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microeconomics principles

Questions and Answers of Microeconomics Principles

Two types of individuals are seeking health insurance: skydivers and groundhuggers. Skydivers have a 75% chance of suffering an injury in a given year; groundhuggers have a 25% chance of suffering an
Divorce is often very costly to all parties involved. Recently, Safeguard Guaranty Corporation began offering divorce insurance that helps defray the financial hit imposed by a divorce. Divorce
Simon, a self-made millionaire, owns the world’s most extensive collection of artisan garden gnomes. His collection is very attractive to thieves, so Simon takes costly measures to protect his
Most workplaces are subject to federal minimum wage guidelines, but restaurants are not. Currently, restaurant owners are required to pay waiters and waitresses only $2.13 per hour, provided that
The craft beer industry is highly competitive. The industry short-run supply curve is given by P = 1 + 0.5Q, where Q is measured in millions of barrels. The inverse demand for craft beer is P =
A number of competing bakeries in a trendy downtown neighborhood produce fresh cookies. The demand for cookies in that neighborhood is P = 16 – 0.25Q, where Q is the dozens of cookies baked each
You’ve just acquired a sweet new ride and are trying to determine how to protect your wheels from theft. You’re considering purchasing the Club, a large steel bar that locks to your steering
Goods that are accompanied by negative externalities are priced lower than is socially ideal. But, oddly, goods that are accompanied by positive externalities are also priced lower
The past decade has seen the growing popularity of genetic testing services like Ancestry.com and 23andMe. Those services profile your DNA, determine your likely ancestry, and can even link you to
The Pigouvian tax works by forcing polluters to pay for the costs they impose on others, to “internalize the externality.” Explain how the cap-and-trade system also forces polluters to
Subscription boxes are all the rage these days. Subscribers pay a small fee and receive a box each month containing music, clothing, electronics, food—you name it! A teenager named Juliette signed
Economics professor Alan is at his wit’s end. Each year, before his first microeconomics exam, he tells his students that they’ll need to memorize the formula for the price elasticity of demand.
On the popular TV show Who Wants to Be a Millionaire contestants answer a series of multiple-choice trivia questions of increasing difficulty. With each question, their earnings grow; contestants are
Brick and mortar retailer JCPenney was well known for its weekly sales, in which certain clothes, shoes, jewelry, and home goods would be heavily advertised at discount prices. In 2012, struggling to
Siblings Sacha and Simon love basketball—and there’s nothing better for a basketball fan than March Madness! If they had the chance to attend an NCAA tournament game today, each would value an
In 1997, Sony introduced the DVD player, replacing the VHS videotape and shepherding in a new era of high-definition movie viewing. Soon, there were over 100 different player models competing. DVD
The annual demand for full-spectrum LED light bulbs in Fairbanks, Alaska, is estimated to be Qb = 20,000 -1,000P. The supply is estimated to be Qs = -12,000 + 3,000P. a. Find the
Suppose that Jo has an inverse demand for frogs? legs given by p = 3/Qb,?while Kyle?s inverse demand for frogs? legs is given by P = 4 ? Qb. Graphs of each consumer?s demand curve are shown
In both the United States and France, the demand for haircuts is given by Qb = 300 – 10p. But in the United States, the supply is given by Qs = -300 + 20p, while in France, the supply is given by
In the United States, the biggest shopping day each year is “Black Friday,” the day after Thanksgiving. Every Black Friday, the local branch of a major retailer makes this offer to the public:
The inverse demand for carbon-steel chef’s knives is given by p = 120 – 1/2QD, where P is the price of a chef’s knife and QD is the quantity of chef’s knives desired per week,
The market for whisky in Scotland is described by the following demand and supply equations: where P is the price of a liter of whisky and Q is the number of liters sold per week, in thousands.
