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principles of microeconomics

Questions and Answers of Principles Of Microeconomics

3. Pat and Kris are roommates. They spend most of their time studying (of course), but they leave mk4
2. American and Japanese workers can each produce 4 cars a year. An American worker can produce 10 tons of grain a year, whereas a Japanese worker can produce 5 tons of grain a year.To keep things
1. Maria can read 20 pages of economics in an hour. She can also read 50 pages of sociology in an hour. She spends 5 hours per day studying.a. Draw Maria’s production possibilities frontier for
6. Why do economists oppose policies that restrict trade among nations? mj57
5. Will a nation tend to export or import goods for which it has a comparative advantage? Explain. k4
4. Is absolute advantage or comparative advantage more important for trade? Explain your reasoning using the example in your answer to Question 3. nk5
3. Give an example in which one person has an absolute advantage in doing something but another person has a comparative advantage. mk4
2. Explain how absolute advantage and comparative advantage differ. mk5
1. Under what conditions is the production possibilities frontier linear rather than bowed out? lp5
11 Suppose that a skilled brain surgeon also happens to be the world’s fastest typist. Should she do her own typing or hire a secretary? Explain. ml5
10 Robinson Crusoe can gather 10 coconuts or catch 1 fish per hour. His friend Friday can gather 30 coconuts or catch 2 fish per hour. What is Crusoe’s opportunity cost of catching one fish? What
9. Find a recent copy of the Economic Report of the President at your library or on the Internet(http://www.gpoaccess.gov/eop/index.html).Read a chapter about an issue that interests you.Summarize
8. If you were president, would you be more interested in your economic advisers’ positive views or their normative views? Why? lop5
7. Classify each of the statements in Table 1 as positive, normative, or ambiguous. Explain. lop7
6. Classify each of the following statements as positive or normative. Explain.a. Society faces a short-run trade-off between inflation and unemployment.b. A reduction in the rate of money growth
5. Classify the following topics as relating to microeconomics or macroeconomics.a. a family’s decision about how much income to saveb. the effect of government regulations on auto emissionsc. the
4. An economy consists of three workers: Larry, Moe, and Curly. Each works ten hours a day and can produce two services: mowing lawns and washing cars. In an hour, Larry can either mow one lawn or
3. The first principle of economics discussed in Chapter 1 is that people face trade-offs. Use a production possibilities frontier to illustrate society’s trade-off between two “goods”—a
2. Imagine a society that produces military goods and consumer goods, which we’ll call “guns”and “butter.”a. Draw a production possibilities frontier for guns and butter. Using the concept
1. Draw a circular-flow diagram. Identify the parts of the model that correspond to the flow of goods and services and the flow of dollars for each of the following activities. sh5
10. Why do economists sometimes offer conflicting advice to policymakers? lo5
9. What is the difference between a positive and a normative statement? Give an example of each. dj5
8. What are the two subfields into which economics is divided? Explain what each subfield studies. kd55
7. Use a production possibilities frontier to describe the idea of “efficiency.” jd5
6. Draw and explain a production possibilities frontier for an economy that produces milk and cookies. What happens to this frontier if disease kills half of the economy’s cows? l-9856
5. Name one economic interaction that isn’t covered by the simplified circular-flow diagram. L-58
4. Name a way that your family interacts in the factor market, and a way that it interacts in the product market. L-58
3. Should an economic model describe reality exactly? L-58
2. Why do economists make assumptions? L-58
1. How is economics like a science? L-58
16. Imagine that you are a policymaker trying to decide whether to reduce the rate of inflation.To make an intelligent decision, what would you need to know about inflation, unemployment, and the
15. During the Revolutionary War, the American colonies could not raise enough tax revenue to fully fund the war effort; to make up this difference, the colonies decided to print more money.Printing
14. Suppose Americans decide to save more of their incomes. If banks lend this extra savings to businesses, which use the funds to build new factories, how might this lead to faster growth in
13. In what ways is your standard of living different from that of your parents or grandparents when they were your age? Why have these changes occurred?
