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Economics
The only goods you buy are apples and oranges. Both apples and oranges sell for $1 apiece, and your income is $10 a day.a. Draw your budget line.b. One Tuesday the government announces two new
The only goods you buy are apples and oranges. Both apples and oranges sell for $1 apiece, and your income is $10 a day.a. Draw your budget line.b. One Tuesday the government announces two new
Suppose you buy both apples and oranges. Which do you prefer, a sales tax on apples or a head tax? Answer assuming that the tax rates are set so that your tax bill is the same under either tax.
Suppose you buy both apples and oranges. Which do you prefer: a sales tax on apples only, or sales taxes on both goods which cause both prices to rise by 10%? Answer assuming that the tax rates are
Suppose you have $10. You can spend as much as you like today, and save the remainder for a year at 10% interest, after which you can spend your savings (including the interest). a. Draw your budget
Which do you prefer: a temporary sales tax that is in effect this year only and expires before next year, or a permanent sales tax that applies to all goods both this year and next year? Answer
Which do you prefer: a sales tax that will be in effect next year only, or a permanent sales tax that applies to all goods both this year and next year? Answer assuming the tax rates are set so the
Which do you prefer: a tax on interest or a permanent sales tax? Answer assuming the future value of your tax bill is the same under either tax plan.
Dewey consumes only two goods, X and Y. His indifference curves have the usual shape. He prefers basket (1, 3) to basket (3, 1). a. Is it possible to tell whether Dewey prefers (1, 3) to (2, 2)? b.
Your income is $20. Ice cream is available at $1 per quart for the first 10 quarts, and 50 cents per quart thereafter. On a diagram relating ice cream to "all other goods," draw your "budget line."
The carnival and the circus have both come to town. You have 6 free hours to kill. a. Suppose admission is free at both the carnival and the circus. Illustrate the budget line that shows your options
Suppose you consume two goods, X and Y. Suppose also: • Y is a normal good. • When the price of X goes up, you increase your consumption of Y. Illustrate the income and substitution effects on
You consume two goods, eggs and wine. When your income rises, you continue to consume exactly as many eggs as before. When the price of eggs rises, do you consume more or fewer eggs than before?
You consume two goods X and Y. One Tuesday, the price of X rises and the price of Y falls. Suppose the following three things are all true: • On Tuesday, you can no longer afford Monday's
Yvette's Yard Service mows lawns. The only way to mow a lawn is for one worker to use one lawn mower for one day. Two workers with one lawn mower or one worker with two lawn mowers can still mow only
Swords are provided by a competitive constant-cost industry, where the long run is 2 days. The industry is in long-run equilibrium on Monday. On Tuesday, the demand for swords rises. On Wednesday,
The widget industry has two types of firms. All Type A firms are identical and all Type B firms are identical. The following charts show the marginal cost curves at each type of firm and the demand
Ten people with different incomes have applied for membership in an exclusive club. One of the club's criteria in deciding whom to accept is to favor those applicants whose incomes are high relative
In 2011, Hurricane Sandy caused widespread devastation throughout the Eastern U.S., leaving many desperate to acquire basic necessities such as food and ice (for food storage). Profiteers soon
The Eastview Mall has many identical ice cream stores, which form a competitive industry. Each store pays an annual fee to the mall owner, who sets the fee as high as possible. (If it were any
Widgets are sold competitively. One day, a monopolist takes over the entire widget industry and starts charging a monopoly price. However, widget consumers are required by law to continue buying the
In each game above, identify all of the Nash equilibria.1.2. 3. 4. 5. 6. 7. 8.
Suppose that the games of Exhibits 12.1, 12.2, 12.3, and 12.4 were played as sequential games. In each case, suppose that the player who chooses a column goes first. What are the outcomes of these
In each game following, identify all of the Pareto optima.1.2. 3. 4. 5. 6. 7. 8.
In each game following, does Jack have a dominant strategy? Does Jill?1.2.3.4.5.6.7.8.
In each game following, what happens if Jack goes first?1.2. 3. 4. 5. 6. 7. 8.
In each game following, what happens if Jill goes first?1.2. 3. 4. 5. 6. 7. 8.
The widget industry consists of many identical competitive firms, all of which are located in the town of Widgetville, where you own all the real estate. Each time a firm produces a widget, it
Suppose the drinking age in your state is 18, and that 18-year-olddrunk drivers cause about 30 traffic deaths per year. True or False: If it were possible to prevent all 18-year-olds from drinking,
Use a demand and supply graph of the wool market to show the effects of the decrease in the price of wool on the quantity supplied in New Zealand. Assume that the initial price is $20 per unit and
Suppose an unusually long harmattan (dry wind) decreases cocoa yields, increasing the cost of producing chocolate ice cream by 10 percent. Use a supply-demand graph to show the implications for the
You just bought a new car for $23,000. After a year, you decide that you need a slightly bigger car. But when you think about selling it, you can only get $19,000 for it. This is depreciation.
