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Questions and Answers of
Economics
1. The velocity of money is defined as___________ income divided by the supply of money.2. The quantity equation links money, velocity, real income, and ___________.3. If we know the growth of
1. To finance a budget deficit, a government can either borrow from the public or create __________.2. During hyperinflations the velocity of money tends to sharply__________.3. Economists call
Even though federal budget-deficit projections have increased sharply in recent years, they still don t accurately portray the long-run fiscal problems facing the United States. As the population
John Taylor from Stanford University has argued that the Fed s easy money policy from mid-2001 through 2004 was largely responsible for the housing boom in the decade that ultimately caused so much
Virtually all developed countries and many developing countries have a value added tax, commonly known as a VAT. The United States is a prominent exception. The VAT is essentially a sales tax that is
1. If a government runs a deficit, it will ____________its outstanding debt.2. Proponents of Ricardian equivalence are primarily concerned about deficits crowding out the stock of capital.
1. Proponents of inflation targeting argue that it would make central banks more _______ if they were committed to a long-run inflation target.2. In_______, inflation targeting was adopted in 1992,
1. Suppose there is a consumption tax of 20 percent. An individual earns $100 and saves $30. Her tax will be equal to ________ .2. A sales tax that is levied at all stages of production is known as
If you buy a new car for $20,000 today and then try to sell it a week later, you probably won t get more than $16,000 for it. Even if you drove it just a couple of hundred miles, cleaned it up, and
Kiwifruit is subject to imperfect information because buyers cannot determine its sweetness its quality level by simple inspection. The sweetness level at the time of consumption is determined by the
Professional baseball teams compete with each other for players. After six years of play in the major leagues, a player has the option of becoming a free agent and offering his services to the
The price of car insurance in Philadelphia is twice as high as in Pittsburgh, even though Pittsburgh has a much higher auto-theft rate. Why? In brief, uninsured drivers cause high prices and high
Farmers can buy crop insurance to cover their losses in the event of a small yield or low crop prices. If the total revenue from the crop drops below some target level, a payment from the insurance
The theory of moral hazard suggests that an insured driver, who bears less than the full cost of a collision, will drive less carefully than an uninsured driver. A recent study suggests that the
1. Fashion and Prices. You are in the market for a used car and have narrowed your options to two types of cars, type F and type P. According to Consumer Reports, the two types of cars have roughly
1. There is asymmetric information in the used-car market because _________ (buyers/sellers) cannot distinguish between lemons and plums but _________ (buyers/sellers) can.2. The supply curve for
1. Consider a thin used-car market. Someone just developed a device that can instantly identify the nearest plum in a used-car lot. The device works only once. The maximum amount that a consumer
1. A new car loses about ________ percent of its value in the first week because recent buyers are more likely to want to sell a ________ (lemon/plum). 2. Arrows up or down: Government regulations
1. Suppose the average annual malpractice cost is $40,000 for reckless doctors and $2,000 for careful doctors. If half of an insurance company s insured doctors are reckless, the company will earn
1. In the market for insurance, the moral-hazard problem is that ________encourages ________.2. While shopping for office equipment, an office manager sees a display of fire extinguishers. After
1. Philadelphia has relatively high prices for car insurance because ________cause ________and ________causes ________. 2. In the market for crop insurance________, -risk farmers buy insurance in
1. The reservation price is the price at which the consumer is _______ about additional search, meaning that the _______ of search equals the _______.2. If a consumer knows that a product is
In the days before inexpensive wristwatches, most people did not carry their own timepieces. Many towns built clock towers to help their citizens keep track of time. The towns paid for the clock
As another example of a public good, consider global weather observation. In this case, information gathered by one country generates external benefits when it is shared with other countries.
