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principles of microeconomics

Questions and Answers of Principles Of Microeconomics

■ What effects do price ceilings have on economic activity?
■ When do price ceilings matter?
16. Suppose that the government imposes a $2 tax on consumers of donuts. What will happen to the market price?
15. For each of three potential buyers of avocados, the table displays the willingness to pay for the first three avocados of the day. Assume Carri, Carina, and Carlos are the only three buyers of
14. Assume that a $0.25/gallon tax on milk causes a loss of $300 million in consumer and producer surplus and creates a deadweight loss of $75 million.From this information, we know that the tax
13. We defined deadweight loss as the decrease in economic activity caused by market distortions.One place where we see deadweight loss is during Halloween’s trick-or-treat. Children of all ages
12. A well-known saying goes, “Honesty is not only morally right, it is also highly efficient.” Explain why firms that practice honesty generate more social welfare than firms that practice
11. Suppose that a new $50 tax is placed on each new cell phone sold. Use the information in the following graph to answer these questions.a. What is the incidence of the tax?b. What is the
10. In this chapter, we focused on the effect of taxes on social welfare. However, governments also subsidize goods, making them cheaper to buy or sell. How would a $2,000 subsidy on the purchase of
9. Suppose that the demand for a concert, QD, is represented by the following equation, where P is the price of concert tickets and Q is the number of tickets sold: QD = 2500 - 20P The supply of
8. The cost of many electronic devices has fallen appreciably since they were first introduced. For instance, computers, cell phones, microwave ovens, and calculators not only provide more functions
7. Use the following graph to answer questions a–f.a. What area represents consumer surplus before the tax?b. What area represents producer surplus before the tax?c. What area represents consumer
6. A new medical study indicates that eating blueberries helps prevent cancer. If the demand for blueberries increases, what will happen to the size of the consumer surplus and producer
5. If the government wants to minimize the deadweight loss of taxation, which of the following items are good candidates for an excise tax? Why?a. bottled waterb. prescription drugsc. orangesd.
4. If the government wants to raise tax revenue, which of the following items are good candidates for an excise tax? Why?a. granola barsb. cigarettesc. toilet paperd. automobile tirese. bird feeders
3. Andrew pays $30 to buy a potato cannon, a cylinder that shoots potatoes hundreds of feet. He was willing to pay $45. When Andrew’s friend Nick learns that Andrew bought a potato cannon, he asks
2. A cash-starved town decides to impose a $6 excise tax on T-shirts sold. The following table shows the quantity demanded and the quantity supplied at various prices.a. What are the equilibrium
1. A college student enjoys eating pizza. Her willingness to pay for each slice is shown in the following table:a. If pizza slices cost $3 each, how many slices will she buy? How much consumer
7. What happens to tax revenues as tax rates increase?
6. Suppose that the government taxes a good that has very elastic demand. Illustrate what will happen to consumer surplus, producer surplus, tax revenue, and deadweight loss on a supply and demand
5. What type of goods should be taxed in order to minimize deadweight loss?
4. How do economists define efficiency?
3. Why do economists focus on consumer and producer surplus and not on the possibility of consumer and producer loss? Illustrate your answer on a supply and demand graph.
2. Explain how producer surplus is derived from the difference between the willingness to sell and the market equilibrium price.
1. Explain how consumer surplus is derived from the difference between the willingness to pay and the market equilibrium price.
QUESTION: Is it possible that both friends are right?
QUESTION: If a drop in consumer income occurs, what will happen to the consumer surplus that customers enjoy at Urban Outfitters? What will happen to the amount of producer surplus Urban Outfitters
■ Why do taxes create deadweight loss in otherwise efficient markets?
■ When is a market efficient?
■ What are consumer surplus and producer surplus?
16. In 2018, the NFC football team the Atlanta Falcons moved to a new stadium. As part of this move, they dropped their stadium’s food and beverage prices 50% versus prices at the old stadium. In
15. Americans bought 143 billion gallons of gas in 2016 when the price was $2.25. Back in 2012, when the price was $3.64, they bought 133 billion gallons. Is the demand for gasoline elastic, unitary,
14. Suppose a hotel raises the price of the bottled water in the minibar in each room from $3 to $5.The hotel tracks the number of customers who buy the bottled water and finds that consumption drops
13. The TV show Extreme Couponing features coupon users who go to extraordinary measures to save money on their weekly purchases. The show follows these coupon users throughout the week as they
12. A private university notices that in-state and out-of-state students seem to respond differently to tuition changes.As the price of tuition rises from $15,000 to $20,000, what is the price
11. A local golf course is considering lowering its fees in order to increase its total revenue. Under what conditions will the fee reduction achieve its goal?