Bitcoin and other cryptocurrencies are demanded by those who wish to use them to complete transactions or those who wish to speculate on their future value. Bitcoins are supplied by thousands of
A large urban hospital produces solid waste. The table below shows the hospital’s marginal cost of reducing waste and the marginal benefit to society of doing so.Tonnes of waste
CopyCentral provides commercial photocopying services. This profit-maximizing firm purchases copy machines that each have a lifespan of three years, after which they have no value. A machine
Each of the problems below provides practice with present value calculations.a. At an annual interest rate of 3.5 percent, what is the present value of a single payment of $1000 to be received one
Wintertown Snow Removal Co. purchases snowplows for its residential snow clearing business. The purchase price of an additional snowplow is currently $50 000 and it is expected to produce a stream of
Consider a small, remote town with only one employer—a pulp and paper mill. Suppose there are currently 600 workers, each of whom is paid $5000 per month. In order to attract one additional worker,
Suppose there are two types of restaurant workers?high-skill chefs and low-skill servers. There are 1000 males and 1000 females in the labour force, and each group has an identical distribution
Each scenario below provides the price and output level at which a single-price monopolist is currently operating. In each case, determine the firm’s profit per unit, the firm’s total profit, and
The diagram below shows the demand curve facing a single-price monopolist. The firm is currently at point A on the demand curve, selling 20 units of output at a price of $160 per unit. a. Calculate
In this chapter we discuss several types of entry barriers that could allow a firm to maintain some monopoly power. For each of the cases below, describe the type of entry barrier that appears to be
Larry?s Linens produces white cloth napkins for restaurants in a perfectly competitive market. The table in the next column shows output and total costs for one day of production. a. Complete the
Hilda’s Handbags Inc. is incurring total costs of production in the short run of $30 000 per day. The firm’s average variable cost equals $100 per unit and its average fixed cost equals $50 per
Each of the following situations describes a firm’s production andcosts during a given year.a. Firm A is producing 20 000 units of output, incurring a total cost of $1000 000 and total variable
Consider the revenues and costs in 2019 for Spruce Decor Inc., an Alberta-based furniture company entirely owned by Mr. Harold Buford.Furniture Sales$ 645 000Catalogue Sales$ 12 000Labour Costs$ 325
The cost curves for a firm producing a digital product such as an app or an online course or an e-book are quite different than those of a firm producing a physical product such as clothing or food
An electronic-parts manufacturer with U-shaped short-run cost curves is producing 10 000 units per month and has short-run costs as follows:AT C = $6.50AV C = $4.50AF C = $2.00MC = $6.90a. At this
Suppose LeBron James (an NBA star) averages 25 points per game going in to the last game of the season, in which he collects only 12 points. Use the concepts of marginal and average to describe the
Timber Products Inc. processes raw lumber into finished building products. The capital equipment used to mill the wood requires at least 8 workers if the firm is to produce output at the lowest
For each of the costs listed below, identify whether it is an explicit or implicit cost to a firm. Which costs would be subtracted from a firm’s total revenue to calculate economic profit, and
Use the following diagram to answer the questions below about marginal and total utility for the consumption of Good X. a. What is the total utility of consuming 500 units of the good? 600 units?
