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principles of microeconomics

Questions and Answers of Principles Of Microeconomics

8. Which of the following changes in the financial market will lead to an increase in the quantity of loans made and received:a. a rise in demandb. a fall in demandc. a rise in supplyd. a fall in
7. Which of the following changes in the financial market will lead to a decline in interest rates:a. a rise in demandb. a fall in demandc. a rise in supplyd. a fall in supply
6. If a usury law limits interest rates to no more than 35%, what would the likely impact be on the amount of loans made and interest rates paid?
5. In the financial market, what causes a movement along the supply curve? What causes a shift in the supply curve?
4. In the financial market, what causes a movement along the demand curve? What causes a shift in the demand curve?
3. Why is a living wage considered a price floor? Does imposing a living wage have the same outcome as a minimum wage?
2. In the labor market, what causes a movement along the supply curve? What causes a shift in the supply curve?
1. In the labor market, what causes a movement along the demand curve? What causes a shift in the demand curve?
57. A low-income country decides to set a price ceiling on bread so it can make sure that bread is affordable to the poor. The conditions of demand and supply are given in Table 3.11. What are the
56. Supply and demand for movie tickets in a city are shown in Table 3.10. Graph demand and supply and identify the equilibrium. Then calculate in a table and graph the effect of the following two
55. Demand and supply in the market for cheddar cheese is illustrated in Table 3.9. Graph the data and find the equilibrium. Next, create a table showing the change in quantity demanded or quantity
54. The computer market in recent years has seen many more computers sell at much lower prices. What shift in demand or supply is most likely to explain this outcome?Sketch a demand and supply
53. Table 3.8 shows information on the demand and supply for bicycles, where the quantities of bicycles are measured in thousands.a. What is the quantity demanded and the quantity supplied at a price
52. Review Figure 3.4 again. Suppose the price of gasoline is $1.00. Will the quantity demanded be lower or higher than at the equilibrium price of $1.40 per gallon? Will the quantity supplied be
51. Why would a free market never operate at a quantity greater than the equilibrium quantity? (Hint:What would be required for a transaction to occur at that quantity?)
50. Explain why voluntary transactions improve social welfare.
49. What term would an economist use to describe what happens when a shopper gets a “good deal” on a product?
48. Can you propose a policy that would induce the market to supply more rental housing units?
47. Agricultural price supports result in governments holding large inventories of agricultural products. Why do you think the government cannot simply give the products away to poor people?
46. Most government policy decisions have winners and losers. What are the effects of raising the minimum wage? It is more complex than simply producers lose and workers gain. Who are the winners and
45. Suppose both of these events took place at the same time. Combine your analyses of the impacts of the iPod and the tariff reduction to determine the likely impact on the equilibrium price and
44. Use the four-step process to analyze the impact of a reduction in tariffs on imports of iPods on the equilibrium price and quantity of Sony Walkman-type products.
43. Use the four-step process to analyze the impact of the advent of the iPod (or other portable digital music players) on the equilibrium price and quantity of the Sony Walkman (or other portable
42. Suppose there is soda tax to curb obesity. What should a reduction in the soda tax do to the supply of sodas and to the equilibrium price and quantity? Can you show this graphically? Hint: assume
41. We know that a change in the price of a product causes a movement along the demand curve. Suppose consumers believe that prices will be rising in the future.How will that affect demand for the
40. How do you suppose the demographics of an aging population of “Baby Boomers” in the United States will affect the demand for milk? Justify your answer.
39. Consider the demand for hamburgers. If the price of a substitute good (for example, hot dogs) increases and the price of a complement good (for example, hamburger buns) increases, can you tell
38. Explain why the following statement is false: “In the goods market, no seller would be willing to sell for less than the equilibrium price.”
37. Explain why the following statement is false: “In the goods market, no buyer would be willing to pay more than the equilibrium price.”
36. Review Figure 3.4. Suppose the government decided that, since gasoline is a necessity, its price should be legally capped at $1.30 per gallon. What do you anticipate would be the outcome in the
35. What is deadweight loss?
34. What is the relationship between total surplus and economic efficiency?
33. What is total surplus? How is it illustrated on a demand and supply diagram?
32. What is producer surplus? How is it illustrated on a demand and supply diagram?
31. What is consumer surplus? How is it illustrated on a demand and supply diagram?
30. How does a price floor set above the equilibrium level affect quantity demanded and quantity supplied?
29. Does a price floor attempt to make a price higher or lower?
28. How does a price ceiling set below the equilibrium level affect quantity demanded and quantity supplied?
27. Does a price ceiling attempt to make a price higher or lower?
26. What causes a movement along the demand curve?What causes a movement along the supply curve?
25. How does one analyze a market where both demand and supply shift?
24. Name some factors that can cause a shift in the supply curve in markets for goods and services.
23. Name some factors that can cause a shift in the demand curve in markets for goods and services.
22. When analyzing a market, how do economists deal with the problem that many factors that affect the market are changing at the same time?
21. What is the difference between the supply and the quantity supplied of a product, say milk? Explain in words and show the difference on a graph with the supply curve for milk.
20. What is the difference between the demand and the quantity demanded of a product, say milk? Explain in words and show the difference on a graph with a demand curve for milk.
19. When the price is above the equilibrium, explain how market forces move the market price to equilibrium. Do the same when the price is below the equilibrium.
18. If the price is above the equilibrium level, would you predict a surplus or a shortage? If the price is below the equilibrium level, would you predict a surplus or a shortage? Why?
17. How can you locate the equilibrium point on a demand and supply graph?