LoJack, a system used to recover stolen vehicles, is a private good that generates external benefits. A small, silent transmitter hidden in a vehicle allows police to track a stolen car. The name is
Mature trees in residential neighborhoods have private costs and both private and social benefits. The initial cost to purchase a seedling and plant it is relatively low, but the owner s opportunity
Why do voters support public schools? The median-voter result allows us to narrow this question to Why does the median voter support public schools? The median voter will vote in favor of public
1. Suppose 1,000 people would each get a benefit of $40 from a levee. Building the levee is socially efficient if its cost is less than $ _________. If the cost is $30,000, a tax of $_________ per
1. A fire extinguisher is an example of a(n) _______ good with a(n)_______ benefit.2. Education generates three types of external benefits: _______, _______, and_______.3. The external benefit of
1. According to the model of voting developed in the chapter, the choices made by the government match the preferences of the _________ voter.2. The self-interest theory of government explains why
The European Climate exchange is a market for the CO2 allowances issued to European Union (EU) countries under the EU cap-and-trade system. The equilibrium price of an allowance is determined by the
1. A pollution tax on automobiles provides an incentive to buy _______, maintain _______, drive _______, and use alternative _______.2. Arrows up or down: A gasoline tax will shift the supply curve
Methane is one of the greenhouse gases that contribute to global warming. It is released into the atmosphere from landfills, natural gas systems, coal mining, and livestock management. In this case,
A recent study estimates the marginal damages (marginal external cost) for 10,000 sources of air pollution in the United States. The study reveals substantial spatial variation in the marginal damage
Recent studies have reported dangerously high levels of mercury in tuna served in sushi restaurants. In one study, one-third of the samples had more than one part of mercury per million, the level
A VMT tax of 4.4 cents per mile would internalize the external cost from collisions on average, but the external cost varies with the age of the driver. As shown in Table, the external cost of young
1. The optimal level of pollution abatement is the level at which the _________ of abatement equals the _________ of abatement.2. The marginal cost of abatement typically _________
1. The private cost of production includes the amount a firm pays for _______, _______, and_______.2. The external cost of production is the cost incurred by _______.3. The social cost of production
1. Compared to a pollution tax, a uniform-abatement policy is _________ (more/less) efficient because it does not exploit differences in ________across firms.2. The command part of a
1. Under a system of marketable pollution permits, a firm with ___________ (low/high) abatement costs will buy permits from a firm with ___________ (low/high) abatement costs.2. Arrow up or down: A
Suppose you want to find estimates of the elasticities of demand (own price, income, cross-price) for orange juice. The U.S. Department of Agriculture has a Web site that provides estimates of demand
We can use the price-change formula to predict the effects of a change in demand on equilibrium prices in the short run and long run. Suppose a national advertising campaign increases the demand for
1. To compute the price elasticity of demand, we divide the percentage change in_______ by the percentage change in _______and then take the _______value of the ratio.2. If a 10 percent increase in
1. Recall the example Beer Prices and Highway Deaths, from the chapter. A doubling of the tax on beer will reduce the number of highway deaths among young adults’ by_______ percent.2. Recall the
1. In the state of Virginia, the demand for vanity license plates is ______ (elastic/inelastic), so an increase in price would ______ (increase/decrease) total revenue from vanity plates.2. A policy
1. Demand is ____on the upper portion of a linear demand curve and ____on the lower portion of a linear demand curve.2. Suppose we are on the upper portion of a linear demand curve. If the price
1. The income elasticity of demand is _____ (positive/negative) for normal goods and _____ (positive/negative) for inferior goods.2. If a 20 percent increase in income increases the quantity of iPods
1. When the price of paper increases from $100 to $104 per ton, the quantity supplied increases from 200 to 220 tons per day. The price elasticity of supply is _____________.2. Suppose the price
1. Assume that the elasticity of demand for chewing tobacco is 0.70 and the elasticity of supply is 2.30. Suppose an antic hewing campaign decreases the demand for chewing tobacco by 18 percent. The
In 2008 Mexico banned the importation of all used cars except cars produced in the model year 1998. Before then, it was legal to import used cars 10 to 15 years old, and enterprising firms purchased
What is the economist s solution to the shortage of human organs for transplants? Sometimes governments go beyond simply reducing the quantity produced and outlaw market transactions entirely. Each
