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microeconomics
Questions and Answers of
Microeconomics
In Solved Problem 4.5, if the generic bleach increases its strength to equal that of Clorox without changing its price, what bundles will Chris buy if the price of Clorox is \(\$ 3\) or \(\$ 2\)
The Wall Street Journal, a newspaper based in the United States, publishes an index of Starbucks coffee prices in various cities around the world. Would people find this index to be as useful as the
Mahdu views Coke, \(q\), and Pepsi as perfect substitutes: He is indifferent as to which one he drinks. The price of a 12-ounce can of Coke is \(p\), the price of a 12-ounce can of Pepsi is
On January 1, 2017, the minimum wage in Germany was raised from \(€8.50\) per hour to \(€8.84\) per hour. Frieda's job pays the minimum wage, and she presently works 8 hours per day, while her
In Norway, a parent may receive a cash benefit for private childcare for a child between the ages of 1 and 2 years if the child does not attend a governmentsubsidized childcare facility. Effective
Sudi spends his income on two goods. His income elasticity of demand for the first good is \(\xi_{1}=0.2\), while his income elasticity of demand for the second good is \(\xi_{1}=2\). Illustrate in
Mahdu views Coke and Pepsi as perfect substitutes. The price of a 12-ounce can of Coke, \(p\), is less than the price of a 12-ounce can of Pepsi, \(p *\). What does Mahdu's Engel curve for Coke look
Given the figure in the Challenge Solution, could the government set a smaller lump-sum subsidy than shown that would make poor parents as well off as with the price subsidy yet cost the government
A price increase has two effects on the quantity of a good demanded: consumers switch to relatively less expensive goods (holding utility and other prices constant) and less goods are demanded
How do parents who do not receive childcare subsidies feel about the two programs discussed and illustrated in the Challenge Solution?
A price increase has two effects on the quantity of a good demanded: consumers switch to relatively less expensive goods (holding utility and other prices constant) and less goods are demanded
There is much controversy surrounding genetically modified (GM) foods in Europe, and the European Union member states have different policies concerning them. On one side, concerns have been
Next to its plant, a manufacturer of dinner plates has an outlet store that sells plates of both first quality (perfect plates) and second quality (plates with slight blemishes). The outlet store
How would your answer to Question 1.4 change if \(U(G, N)=\ln (G+N)\) so that consumers have diminishing marginal utility of GM foods?Data From Question 1.4:-There is much controversy surrounding
Ximing spends his money on rice, a Giffen good, and all other goods. Show that when the price of rice falls, Ximing buys less rice. Decompose this total effect of a price change on his rice
India is the top papaya-producing country in the world, accounting for about \(40 \%\) of the global supply, and most of its production is consumed domestically. Farmers in the state of Andhra
Generic private-label brands can cost \(25 \%\) to \(30 \%\) less than nationally recognized name brands. Data show that people buy more private-label products during times of economic weakness. In
Enrico receives a no-strings-attached scholarship that pays him an extra \(Y^{*}\) per day. How does this scholarship affect the number of hours he wants to work? Does his utility increase?
Draw a figure to illustrate the answer given in Solved Problem 5.4. Use math and a figure to show how adding an ad valorem tax changes the analysis.Solved Problem 5.4:-Next to its plant, a
A flat tax is a tax on income at the same rate for everyone regardless of how much income they earn. Estonia reduced its rate of flat tax from \(21 \%\) in 2014 to \(20 \%\) in 2015 . What effect can
Portugal has a progressive personal income tax system. In 2016, tax rates on taxable income were \(14.5 \%\) on the first \(€ 7,035,21 \%\) on the next \(€ 13,065,37 \%\) on the next \(€
In its 2016 International Tax Competitiveness Index report, the U.S.-based Tax Foundation ranked Estonia as having the most competitive tax system in the OECD, based in part on its \(20 \%\) flat tax
A lump-sum tax is a fixed amount of tax per person. If a lump-sum tax, \(T\), raises the same amount of revenue for the government as a tax on earnings at the rate, \(t\), then \(t w H=T\), where
If the wage elasticity of labor supply is negative, what can we say about the slope of the labor supply curve and the relative sizes of the income and substitution effects? Is leisure a normal or
For a linear production function \(q=f(L, K)=2 L+K\), what is the short-run production function given that capital is fixed at \(\bar{K}=100\) ? What is the marginal product of labor?
