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microeconomics
Questions and Answers of
Microeconomics
Explain how the market for Blu-ray format movies will change.Toshiba Corp. yesterday withdrew from the race to be the next-generation home movie format, leaving Sony Corp.’s Blu-ray technology the
Why does the level of income influence the magnitude of the income elasticity of demand?
Mississippi cracked down on gougers after Hurricane Katrina. John Shepperson was one of the “gougers” authorities arrested. Shepperson lives in Kentucky and he watched news reports about Katrina
The Omnibus Budget Reconciliation Act of 1990 included a stern tax on “luxury items.” In 1990 the Joint Committee on Taxation projected that the 1991 revenue yield from the luxury taxes would be
On a graph of the market for low-skilled labor, show the effect of the increase in the minimum wage on the quantity of labor employed.The rise in the federal minimum wage will boost the wages of the
Explain the effects of the higher minimum wage on the workers’ surplus and the firms’ surplus.Does the labor market become more efficient or less efficient? Explain.The rise in the federal
Use the news clip in Problem 21.a. Would a cut in the tax on small business profits offset the effect of the higher minimum wage on employment? Explain.b. Would a cut in the Social Security tax that
a. Why does the federal government subsidize farmers?b. Explain how a subsidy paid to cotton farmers affects the price of cotton and the marginal cost of producing it.Congress sent the White House a
Explain how a subsidy paid to cotton farmers affects the consumer surplus and the producer surplus from cotton. Does the subsidy make the cotton market more efficient or less
a. How would a payment to cotton farmers to idle their land influence the supply of cotton?b. How would a payment to cotton farmers to idle their land affect the consumer surplus and the producer
After you have studied Reading Between the Lines on answer the following questions.a. In what ways do employers break laws in the underground labor market described in the news article?b. How does a
a. Are China’s price controls described in the news clip price floors or price ceilings?b. Explain how China’s price controls have created shortages or surpluses in the markets for coal,
Explain how China’s price controls have changed consumer surplus, producer surplus, total surplus, and the deadweight loss in the markets for coal, gasoline, and diesel.Chinese power plants have
Show on a graph the change in consumer surplus, producer surplus, total surplus, and the deadweight loss in the markets for coal, gasoline, and diesel.Chinese power plants have run short of coal, an
Suppose that in 2008, tomato growers in Florida lobby the U.S. government to impose an import quota on Mexican tomatoes. Explain who in the United States would gain and who would lose from such a
Explain why, if Max equalized the marginal utility per hour from windsurfing and from snorkeling, he would not maximize his utility.
After you have studied Reading Between the Lines (pp. 196–197) answer the following questions.a. If a wave of natural disasters put paramedics in the news and a large number of people decide to try
a. What does the news clip imply about how the total utility from consumption changes over time?b. What does the news clip imply about how the marginal utility from consumption changes over time?At
This question pertains to the addendum to Chapter 2. The following tables show the production possibilities for two hypothetical countries, Italia and Nire. Which country has the comparative
Are the following statements true or false? Explain your answers. a. A 10 percent reduction in price that leads to a 5 percent increase in the amount purchased indicates a price elasticity of more
Rod N. Reel owns a dealership that sells fishing boats in an open, price-searcher market. To develop his pricing strat egy, Rod hired an economist to estimate his demand curve. Columns (1) and (2) of
Suppose that you are considering whether to enroll in a summer computer-training program that costs $2,500. If you take the program, you will have to give up $1,500 of earnings from your summer job.
“In a world of uncertainty, it is important that entrepreneurs be able to introduce new products and try out innovative ideas. But it is also important that unproductive projects be brought to a
Will political officials be more likely to channel funds into wealth-creating projects than private investors and entrepreneurs? Why or why not? Discuss.
The interest rates charged on outstanding credit card balances are generally higher than the interest rate that banks charge customers with a good credit rating. Why do you think the credit card rate
“The Great Depression was caused by the 1929 stock market crash. The 1929 collapse of stock prices was the most severe in U.S. history, and therefore it is not surprising that it caused a prolonged
Do the length and severity of the Great Depression reflect a defect in the operation of markets? Do they reflect a failure of government policy? Discuss.
“Franklin Roosevelt was one of our greatest presidents be cause it was his New Deal policies that brought the Great Depression to an end.” Evaluate this statement.
Was the Great Depression the result of the inherent instability of a market economy, as John Maynard Keynes argued? Alternatively, was it the result of counterproductive government policy as Milton
“I’m for international trade, but not when it takes jobs from Americans. If the American worker can produce the product, Americans should not buy it from foreigners.” Do you agree with this
What are the most important lessons Americans should learn from the Great Depression? Do you think we have learned them? Why or why not?
