hint: Think about how the price elasticity of
27. Can you think of an industry (or product) with near infinite elasticity of supply in the short term? That is, what is an industry that could increase Qs almost without limit in response to an
26. What is the relationship between price elasticity and position on the demand curve? For example, as you move up the demand curve to higher prices and lower quantities, what happens to the
25. Transatlantic air travel in business class has an estimated elasticity of demand of 0.40 less than transatlantic air travel in economy class, with an estimated price elasticity of 0.62. Why do
24. What is the formula for elasticity of savings with respect to interest rates?
23. What is the formula for the wage elasticity of labor supply?
22. What is the formula for the cross-price elasticity of demand?
21. What is the formula for the income elasticity of demand?
20. Under which circumstances does the tax burden fall entirely on consumers?
19. Would you usually expect elasticity of demand or supply to be higher in the short run or in the long run?Why?
18. If supply is inelastic, will shifts in demand have a larger effect on equilibrium price or on quantity?
17. If supply is elastic, will shifts in demand have a larger effect on equilibrium quantity or on price?
16. If demand is inelastic, will shifts in supply have a larger effect on equilibrium price or on quantity?
15. If demand is elastic, will shifts in supply have a larger effect on equilibrium quantity or on price?
14. Describe the general appearance of a demand or a supply curve with infinite elasticity.
13. Describe the general appearance of a demand or a supply curve with zero elasticity.
12. What is the price elasticity of supply? Can you explain it in your own words?
11. What is the price elasticity of demand? Can you explain it in your own words?
10. What is the formula for calculating elasticity?
9. Suppose the cross-price elasticity of apples with respect to the price of oranges is 0.4, and the price of oranges falls by 3%. What will happen to the demand for apples?
8. The average annual income rises from $25,000 to $38,000, and the quantity of bread consumed in a year by the average person falls from 30 loaves to 22 loaves. What is the income elasticity of
7. What would the gasoline price elasticity of supply mean to UPS or FedEx?
6. Suppose you are in charge of sales at a pharmaceutical company, and your firm has a new drug that causes bald men to grow hair. Assume that the company wants to earn as much revenue as possible
5. The federal government decides to require that automobile manufacturers install new anti-pollution equipment that costs $2,000 per car. Under what conditions can carmakers pass almost all of this
4. Why is the supply curve with constant unitary elasticity a straight line?
3. Why is the demand curve with constant unitary elasticity concave?
2. From the data shown in Table 5.6 about supply of alarm clocks, calculate the price elasticity of supply from:point J to point K, point L to point M, and point N to point P. Classify the elasticity
1. From the data shown in Table 5.5 about demand for smart phones, calculate the price elasticity of demand from:point B to point C, point D to point E, and point G to point H. Classify the
33. What happens to the price and the quantity bought and sold in the cocoa market if countries producing cocoa experience a drought and a new study is released demonstrating the health benefits of
32. Imagine that to preserve the traditional way of life in small fishing villages, a government decides to impose a price floor that will guarantee all fishermen a certain price for their catch.a.
31. Table 4.6 shows the amount of savings and borrowing in a market for loans to purchase homes, measured in millions of dollars, at various interest rates.What is the equilibrium interest rate and
30. Predict how each of the following economic changes will affect the equilibrium price and quantity in the financial market for home loans. Sketch a demand and supply diagram to support your
29. Predict how each of the following events will raise or lower the equilibrium wage and quantity of coal miners in West Virginia. In each case, sketch a demand and supply diagram to illustrate your
28. Identify each of the following as involving either demand or supply. Draw a circular flow diagram and label the flows A through F. (Some choices can be on both sides of the goods market.)a.
27. During a discussion several years ago on building a pipeline to Alaska to carry natural gas, the U.S. Senate passed a bill stipulating that there should be a guaranteed minimum price for the
26. Why are the factors that shift the demand for a product different from the factors that shift the demand for labor? Why are the factors that shift the supply of a product different from those
25. If the government imposed a federal interest rate ceiling of 20% on all loans, who would gain and who would lose?
24. Suppose the U.S. economy began to grow more rapidly than other countries in the world. What would be the likely impact on U.S. financial markets as part of the global economy?
23. What assumption is made for a minimum wage to be a nonbinding price floor? What assumption is made for a living wage price floor to be binding?
22. Suppose that a 5% increase in the minimum wage causes a 5% reduction in employment. How would this affect employers and how would it affect workers? In your opinion, would this be a good policy?
21. Other than the demand for labor, what would be another example of a “derived demand?”
20. Whether the product market or the labor market, what happens to the equilibrium price and quantity for each of the four possibilities: increase in demand, decrease in demand, increase in supply,
19. Would usury laws help or hinder resolution of a shortage in financial markets?
18. What would be a sign of a shortage in financial markets?
17. How is equilibrium defined in financial markets?
16. Name some factors that can cause a shift in the supply curve in labor markets.
15. Name some factors that can cause a shift in the demand curve in labor markets.
14. Are households demanders or suppliers in the goods market? Are firms demanders or suppliers in the goods market? What about the labor market and the financial market?
13. What is the “price” commonly called in the labor market?
12. Select the correct answer. A price ceiling will usually shift:a. demandb. supplyc. bothd. neither
11. Select the correct answer. A price floor will usually shift:a. demandb. supplyc. bothd. neither Illustrate your answer with a diagram.
10. A price ceiling will have the largest effect:a. substantially below the equilibrium priceb. slightly below the equilibrium pricec. substantially above the equilibrium priced. slightly above the
9. Identify the most accurate statement. A price floor will have the largest effect if it is set:a. substantially above the equilibrium priceb. slightly above the equilibrium pricec. slightly below

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