In France, regular restaurants pay a 20 percent value-added tax (VAT) on sit-down meals, while fast-food restaurants pay just a 5 percent tax on take-away meals. A group of large restaurant owners
It is widely acknowledged that mobile phones promote economic development in less developed countries. In areas with unreliable transport and postal systems, mobile services can lead to substantial
1. Consumer surplus equals _________ minus _________.2. Producer surplus equals _________ minus_________.3. In Figure Tupaks consumer surplus is _________, compared to _________ for
1. You are willing to pay $2,000 to have your house painted, and Pablos marginal cost of painting a house is $1,400. If you agree to split the difference, the price is ______, your consumer surplus
1. Arrow up or down: In Figure, rent control _____ the quantity of apartments, _____ producer surplus, _____ consumer surplus, and _____ the total market surplus.2. In Figure, rent control prevents a
1. No Deadweight Loss from Rent Control? Like other fruit flies, Frudo has an expected life span of 37 days. According to Frudo, if my assumptions are correct, a rent-control law implemented today
1. Mexico s import restrictions on used cars _____ the price of 1998 cars and _____ the price of 1997 cars.2. In Figure the taxi medallion policy prevents mutually beneficial transactions for
1. Effects of Relaxing the Medallion Policy. Consider the example of taxi medallions shown in Figure Suppose the government relaxes the policy, increasing the number of medallions from 80 to 90.a.
1. The lobby group of French restaurant owners pledged that if the VAT tax on restaurant meals was cut, they would increase _______ and decrease_______.2. According to the numbers provided by the
1. The Employment and Wage Effects of a Luxury Boat Tax. Suppose the luxury boat industry initially employs 1,000 workers and produces 100 boats per month. Suppose a tax on luxury boats increases the
We can use the utility-maximizing rule to determine whether consumers are doing the best they can. Suppose a firm has a fixed budget of $200 to spend on punch and cookies for its holiday party. The
A few years ago Amazon.com introduced free shipping for U.S. orders over $25. A consumer who bought a single book for less than $25 would pay about $4 in shipping, but if adding a second book to the
Scarlett loves songs about pirates. Her parents give her money each month, and their objective is to keep her utility level roughly constant from month to month. So when the price of online pirate
1. Rob has a budget of $120 and consumes ham (shown on the horizontal axis) and vermicelli (shown on the vertical axis). The price of ham is $6 per pound, and the price of vermicelli is $2 per pound.
1. If you know the price ratio and want to determine whether a consumer is making the best choice, ask the following question: What is your _____?2. Arrows up or down: The selling of individual songs
1. Paintball versus Virtual Reality Sessions. Jackson has a fixed budget for entertainment and has tentatively decided to get eight paintball sessions and five virtual-reality (VR) sessions. The
1. When a gasoline tax is offset by an income-tax cut that makes a consumer s original choice just affordable, the price ratio _____ (increases/ decreases). In this case, there is no _____ effect,
In response to the obesity problem among children and adolescents, some policymakers have proposed a tax on soft drinks, those 150-calorie drinks that are responsible for about 10 percent of the
Scarlett loves songs about pirates. Her parents give her money each month, and their objective is to keep her utility level roughly constant from month to month. So when the price of online pirate
A few years ago Amazon.com introduced free shipping for U.S. orders over $25. A consumer who bought a single book for less than $25 would pay about $4 in shipping, but if adding a second book to the
1. The total utility curve shows the relationship between _______on the horizontal axis and _______on the vertical axis.2. In Figure, if the total utility from seven songs is 41 utils, the marginal
1. Arrow up or down: A tax on soft drinks will ______the marginal bang per buck on soft drinks and ______the consumption of goods for which the is now higher.2. Arrow up or down: The selling of
1. Dirk spends $20 each week on muffins (price = $2) and bagels (price = $1). This week he bought four muffins and ______bagels. The marginal utility of muffins is 30 utils and the marginal utility
1. Arrow up or down: When a gasoline tax is offset by an income-tax cut that makes a consumer s original choice just affordable, gasoline consumption will _____because the tax _____the bang per buck
1. In the Amazon.com example of free shipping, the initial experience was different in France because in that country_________,2. The difference between the Pepsi and Coke taste challenge campaigns
Taxi drivers have a lot of flexibility in choosing their work hours, and we can readily observe their response to an increase in the wage. An increase in the taxi fare, which is regulated by cities,
Since about 1850, international migration has played an important role in labor markets. In the first wave of immigration, from 1850 to 1913, over a million people migrated to the Americas each year.
