Questions and Answers of Modern Principles Of Microeconomics

What is a tradeoff? Give three examples of tradeoffs that you face in your life.
Is a point inside the production possibilities frontier efficient and feasible?a. Efficient but not feasibleb. Feasible but not efficientc. Both efficient and feasibled. Neither efficient nor feasible
Which of the following describes a linear, downwardsloping demand curve?a. Inelasticb. Unit elasticc. Elasticd. Inelastic at some points and elastic at others
Once again, in an hour, Ken can wash 2 cars or mow 1 lawn, and Ron can wash 3 cars or mow 1 lawn. Who has the comparative advantage in car washing, and who has the comparative advantage in lawn
Which of the following is maximized by an efficient allocation of resources?a. Consumer surplusb. Producer surplusc. Consumer surplus plus producer surplusd. Consumer surplus minus producer surplus
What does the circular-flow diagram illustrate in terms of markets for the factors of production?a. Households are sellers and firms are buyers.b. Households are buyers and firms are sellers.c.
In what ways is economics like a science?
Suppose Canadians decide to save more of their incomes. If banks lend this extra saving to businesses, which use the funds to build new factories, how might this lead to faster growth in
What is inflation, and what causes it?
Nations with corrupt police and court systems typically have lower standards of living than nations with less corruption. Why might that be the case?
The welfare system provides income for people who are very poor, with low incomes and few assets. If a recipient of welfare payments decides to work and earn some money, the amount he or she receives
When policymakers make policies that change the costs and benefits that people face, what is the result for society?a. People's behaviours are alteredb. People ignore incentivesc. Inflation occursd.
Which of the following describes a marginal change?a. One that is NOT important for public policyb. One that incrementally alters an existing planc. One that makes an outcome inefficientd. One that
What is the opportunity cost of seeing a movie?
The price of coffee rose sharply last month, while the quantity sold remained the same. Each of five people suggests an explanation:Who could possibly be right?a. Tom, Dick, and Harryb. Tom, Dick,
An increase in the supply of a good will decrease the total revenue producers receive in which of the following circumstances?a. The demand curve is inelasticb. The demand curve is elasticc. The
When the government imposes a binding price floor, it causes which of the following to occur?a. The supply curve to shift to the leftb. The demand curve to shift to the rightc. A shortage of the good
In a market with a binding price ceiling, an increase in the ceiling will __ the quantity supplied, __ the quantity demanded, and reduce the __ .a. Increase, decrease, surplusb. Decrease, increase,
A $1 per unit tax levied on consumers of a good is equivalent to which of the following?a. A $1 per unit tax levied on producers of the goodb. A $1 per unit subsidy paid to producers of the goodc. A
Which of the following would increase quantity supplied, decrease quantity demanded, and increase the price that consumers pay?a. The imposition of a binding price floorb. The removal of a binding
Which of the following would increase quantity supplied, increase quantity demanded, and decrease the price that consumers pay?a. The imposition of a binding price floorb. The removal of a binding
When a good is taxed, in which scenario does the burden of the tax fall mainly on consumers?a. When the tax is levied on consumersb. When the tax is levied on producersc. When supply is inelastic and
When the price of a good increases, the quantity demanded _______ When the price of a good decreases, the quantity demanded ______
In recent years, Zimbabwe has had hyperinflation, with prices tripling (or more!) every month. According to what you learned in this chapter, what do you think the government can do to end this
When bad weather in India destroys the crop, does this sound like a fall in the total “supply” of crops or a fall in people’s “demand” for crops? Keep your answer in mind as you learn about
Some problems that economists try to solve are easy as economic problems but hard as political problems. Medical doctors face similar kinds of situations: Preventing most deaths from obesity or lung
How much did national output fall during the Great Depression? According to the chapter, which government agency might have helped to avoid much of the Great Depression had it acted more quickly and
Let’s connect Big Ideas Six and Nine: Do you think that people in poor countries are poor because they don’t have enough money? In other words, could a country get richer by printing more pieces
The chapter lists four things that entrepreneurs save and invest in. Which of the four are actual objects, and which are more intangible, like concepts or ideas or plans? Feel free to use Wikipedia
Who has a better incentive to work long hours in a laboratory researching new cures for diseases: a scientist who earns a percentage of the profits from any new medicine she might invent, or a
Opportunity cost is one of the tougher ideas in economics. Let’s make it easier by starting with some simple examples. In the following examples, find the opportunity cost: Your answer should be a
Michael is an economist. He loves being an economist so much that he would do it for a living even if he only earned $30,000 per year. Instead, he earns $80,000 per year.
When will people search harder for substitutes for oil: When the price of oil is high or when the price of oil is low?
