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principles of microeconomics

Questions and Answers of Principles Of Microeconomics

37. Can extreme levels of pollution hurt the economic development of a high-income country? Why or why not?
35. From an economic perspective, is it sound policy to pursue a goal of zero pollution? Why or why not?
34. Is zero pollution an optimal goal? Why or why not?
33. Is zero pollution possible under a marketable permits system? Why or why not?
32. Will a system of marketable permits work with thousands of firms? Why or why not?
31. Consider two ways of protecting elephants from poachers in African countries. In one approach, the government sets up enormous national parks that have sufficient habitat for elephants to thrive
30. Would environmentalists favor command-andcontrol policies as a way to reduce pollution? Why or why not?
29. Suppose you want to put a dollar value on the external costs of carbon emissions from a power plant.What information or data would you obtain to measure the external [not social] cost?
28. What does a point inside the production possibility frontier represent?
27. In the tradeoff between economic output and environmental protection, what do the combinations on the protection possibility curve represent?
26. What arguments do low-income countries make in international discussions of global environmental cleanup?
25. What are the economic tradeoffs between lowincome and high-income countries in international conferences on global environmental damage?
24. As the extent of environmental protection expands, would you expect the marginal benefits of environmental protection to rise or fall? Why or why not?
23. As the extent of environmental protection expands, would you expect marginal costs of environmental protection to rise or fall? Why or why not?
22. What are better-defined property rights and what incentive do they provide to take external costs into account?
21. What is a marketable permit and what incentive does it provide for a firm to take external costs into account?
20. What is a pollution charge and what incentive does it provide for a firm to take external costs into account?
19. What are the three problems that economists have noted with regard to command-and-control regulation?
18. What is command-and-control environmental regulation?
17. In a market without environmental regulations, will the supply curve for a firm take into account private costs, external costs, both, or neither? Explain.
16. What is the difference between private costs and social costs?
15. Give an example of a positive externality and an example of a negative externality.
14. What is an externality?
13. A country called Sherwood is very heavily covered with a forest of 50,000 trees. There are proposals to clear some of Sherwood’s forest and grow corn, but obtaining this additional economic
12. Consider the case of global environmental problems that spill across international borders as a prisoner’s dilemma of the sort studied in Monopolistic Competition and Oligopoly. Say that there
11. The state of Colorado requires oil and gas companies who use fracking techniques to return the land to its original condition after the oil and gas extractions. Table 12.9 shows the total cost
10. Suppose a city releases 16 million gallons of raw sewage into a nearby lake. Table 12.8 shows the total costs of cleaning up the sewage to different levels, together with the total benefits of
9. The rows in Table 12.7 show three market-oriented tools for reducing pollution. The columns of the table show three complaints about command-and-control regulation. Fill in the table by stating
8. Four firms called Elm, Maple, Oak, and Cherry, produce wooden chairs. However, they also produce a great deal of garbage (a mixture of glue, varnish, sandpaper, and wood scraps). The first row of
7. An emissions tax on a quantity of emissions from a firm is not a command-and-control approach to reducing pollution. Why?
6. Classify the following pollution-control policies as command-and-control or market incentive based.a. A state emissions tax on the quantity of carbon emitted by each firm.b. The federal government
5. Consider two approaches to reducing emissions of CO2 into the environment from manufacturing industries in the United States. In the first approach, the U.S. government makes it a policy to use
4. The supply and demand conditions for a manufacturing firm are given in Table 12.5. The third column represents a supply curve without taking the social cost of pollution into account. The fourth
3. For each of your answers to Exercise 12.2, will equilibrium price rise or fall or stay the same?
2. Identify whether the market supply curve will shift right or left or will stay the same for the following:a. Firms in an industry are required to pay a fine for their emissions of carbon
1. Identify the following situations as an example of a negative or a positive externality:a. You are a birder (bird watcher), and your neighbor has put up several birdhouses in the yard as well as
39. If the transit system was regulated to provide the most allocatively efficient quantity of output, what output would it supply and what price would it charge?What subsidy would be necessary to
38. If the transit system was regulated to operate with no subsidy (i.e., at zero economic profit), what approximate output would it supply and what approximate price would it charge?
37. If the transit system was allowed to operate as an unregulated monopoly, what output would it supply and what price would it charge?
36. Use Table 11.5 and Table 11.6 to calculate the Herfindal-Hirschman Index for the U.S. auto market.Would the FTC approve a merger between GM and Ford?Honda 10%Nissan 7%Hyundai 5%Kia 4%Subaru
35. Use Table 11.5 to calculate the four-firm concentration ratio for the U.S. auto market. Does this indicate a concentrated market or not?GM 19%Ford 17%Toyota 14%Chrysler 11%
34. Do you think it is possible for government to outlaw everything that businesses could do wrong? If so, why does government not do that? If not, how can regulation stay ahead of rogue businesses
33. Deregulation, like all changes in government policy, always has pluses and minuses. What do you think some of the minuses might be for airline deregulation?
32. Why are urban areas willing to subsidize urban transit systems? Does the argument for subsidies make sense to you?
31. In the middle of the twentieth century, major U.S.cities had multiple competing city bus companies.Today, there is usually only one and it runs as a subsidized, regulated monopoly. What do you
30. If you were developing a product (like a web browser) for a market with significant barriers to entry, how would you try to get your product into the market successfully?
29. Can you think of any examples of successful predatory pricing in the real world?
28. What would be evidence of serious competition between firms in an industry? Can you identify two highly competitive industries?
