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business
microeconomics principles
Questions and Answers of
Microeconomics Principles
Two firms each have the option of polluting during production or cleaning up their production process such that they don't pollute. Of course, polluting is cheaper than not polluting. The payoffs for
Which of the following are examples of tit-for-tat strategies?a. A friend forgets to send you a birthday card this year, so you decide not to send one to her on her next birthday.b. Your friend let
You need to travel from Minneapolis to Copenhagen; its now Tuesday morning. You know you need to arrive in Copenhagen no later than 4 pm on Wednesday. Using backward induction in Table
Two families are trying to decide whether to donate to a fund to build a public park. The payoffs are shown in Figure 9P-1.a. What is the mutually beneficial outcome?b. Acting in their best
Company A is considering whether to invest in infrastructure that will allow it to expand into a new market. Company B is considering whether to enter the market. Assume the companies know each
Job offers could be considered a one-round bargaining game with a first-mover advantage: The company offers you a job at a certain salary, and you can take it or leave it. Explain why the company
There is a town with exactly 1,000 residents. 75% of the residents make healthy choices, and 25% of the residents consistently make unhealthy choices, but the health insurance company in town cannot
The college admissions process involves both screening and signaling. Give an example of each. Who is doing the screening? Who is doing the signaling?
Consider the market for life insurance. Give an example of statistical discrimination an insurer might use to set premiums.
Suppose your aunt invests $2,000 for you. You are not allowed to have the money until the original amount doubles. Your aunt’s investment earns 10 percent, compounded annually. Give a rough
If you deposit $500 in a savings account that offers 3 percent interest, compounded annually, and you don’t withdraw any money, how much money should you expect to have in the account at the end of
Many individuals prefer to have insurance (health insurance, car insurance, etc.) rather than not, even if the expected value of their wealth is higher without insurance. What does this imply about
Lenders tend to offer lower interest rates to borrowers with high credit scores and higher interest rates to borrowers with low credit scores. What does this imply about lenders' willingness to take
Consider the following scenarios. For each scenario, determine whether a risk averse person will definitely choose Option A, definitely choose Option B, be indifferent between Options A and B, or
You come home to discover that your roommate has left their dirty dishes in the sink (again!). Why might you be likely to leave your own dirty dishes in the sink (which you know annoys your
The market shown in Figure 6P-9 is in equilibrium. Suppose there is a $15 per unit subsidy given to buyers.a. Draw the after-subsidy demand curve.b. Plot the after-subsidy price paid by consumers and
Consider the market shown in Figure 6P-1. The government has imposed a price ceiling at $18.a. At a price ceiling of $18, what is quantity demanded? Quantity supplied?b. At this price ceiling, is
Based on Figure 5P-8, choose all of the following options that are true.a. The market is efficient.b. Total surplus is higher than it would be at market equilibrium.c. Total surplus is lower than it
Answer the following questions based on Tables 5P-3 and 5P-4. a. What is the quantity demanded at $10? What is the quantity supplied at $10?b. What is the quantity demanded at $25? What is the
Consider a market in equilibrium. Suppose supply in this market increases. How will this affect consumer surplus? Explain.
Consider a market in equilibrium. Suppose demand in this market decreases. How will this affect producer surplus? Explain.
