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Economics
Figure 16.3 shows that an emissions fee can be chosen that attains the same level of pollution reduction as does direct control. Explain why firms would make the same choices under either control
For each of the following goods, explain whether it possesses the nonexclusive property, the nonrival property, or both. If the good does not have the characteristics of a public good but is,
The Lindahl solution to the public-goods problem promises economic efficiency on a voluntary basis. Why would each person voluntarily agree to the tax assessments determined under the Lindahl
Why is the "paradox of voting" a paradox? What, if anything, is undesirable about a voting scheme that cycles? How will issues be decided in such cases?
"Under perfect competition, voting with dollars achieves economic efficiency, but democratic voting (one person-one vote) offers no such promise." Do you agree? Why does the specification of one vote
Suppose a firm produces charcoal in a perfectly competitive charcoal industry where the price of charcoal is $20 per ton. This particular firm, however, enjoys a competitive advantage over other
Describe the three limits to rational decision making identified in this chapter.
"Behavioral economics justifies intervention in the market by a paternalistic government." Explain the pros and cons of this view. What other market failures were identified in the book where
Distinguish between behavioral and neoclassical economics. What are the relative merits of each approach? Would you expect the relative merits to change as knowledge advances?
One oddity often observed in the market is that stores charge prices ending in 99 (so we see prices of $1.99, $5.99, and so forth). Explain why this sort of pricing might be puzzling to economists.
Behavioral economists have different views of the anomalies uncovered by experiments. Some view the anomalies as evidence of mistakes in decision making. Others view the anomalies as providing a new
According to prospect theory, people are very averse to small risks. How is this captured on a utility function? How is this different from the standard theory about choice under uncertainty
Argue that in the Centipede Game, a player is better off being known to be short-sighted. Are there any other settings in which it would be useful to be known to have behavioral biases?
What did Odysseus's having himself tied to the mast indicate about the level of his rationality? Provide three other examples of commitment devices used in the real world.
Distinguish between altruism, fairness, and reciprocity. Suggest experiments related to the Ultimatum Game that could sort out how much each of these interpersonal values matter to subjects.
A vast amount of information is available on Internet Web sites free of charge. The Website author may just be altruistic. Give at least two other motives for Websites to give away information. Which
In period 1, Mr. Consistent and Mr. Hyperbolic are each trying to come up with a plan for how much they will exercise in period 2. Exercise is less enjoyable than other leisure activities, leading to
What items would you include to figure out the opportunity cost of a vacation to Disney world?
Multiple Choice Questions 1. Economics is best defined as the study of a. How society manages its scarce resources. b. How to run a business most profitably. c. How to predict inflation,
Multiple Choice Questions 1. An economic model is a. A mechanical machine that replicates the functioning of the economy. b. A fully detailed, realistic description of the economy. c. A simplified
Multiple Choice Questions 1. In an hour, David can wash 2 cars or mow 1 lawn, and Ron can wash 3 cars or mow 1 lawn. Who has the absolute advantage in car washing, and who has the absolute advantage
A German worker takes 400 hours to produce a car and 2 hours to produce a case of wine. A French worker takes 600 hours to produce a car and X hours to produce a case of wine. a. For what values of X
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 demand
Multiple Choice Questions 1. A change in which of the following will NOT shift the demand curve for hamburgers? a. The price of hot dogs b. The price of hamburgers c. The price of hamburger buns d.
On a supply-and-demand diagram, show equilibrium price, equilibrium quantity, and the total revenue received by producers.
If a fixed quantity of a good is available, and no more can be made, what is the price elasticity of supply?
A storm destroys half the fava bean crop. Is this event more likely to hurt fava bean farmers if the demand for fava beans is very elastic or very inelastic? Explain.
Multiple Choice Questions 1. A life-saving medicine without any close substitutes will tend to have a. A small elasticity of demand. b. A large elasticity of demand. c. A small elasticity of
Cups of coffee and donuts are complements. Both have inelastic demand. A hurricane destroys half the coffee bean crop. Use appropriately labeled diagrams to answer the following questions. a. What
Two drivers-Walt and Jessie-each drive up to a gas station. Before looking at the price, each places an order. Walt says, "I'd like 10 gallons of gas." Jessie says, "I'd like $10 worth of gas." What
Multiple Choice Questions 1. When the government imposes a binding price floor, it causes a. The supply curve to shift to the left. b. The demand curve to shift to the right. c. A shortage of the
At Fenway Park, home of the Boston Red Sox, seating is limited to 39,000. Hence, the number of tickets issued is fixed at that figure. Seeing a golden opportunity to raise revenue, the City of Boston
Multiple Choice Questions 1. Jen values her time at $60 an hour. She spends 2 hours giving Colleen a massage. Colleen was willing to pay as much at $300 for the massage, but they negotiate a price of
One of the largest changes in the economy over the past several decades is that technological advances have reduced the cost of making computers. a. Draw a supply-and-demand diagram to show what
What happens to the dead weight loss and tax revenue when a tax is increased?
