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principles of microeconomics

Questions and Answers of Principles Of Microeconomics

Outline the characteristics of cost estimates and the various methods of cost estimation.
Identify the problems of cost estimation and the associated causes.
Evaluate the importance of cost estimation in projects.
Name three kinds of graphs and briefly state when is most appropriate to use each type of graph.•What is slope on a line graph?
13. Consider a small country that exports steel. Suppose that a “pro-trade” government decides to subsidize the export of steel by paying a certain amount for each ton sold abroad.
12. Assume the United States is an importer of televisions and there are no trade restrictions. U.S.consumers buy 1 million televisions per year, of which 400,000 are produced domestically and
8. The nation of Textilia does not allow imports of clothing. In its equilibrium without trade, a T-shirt costs $20, and the equilibrium quantity is 3 million T-shirts. One day, after reading Adam
4. When China’s clothing industry expands, the increase in world supply lowers the world price of clothing.a. Draw an appropriate diagram to analyze how this change in price affects consumer
3. Suppose that Congress imposes a tariff on imported autos to protect the U.S. auto industry from foreign competition. Assuming that the United States is a price taker in the world auto market, show
2. The world price of wine is below the price that would prevail in Canada in the absence of trade.a. Assuming that Canadian imports of wine are a small part of total world wine production, draw a
4. Describe what a tariff is and its economic effects. mk5
2. When does a country become an exporter of a good? An importer?558
4. The 19th-century economist Henry George argued that the government should levy a sizable tax on land, the supply of which he took to be completely inelastic.a. George believed that economic growth
5. What happens to the deadweight loss and tax revenue when a tax is increased?645
4. Why do experts disagree about whether labor taxes have small or large deadweight losses?-okj
3. How do the elasticities of supply and demand affect the deadweight loss of a tax? Why do they have this effect?p-96
2. Draw a supply-and-demand diagram with a tax on the sale of the good. Show the deadweight loss. Show the tax revenue. mlo8
1. What happens to consumer and producer sur- plus when the sale of a good is taxed? How does the change in consumer and producer surplus compare to the tax revenue? Explain. mlp8
11. The supply and demand for broccoli are described by the following equations:Supply: QS = 4P – 80 Demand: QD = 100 – 2P.Q is in bushels, and P is in dollars per bushel.a. Graph the supply
10. Consider how health insurance affects the quantity of healthcare services performed.Suppose that the typical medical procedure has a cost of $100, yet a person with health insurance pays only $20
9. Suppose a technological advance reduces the cost of making computers.a. Draw a supply-and-demand diagram to show what happens to price, quantity, consumer surplus, and producer surplus in the
8. There are four consumers willing to pay the following amounts for haircuts:Jerry: $7 Oprah: $2 Ellen: $8 Phil: $5? mlo63
7. The cost of producing flat-screen TVs has fallen over the past several decades. Let’s consider some implications of this fact.a. Draw a supply-and-demand diagram to show the effect of falling
6. Consider a market in which Bert from Problem 4 is the buyer and Ernie from Problem 5 is the seller.a. Use Ernie’s supply schedule and Bert’s demand schedule to find the quantity supplied and
5. Ernie owns a water pump. Because pumping large amounts of water is harder than pumping small amounts, the cost of producing a bottle of water rises as he pumps more. Here is the cost he incurs to
4. It is a hot day, and Bert is thirsty. Here is the value he places on a bottle of water:Value of first bottle $7 Value of second bottle $5 Value of third bottle $3 Value of fourth bottle $1
3. Suppose the demand for French bread rises.Explain what happens to producer surplus in the market for French bread. Explain what happens to producer surplus in the market for flour.Illustrate your
2. An early freeze in California sours the lemon crop. Explain what happens to consumer surplus in the market for lemons. Explain what happens to consumer surplus in the market for lemonade.