How does physical attractiveness affect earnings? Studies of the U.S. labor market show that beautiful people earn more than people of average looks, and unattractive people earn less. The beauty
Imagine that two recent high-school graduates apply for low-skill jobs advertised in the newspaper. The jobs include waiting tables, dishwashing, and working in warehouses. One man is white and
1. The marginal revenue product of labor equals _______ times______________.2. A profit-maximizing firm will hire the number of workers where equals __________.3. Your favorite professional team is
1. Arrows up or down: An increase in the wage __________ the opportunity cost of leisure time, which tends to __________ leisure time and __________ labor time.2. Arrows up or down: An increase in
1. Income and Substitution Effects. Sabrina works for a workers cooperative that initially pays her a lump sum of $200 per week (as long as she works at least 15 hours per week) and a wage of $20 per
1. Arrows up or down: A decrease in the supply of nurses wills ________ the equilibrium wage and ________ the equilibrium quantity of nursing services.2. Arrows up or down: An increase in the demand
1. The immigration of low-skill workers generates net benefits for ________ workers because they benefit from lower________ without bearing the cost associated with lower ________. 2. Living Wage and
1. The wage for a particular occupation will be relatively low if labor _______ (demand/supply) is small relative to labor _______ (demand/supply).2. If a city has a relatively high crime rate, we
1. Government transfer and tax policies increase the income share of the lowest quintile of the income distribution from about ________ percent to about ________ percent.2. The college premium is
1. For each of the following pairs of population groups, indicate which group has a higher poverty rate:_________ White, _________ Hispanic_________ White, _________ Asian_________ Married
In recent decades, the union wage differential has decreased in many industries, including trucking services. Between 1978 and 1996, the union differential decreased from 40 percent to 23 percent.
In the last few decades, a progressively smaller share of the top college graduates became teachers. Aptitude is measured by scores on standardized tests, and there is compelling evidence that high
Labor economist Alan Manning provides some unconventional evidence of positively sloped labor-supply curves. He notes that people go to the pub to celebrate when they get a job, rather than greeting
1. In the United States, union workers earn ______ to ______ percent more than nonunion workers doing the same work. The union wage differential is ______ (larger/smaller) in most other
1. Product Elasticities and the Wage Job Trade-Off. Consider two unions, one in an industry where the price elasticity of demand for the product is 3.0 (industry E), and one where the price
1. A monopsony occurs when there is a single_________.2. For a monopsonist, the marginal labor cost exceeds the wage because to hire more workers, the firm must_________.3. A monopsonist hires
1. The asymmetry in the labor market is that _______ know more than _______ about a workers _______.2. Arrows up or down: In a labor market with asymmetric information, a firm will hire
Discuss whether each statement is a purely positive statement, or also contains normative elements and/or value judgments:a. An increase in the personal income tax will slow the growth rate of the
For each of the following, state whether economists would consider it a resource, and if they would, identify which of the four types of resources the item is.a. A computer used by an FBI agent to
Suppose you are using the second map in Figure, which shows main highways only. You’ve reached a conclusion about the fastest way to drive from the Boston city center to an area south of the
Use the information in Table as well as the assumption about foregone income made in the chapter to calculate the average opportunity cost of a year in college for a student at a four-year private
Use the information in Table (as well as the assumption about foregone income made in the chapter) to compare the opportunity cost of attending a year of college for a student at a two-year public
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