Australia contains many natural resources and foreign firms often come into Australia to extract them. The profits that those foreign firms make are sent back to their home countries. Explain how
During the most recent recession, personal income fell by 2.8 percent. This was the only time since 1950 that personal income has fallen during a recession. During a recession, transfer payments
In Europe, the average resident takes several weeks more of vacation time than in the United States. Per capita income, however, is higher in the United States than the European average. What can you
Raw, unadjusted data show virtually every year that the number of unemployed rise in June. Why? Would this show up in seasonally adjusted data?
An economy has 100,000,000 people employed, 8,000,000 unemployed, and 4,000,000 marginally attached workers. What is the conventional measure of the unemployment rate? What would be the best
Here are some data for the U.S. economy for January 2014: • 246.9 million Individuals 16 years of age and older • 145.2 million employed • 10.3 million unemployed Calculate the labor force, the
A student looking at Figure 6.2 (given below) argues that Spain must have very high cyclical unemployment compared to Japan because the Spanish unemployment rate is so high. Explain why the student
In a major city, the vacancy rate for apartments was approximately 5 percent, yet substantial numbers of individuals were searching for new apartments. Explain why this occurs. Relate this phenomenon
In many African countries, the government and international corporations pay high wages for jobs in the major cities, and many people migrate to the cities from farms where earnings are low.
You might think it would be worse if other people are unemployed at the same time as you were because it would be harder to find a job. But the psychological evidence shows the opposite. Give a few
Most "cell phones" today are more than cell phones-they are mini-computers on which you check your e-mail and surf the Web. Suppose the BLS treated them as old-fashioned cell phones. How would this
Suppose you bought a stock for $100 and its value stayed constant in real terms. Over 20 years, the price of the stock in dollar terms has doubled. If you sold the stock after 20 years and your tax
The Congressional Budget Office published a review of the literature on labor supply and taxation, which is available at https://www.cbo.gov/sites/default/files/labormkts.pdf. According to this
Suppose a health worker visited one village and personally gave residents candy in order to take vaccinations. In this village, vaccination rates increased. Is this strong evidence that using candy
Suppose that computer hackers managed to crash the Internet in the United States for a week and no one had computer access. Explain why this might be considered a negative supply shock.
When wages rise and the short-run aggregate supply curve shifts up, the result is "cost-push" inflation. If the economy was initially at full employment and the aggregate demand curve was shifted to
Under U.S. law, it is not legal for firms to export crude oil from domestic wells. Assuming the U.S. has now developed a large oil-producing industry, how would removing the export restriction affect
As the population ages and entitlement spending on Social Security and Medicare increase, some have argued that we should just raise taxes to pay for them. What is the main argument against this
Using the aggregate demand and the long-run aggregate supply curve from the previous chapter, what is the government multiplier in the very long run? Use your answer to explain the intuition that
Tax revenues typically rise along with GDP. Governments may typically spend some of this additional revenue on discretionary items in the budget. Assuming this is true, how does this complicate the
Suppose you have $500,000 to purchase an annuity. Currently the annuity payments are $35,000 per year as long as you live. What do you think would happen to the annuity payments if interest rates
You lost a lawsuit and owe someone $10,000. You offer to pay them $1,000 a year for 10 years. They agree to spreading your payments over time, but only if you pay $1,000 a year for 12 years. Why did
Figure 12.4 shows that from 1990 through 2013, investment spending followed the same trends as stock prices. Does this mean that movements in stock prices cause movements in investment spending? Give
Discuss whether this quote is accurate: "Greeks have increased their holdings of Euros in cash because they have great faith in the monetary system of Europe."
In recent years, a number of members of Congress have sponsored bills that would subject the Fed to audits of its monetary policy. This is a form of intensive Congressional oversight. What are the
Could the Fed purchase a wide variety of stocks in the market in order to raise the price of stocks? Do you see any potential problems with this policy?