12. Discuss each of the following statements from the standpoints of equality and efficiency.a. “Everyone in society should be guaranteed the best healthcare possible.”b. “When workers are laid
11. Explain whether each of the following government activities is motivated by a concern about equality or a concern about efficiency. In the case of efficiency, discuss the type of market failure
10. Suppose the United States adopted central planning for its economy, and you became the chief planner. Among the millions of decisions that you need to make for next year are how many compact
9. Your roommate is a better cook than you are, but you can clean more quickly than your roommate can. If your roommate did all the cooking and you did all the cleaning, would your chores take you
8. A recent bill reforming the government’s antipoverty programs limited many welfare recipients to only two years of benefits.a. How does this change affect the incentives for working?b. How might
7. The Social Security system provides income for people over age 65. If a recipient of Social Security decides to work and earn some income, the amount he or she receives in Social Security benefits
6. Three managers of the Magic Potion Company are discussing a possible increase in production.Each suggests a way to make this decision.Harry: We should examine whether our company’s
5. The company that you manage has invested$5 million in developing a new product, but the development is not quite finished. At a recent meeting, your salespeople report that the introduction of
4. You win $100 in a basketball pool. You have a choice between spending the money now or putting it away for a year in a bank account that pays 5 percent interest. What is the opportunity cost of
3. You were planning to spend Saturday working at your part-time job, but a friend asks you to go skiing. What is the true cost of going skiing?Now suppose you had been planning to spend the day
2. You are trying to decide whether to take a vacation. Most of the costs of the vacation (airfare, hotel, and forgone wages) are measured in dollars, but the benefits of the vacation are
1. Describe some of the trade-offs faced by each of the following:a. a family deciding whether to buy a new carb. a member of Congress deciding how much to spend on national parksc. a company
10. How are inflation and unemployment related in the short run?
7. Explain the two main causes of market failure and give an example of each.
6. What does the “invisible hand” of the marketplace do?
3. Water is necessary for life. Is the marginal benefit of a glass of water large or small?
2. What is the opportunity cost of seeing a movie?
1. Give three examples of important trade-offs that you face in your life.
12. (This problem is challenging.) Suppose that an individual owed no taxes on the first $10,000 she earned and 15 percent of any income she earned over $10,000.(This is a simplified version of the
11. (This problem is challenging.) The welfare system provides income to some needy families. Typically, the maximum payment goes to families that earn no income; then, as families begin to earn
10. Suppose that your state gives each town $5 million in aid per year. The way in which the money is spent is currently unrestricted, but the governor has proposed that towns be required to spend
4. Jim buys only milk and cookies.a. In 2001, Jim earns $100, milk costs $2 per quart, and cookies cost $4 per dozen. Draw Jim’s budget constraint.b. Now suppose that all prices increase by 10
8. Suppose a person who buys only wine and cheese is given $1,000 in food stamps to supplement his $1,000 income. The food stamps cannot be used to buy wine.Might the consumer be better off with
6. The price of cheese rises from $6 to $10 a pound, while the price of wine remains $3 a glass. For a consumer with a constant income of $3,000, show what happens to consumption of wine and cheese.
4. Show a consumer’s budget constraint and indifference curves for wine and cheese. Show the optimal consumption choice. If the price of wine is $3 a glass and the price of cheese is $6 a pound,
1. A consumer has income of $3,000. Wine costs $3 a glass, and cheese costs $6 a pound. Draw the consumer’s budget constraint. What is the slope of this budget constraint?
11. Do you agree or disagree with each of the following statements? What do your views imply for public policies, such as taxes on inheritance?a. “Every parent has the right to work hard and save
10. John and Jeremy are utilitarians. John believes that labor supply is highly elastic, whereas Jeremy believes that labor supply is quite inelastic. How do you suppose their views about income
9. Suppose that a family’s tax liability equaled its income multiplied by one-half, minus $10,000. Under this system, some families would pay taxes to the government, and some families would
8. The poverty rate would be substantially lower if the market value of in-kind transfers were added to family income. The government spends more money on Medicaid than on any other in-kind transfer,
7. Suppose there are two possible income distributions in a society of ten people. In the first distribution, nine people would have incomes of $30,000 and one person would have an income of $10,000.
6. The chapter uses the analogy of a “leaky bucket” to explain one constraint on the redistribution of income.a. What elements of the U.S. system for redistributing income create the leaks in the
5. Consider two communities. In one community, ten families have incomes of $100 each and ten families have incomes of $20 each. In the other community, ten families have incomes of $200 each and ten
4. The chapter discusses the importance of economic mobility.a. What policies might the government pursue to increase economic mobility within a generation?b. What policies might the government
2. Table 20-4 shows that the percentage of children in families with income below the poverty line is almost twice the percentage of the elderly in such families.How might the allocation of
1. Table 20-2 shows that income inequality in the United States has increased during the past 20 years. Some factors contributing to this increase were discussed in Chapter 19. What are they?