Luc allocates his total monthly household expenditures between only two goods, restaurant meals and “all other goods.” Suppose the price of each restaurant meal is $20 and the price of each unit
The diamond–water paradox is the classic example of the paradox of value, but the concept can be applied to many other market situations. Show in a diagram and explain why a cardiac surgeon earns
Consider your sets of indifference curves fori. Coke and chipsii. Coke and PepsiExplain why these sets of indifference curves are likely to look different. Illustrate with a diagram. What does this
Debra travels to Mexico and enjoys both burritos and Coronas. The diagram shows her utility-maximizing choices. a. If the budget line is line 1, describe why point A is Debra?s utility-maximizing
Consider Katie’s preferences for magazines and ice cream cones. Several “consumption bundles” are shown in the table below.BundleIce Cream ConesMagazinesa90b72c62d53e44f43g34h26i06a. On a scale
Consider the market for some product X that is represented in the following demand-and-supply diagram. a. Calculate the total economic surplus in this market at the free-market equilibrium price and
Consider the market for some product X that is represented in the following demand-and-supply diagram. For each of the legislated price controls listed in the next column, determine the price and
The diagram below shows supply and demand curves in the Canadian market for soybeans. The free market equilibrium and quantity are p* and Q*. a. If the price of soybeans is at its market-clearing
The diagrams below show the supply and demand curves in the market for widgets. In each diagram the free market equilibrium price and quantity are p* and Q*. a. In the first diagram, if the price
Suppose a local government votes to impose an excise tax of $1.00 per bottle on the sales of bottled water. (Assume that all bottles are identical and residents cannot shop elsewhere.) Before the
Suppose you are advising an industry association on the predicted effects of a price change on quantity demanded and total expenditure on their product. The current price is $1.00 per unit, and
Excise taxes are sometimes referred to as “sin taxes” when applied to products such as alcohol and cigarettes. Using the concepts of elasticity of demand and supply, explain how we could
Consider the following products:kitchen blendersfibre optic cableneurosurgeryoil tankerssour cream doughnutsrental apartmentsa. Which of these would have the greatest supply elasticity in the short
Assume you have the following information for the global market for agricultural commodity X. For each scenario, use demand and supply analysis to provide a likely explanation for the change in
The following supply and demand schedules describe a hypothetical Canadian market for potash.Price ($Quantity SuppliedQuantity Demanded(million tonnes)per tonne)(million
There has been rapid growth in the demand for the green leafy vegetable kale in recent years, as consumers learned of its health benefits. The demand curve has shifted significantly rightward.
Consider the world supply of cocoa beans, the main input in the production of chocolate. For each of the events listed below, state and explain the likely effect on the supply of cocoa beans. How
The figure below shows a monthly cost curve for the production of Good X. a. Calculate the slope of this non-linear function at points B, and C. b. Is the marginal response of the cost of
Suppose ABC Corp. spends $100 000 per year on some basic level of advertising, regardless of its revenues. In addition, the company spends 15 percent of each dollar of revenue on extra advertising.
The following questions will provide practice working with simple linear functions. All questions refer to a coordinate graph with the variable X on the horizontal axis and the variable Y on the
Use the following figure to answer the questions below. a. Is the slope of Line A positive or negative? Line B? b. Calculate the slope of Line A. Write the equation describing the line in the form
Use the appropriate graph—time-series, cross-sectional, or scatter diagram—to illustrate the economic data provided in each part below.a. The Canadian-dollar price of one U.S. dollar (the
According to Statistics Canada, Canada’s exports and imports of energy (combined totals of fossil fuels, hydro, and nuclear, all measured in petajoules) over a five-year period were as
Suppose you want to create a price index for the price of a personal pizza across several Canadian university campuses, as of March 1, 2019. The data are as
Suppose you want to create a price index for the price of a particular physics textbook over 10 years in your university bookstore. The price of the book on September 1 of each year is as
Suppose that an examination of data reveals a positive correlation between the demand for new homes and the price of lumber. Which of the following conclusions can be correctly inferred from the
For each of the following events, describe the likely effect on the country?s production possibilities boundary (PPB). Start with a PPB like the one shown and draw the likely change. In each case,
Suppose one factory produces residential windows and doors. The following scenarios describe various straight-line production possibilities boundaries for this factory. Each scenario describes the
Suppose you own an outdoor recreation company and you want to purchase all-terrain vehicles (ATVs) for your summer business and snowmobiles for your winter business. Your budget for new vehicles this
For this Discovering Data exercise, go to FRED (fred.stlouisfed.org) to create a line graph that compares poverty rates for different counties across the United States. In the search bar enter
For this Discovering Data exercise, use FRED (fred.stlouisfed.org) to create a graph comparing exports from California, Florida, Michigan, Pennsylvania, and Washington to China. In the search bar
For this Discovering Data exercise, use FRED (fred.stlouisfed.org) to create a graph comparing the sources of government tax revenue for the United States over time. Under the tools tab select
The price of a serving of McDonald’s French fries in 1950 was 10¢. Using the Internet, or visiting a McDonald’s, determine the price of fries today. The federal government’s urban CPI index is
Go to eBay.com or another auction site. Find the bidding record from a completed (or nearly completed) auction on a type of good that interests you.a. Create a table showing each bidder’s maximum
A firm’s production function is Cobb-Douglas: q = ALaKb. What is the firm’s marginal revenue product of labor?