10. The cross-price elasticity of demand between American Eagle and Hollister is 2.0. What does that coefficient tell us about the relationship between these two stores?
9. A worker eats at a restaurant once a week. He then gets a 25% raise. As a result, he decides to eat out twice as much as before and cut back on the number of frozen lasagna dinners from one frozen
8. Do customers who visit convenience stores at 3 a.m. have a price elasticity of demand that is more elastic or less elastic than those who visit at 3 p.m.?
7. At a price of $200, a cell phone company manufactures 300,000 phones. At a price of $150, the company produces 200,000 phones. What is the price elasticity of supply?
6. A local paintball business receives a total revenue of $8,000 a month when it charges $10 per person and $9,600 in total revenue when it charges $6 per person. Over that range of prices, does the
5. Characterize the demand for each of the following goods or services as perfectly elastic, relatively elastic, relatively inelastic, or perfectly inelastic.a. a lifesaving medicationb. photocopies
4. If a 20% increase in price causes a 10% drop in the quantity demanded, is the price elasticity of demand for this good elastic, unitary, or inelastic?
3. Black Friday, the day after Thanksgiving, is the largest shopping day of the year. Do the early shoppers, who often wait in line for hours in the cold to get doorbuster sale items, have elastic or
2. College logo T-shirts priced at $15 sell at a rate of 25 per week, but when the bookstore marks them down to $10, it finds that it can sell 50 T-shirts per week. What is the price elasticity of
1. If the government decided to impose a 50% tax on gray T-shirts, would this policy generate a large increase in tax revenues or a small increase? Use elasticity to explain your answer.
10. Define the cross-price elasticity of demand. Give an example of a good with negative cross-price elasticity, another with zero cross-price elasticity, and a third with positive cross-price
9. Give an example of a normal good. What is the income elasticity of a normal good? Give an example of a luxury good. What is the income elasticity of a luxury good? Give an example of a
8. Give an example of a good that has elastic supply.What is the value of the price elasticity if supply is elastic? Give an example of a good that has an inelastic supply. What is the value of the
7. What are the two determinants of the price elasticity of supply?
6. Define the price elasticity of supply.
5. Explain why slope is different from elasticity.
4. What is the connection between total revenue and the price elasticity of demand? Illustrate this relationship along a demand curve.
3. Give an example of a good that has elastic demand.What is the value of the price elasticity if demand is elastic? Give an example of a good that has inelastic demand. What is the value of the
2. What are the four determinants of the price elasticity of demand?
1. Define the price elasticity of demand.
QUESTION: An unusually bad growing season leads to a small pumpkin crop.What will happen to the price of pumpkins as Halloween approaches? Use elasticity to explain your answer.
QUESTION: Suppose that the price of a barrel of oil increases from $50 to $100. The new output is 2 million barrels a day, and the old output is 1.8 million barrels a day.What is the price elasticity
QUESTION: A college student eats ramen noodles twice a week and earns $300 a week working part-time. After graduating, the student earns $1,000 a week and eats ramen noodles once every other week ,
QUESTION: Suppose that the price of a 2-liter bottle of Mr. Pibb falls from $1.49 to $1.29.In the week immediately preceding the price drop, a local store sells 60 boxes of Red Vines. After the price
■ For business owners, why is it important to understand whether demand for their products is elastic or inelastic?
■ Why is demand for coee relatively inelastic?
Now suppose that the local pharmacy manager decides to raise the price of a 50-pill prescription of amoxicillin from $8 to $40, instead of just to$10. Again the pharmacy tracks the sales, and this
QUESTION: A deli manager decides to lower the price of a featured sandwich from$3 to $2, and she finds that sales during the week increase from 240 to 480 sandwiches.Is demand elastic?
QUESTION: Do you think IKEA’s “Rainy day special” price makes sense?
■ How do the price elasticities of demand and supply relate to each other?
■ How do changes in income and the prices of other goods affect elasticity?