1. Melissa buys an iPod for $120 and gets consumer surplus of $80.a. What is her willingness to pay?b. If she had bought the iPod on sale for $90, what would her consumer surplus have been?c. If the
6. Name two types of market failure. Explain why each may cause market outcomes to be inefficient.lo8
5. What does the invisible hand do?p-52
4. What is efficiency? Is it the only goal of eco- nomic policymakers?p-96
3. In a supply-and-demand diagram, show pro- ducer and consumer surplus in the market equilibrium. mk5
2. Explain how sellers' costs, producer surplus, and the supply curve are related.lo5
1. Explain how buyers' willingness to pay, con- sumer surplus, and the demand curve are related. lop7
11. The U.S. government administers two programs that affect the market for cigarettes. Media campaigns and labeling requirements are aimed at making the public aware of the dangers of cigarette
10. In 2007, Rod Blagojevich, the governor of Illinois, proposed a 3 percent payroll tax to finance some state health programs. The proposed legislation provided that the payroll tax “shall not be
8. A case study in this chapter discusses the federal minimum-wage law. mk5
6. If the government places a $500 tax on luxury cars, will the price paid by consumers rise by more than $500, less than $500, or exactly $500?Explain.597
1. Lovers of classical music persuade Congress to impose a price ceiling of $40 per concert ticket.As a result of this policy, do more or fewer people attend classical music concerts? ml58
7. What determines how the burden of a tax is divided between buyers and sellers? Why? mkl5
6. How does a tax on a good affect the price paid by buyers, the price received by sellers, and the quantity sold? mlo5
5. Suppose the government removes a tax on buyers of a good and levies a tax of the same size on sellers of the good. How does this change in tax policy affect the price that buyers pay sellers for
4. Explain why economists usually oppose controls on prices. mk56
3. What mechanisms allocate resources when the price of a good is not allowed to bring supply and demand into equilibrium?lm6
2. Which causes a shortage of a good—a price ceiling or a price floor? Justify your answer with a graph.lop8
1. Give an example of a price ceiling and an example of a price floor. mlo5
17. Suppose the demand curve for a product is Q =60/P. Compute the quantity demanded at prices of $1, $2, $3, $4, $5, and $6. Graph the demand curve. Use the midpoint method to calculate the price
16. Explain why the following might be true: A drought around the world raises the total revenue that farmers receive from the sale of grain, but a drought only in Kansas reduces the total revenue
15. Several years ago, flooding along the Missouri and the Mississippi rivers destroyed thousands of acres of wheat.a. Farmers whose crops were destroyed by the floods were much worse off, but
14. Beachfront resorts have an inelastic supply, and automobiles have an elastic supply. Suppose that a rise in population doubles the demand for both products (that is, the quantity demanded at each
13. Pharmaceutical drugs have an inelastic demand, and computers have an elastic demand. Suppose that technological advance doubles the supply of both products (that is, the quantity supplied at each
12. You are the curator of a museum. The museum is running short of funds, so you decide to increase revenue. Should you increase or decrease the price of admission? Explain. lop5
11. Consider public policy aimed at smoking.a. Studies indicate that the price elasticity of demand for cigarettes is about 0.4. If a pack of cigarettes currently costs $2 and the government wants to
9. The New York Times reported (Feb. 17, 1996, p. 25) that subway ridership declined after a fare increase: “There were nearly four million fewer riders in December 1995, the first full month after
8. Maria has decided always to spend one-third of her income on clothing.a. What is her income elasticity of clothing demand?b. What is her price elasticity of clothing demand?c. If Maria’s tastes
7. You have the following information about good X and good Y:Income elasticity of demand for good X: –3 Cross-price elasticity of demand for good X with respect to the price of good Y: 2 Would an
6. Suppose that your demand schedule for compact discs is as follows:Quantity Demanded Quantity Demanded Price (income = $10,000) (income = $12,000)$ 8 40 CDs 50 CDs 10 32 45 12 24 30 14 16 20 16 8
5. The equilibrium price of coffee mugs rose sharply last month, but the equilibrium quantity was the same as ever. Three people tried to explain the situation. Which explanations could be right?
4. A price change causes the quantity demanded of a good to decrease by 30 percent, while the total revenue of that good increases by 15 percent. Is the demand curve elastic or inelastic?Explain. ml4
3. Suppose the price elasticity of demand for heating oil is 0.2 in the short run and 0.7 in the long run.a. If the price of heating oil rises from $1.80 to$2.20 per gallon, what happens to the
2. Suppose that business travelers and vacationers have the following demand for airline tickets from New York to Boston:Quantity Demanded Quantity Demanded Price (business travelers)
1. For each of the following pairs of goods, which good would you expect to have more elastic demand and why?a. required textbooks or mystery novelsb. Beethoven recordings or classical music
11. How did elasticity help explain why drug inter- diction could reduce the supply of drugs, yet possibly increase drug-related crime?lop4
10. Is the price elasticity of supply usually larger in the short run or in the long run? Why?lop9
7. What do we call a good whose income elasticity is less than 0?mkl5
6. If demand is elastic, how will an increase in price change total revenue? Explain.lp8
3. What is the main advantage of using the mid- point method for calculating elasticity?lp78
2. List and explain the four determinants of the price elasticity of demand discussed in the chapter.lop8
1. Define the price elasticity of demand and the income elasticity of demand. lo87
14. Suppose that the price of basketball tickets at your college is determined by market forces. ko5
13. Because bagels and cream cheese are often eaten together, they are complements.a. We observe that both the equilibrium price of cream cheese and the equilibrium quantity of bagels have risen.