7. Describe how antipoverty programs can discourage the poor from working. How might you reduce this disincentive? What are the disadvantages with your proposed policy?
1. Does the richest fifth of the U.S. population earn two, four, or ten times the income of the poorest fifth?
11. Economist June O’Neill argues that “until family roles are more equal, women are not likely to have the same pattern of market work and earnings as men.” What does she mean by the
9. A case study in this chapter described how customer discrimination in sports seems to have an important effect on players’ earnings. Note that this is possible because sports fans know the
8. Alan runs an economic consulting firm. He hires primarily female economists because, he says, “they will work for less than comparable men because women have fewer job options.” Is Alan’s
6. Imagine that someone were to offer you a choice: You could spend four years studying at the world’s best university, but you would have to keep your attendance there a secret. Or you could be
2. In what sense is education a type of capital?
10. (This question is challenging.) This chapter has assumed that labor is supplied by individual workers acting competitively. In some markets, however, the supply of labor is determined by a union
9. (This question is challenging.) In recent years some policymakers have proposed requiring firms to give workers certain fringe benefits. For example, in 1993 President Clinton proposed requiring
8. Suppose that labor is the only input used by a perfectly competitive firm that can hire workers for $50 per day.The firm’s production function is as follows:Each unit of output sells for $10.
7. During the 1980s and 1990s the United States experienced a significant inflow of capital from other countries. For example, Toyota, BMW, and other foreign car companies built auto plants in the
6. Suppose a freeze in Florida destroys part of the Florida orange crop.a. Explain what happens to the price of oranges and the marginal product of orange pickers as a result of the freeze. Can you
3. Show the effect of each of the following events on the market for labor in the computer manufacturing industry.a. Congress buys personal computers for all American college students.b. More college
2. Henry Ford once said: “It is not the employer who pays wages—he only handles the money. It is the product that pays wages.” Explain.
3. Give two examples of events that could shift the supply of labor.
2. Give two examples of events that could shift the demand for labor.
12. The makers of Tylenol pain reliever do a lot of advertising and have very loyal customers. In contrast, the makers of generic acetaminophen do no advertising, and their customers shop only for
11. Twenty years ago the market for chicken was perfectly competitive. Then Frank Perdue began marketing chicken under his name.a. How do you suppose Perdue created a brand name for chicken? What did
9. Describe three commercials that you have seen on TV.In what ways, if any, were each of these commercials socially useful? In what ways were they socially wasteful? Did the commercials affect the
8. If you were thinking of entering the ice-cream business, would you try to make ice cream that is just like one of the existing brands? Explain your decision using the ideas of this chapter.
7. The chapter says that monopolistically competitive firms may send Christmas cards to their customers.What do they accomplish by this? Explain in words and with a diagram.
6. Complete the table below by filling in YES, NO, or MAYBE for each type of market structure. DO FIRMS: Make differentiated products? Have excess capacity? Advertise? Pick Q so that MR = MC? Pick Q
1. Classify the following markets as perfectly competitive, monopolistic, or monopolistically competitive, and explain your answers.a. wooden #2 pencilsb. bottled waterc. copperd. local telephone
11. Jeff and Steve are playing tennis. Every point comes down to whether Steve guesses correctly whether Jeff will hit the ball to Steve’s left or right. The outcomes are:Does either player have a
9. Farmer Jones and Farmer Smith graze their cattle on the same field. If there are 20 cows grazing in the field, each cow produces $4,000 of milk over its lifetime. If there are more cows in the
7. The chapter states that the ban on cigarette advertising on television in 1971 increased the profits of cigarette companies. Could the ban still be good public policy?Explain your answer.
6. Suppose that you and a classmate are assigned a project on which you will receive one combined grade. You each want to receive a good grade, but you also want to do as little work as possible. The
5. Consider trade relations between the United States and Mexico. Assume that the leaders of the two countries believe the payoffs to alternative trade policies are as follows:a. What is the dominant
4. Describe several activities in your life in which game theory could be useful. What is the common link among these activities?
3. This chapter discusses companies that are oligopolists in the market for the goods they sell. Many of the same ideas apply to companies that are oligopolists in the market for the inputs they

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