Haiti was hit by a devastating earthquake on January 12, 2010. A quarter of a million lives were lost and millions more were left injured and homeless. Many countries sent medical teams and medical
Suppose that a firm's production function is \(q=2 K L\), where \(L\) is labor services and \(K\) is capital services, and that \(K=3\). What are the total product, average product of labor, and
In the long run, a firm can usually substitute one input for another while continuing to produce the same level of output. If such a firm produces a given level of output using the same amount of
Parents with a child in subsidized childcare in the province of Québec, Canada, pay a basic amount and, depending on family income, may pay an additional amount. As of January 1, 2017, families with
A firm in the state of Karnataka in India can source one of its factors of production either within the state, \(F_{K}\), or from the neighboring state of Maharashtra, \(F_{M}\). Assume the quality
A firm has the cost curve \(C(q)=25+q^{2}\). Show how the firm's average cost varies with output. Is there a minimum average cost and, if so, at what level of output is average cost minimized?
In the Application “A Beer Manufacturer's ShortRun Cost Curves," the short-run variable cost function for Japanese beer is \(V C=0.55 q^{1.67}\). If the fixed cost is 600 and the firm produces 550
A firm's production function is \(q=K^{0.4} L^{0.6}\). What is the firm's cost-minimizing input bundle when \(w=3\) and \(r=4\) ? Draw a diagram depicting the firm's long-run expansion path. What is
The Canadian metal chair manufacturing market has \(n=78\) firms. The estimated 8.1 elasticity of supply is \(\eta_{0}=3.1\), and the estimated elasticity of demand is \(=-1.1\). Assuming that the
If the cost function for John's Shoe Repair is \(C(q)=100+10 q-q^{2}+\frac{1}{3} q^{3}\), and its marginal cost function is \(M C=10-2 q+q^{2}\), what is its profit-maximizing condition given that
If a competitive firm's cost increases due to an increase in the price of a factor of production or a tax, the firm's manager can quickly determine by how much to adjust output by calculating how the
In Brazil, layoffs are generally treated as terminations without cause, for which firms are required to provide 30 days' notice plus an additional three days' notice for every year the employee has
Fixed costs can significantly affect the profitability of a small business. One way to reduce fixed costs might be to outsource the company's sales and marketing functions to third parties. For
Each firm in a competitive market has a cost function of \(C=q^{2}\), so its marginal cost function is \(M C=2 q\). The market demand function is \(Q=24-p\). Determine the long-run equilibrium price,
Uber, a car-for-hire service that connects passengers with private drivers, presently operates in 613 cities worldwide. Lower overheads allow Uber to charge significantly less than a taxi company
What is the effect on the short-run equilibrium of a specific tax of \(t\) per unit that is collected from all \(n\) firms in a market? What is the incidence of the tax?
The iPhone debuted in January 2007. In the 10 years since then, smartphones have revolutionized and enriched our lives in many ways, and they are continuing to do so. According to the International
Question 3.16 asked about the effect of imposing a specific tax on a perfectly competitive industry when entry into the industry is limited. If entry were instead unlimited, how would the market and
Derive Equation 8.7. 1-0 A 09 (8.7)
In the short run, what happens to the competitive market price of gasoline when a state's demand curve shifts to the right during warm months? In your answer, distinguish between areas in which
According to the European Commission's Weekly Oil Bulletin for June 12, 2017, taxes made up \(66.2 \%\) of the \(€ 1.51\) per liter consumer price of gasoline in Italy. Included in the tax total is
It is generally accepted that one advantage of an online store is lower overhead costs (expenses not directly related to production such as rent, utilities, and insurance). How would a move to
In June 2014, the international price of crude oil was about \$114 per barrel (Brent benchmark). Three years later, it was about \(\$ 47\) per barrel. This dramatic price reduction caused petroleum
A 2016 survey by Opinion Way for kayak.co.uk found that the use of travel agents has changed dramatically over the past 10 years in the United Kingdom (Sullivan, 2016). While 57\% of respondents
On January 28, 2017, an empty LPG tanker leaving the Kamarajar Port in the State of Tamil Nadu, India, collided with an inbound tanker carrying 45,000 metric tons of oil, causing a spill of between
Norway is the world's second largest exporter of fish and fish products by value, with key markets in Europe, Russia, Japan, China, and the United States. Haddock is one of the main capture species.