Based on Figure 5P-2, consumer surplus is $0 when price is greater than or equal to what price?Figure 5P-2: Price ($) 16 15 14 - 13 - 12 - 11 10 8 5 4 2 D 10 30 20 40 50 60 70 90 100 Quantity
Use the market represented in Figure 5P-2 to plot the equilibrium price and quantity and to draw the consumer surplus when the market is in equilibrium. What is the value of consumer surplus at the
Use the market represented in Figure 5P-2 to draw the consumer surplus when the price is $5. What is the value of consumer surplus at this price?Figure 5P-2: Price ($) 15 14 13 12 11 10 4 3 30 10 20
Based on Table 5P-6, calculate producer surplus for each producer when the price is $20. What is total producer surplus at this price?Table 5P-6: Buyer A в DE $14 $30 Willingness to pay for one unit
Consider the market represented in Figure 5P-7.a. Draw the consumer surplus and the producer surplus at the equilibrium price and quantity. What is the value of total surplus at equilibrium?b. Draw
Based on Figure 5P-2, producer surplus is $0 when price is less than or equal to what price?Figure 5P-2: Price ($) 15 14 13 12 11 10 De 10 20 60 70 80 100 30 40 50 90 Quantity
Use the market represented in Figure 5P-4 to draw the consumer and producer surplus when the market is in equilibrium. What is the value of total surplus at equilibrium?Figure 5P-4: Price ($) 50 45
Figure 5P-10 shows a market for cotton, with the price held at $0.80 per pound. Calculate the dead-weight loss caused by this policy.Figure 5P-10: Price ($) 1.1- 1.0 0.9 Price = $0.80 0.8 0.7 0.6 0.5
We can consider the market for traveling to Mars to be missing, because no technology exists that allows this service to be bought and sold. Suppose that someone has invented space-travel technology
Consider the market shown in Figure 6P-4. The government has imposed a price floor at $36.a. At a price floor of $36, what is quantity demanded? Quantity supplied?b. At this price floor, is there a
In the United States, many agricultural products (such as corn, wheat, and rice) are subsidized. What are the potential benefits of subsidizing these products? What are the costs?
The market shown in Figure 6P-5 is in equilibrium. Suppose there is a $15 per unit tax levied on sellers.a. Draw the after-tax supply curve.b. Plot the after-tax price paid by consumers and the
The market shown in Figure 6P-6 is in equilibrium. Suppose there is a $1.50 per unit tax levied on sellers.Figure 6P-6:a. Draw the after-tax supply curve.b. Plot the after-tax price paid by consumers
Suppose the government is considering taxing cigarettes. Because it is often politically more popular to tax the producers of cigarettes than the consumers of cigarettes, the government first
Suppose that in addition to being a college student, you run your own business and earn $35,000 per year. Your friends are all in college, and their average annual income is $10,000 per year. When
Refer to the budget constraint for jeans and T-shirts in Figure 7P-1. Which of the following consumption bundles is attainable?a. 3 pairs of jeans, 1 T-shirt.b. 2 pairs of jeans, 4 T-shirts.c. 2
In each of the following instances, determine whether quantity supplied will increase or decrease, and by how much.a. If price elasticity of supply is 1.3 and price increases by 2 percent, quantity
If the price of a haircut is $15, the number of haircuts provided is 100. If the price rises to $30 per haircut, barbers will work much longer hours, and the supply of haircuts will increase to 300.
Suppose that Canada produces two goods: lumber and fish. It has 18 million workers, each of whom can cut 10 feet of lumber or catch 20 fish each day.a. What is the maximum amount of lumber Canada
Consider the market for cars. Which determinant of supply is affected by each of the following events? Choose from: prices of related goods, technology, prices of inputs, expectations, and the number
Which of the following events will occur at a price of $20?a. Equilibrium. b. Excess demand. c. Excess supply. d. No pizzas supplied. e. No pizzas demanded.The graph shows the
Which of the following events will occur at a price of $10?a. Equilibrium. b. Excess demand. c. Excess supply. d. No pizzas supplied. e. No pizzas demanded.The graph shows the
The market shown in Figure 6P-10 is in equilibrium. Suppose there is a $15 per unit subsidy given to sellers.a. Draw the after-subsidy supply curve.b. Plot the after-subsidy price paid by consumers
The market shown in Figure 6P-12 is in equilibrium. Suppose there is a $1.50 per unit subsidy given to buyers.a. Draw the after-subsidy demand curve.b. Plot the after-subsidy price paid by consumers
The market shown in Figure 6P-13 is in equilibrium. Suppose there is a $3 per unit subsidy given to buyers.a. Draw the after-subsidy demand curve.b. Plot the after-subsidy price paid by consumers and
The market shown in Figure 6P-14 is in equilibrium. If a tax was imposed on this market, would buyers or sellers bear more of the burden of the tax? Why?
