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principles of microeconomics

Questions and Answers of Principles Of Microeconomics

9 How much money would the government raise from imposing an extra 30 percent tax on red sports cars? Explain your answer in terms of elasticities. 5
8 A cookie manufacturing company uses one milliliter of a special red dye to make each of its red cookies. This company buys its special red dye from the market at a price of five cents a milliliter,
7 If a 4 percent increase in income causes consumers to buy 3 percent more milk, what is the income elasticity of demand for milk? Is milk a normal or inferior good?
6 A 10 percent increase in the price of oranges causes a 9 percent decrease in the quantity demanded of tomatoes. What is the cross elasticity of demand between oranges and tomatoes? Are these two
5 Assume that the facts in question 4 apply and you are a milk producer. If all other producers destroy one-half of their supply, are you better off destroying yours as well?
4 Assume that the demand for milk is very inelastic. Would milk producers benefit if they all destroyed one-half of their milk before selling their milk to the market?
3 Assume that the demand for corn is very inelastic. Scientists develop a new fertilizer that doubles the yield of ordinary corn, and they generously give it away for free to all corn farmers. Will
2 Graph the following: a perfectly inelastic demand curve, a perfectly elastic demand curve, a perfectly inelastic supply curve, and a perfectly elastic supply curve.
1 If a 7 percent increase in price causes a 34 percent decrease in quantity demanded, what is the price elasticity of demand? Is demand elastic, inelastic, or unit elastic?
27 How does the ability to fire workers influence price elasticities of supply?(page 93)28 How does a long time frame affect price elasticities of supply? (page 93)
26 How do specialized inputs influence price elasticities of supply? (pages 92–93)
25 How does capacity influence price elasticity of supply? (page 92)
24 How do costs influence price elasticities of supply? (page 92)
23 What does it mean if supply is (a) elastic, (b) inelastic, or (c) unit elastic? (page 91)
22 What is the sign of the price elasticity of supply and why does it have this sign?(page 90)
21 What does the price elasticity of supply measure? (page 90)
20 When is the cross elasticity of demand negative and when is it positive? (page 90)
19 What does the cross elasticity of demand measure? (page 90)
18 When is the income elasticity of demand positive and when is it negative? (page 89)
17 What does income elasticity of demand measure? (page 89)
15 How does the percentage of income you spend on a good affect that good’s price elasticity of demand? (page 87)16 How does a good being addictive affect that good’s price elasticity of
14 How do long time frames affect price elasticities of demand? (page 86)
13 How do strong complements affect price elasticities of demand? (pages 85–86)
12 How does a good being a necessity affect that good’s price elasticity of demand?(page 85)
11 How does a broad definition of a product affect that product’s price elasticity of demand? (page 85)
10 How do substitutes affect price elasticities of demand? (pages 82–85)
9 How can you use a demand curve to graph total revenue? (page 82)
8 How does a decrease in price affect total revenue when demand is (a) elastic,(b) inelastic, or (c) unit elastic? (page 81)
7 How does an increase in price affect total revenue when demand is (a) elastic,(b) inelastic, or (c) unit elastic? (page 81)
6 How does the price elasticity of demand vary along a straight-line demand curve that goes from axis to axis? (page 79)
5 What is the shape of a demand curve with an elasticity of 1? (page 78)
4 What is the shape of a perfectly elastic demand curve? (page 78)
3 What is the shape of a perfectly inelastic demand curve? (page 78)
2 What does it mean if demand is (a) elastic, (b) inelastic, or (c) unit elastic? (page 76)
1 What does the price elasticity of demand measure? (page 74)
11 What’s wrong with this picture? Relate your answer to a concept covered in this chapter.
10 Last year the price of grapes was lower than it is this year. Yet, last year consumers bought fewer grapes than they did this year. Does this violate the Law of Demand?
9 All the gas stations in a state used to be self- service, meaning that drivers had to pump their own gas. The state, however, mandated that all gas stations become full-service, meaning that a gas
8 The following headline appeared in the U.K. paper the Times Online : “World‘Cannot Meet Oil Demand.’” What’s wrong with this headline? 6
7 In his science fiction comedy The Hitchhiker’s Guide to the Galaxy, Douglas Adams writes of a world destroyed by an overabundance of shoes: 5 Many years ago [there] was a thriving, happy
6 Omega-S is a product made with steel. Omega-W is a product made with wood.Assume that a significant percentage of the steel produced in the world is used to make Omega-S. Also assume that Omega-S
5 How does a market economy work through supply and demand to eliminate shortages or surpluses? Use a graph in your explanation.
4 Everyone would agree that economists are far less important to an economy than sanitation workers are, yet in market economies, economists usually earn more than sanitation workers do. Why in
3 The demand and supply of a good decrease. Draw three separate supply and demand diagrams. On the first, price should increase; on the second, price should decrease; and on the third, price should
2 The demand and supply of a good increase. What happens to price and quantity?