12. Consider the following events: Scientists reveal that consumption of oranges decreases the risk of diabetes and, at the same time, farmers use a new fertilizer that makes orange trees more
11. The market for pizza has the following demand and supply schedules:Price Quantity Demanded Quantity Supplied$4 135 pizzas 26 pizzas 5 104 53 6 81 81 7 68 98 8 53 110 9 39 121a. Graph the demand
10. Ketchup is a complement (as well as a condiment) for hot dogs. If the price of hot dogs rises, what happens to the market for ketchup? For tomatoes? For tomato juice? For orange juice?
9. Suppose that in the year 2010 the number of births is temporarily high. How does this baby boom affect the price of babysitting services in 2015 and 2025? (Hint: 5-year-olds need babysitters,
8. A survey shows an increase in drug use by young people. In the ensuing debate, two hypotheses are proposed:Reduced police efforts have increased the availability of drugs on the street.Cutbacks in
7. Using supply-and-demand diagrams, show the effect of the following events on the market for sweatshirts.a. A hurricane in South Carolina damages the cotton crop.b. The price of leather jackets
6. Over the past 20 years, technological advances have reduced the cost of computer chips.How do you think this affected the market for computers? For computer software? For typewriters? ko5
5. Consider the markets for DVD movies, TV screens, and tickets at movie theaters.a. For each pair, identify whether they are complements or substitutes:DVDs and TV screens DVDs and movie tickets TV
4. Identify the flaw in this analysis: “If more Americans go on a low-carb diet, the demand for bread will fall. The decrease in the demand for bread will cause the price of bread to fall.The lower
3. Consider the market for minivans. For each of the events listed here, identify which of the determinants of demand or supply are affected.Also indicate whether demand or supply increases or
2. “An increase in the demand for notebooks raises the quantity of notebooks demanded but not the quantity supplied.” Is this statement true or false? Explain.ml4
1. Explain each of the following statements using supply-and-demand diagrams.a. “When a cold snap hits Florida, the price of orange juice rises in supermarkets throughout the country.”b. “When
9. Describe the role of prices in market economies. k;52
8. Beer and pizza are complements because they are often enjoyed together. When the price of beer rises, what happens to the supply, demand, quantity supplied, quantity demanded, and the price in the
7. Define the equilibrium of a market. Describe the forces that move a market toward its equilibrium. lo5
6. Does a change in producers’ technology lead to a movement along the supply curve or a shift in the supply curve? Does a change in price lead to a movement along the supply curve or a shift in
5. What are the supply schedule and the supply curve and how are they related? Why does the supply curve slope upward? lop5
4. Popeye’s income declines, and as a result, he buys more spinach. Is spinach an inferior or a normal good? What happens to Popeye’s demand curve for spinach? mk2
3. Does a change in consumers’ tastes lead to a movement along the demand curve or a shift in the demand curve? Does a change in price lead to a movement along the demand curve or a shift in the
2. What are the demand schedule and the demand curve and how are they related? Why does the demand curve slope downward? mkl5
1. What is a competitive market? Briefly describe a type of market that is not perfectly competitive. mk5
10. The United States exports corn and aircraft to the rest of the world, and it imports oil and clothing from the rest of the world. Do you think this pattern of trade is consistent with the
9. Are the following statements true or false?Explain in each case.a. “Two countries can achieve gains from trade even if one of the countries has an absolute advantage in the production of all
8. An average worker in Brazil can produce an ounce of soybeans in 20 minutes and an ounce of coffee in 60 minutes, while an average worker in Peru can produce an ounce of soybeans in 50 minutes and
7. Suppose that in a year an American worker can produce 100 shirts or 20 computers, while a Chinese worker can produce 100 shirts or 10 computers.a. Graph the production possibilities curve for the
6. The following table describes the production possibilities of two cities in the country of Baseballia:Pairs of Red Socks Pairs of White Socks per Worker per Hour per Worker per Hour Boston 3 3
5. England and Scotland both produce scones and sweaters. Suppose that an English worker can produce 50 scones per hour or 1 sweater per hour. Suppose that a Scottish worker can produce 40 scones per
4. Suppose that there are 10 million workers in Canada and that each of these workers can produce either 2 cars or 30 bushels of wheat in a year.a. What is the opportunity cost of producing a car in

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