According to an article in the Financial Times on March 8, 2016, the capacity of the biggest container ships afloat rose sharply between 2011 and 2016 and has more than doubled since 2000. What is
About two-third of the world's wine is produced in Europe. France, Italy, and Spain account for almost half of all the wine produced in the world. Except for France, none of the top 10 wine-producing
As of October 15, 2015, large stores (with 250 or more full-time employees) in England are required to charge shoppers 5 pence per new plastic bag. Plastic bags at airport shops or aboard trains,
If the estimated supply curve for roses is linear, how much producer surplus is lost when the price of roses falls from \(30 otin\) to \(21 ot\) per stem (so that the quantity sold falls from 1.25
Airport owners grant airlines the right to schedule a landing or departure during a specific period of time in accordance with guidelines set out by the International Air Transport Association. Once
Suppose that the demand curve for wheat is \(Q=100-10 p\) and the supply curve is \(Q=10 p\). The government imposes a specific tax of \(t=1\) per unit.a. How do the equilibrium price and quantity
An April 2014 study by researchers at University College London found that people who ate seven or more portions of fruits and vegetables a day had a \(42 \%\) lower risk of death at any point in
The consumption of alcohol is illegal for Afghan citizens, but the government does allow the sale of alcohol under licence to foreigners. Use a diagram to show how such a prohibition would affect the
The WTO agreement allows members to apply anti-dumping measures when dumping (selling at a price less than the cost of production) by one country that may result in material injury to the competing
Two linear demand curves go through the initial equilibrium, \(e_{1}\). One demand curve is less elastic than the other at \(e_{1}\). The original horizontal supply curve also goes through \(e_{1}\).
Contracting parties to the General Agreement on Tariffs and Trade (1947-94) could use quotas to limit imports of agricultural products from other countries. Under the Uruguay Round (1986-94), import
A government is considering a quota or a tariff, both of which will reduce imports by the same amount. Which does the government prefer, and why? Explain how your answer depends on the way that the
What are the effects in the soybean market of a \(\$ 5\)-per-bushel price support using a deficiency payment on the equilibrium price and quantity, consumer surplus, producer surplus, and deadweight
Economic sanctions are sometimes imposed on one country by another country (or a group of countries) to achieve an economic, political, or social objective. They may take a variety of forms,
What is the effect on the equilibrium, consumer surplus, producer surplus, and welfare if the government sets a price ceiling, \(\bar{p}\), below the unregulated competitive equilibrium price?
Suppose that the demand curve for wheat is \(Q=100-10 p\) and the supply curve is \(Q=10 p\). The government provides producers with a specific subsidy of \(s=1\) per unit.a. How do the equilibrium
Australia has over 500 national parks in which commercial activities are prohibited and human activity is strictly monitored. In the interests of visitor safety or environmental sustainability,
Firms and consumer groups often try to influence government to adopt a policy that favors them. Others who do not support lobbying arguing that, left alone, competitive markets maximize societal
Milk quotas in the European Union were abolished on April 1, 2015. They had been introduced in 1984 under the Common Agricultural Policy to manage excess supply. What are the effects of a limit on
How much would the price have to fall for consumers to be willing to buy 1 million more tons of coffee per month?
How does the quota, \(\bar{Q}\), set by the United States on foreign sugar imports affect the total American supply curve for sugar given the domestic supply curve, \(S^{d}\) in panel a of the graph,
What is the effect of a United States quota on sugar of \(\bar{Q}\) on the equilibrium in the U.S. sugar market?
Suppose everyone receives the same wage in a labor market. What happens to the equilibrium in this market if the government imposes a binding minimum wage, \(\underline{w}\) ?