Multiple Choice Questions 1. A tax on a good has a deadweight loss if a. The reduction in consumer and producer surplus is greater than the tax revenue. b. The tax revenue is greater than the
What does the domestic price that prevails without international trade tell us about a nation's comparative advantage?
Multiple Choice Questions 1. If a nation that does not allow international trade in steel has a domestic price of steel lower than the world price, then a. The nation has a comparative advantage in
Consider the arguments for restricting trade. a. Imagine that you are a lobbyist for timber, an established industry suffering from low-priced foreign competition, and you are trying to get Congress
Multiple Choice Questions 1. Which of the following is an example of a positive externality? a. Bob mows Hillary's lawn and is paid $100 for performing the service. b. While mowing the lawn, Bob's
Multiple Choice Questions 1. Which categories of goods are excludable? a. Private goods and club goods b. Private goods and common resources c. Public goods and club goods d. Public goods and common
Charlie loves watching Downtown Abbey on his local public TV station, but he never sends any money to support the station during its fund-raising drives. a. What name do economists have for people
There is often litter along highways but rarely in people's yards. Provide an economic explanation for this fact.
The nation of Wiknam has five million residents whose only activities are producing and consuming fish. They produce fish in two ways. Each person who works on a fish farm raises 2 fish per day. Each
Multiple Choice Questions 1. The two largest sources of tax revenue for the U.S. federal government are a. Individual and corporate income taxes. b. Individual income taxes and payroll taxes for
Draw the marginal-cost and average-total-cost curves for a typical firm. Explain why the curves have the shapes that they do and why they cross where they do.
Multiple Choice Questions 1. Raj opens up a lemonade stand for two hours. He spends $10 for ingredients and sells $60 worth of lemonade. In the same two hours, he could have mowed his neighbor's lawn
Multiple Choice Questions 1. A perfectly competitive firm a. Chooses its price to maximize profits. b. Sets its price to undercut other firms selling similar products. c. Takes its price as given by
You go out to the best restaurant in town and order a lobster dinner for $40. After eating half of the lobster, you realize that you are quite full. Your date wants you to finish your dinner because
A firm in a competitive market receives $500 in total revenue and has marginal revenue of $10. What is the average revenue, and how many units were sold?
Multiple Choice Questions 1. A firm is a natural monopoly if it exhibits the following as its output increases: a. Decreasing marginal revenue b. Increasing marginal cost c. Decreasing average
Multiple Choice Questions 1. Which of the following conditions does NOT describe a firm in a monopolistically competitive market? a. It makes a product different from its competitors. b. It takes its
Multiple Choice Questions 1. The key feature of an oligopolistic market is that a. Each firm produces a different product from other firms. b. A single firm chooses a point on the market demand
Multiple Choice Questions 1. Approximately what percentage of U.S. national income is paid to workers, as opposed to owners of capital and land? a. 30 percent b. 50 percent c. 70 percent d. 90
Policymakers sometimes propose laws requiring firms to give workers certain fringe benefits, such as health insurance or paid parental leave. Let's consider the effects of such a policy on the labor
Multiple Choice Questions 1. Ricky leaves his job as a high school math teacher and returns to school to study the latest developments in computer programming, after which he takes a higher paying
Multiple Choice Questions 1. In the United States, the poorest fifth of the population earns about ____________ percent of all income, while the richest fifth earns about ____________ percent. a. 2,
Multiple Choice Questions 1. Emilio buys pizza for $10 and soda for $2. He has income of $100. His budget constraint will experience a parallel outward shift if which of the following events
Economist George Stigler once wrote that, according to consumer theory, "If consumers do not buy less of a commodity when their incomes rise, they will surely buy less when the price of the commodity
Multiple Choice Questions 1. Because Elaine has a family history of significant medical problems, she buys health insurance, whereas her friend Jerry, who has a healthier family, goes without. This
Two ice-cream stands are deciding where to set up along a 1-mile beach. The people are uniformly located along the beach, and each person sitting on the beach buys exactly 1 ice-cream cone per day
In the year 2013, the economy produces 100 loaves of bread that sell for $2 each. In the year 2014, the economy produces 200 loaves of bread that sell for $3 each. Calculate nominal GDP, real GDP,
Multiple Choice Questions 1. If the price of a hot dog is $2 and the price of a hamburger is $4, then 30 hot dogs contribute as much to GDP as _________ hamburgers. a. 5 b. 15 c. 30 d. 60 2. Angus
If the price of imported French wine rises, is the consumer price index or the GDP deflator affected more? Why?
Multiple Choice Questions 1. The consumer price index measures approximately the same economic phenomenon as a. Nominal GDP. b. Real GDP. c. The GDP deflator. d. The unemployment rate. 2. The largest
Multiple Choice Questions 1. Over the past century, real GDP per person in the United States has grown about ________ percent per year, which means it doubles about every ________ years. a. 2, 14 b.