27. Does either the four-firm concentration ratio or the HHI directly measure the amount of competition in an industry? Why or why not?
26. Why does regulatory capture reduce the persuasiveness of the case for regulating industries for the benefit of consumers?
25. What is regulatory capture?
24. What is deregulation? Name some industries that have been deregulated in the United States.
23. What is price cap regulation?
22. What is cost-plus regulation?
21. If public utilities are a natural monopoly, what would be the danger in splitting them up into a number of separate competing firms?
20. If public utilities are a natural monopoly, what would be the danger in deregulating them?
19. What is predatory pricing? How might it reduce competition, and why might it be difficult to tell when it should be illegal?
18. What is a tie-in sale? How might it reduce competition and when might it be acceptable?
17. What is exclusive dealing? How might it reduce competition and when might it be acceptable?
16. What is a minimum resale price maintenance agreement? How might it reduce competition and when might it be acceptable?
15. Why can it be difficult to decide what a “market” is for purposes of measuring competition?
14. How is a Herfindahl-Hirshman Index measured?What does a low measure mean about the extent of competition?
13. How is a four-firm concentration ratio measured?What does a high measure mean about the extent of competition?
12. What is the goal of antitrust policies?
11. What is a corporate merger? What is an acquisition?
10. What might some of the negatives of deregulation be?
9. What are some of the benefits of the deregulation?
8. What real world changes made the deregulation possible?
7. From the graph you drew to answer Exercise 11.6, would you say this transit system is a natural monopoly?Justify.Use the following information to answer the next three questions. In the years
6. Urban transit systems, especially those with rail systems, typically experience significant economies of scale in operation. Consider the transit system whose data is given in the Table 11.4. Note
5. Why would a firm choose to use one or more of the anticompetitive practices described in Regulating Anticompetitive Behavior?
4. As a result of globalization and new information and communications technology, would you expect that the definitions of markets used by antitrust authorities will become broader or narrower?
3. Some years ago, two intercity bus companies, Greyhound Lines, Inc. and Trailways Transportation System, wanted to merge. One possible definition of the market in this case was “the market for
2. Is it true that the four-firm concentration ratio puts more emphasis on one or two very large firms, while the Herfindahl-Hirshman Index puts more emphasis on all the firms in the entire market?
1. Is it true that both the four-firm concentration ratio and the Herfindahl-Hirshman Index can be affected by a merger between two firms that are not already in the top four by size? Explain briefly.
21. Jane and Bill are apprehended for a bank robbery.They are taken into separate rooms and questioned by the police about their involvement in the crime. The police tell them each that if they
20. Mary and Raj are the only two growers who provide organically grown corn to a local grocery store.They know that if they cooperated and produced less corn, they could raise the price of the corn.
19. Andrea’s Day Spa began to offer a relaxing aromatherapy treatment. The firm asks you how much to charge to maximize profits. The demand curve for the treatments is given by the first two
18. When OPEC raised the price of oil dramatically in the mid-1970s, experts said it was unlikely that the cartel could stay together over the long term—that the incentives for individual members
17. Would you expect the kinked demand curve to be more extreme (like a right angle) or less extreme (like a normal demand curve) if each firm in the cartel produces a near-identical product like
16. Would you rather have efficiency or variety? That is, one opportunity cost of the variety of products we have is that each product costs more per unit than if there were only one kind of product
15. Make a case for why monopolistically competitive industries never reach long-run equilibrium.
14. Aside from advertising, how can monopolistically competitive firms increase demand for their products?
13. What stops oligopolists from acting together as a monopolist and earning the highest possible level of profits?
12. Does each individual in a prisoner’s dilemma benefit more from cooperation or from pursuing selfinterest?Explain briefly.
11. Will the firms in an oligopoly act more like a monopoly or more like competitors? Briefly explain.
10. Is a monopolistically competitive firm productively efficient? Is it allocatively efficient? Why or why not?
9. If the firms in a monopolistically competitive market are earning economic profits or losses in the short run, would you expect them to continue doing so in the long run? Why?
8. How can a monopolistic competitor tell whether the price it is charging will cause the firm to earn profits or experience losses?
7. How does a monopolistic competitor choose its profit-maximizing quantity of output and price?
6. How is the perceived demand curve for a monopolistically competitive firm different from the perceived demand curve for a monopoly or a perfectly competitive firm?
5. What is the relationship between product differentiation and monopolistic competition?
4. Sometimes oligopolies in the same industry are very different in size. Suppose we have a duopoly where one firm(Firm A) is large and the other firm (Firm B) is small, as shown in the prisoner’s
3. Consider the curve shown in Figure 10.6, which shows the market demand, marginal cost, and marginal revenue curve for firms in an oligopolistic industry. In this example, we assume firms have zero
2. Continuing with the scenario outlined in question 1, in the long run, the positive economic profits earned by the monopolistic competitor will attract a response either from existing firms in the
1. Suppose that, due to a successful advertising campaign, a monopolistic competitor experiences an increase in demand for its product. How will that affect the price it charges and the quantity it
33. Draw a monopolist’s demand curve, marginal revenue, and marginal cost curves. Identify the monopolist’s profit-maximizing output level. Now, think about a slightly higher level of output (say
32. Draw the demand curve, marginal revenue, and marginal cost curves from Figure 9.6, and identify the quantity of output the monopoly wishes to supply and the price it will charge. Suppose demand
31. Return to Figure 9.2. Suppose P0 is $10 and P1 is$11. Suppose a new firm with the same LRAC curve as the incumbent tries to break into the market by selling 4,000 units of output. Estimate from
30. If a monopoly firm is earning profits, how much would you expect these profits to be diminished by entry in the long run?

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