After Hurricane Katrina destroyed much of New Orleans, the Louisiana Road Home rebuilding grant program helped individuals pay for rebuilding their homes. Fu and Gregory (2016) estimated that each
How can Larry signal that he is selling a good car so that you are willing to pay Larry the price that he knows his car is worth, and a higher price than what you are willing to offer Harry?Larry has
What are Jimmy’s and Zenda’s expected utilities from a bet that gives them a 50 percent chance of having a wealth of $600 and a 50 percent chance of having nothing? Zenda's Jimmy's utility Wealth
After you have studied Economics in the News on pp. 462–463, answer the following questions.a. What is the trend in top executive pay?b. How can the idea of a contest among potential top executives
Is the Gini ratio for Australia larger or smaller than that for Brazil and South Africa? Explain your answer.Households (quintile)Market income (percent of
The table shows money income shares in the United States in 2001.Draw a U.S. Lorenz curve in 2001. Was the U.S. distribution of income more equal in 2001 than in 2012? Explain your answer.Households
After you have studied Economics in the News on pp. 410–411, answer the following questions:a. What are the marginal private costs of and marginal private benefits from using gas rather than coal
If no one owns the lake and the government levies a pollution tax, what is the tax that achieves the efficient outcome?When factories produce pesticide, they also create waste, which they dump into a
After you have studied Economics in the News on pp. 386–387, answer the following questions:a. What is the source of revenue for constructing and maintaining the transportation infrastructure?b.
If the government decides to subsidize health insurance (like Obamacare), what subsidy will achieve the efficient coverage?The marginal cost of health insurance is a constant $8,000 a year and the
If the government decides to provide public health insurance (like Canada), what healthcare fee does it charge to achieve an efficient coverage? How much will taxpayers have to pay? The
If all health insurance is private and the market for insurance is competitive, how many families are covered, what is the premium, and what is the deadweight loss created?The marginal cost of health
A last-minute enrollment surge enabled the White House to meet its 7 million sign-up target for the Affordable Care Act. President Barack Obama said on Tuesday that 7.1 million people had signed up
If the government gave coverage to everyone what problems would arise in the related market for healthcare services?The marginal cost of insurance is a constant $6,000 per family per year. Marginal
If the government subsidizes private insurers, what subsidy will achieve the efficient coverage? The marginal cost of insurance is a constant $6,000 per family per year. Marginal social benefit
If the government provides healthcare to achieve the efficient coverage, how many families are covered and how much must taxpayers pay? The marginal cost of insurance is a constant $6,000 per
With no public health insurance market, how many families buy insurance, what is the premium, and is the coverage efficient? The marginal cost of insurance is a constant $6,000 per family per
If the government appoints a bureaucrat to run the program, would mosquito spraying most likely be under provided, over provided, or provided at the efficient quantity?Quantity (square
For each of the following goods, explain why a free-rider problem arises or how is it avoided.July 4th fireworks displayInterstate 81 in VirginiaWireless Internet access in hotelsThe public library
After you have studied Economics in the News on pp. 360–361, answer the following questionsa. What are the strategies of T-Mobile and AT&T in the market for cellphone service?b. Why, according
After you have studied Economics in the News on pp. 334–335, answer the following questionsa. Why do you think Babolat worked with the firm that helped Nintendo develop the Wii remote? b. How
What will happen to the number of firms producing mountain bikes in the long run?Use Figure 14.2, which shows the situation facing Mike’s Bikes, a producer of mountain bikes, to work Problems 14 to
Does Flight have excess capacity in the long run? If it has excess capacity in the long run, why doesn’t it decrease its capacity? FIGURE 14.1 Problems 5 to 8 100 мС АТС 80 60 40 MR 150 50 100

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