In each of the following instances, determine whether supply is elastic, inelastic, or unit‐elastic.a. If price increases by 10 percent and quantity supplied increases by 15 percent, supply is
Use the graph in Figure 4P-3 to calculate the price elasticity of supply between points A and B using the mid-point method.
Name two related goods you consume that would have a positive cross-price elasticity. What happens to your consumption of the second good if the price of the first good increases?
Refer to the demand schedule shown in Table 4P-1. For each price change, say whether demand is elastic, unit-elastic, or inelastic, and say whether total revenue increases, decreases, or stays the
Refer to the demand schedule shown in Table 4P-1. For each price change, say whether demand is elastic, unit-elastic, or inelastic, and say whether total revenue increases, decreases, or stays the
In each of the following instances, determine whether quantity demanded will increase or decrease, and by how much.a. If price elasticity of demand is -1.3 and price increases by 2 percent, quantity
In each of the following instances, determine whether demand is elastic, inelastic, or unit-elastic.a. If price increases by 10 percent and quantity demanded decreases by 15 percent, demand is
Explain why the coffee shop manager should calculate elasticity using the mid-point method.
When the price of a bar of chocolate is $1.00, the quantity demanded is 100,000 bars. When the price rises to $1.50, the quantity demanded falls to 60,000 bars. Calculate the price elasticity of
You are advising a coffee shop manager who wants to estimate how much sales will change if the price of a latte rises. You tell him that he should measure the change in sales using the percentage
The graph shows the weekly market for pizzas in a small town. Use this graph to answer Problem.Graph:What are the equilibrium price and quantity of pizzas? Price (S) 30아 25 20 15 10 5 D 50 100 150
If a decrease in the price of laptops causes the demand for tablets to increase, are laptops and tablets substitutes or complements?
You and another volunteer are in charge of a bake sale for a local charity, at which you are planning to sell cookies and cupcakes. Suppose you have a comparative advantage at baking cookies, and the
You and another volunteer are in charge of a bake sale for a local charity, at which you are planning to sell cookies and cupcakes. What would it mean for you or the other volunteer to have a
You and another volunteer are in charge of a bake sale for a local charity, at which you are planning to sell cookies and cupcakes. What would it mean for one of you to have an absolute advantage at
Write a positive statement and a normative statement about your favorite hobby.
Would a good economic model be more likely to address a positive statement or a normative statement? Why?
Why is it important for a good economic model to make clear assumptions?
Why is it important for a good economic model to predict cause and effect?
According to data from the U.S. Department of Energy, sales of the fuel-efficient Toyota Prius hybrid fell from 194,108 vehicles sold in 2014 to 180,603 in 2015. Over the same period, according to
LifeStrategy Conservative Growth and Energy are two portfolios constructed and managed by the Vanguard Group of mutual funds, comprised of stocks of conservatively managed U.S. companies and stocks
According to the FBI’s Uniform Crime Reports, approximately 1 in 379 cars was stolen in the United States in 2014. Beth owns a car worth $20,000 and is considering purchasing an insurance policy to
In 2015, national income in the United States was $15,665.3 billion. In the same year, 148.8 million workers were employed, at an average wage, including benefits, of $62,187 per worker per year.a.