The U.S. Postal Service (USPS) is an independent establishment within the federal government. When the USPS suffers a financial loss, the federal government is responsible for providing the funds to
Suppose that you’re very athletic. For example, you might like to run, swim, play volleyball, or bike. You would like to perform better at your next competition. Perhaps you want to run a
Consider an organization dedicated to helping low-income people. The members of the organization are discussing alternative methods of aiding the poor, when a proponent of one particular method
Suppose, for simplicity, that during any given week, the machinery and number of workers at Tesla Motors’s Fremont plant cannot be increased. So the number of original models or Model 3s the
Suppose that Canada and the United States both produce maple syrup and honey, which are sold for the same price in both countries. These are the combinations of the two goods that each country can
Review the information in Figure 2.4. Choose a rate of trading cherries for apples different from the rate used in the text (15 pounds of cherries for 10 pounds of apples) that will allow you and
What does increasing marginal opportunity costs mean? What are the implications of this principle for the shape of the production possibilities frontier?
Which letter is likely to be worth more: one written by Abraham Lincoln or one written by his assassin, John Wilkes Booth? Lincoln is one of the greatest presidents, and many people collect anything
When All birds introduced athletic shoes with uppers made from merino wool, it helped increase the popularity of this type of wool, which is softer than other wools. A news article noted that,
In many cities that have rent controls, such as New York and San Francisco, the actual rents paid can be much higher than the legal maximum. Because rent controls cause a shortage of apartments,
Suppose that Andy sells basketballs in the perfectly competitive basketball market. His output per day and his costs are as follows:a. Suppose the current equilibrium price in the basketball market
The city of Bethlehem, Pennsylvania, was considering raising the fine from $10 to $15 for cars parked at a meter whose time had expired. The city’s parking authority believed that raising the fine
Some economists, health professionals, and policymakers argue in favor of a soda tax because they believe that people who drink sweetened beverages can experience health problems. Some city
For decades, every fund manager would buy the individual stocks he or she believed would have the largest price increases in the future. In 1976, the late Jack Bogle of the Vanguard Group began
Many news articles on firms describe recent changes in their finances. Locate and read one recent article on a firm’s balance sheet or income statement from sources such as a local newspaper,
Tesla manufactures electric cars in a factory in California. There are a total of 4,500 parking spaces at the factory, and Tesla has about 16,000 employees working there (although they don’t all
Suppose you win a contest and are given the choice of the following prizes:Prize 1: $50,000 to be received right away, with four additional payments of $50,000 to be received each year for the next 4
Writing in 2018 on bloomberg.com, economist Noah Smith noted, “As economic growth has slowed, growth in demand for health care has slowed. But at the same time, prices have risen.” Use a graph
From your local paper, bloomberg.com, cnn.com, or another site, locate two articles that advocate specific changes in the U.S. health care system. Avoid news articles that only describe the debate
Santiago Delgado owns a copier store. He leases two copy machines for which he pays $12.50 each per day. He cannot increase the number of machines he leases without giving the office machine company
Pick five firms from articles you find in sources such as your local newspaper, cnn.com, bloomberg.com, the Wall Street Journal, or the New York Times and describe the technology that each firm uses
As we saw in the chapter opener, the development of fracking technology has revolutionized the U.S. oil industry, leading to large gains in production. Many of the firms that took the lead in using
According to an article in the Wall Street Journal, a wheat farmer decided to take 170 acres out of production and plant grass on it rather than wheat because “that seemed like his only choice
Financial writer Michael Lewis once remarked, “The sad truth, for investors, seems to be that most of the benefits of new technologies are passed right through to consumers free of charge.”a.
Explain why it is true that for a firm in a perfectly competitive market, the profit-maximizing condition MR = MC is equivalent to the condition P = MC.
The following graph represents the situation of Marguerite’s Caps, a firm selling caps in the perfectly competitive cap industry. In each part of this problem, be sure to show how you calculated
Suppose Apple finds that the relationship between the average total cost of producing iPhones and the quantity of iPhones produced is as shown in the following graph. Will Apple maximize profit if it
In recent chapters, we explored different types of industries that firms may be in, including perfect competition (Chapter 12), monopolistic competition (Chapter 13), and monopoly (this Chapter 15).