Suppose the U.S. is a major source of demand for world commodities and supplies of commodities are limited. Describe how an expansionary monetary policy could affect commodity prices, both through a
Lawrence Summers offered a number of reasons why there might not be sufficient aggregate demand to generate full employment with the result being secular stagnation. Discuss each of the factors below
After he became Federal Reserve Chairman, Ben Bernanke no longer advocated a policy of increasing expectations of inflation in order to escape from a liquidity trap. What factors do you think might
Suppose the government permanently increases spending on the salaries of its workers. Thinking about long run crowding out, how will this affect the growth rate of the economy? What is government
In Japan in the 1990s interest rates were near zero on government bonds. Some economists said that it was still possible to stimulate investment by creating negative real interest rates. If nominal
The gap between spending and taxes, excluding interest on the debt, is known as the primary deficit. Suppose there is $100 million of outstanding public debt. Suppose the interest rate is 2 percent.
A number of major states-for example, California-have been experiencing fiscal problems. Although no states have defaulted on their debts in recent years, a number of cities have. Should the federal
Some observers have suggested that the Fed use gold as an indicator of inflation and tighten monetary policy when gold prices rise. What are the pros and cons of this policy?
Suppose a country is about to open its markets for trade. You work in an industry that has a comparative disadvantage. Would you be helped or hurt in the short-run? What about your long-run prospects
Explain why domestic producers of solar panels had a different view on tariffs on foreign manufacturers than did firms that retailed and installed solar panels.
Under U.S. dumping rules, China is classified as a nonmarket economy so other market economies are used to calculate prices for dumping. Until recently, China was compared to India, but now it is
In Application 4, we highlighted the fact that automobile manufacturers were increasingly using foreign parts in their cars. Discuss the differing perspectives on this issue from domestic parts
Based on the data in the table in Application 1, is the Mexican peso under or overvalued with respect to the dollar? Explain your answer.
Economists have long noted that non traded goods are cheaper in countries with lower GDP. For example, in the United States, only the very, very rich have live in help, but that is quite common in
According to economist Gabriel Zucman, why is Europe actually a net creditor when the commonly used international financial data seem to show it is a net debtor? What does the commonly used data
Unlike the United States, which has high levels of interstate mobility, labor is less mobile from one part of Europe to the other because workers would have to move from one country to another. What
With a given level of world resources, international trade may bring about an increase in total world output. Explain.
What is meant by the theory of reciprocal demand? How does it provide a meaningful explanation of the international terms of trade?
How does the factor-endowment theory differ from Ricardian theory in explaining international trade patterns?
According to Staffan Linder, there are two explanations for international trade patterns-one for manufactures and another for primary (agricultural) goods. Explain.
Do recent world trade statistics support or refute the notion of a product life cycle for manufactured goods?
Although tariffs may improve the welfare of a single nation, the world's welfare may decline. Under what conditions would this be true?
What impact does the imposition of a tariff normally have on a nation's terms of trade and volume of trade?
Suppose that the production of $1 million worth of steel in Canada requires $100,000 worth of taconite. Canada's nominal tariff rates for importing these goods are 20 percent for steel and 10 percent
What methods do customs appraisers use to determine the values of commodity imports?
Less developed nations sometimes argue that the industrialized nations' tariff structures discourage the less developed nations from undergoing industrialization. Explain.
When a nation imposes a tariff on the importation of a commodity, economic inefficiencies develop that detract from the national welfare. Explain.
A nation that imposes tariffs on imported goods may find its welfare improving should the tariff result in a favorable shift in the terms of trade. Explain.
Why did the U.S. government in 1982 provide import quotas as an aid to domestic sugar producers?
What would be the likely effects of export restraints imposed by Japan on its auto shipments to the United States?
This question applies to the welfare effects of an export quota that is examined in ExploringFurther 5.2, available at www.cengage.com/ economics/ Carbaugh. Table 5.6 illustrates the demand and
A subsidy may provide import-competing producers the same degree of protection as tariffs or quotas but at a lower cost in terms of national welfare. Explain.
If the United States is a net importer of a product that is being subsidized or dumped by Japan, not only do U.S. consumers gain, but they also gain more than U.S. producers lose from the Japanese
Assume that the nation of Spain is "small" and unable to influence the Brazilian (world) price of steel. Spain's supply and demand schedules are illustrated in Table 6.11. Assume that Brazil's price
At what stage in U.S. trade history did protectionism reach its high point?
The generalized system of preferences is intended to help developing nations gain access to world markets. Explain.
How are import substitution and export promotion policies used to aid in the industrialization of developing nations?
What are the major foreign industries in which U.S. businesses have chosen to place direct investments? What are the major industries in the United States in which foreigners place direct investments?
What are the most important motives behind an enterprise's decision to undertake foreign direct investment?
What is meant by the balance-of-payments?
Given the hypothetical items shown in Table 10.9, determine the international investment position of the United States. Is the United States a net creditor nation or a net debtor nation?
Why has the goods and services balance sometimes shown a surplus while the merchandise trade balance shows a deficit?
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