Suppose that the demand function for lamb in Australia is Q = 63 - 11ρ + 7ρb + 3ρc + 2Υ, where Q is the quantity in million kilograms (kg) of lamb per year, ρ is the dollar price per kg (all
Using the demand function for lamb from Question 1.1, show how the quantity demanded at a given price changes as annual per capita income, Y, increases by AU$200.Data From Question 1.1:-Suppose that
Given the inverse demand function for lamb (Question 1.1) is ρ = 33.64 - 0.09Q, how much would the price have to rise for consumers to want to buy 2 million kg of lamb less per year?Data From
Suppose that the inverse demand function for movies is \(p=120-Q_{1}\) for college students and \(p=120-2 Q_{2}\) for other town residents. What is the town's total demand function
Duffy-Deno (2003) estimated the demand functions for broadband service are \(Q_{s}=15.6 p^{-0.563}\) for small firms and \(Q_{l}=16.0 p^{-0.296}\) for larger ones, where price is in cents per
Based on the estimates of Ghose and Han (2014), the demand function for mobile applications at Apple's App Store is \(Q_{A}=1.4 p^{-2}\) and the demand function at Google Play is \(1.4 p^{-3.7}\),
Suppose that the supply function for lamb in Australia is \(Q=149+8 p-9 p\), where \(Q\) is the quantity in millions of \(\mathrm{kg}\) of lamb per year, and \(p\) and \(p_{s}\) are the prices of
If the supply curve for fertilizer in Jordan is \(Q_{j}=-2+4 p\) and the supply curve for fertilizer in the rest of the world is \(Q_{\text {row }}=25+8 p\), what is the world supply curve?
How would a quota of \(\bar{Q}=6\) million tons set by Iran on foreign wheat imports affect the total Iranian supply curve given the domestic supply curve \(Q_{s}^{d}=5 p-15\) and the foreign supply
A large number of firms are capable of producing chocolate-covered cockroaches. The linear, upward-sloping supply curve starts on the price axis at \(\$ 6\) per box. A few hardy consumers are willing
Suppose the supply function for processing coffee beans from coffee cherries in Mexico is \(Q_{s}=3.15+0.1 p-0.5 p_{c}\) and the demand curve for coffee beans is \(Q_{d}=4.1-0.2 p\), where \(Q_{s}\)
Use a figure to explain the fisher's comment about the effect of a large catch on the market price in the cartoon about catching lobsters near the beginning of Section 2.4. What is the supply
The last major outbreak of mad cow disease in the United Kingdom occurred in the mid 1990s. It is estimated that up to 6 million cows were destroyed at that time in an attempt to control the disease.
Use a supply-and-demand diagram of a competitive market to illustrate the qualitative effects of the following possible shocks in the Italian market for red wine.a. A new research study shows that
Ethanol, a fuel, is made from corn. Ethanol production increased 8.5 times from 2000 to 2015 (www.ethanolrfa.org). Show the effect of this increased use of corn for producing ethanol on the price of
Using the information in Question 3.6, determine how the equilibrium price and quantity of coffee beans change if the price of coffee cherries falls by 25\%.Data From Section 3.6:-Suppose the supply
In 2015, the European Commission proposed giving individual member states the right to ban imports of genetically modified fruits and vegetables even if those products are still permitted at the
There has been a great deal of movement of physicians across borders within the European Union, and this migration has raised concerns about patient safety and quality of care. Some member states
Rent control laws are in place in states such as Maharashtra and Karnataka in India. Such price controls establish the price of rental accommodations and limit annual increases in rent up to a
The tsunamis that hit Japan in 2011 and India and Sri Lanka in 2004 were devastating, and their effects were felt for many years afterward. Natural disasters of this type as well as international
Suppose the Mexican government decides to control the price of coffee beans to support coffee bean producers in that country. It does so by imposing a binding price floor of 7.5 million pesos per
Brazil is one of the world's largest exporters of beef and China is a major purchaser of that beef (an estimated 30\% of China's beef imports in 2016 came from Brazil). However, in March 2017, China,
Question 7.1 asks you to illustrate why an import ban might cause the equilibrium quantity of beef in the domestic market to rise. Depending on how the supply and demand curves shift, could the
The estimated equation for the linear U.S. corn demand curve iswhere \(p\) is the price in dollars per bushel and \(Q\) is the quantity demanded in billion bushels per year. \({ }^{5}\) What is the
What would be the effect of Arctic National Wildlife Refuge production on the world price of oil given that \(=-0.25, \eta=0.25\) (Baumeister and Peersman, 2013), the pre-Arctic National Wildlife
Show mathematically the effects on the equilibrium price and quantity of corn from a specific tax of \(t=\$ 2.40\) collected from suppliers, as illustrated in panel a of Figure 3.6.Figure 3.6:- (a)
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