16. What is the relationship between quantity demanded and quantity supplied at equilibrium? What is the relationship when there is a shortage? What is the relationship when there is a surplus?
15. Will supply curves have the same shape in all markets? If not, how will they differ?
14. Will demand curves have the same exact shape in all markets? If not, how will they differ?
13. What does a downward-sloping demand curve mean about how buyers in a market will react to a higher price?
12. What determines the level of prices in a market?
11. If a price floor benefits producers, why does a price floor reduce social surplus?Because the losses to consumers are greater than the benefits to producers, so the net effect is negative. Since
10. Does a price ceiling increase or decrease the number of transactions in a market? Why? What about a price floor?Assuming that people obey the price ceiling, the market price will be above
9. What would be the impact of imposing a price floor below the equilibrium price?
8. Does a price ceiling change the equilibrium price?
7. What is the effect of a price ceiling on the quantity demanded of the product? What is the effect of a price ceiling on the quantity supplied? Why exactly does a price ceiling cause a shortage?
6. A tariff is a tax on imported goods. Suppose the U.S. government cuts the tariff on imported flat screen televisions.Using the four-step analysis, how do you think the tariff reduction will affect
5. Let’s think about the market for air travel. From August 2014 to January 2015, the price of jet fuel decreased roughly 47%. Using the four-step analysis, how do you think this fuel price
4. Many changes are affecting the market for oil. Predict how each of the following events will affect the equilibrium price and quantity in the market for oil. In each case, state how the event will
3. In an analysis of the market for paint, an economist discovers the facts listed below. State whether each of these changes will affect supply or demand, and in what direction.a. There have
2. Why do economists use the ceteris paribus assumption?
1. Review Figure 3.4. Suppose the price of gasoline is $1.60 per gallon. Is the quantity demanded higher or lower than at the equilibrium price of $1.40 per gallon? And what about the quantity
27. What is Marie’s opportunity cost of purchasing a pie?
26. Draw Marie’s budget constraint with pies on the horizontal axis and magazines on the vertical axis. What is the slope of the budget constraint?
25. If the price of a pie is $12, what is the maximum number of pies she could buy in a week?
24. If the price of a magazine is $4 each, what is the maximum number of magazines she could buy in a week?
23. Do economists have any particular expertise at making normative arguments? In other words, they have expertise at making positive statements (i.e., what will happen) about some economic policy,
22. What assumptions about the economy must be true for the invisible hand to work? To what extent are those assumptions valid in the real world?
21. It is clear that productive inefficiency is a waste since resources are being used in a way that produces less goods and services than a nation is capable of. Why is allocative inefficiency also
20. During the SecondWorldWar, Germany’s factories were decimated. It also suffered many human casualties, both soldiers and civilians. How did the war affect Germany’s production possibilities
19. Suppose Alphonso’s town raises the price of bus tickets from $0.50 to $1 and the price of burgers rises from $2 to $4. Why is the opportunity cost of bus tickets unchanged? Suppose Alphonso’s
18. What are four responses to the claim that people should not behave in the way described in this chapter?
17. Is the economic model of decision-making intended as a literal description of how individuals, firms, and the governments actually make decisions?
16. What is the difference between a positive and a normative statement?
15. What is productive efficiency? Allocative efficiency?
14. What are diminishing marginal returns?
13. Explain why societies cannot make a choice above their production possibilities frontier and should not make a choice below it.
12. Why is a production possibilities frontier typically drawn as a curve, rather than a straight line?
11. What does a production possibilities frontier illustrate?
10. What is comparative advantage?
8. Explain why scarcity leads to tradeoffs. 9. Explain why individuals make choices that are directly on the budget constraint, rather than inside the budget constraint or outside it.
7. Would a research study on the effects of soft drink consumption on children’s cognitive development be considered a positive or normative statement?
6. Would an op-ed piece in a newspaper urging the adoption of a particular economic policy be considered a positive or normative statement?
5. Individuals may not act in the rational, calculating way described by the economic model of decision making, measuring utility and costs at the margin, but can you make a case that they behave
4. What are the similarities between a consumer’s budget constraint and society’s production possibilities frontier, not just graphically but analytically?
3. Could a nation be producing in a way that is allocatively efficient, but productively inefficient?
2. Return to the example in Figure 2.4. Suppose there is an improvement in medical technology that enables more healthcare to be provided with the same amount of resources. How would this affect the
1. Suppose Alphonso’s town raised the price of bus tickets to $1 per trip (while the price of burgers stayed at $2 and his budget remained $10 per week.) Draw Alphonso’s new budget constraint.
28. Can you think of ways that globalization has helped you economically? Can you think of ways that it has not?
27. Why do you think that most modern countries’economies are a mix of command and market types?
26. Suppose, as an economist, you are asked to analyze an issue unlike anything you have ever done before.Also, suppose you do not have a specific model for analyzing that issue. What should you do?
25. Why is it unfair or meaningless to criticize a theory as “unrealistic?”
24. Macroeconomics is an aggregate of what happens at the microeconomic level. Would it be possible for what happens at the macro level to differ from how economic agents would react to some stimulus
23. A balanced federal budget and a balance of trade are considered secondary goals of macroeconomics, while growth in the standard of living (for example) is considered a primary goal. Why do you
22. Can you think of any examples of free goods, that is, goods or services that are not scarce?
21. Why would division of labor without trade not work?
20. Suppose you have a team of two workers: one is a baker and one is a chef. Explain why the kitchen can produce more meals in a given period of time if each worker specializes in what they do best

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