■ What is the price elasticity of demand, and what are its determinants?
2. Every Valentine’s Day, the price of roses spikes.Using your understanding of the factors that shift both demand and supply, draw the equilibrium in the rose market on January 31 and then draw
1. Assume that, over time, consumer incomes generally increase but also that technological advancements in oil extraction lead to lower prices of crude oil (the primary input for gasoline).a. If
2. Is there more than one potential equilibrium point when supply and demand change at the same time?Explain.
1. What happens to price and quantity when supply and demand change at the same time?
QUESTION: At lunch, two friends are engaged in a heated argument. Their exchange goes like this:The first friend begins, “The supply of hybrid cars and the demand for hybrid cars will both
12. One of the responses completes this list of things that shift the supply curve: technology, expectations, the number of sellers, and ____________.Identify the correct answer and also explain why
11. Consider the market for the Samsung Galaxy S9.a. Scenario 1: Using a supply and demand graph, show what will happen to the current equilibrium price and quantity of Galaxy S9s✷if people expect
10. If the price of alcohol decreases, what happens to the demand for red Solo (plastic) cups?
9. Let’s take a look at two real-world episodes in the market for gasoline and try to figure out why the price fluctuates so much.a. In the summer of 2008, the price of regular gasoline in the
8. Demand and supply curves can also be represented with equations. Suppose that the quantity demanded, QD, is represented by the following equation:QD = 90 − 2P The quantity supplied, QS, is
7. The Seattle Mariners baseball team wishes to determine the equilibrium price for seats for each of the next two seasons. The supply of seats at the ballpark is fixed at 45,000.Draw the supply
6. Starbucks Entertainment announced in a 2007 news release that Dave Matthews Band’s Live Trax CD was available only at the company’s coffee shops in the United States and Canada.The compilation
5. The market for ice cream has the following demand and supply schedules:a. What are the equilibrium price and equilibrium quantity in the ice cream market? Confirm your answer by graphing the
4. Are laser pointers and cats complements or substitutes? (Not sure? Search for videos of cats and laser pointers online.) Discuss.
3. For each of the following scenarios, determine if there is an increase or a decrease in supply for the good in italics.a. The price of silver increases.b. Growers of tomatoes experience an
2. For each of the following scenarios, determine if there is an increase or a decrease in demand for the good in italics.a. The price of oranges increases.b. The cost of producing tires increases.c.
1. In the song “Money, Money, Money” by ABBA, one of the lead singers, Anni-Frid Lyngstad, is tired of the hard work that life requires and plans to marry a wealthy man. If she is successful, how
QUESTION: Which one of the following will decrease the supply of chocolate ice cream?
Which one of the following will increase the demand for ice cream?a. a decrease in the price of the butterfat used to make ice creamb. a decrease in the price of ice creamc. an increase in the price
■ How do supply and demand interact to create equilibrium?
■ What determines supply?
■ What determines demand?
■ What are the fundamentals of markets?
4. Of the following relationships, which are the result of a common cause or reverse causation?a. Increased dash cam use causes more accidents to happen.b. Increased sales of life jackets lead to
3. Explain the logical error in the following sentence:“As ice cream sales increase, the number of people who drown increases sharply. Therefore, ice cream causes drowning.”
2. In the following graph, calculate the value of the slope if the price rises from $20 to $40. Price $60 $40 $20 0 20 50 Quantity
1. The following table shows the price and the quantity demanded of apples (per week).a. Plot the data provided in the table into a graph.b. Is the relationship between the price of apples and the
13. Barrville is a country that produces either all dumbbells, or all sandals, or a combination of the two.a. Draw a production possibilities frontier and label the x and y axes appropriately.b.
12. In this chapter we have seen that the PPF could be bowed-out or a straight line.a. Provide an example of two goods where the PPF would be bowed-out.b. Provide an example of two goods where the
11. Suppose that you must decide between attending a Taylor Swift concert or a Maroon 5 concert.The concerts are at the same time on the same evening, so you cannot see both. You love Taylor Swift
10. Read the poem “The Road Not Taken,” by Robert Frost. What line(s) in the poem capture the opportunity cost of decision-making?
9. Where would you plot unemployment on a production possibilities frontier? Where would you plot full employment on a production possibilities frontier? Now suppose that in a time of crisis everyone

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