If you shop at an Amazon, Go convenience store, you can scan your smartphone as you enter the store. Cameras and sensors track your path through the store, and software records each item you take
A key part of this chapter is the section “Where Does Comparative Advantage Come From?” The section explains the main sources of comparative advantage among countries. Comparative advantage also
As we saw in this chapter, comparative advantage is an important economic concept. We often use a table and some arithmetic to explain it, but how might you use words to explain comparative advantage
The first discussion of comparative advantage appears in On the Principles of Political Economy and Taxation, a book written by the British economist David Ricardo in 1817. Ricardo provided a famous
Dave has $300 to spend each month on pizzas and streaming movies. Pizzas and movies both have a price of $10, and Dave is maximizing his utility by buying 20 pizzas and 10 movies. Suppose Dave still
The following table shows Lee’s utility from consuming ice cream cones and bottles of smartwater:a. Lee’s friend Ed inspects this table and concludes, “Lee’s optimal choice would be to
Spotify and Apple Music both charge $9.99 per month for unlimited music streaming. Spotify introduced a reduced price of $4.99 for college students, which after a delay Apple decided to match. In an
For this exercise, your instructor may assign you to a group. Each group member should do all of the following.a. Search sources such as a local newspaper, cnn.com, bloomberg.com, the Wall Street
Like any other business strategy, deterring entry is a good idea only if it has a higher payoff than alternative strategies. Use the following decision tree to decide whether Apple should deter Dell
When Apple first launched Apple Music, singer Taylor Swift refused to allow her album 1989, which had been the best-selling album of the year, to be made available for the service because Apple did
In 2015, the U.S. Department of Justice (DOJ) investigated whether the four major U.S. airlines were colluding. In 2017, the DOJ concluded that there wasn’t enough evidence of collusion to sue the
Suppose that Comcast has a cable monopoly in Philadelphia. The following table gives Comcast’s demand and cost per month for subscriptions to basic cable. (For simplicity, we keep the number of
During the summer of 2019, Apple was selling MacBook Pro laptop computers with 13-inch Retina displays on its website and in its retail stores for $1,299. But college students and faculty members
We have assumed that Apple can sell as many iPhones as it wants without having to cut the price. A firm in a perfectly competitive market is in this situation. These firms are price takers. Suppose
As we have seen, because of either discrimination or differing preferences, certain jobs are filled primarily by men, and other jobs are filled primarily by women. On average, the “men’s jobs”
What are the two ways that the productivity of a firm's employees may increase when a firm moves from straighttime pay to commission or piece-rate pay? If piece-rate or commission systems of
For this exercise, your instructor may assign you to a group.a. Each person in the group should read Section 17.2.b. Each person should identify some point(s) in these pages that he or she finds
In 2017, Congress and the Trump administration enacted changes to the federal tax code, including reducing the top corporate income tax rate from 35 percent to 21 percent. An editorial in the Wall
Many political observers have noted that Republican presidential candidates tend to emphasize their conservative positions on policy issues while running for their party's nomination, and Democratic
You can spend spring break either working at home for $100 per day for five days or go to Florida for the week. If you stay home, your personal expenses will total about $120. If you go to Florida,
Would the price elasticity of demand for electricity be more elastic over a shorter or a longer period of time? Why?
Why is a firm that produces a line of products interested in the cross-price elasticities between these products
Suppose that marginal utility of Good X = 100, the price of X is $10 per unit, and the price of Y is $5 per unit. Assuming that the consumer is in equilibrium and is consuming both X and Y, what must
Given the many individual demand curves for a good, describe how to derive the market demand curve for that good.
Medicare recipients pay a monthly premium for coverage, must meet an annual deductible, and have a co-payment for doctors’ office visits. What impact would an increase in the monthly premium have
In analyzing scale economies and diseconomies, what’s the difference between the plant level and the firm level?
Why would firms choose to operate in a perfectly competitive market even though they earn no economic profit in the long run?
What is rent seeking, and how could it increase the welfare cost of monopoly?
What’s the difference between shutting down and going out of business?
Determine whether each of the following statements is normative or positive:a. The U.S. unemployment rate was 6.2 percent in 2014.b. The inflation rate in the United States is too high.c. The U.S.
Explain the relationship between the price elasticity of demand and total revenue.
During the 1990s, the U.S. Congress imposed a high sales tax on yachts, figuring that the rich could afford to pay for this luxury. But so many jobs were lost in the boat-building industry that the
Does the free-rider problem arise from the characteristics of consumption rivalry, excludability, or both?
Which groups typically bear the costs and which groups enjoy the benefits of (a) Traditional public goods, (b) Special-interest legislation,(c) Competing- interest legislation?
What does it mean to say that a common-pool resource is “overused”? Overused compared to what?
Under what conditions would monopoly be a more efficient outcome for a market than would competition?
Provide examples of markets that help people stick with decisions that involve short-term costs for long-term benefits.
In the movement to downsize government, advocates often recommend turning over some government services to private firms hired by the government. What are the potential benefits and costs of such
Identify four ways that unions try to increase the demand for unionized workers.
Suppose that the cost of living increases, thereby reducing the purchasing power of your income. If your money wage doesn’t increase, you may work more hours because of this cost-of-living
How is the demand for lumber affected by the demand for housing?
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