Most countries, including the United States, import substantial amounts of goods and services from other countries. Yet the chapter says that a nation can enjoy a high standard of living only if it
The great 18th-century economist Adam Smith wrote, "Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable
Multiple Choice Questions 1. Nina wants to buy and operate an ice-cream truck but doesn't have the financial resources to start the business. She borrows $5,000 from her friend Max, to whom she
Multiple Choice Questions 1. If the interest rate is zero, then $100 to be paid in 10 years has a present value that is a. Less than $100. b. Exactly $100. c. More than $100. d. Indeterminate. 2. If
Is unemployment typically short-term or long-term? Explain.
Multiple Choice Questions 1. The population of Ectenia is 100 people: 40 work fulltime, 20 work half-time but would prefer to work fulltime, 10 are looking for a job, 10 would like to work but are so
The Bureau of Labor Statistics announced that in January 2013, of all adult Americans, 143,322,000 were employed, 12,332,000 were unemployed, and 89,008,000 were not in the labor force. Use this
Between January 2010 and January 2013, U.S. employment increased by 4.9 million workers, but the number of unemployed workers declined by only 2.7 million. How are these numbers consistent with each
Multiple Choice Questions 1. The money supply includes all of the following EXCEPT a. Metal coins. b. Paper currency. c. Lines of credit accessible with credit cards. d. Bank balances accessible with
The Fed conducts a $10 million open-market purchase of government bonds. If the required reserve ratio is 10 percent, what is the largest possible increase in the money supply that could result?
In what sense is inflation like a tax? How does thinking about inflation as a tax help explain hyperinflation?
Multiple Choice Questions 1. The classical principle of monetary neutrality states that changes in the money supply do not influence _________ variables and is thought most applicable in the
It is sometimes suggested that the Fed should try to achieve zero inflation. If we assume that velocity is constant, does this zero-inflation goal require that the rate of money growth equal zero? If
Multiple Choice Questions 1. Comparing the U.S. economy today to that of 1950, one finds that today, as a percentage of GDP, a. Exports and imports are both higher. b. Exports and imports are both
Multiple Choice Questions 1. Holding other things constant, an increase in a nation's interest rate reduces a. National saving and domestic investment. b. National saving and the net capital
Multiple Choice Questions 1. When the economy goes into a recession, real GDP _________ and unemployment _________. a. Rises, rises b. Rises, falls c. Falls, rises d. Falls, falls 2. A sudden crash
Multiple Choice Questions 1. If the central bank wants to expand aggregate demand, it can ________ the money supply, which would ________ the interest rate. a. Increase, increase b. Increase,
Draw the short-run trade-off between inflation and unemployment. How might the Fed move the economy from one point on this curve to another?
Multiple Choice Questions 1. When the Federal Reserve increases the money supply, it __________ aggregate demand and moves the economy along the Phillips curve to a point with __________ inflation
Multiple Choice Questions 1. Approximately how long does it take a change in monetary policy to influence aggregate demand? a. One month b. Six months c. Two years d. Five years 2. According to
Suppose the government subsidizes the purchase of thermal pane windows, so that anyone who buys a thermal pane window receives a rebate from the government of $50 per window.a. What happens to the
Which is better for consumers, the direct subsidy of problem 18 or the excise subsidy of problem 19? Be sure to justify your answer.
Suppose the demand curve for compact cars is perfectly horizontal. How will an excise tax on compact cars affect demanders?
Shoes are currently subject to an excise tax of $5 per pair, and they sell for a price of $20 per pair. a. If the excise tax is repealed, what can you say about the new price of shoes? b. If the
Suppose the government simultaneously announces a new sales tax of 50¢ per gallon of gasoline and a new excise subsidy of 50¢ per gallon of gasoline. True or False: Even though they're being
True or False: If the government imposes both a 50¢-per-cup excise tax and a 50¢-per-cup sales tax on coffee, then the price of coffee will not change.
True or False: A sharp rise in the price of eggs would be unlikely to last very long; after all, the rise in price would lead to a fall in demand, which would cause the price to fall.
West Publishing Company owns its own printing presses. The Dryden Press rents time on presses belonging to other firms. True or False: This gives West a comparative advantage over Dryden, because it
Last week, Susan bought cheese for $4 a pound and meat for $5 a pound. This week, the price of cheese has risen to $6 a pound while the price of meat has dropped to $2 per pound. Her income is always
In 2013, you buy shoes for $2 a pair and socks for $1 a pair, and your income is $30, with which you buy 12 pairs of shoes and 6 pairs of socks. In 2014, you buy shoes for $1 a pair and socks for $2
Inez's income is $24. She buys eggs for $2 a dozen and wine for $4 a bottle. She chooses to buy 4 dozen eggs and 4 bottles of wine. Homer's income is $24. He buys eggs for $3 a dozen and wine for $3
Jessica buys coffee for $1 a cup and tea for $2 a cup. Every day she buys 2 coffees and 4 teas, exhausting her $10 income. Kareem, whose income is also $10, buys coffee for $3 a cup and tea for $1 a
Tops and Star Market are competing grocery stores. Tops advertises that "the basket purchased by our average customer would cost 5% more at Star Market." The purpose of this problem is to investigate
Your income is $10 and you buy sodas for $1 apiece. One day a local bully starts demanding that you buy him a soda for every soda you buy yourself. Therefore, it now costs you $2 to get a soda. In
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