The American National Election Studies conducts periodic research on the opinions of U.S. voters. The accompanying table shows the percentage of people, in selected years from 1952 to 2012, who
The accompanying table shows data on the total number of people in the United States and the number of all people who were uninsured, for selected years from 2003 to 2015. It also shows data on the
The accompanying table presents data from the U.S. Census Bureau on median and mean income of male workers for the years 1972 and 2015. The income figures are adjusted to eliminate the effect of
Use these steps to find the antitrust claim made by the Justice Department to prevent the merger of Anheuser-Busch InBev and Grupo Modelo. Refer to the antitrust claim to answer the questions that
In 2011, the Justice Department rejected AT&Ts proposal to purchase T-Mobile for $39 billion due to anticompetitive concerns. A few years later, Sprint launched its own attempt to
In 2015, Anheuser-Busch InBev offered $104.2 billion to acquire SABMiller. The U.S. Justice Department approved the merger, but only after the two beer giants agreed to sell off a number of brands,
Schick and Gillette spend huge sums of money each year to advertise their razors in an attempt to steal customers from each other. Suppose each year Schick and Gillette have to decide whether or not
The accompanying table presents market share data for the U.S. breakfast cereal market.Company
For people with life-threatening allergies, carrying a device that can automatically inject epinephrine (called an autoinjector) is a necessity. In the summer of 2016, Mylan, the maker of the widely
Walmart is the world’s largest retailer. As a consequence, it has sufficient bargaining power to push its suppliers to lower their prices so it can honor its slogan of “Save Money—Live
The production of agricultural products like wheat is one of the few examples of a perfectly competitive industry. In this question, we analyze results from a study released by the U.S. Department of
Labor costs represent a large percentage of total costs for many firms. According to data from the Bureau of Labor Statistics, U.S. labor costs were up 2.0% in 2015, compared to 2014.a. When labor
According to data from the U.S. Department of Energy, the average retail price of regular gasoline rose from $1.16 in 1990 to $2.52 in 2015, a 117% increase.a. Other things equal, describe the effect
Bruno, the consumer in Problem 3, is best friends with Bernie, who shares his love for energy bars and smoothies. The accompanying table shows Bernies utilities from smoothies and energy
The drug company Pfizer is considering whether to invest in the development of a new cancer drug. Development will require an initial investment of $10 million now; beginning one year from now, the
Suppose that a major city’s main thoroughfare, which is also an interstate highway, will be completely closed to traffic for two years, from January 2018 to December 2019, for reconstruction at a
Over the past five years the United States has become the world’s largest producer of natural gas. But gas producers have struggled to find methods to liquefy natural gas so that it can be exported
Once again, using the OEC website from Problems 9 and 10, identify which country has a comparative advantage for each of the following goods. For each good, include the country’s share of global
Comparative advantage creates an opportunity for less productive economies like Bangladesh to trade with more productive economies like the United States. Using the OEC website from Problem 9, how
The Observatory of Economic Complexity (OEC) is a data visualization that models international trade data among countries. Go to the website at atlas.media.mit.edu to answer the following
According to data from the U.S. Census Bureau, since 2000, the value of U.S. imports of men’s and boy’s apparel from China has more than tripled from a relatively small $244 million in 2000 to
All states impose excise taxes on gasoline. According to data from the Federal Highway Administration, the state of California imposes an excise tax of $0.40 per gallon of gasoline. In 2015, gasoline
The United States imposes an excise tax on the sale of domestic airline tickets. Lets assume that in 2015 the total excise tax was $6.10 per airline ticket (consisting of the $3.60 flight
A 2015 article published by the American Journal of Preventive Medicine studied the effects of an increase in alcohol prices on the incidence of new cases of sexually transmitted diseases. In
In the United States, 2015 was a bad year for growing wheat. And as wheat supply decreased, the price of wheat rose dramatically, leading to a lower quantity demanded (a movement along the demand
Many college students attempt to land internships before graduation to burnish their resumes, gain experience in a chosen field, or try out possible careers. The hope shared by all of these
For the last 80 years the U.S. government has used price supports to provide income assistance to American farmers. To implement these price supports, at times the government has used price floors,
In many European countries high minimum wages have led to high levels of unemployment and underemployment, and to a two-tier labor system. In the formal labor market, workers have good jobs that pay
In 2014, the U.S. House of Representatives approved a new farm bill establishing the Margin Protection Program (MPP) for dairy producers. The MPP supports dairy farmers when the margin between feed
The accompanying diagram shows the demand and supply curves for taxi rides in New York City.a. At E1 the market is at equilibrium with 600 million miles of rides transacted at an equilibrium price of
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