1 Essay question. Consider a country of 100 million people. Assume that a dangerous flu virus is predicted to strike this country in a month. Fortunately, people who take a vaccine will not get the
18 How does marginal value relate to the price of water? (pages 65–66)
17 Why does water cost less than diamonds? (page 65)
16 What is Adam Smith’s “invisible hand”? (pages 63–64)
15 What are some of the benefits of having a high price of a good after a disaster? (page 63)
14 What is price gouging? (pages 61–62)
13 If both supply and demand change, how do you determine what happens to price and quantity? (pages 60–61)
12 If two forces move in opposite directions do they always cancel each other out? (page 60)
11 Why does a higher price of oil cause consumers to use less oil? (page 56)
10 Why does a higher price of food cause farmers to grow more food? (page 56)
9 Are markets more often in equilibrium or nonequilibrium? (page 53)
8 What are some examples of forces that can disturb market equilibria? (pages 53–54)
7 Do markets move to new equilibria instantaneously? (page 51)
6 What are two characteristics of supply and demand equilibria? (page 51)
5 How do markets react to shortages? (page 49)
4 When does a shortage arise? (page 49)
3 How do markets react to surpluses? (page 48)
2 When does a surplus arise? (page 48)
1 Why is the market equilibrium the point of intersection between the supply and demand curves? (pages 47–49)
15 Speculate as to whether children are normal or inferior “goods.” If your professor assigned you a research paper to determine whether children really are normal or inferior, what kinds of data
14 Are tattoo parlors and tattoo removal services complements or substitutes?
13 Why do bars often give away peanuts for free but charge for water? Relate your answer to complements and substitutes.9
12 Assume that the price of a bottle of Pepsi is $.50. If the price of a bottle of Coke is also $.50, consumers will buy 60,000 bottles of Pepsi. But if the price of Coke, for some crazy reason, went
11 Assume that W, X, and Y are types of buffalo meat. You use the same part of the buffalo to make meats W and X. Meat Y, however, is taken from a different part of the buffalo than are meats W and
10 Assume there are six firms in a market. Each firm will produce either 0 units or 10 units. The following chart shows the minimum price at which each firm will produce 10 units of output.Graph the
9 Imagine that for some crazy reason the Law of Demand doesn’t apply to a certain good. As the price of this good goes up, would consumers spend more or less money on this good?
8 Why do publishers keep coming out with new editions of textbooks?
7 Determine in the following diagram if good H is a normal or inferior good. Price Demand for H when income is high Demand for H when income is low Quantity
6 Determine in the following diagram if G and H are complements or substitutes. Demand for G when the price of H = $589 Demand for G when the price of H = $100 Quantity
5 On the same diagram draw two demand curves for candy. On the first demand curve assume that the price of dental work is low; on the second assume that it is high.
4 Assume that in some market there are 100 Type A people, 200 Type B people, 300 Type C people, and 500 type D people. Graph the demand for this market. Price Type A's Demand Type B's Demand Type C's
3 For each of the following determine if, for the good in bold print, there is an increase or decrease in supply.A. The price of steel, a material used to make automobiles , increases.B. The price of
2 For each of the following determine if, for the good in bold print, there is an increase or decrease in demand.A. A new fashion trend dictates the wearing of kilts .B. The price of apples
1 In the “Fictional Desert Tale” that started this chapter, separately identify all the goods that are (a) complements for water, (b) substitutes for water, (c) inferior goods, or (d) normal
24 If X and Y are jointly produced goods, then how does an increase in the price of X affect the supply of Y? (pages 40–41)
23 How can innovation affect supply? (page 40)
22 How do input prices affect supply? (pages 38–39)
21 How do expectations affect supply? (page 38)
20 How do costs affect supply? (page 38)
19 What is the sign of the slope of the supply curve and why does the supply curve have this sign? (page 36)
18 What is the difference between a change in supply and a change in quantity supplied? (pages 35–36)
17 What are competitive markets? (page 35)
16 What is the Law of Supply? (page 35)
15 How can fear of shortages affect demand? (page 34)
14 How can expectations affect demand? (page 33)
13 What are normal goods and how does a change in income affect the demand for a normal good? (page 32)
12 What are inferior goods and how does a change in income affect the demand for an inferior good? (page 32)
11 What are complements and how does a change in the price of a good’s complement affect the demand for the original good? (page 30)
10 How does the existence of the used textbook market influence the demand for new textbooks? (page 29)
9 What are substitutes and how does a change in the price of a good’s substitute affect the demand for the original good? (page 28)
8 Why does a boycott move the entire demand curve rather then move us to a different point on the same demand curve? (page 27)
7 How does a boycott affect demand? (page 26)
6 What does ceteris paribus mean? (page 25)
5 When do you move along a demand curve and when do you move to an entirely new demand curve? (page 25)
4 What is a market demand? (page 24)

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