The economist Bryan Caplan recently found a pair of $10 arch supports that saved him from the pain of major foot surgery. As he stated on is blog (econlog.econlib.org), he would have been willing to
For most young people, working full-time and going to school are substitutes: You tend to do one or the other. When it’s tough to find a job, does that raise the opportunity cost of going to
What are three things that you’ll buy less of once you graduate from college and get a good job? What kinds of goods are these called?
The industrial areas in northeast Washington, D.C., were relatively dangerous in the 1980s. Over the last two decades, the area has become a safer place to work (although there are still several
When is a pharmaceutical business more likely to hire highly educated, cutting-edge workers and use new, experimental research methods: When the business expects the price of its new drug to be low
Imagine that a technological innovation reduces the costs of producing high-quality steel. What happens to the supply curve for steel?
Do taxes usually increase the supply of a good or reduce the supply?
Suppose the market for batteries looks as follows:What are the equilibrium price and quantity? Price $7 4t 2 10 20 30 Supply Demand Quantity
If the price in a market is above the equilibrium price, does this create a surplus or a shortage?
When the price is above the equilibrium price, does greed (in other words, self-interest) tend to push the price down or up?
Jon is on eBay, bidding for a first edition of the influential Frank Miller graphic novel Batman: The Dark Knight Returns. In this market, who is Jon competing with: the seller of the graphic novel
Now, Jon is in Japan, trying to get a job as a full-time translator; he wants to translate English TV shows into Japanese and vice versa. He notices that the wage for translators is very low. Who is
What happened in Vernon Smith’s lab? Choose the right answer:a. The price and quantity were close to equilibrium but gains from trade were far from the maximum.b. The price and quantity were far
When supply falls, what happens to quantity demanded in equilibrium? (This should get you to notice that both suppliers and demanders change their behavior when one curve shifts.)
In recent years, there have been news reports that toys made in China are unsafe. When those news reports show up on CNN and Fox News, what probably happens to the demand for toys made in China? What
Henry Ford famously mass-produced cars at the beginning of the twentieth century, starting Ford Motor Company. He made millions because mass production made cars cheap to make, and he passed some of
In the world of fashion, the power to imitate a trendy look is the power to make money. Stores such as H&M and Forever 21 focus on imitating fashions wherever possible: As soon as they see that a
A lot of American action movies are quests to eliminate a villain. If in real life, villains are elastically supplied (like guns for buyback programs), should we care whether the hero captures a
Andy enters into a futures contract, allowing him to sell 5,000 troy ounces of gold at $1,000 per ounce in 36 months. After that time passes, the market price of gold is $950 per troy ounce. How much
For you, personally, what is your opportunity cost of doing this homework?
Suppose you are bidding on a used car and someone else bids above the highest amount that you are willing to pay. What can you say for sure about that person’s monetary value of the good compared
You manage a department store in Florida, and one winter day you read in the newspaper that orange juice futures have fallen dramatically in price. Should your store stock up on more sweaters than
When a price ceiling is in place keeping the price below the market price, what’s larger: quantity demanded or quantity supplied? How does this explain the long lines and wasteful searches we see
If a government decides to make health insurance affordable by requiring all health insurance companies to cut their prices by 30%, what will probably happen to the number of people covered by health
Between 2000 and 2008, the price of oil increased from $30 per barrel to $140 per barrel, and the price of gasoline in the United States rose from about $1.50 per gallon to more than $4.00 per
Business leaders often say that there is a “shortage” of skilled workers, and so they argue that immigrants need to be brought in to do these jobs. For example, an AP article was entitled “New
A review of the jargon: Is the minimum wage a “price ceiling” or a “price floor”? What about rent control?
You’ve been hired as a management consultant to four different companies in competitive industries. They’re each trying to figure out if they should produce a little more output or a little bit
Suppose that two industries, the pizza industry and the calzone industry, are equally risky, but rates of return on capital investments are only 5% in the pizza industry and 8% in the calzone
Which of the following is true when a monopoly is producing the profit-maximizing quantity of output? More than one may be true.Marginal revenue = Average costTotal cost = Total revenuePrice =
True or false? A business that price-discriminates will generally charge some customers more than marginal cost, and it will generally charge other customers less than marginal cost.
Two customers, Fred and Lamont, walk into Grady’s Used Pickups. Who probably has a more inelastic demand for one of Grady’s pickups: people like Lamont, who are good at shopping around, or people
a. When will a firm find it easier to price-discriminate: before the existence of eBay or afterward?b. Which of the two “principles of price discrimination” does this invoke?
As we saw in this chapter, drug companies often charge much more for the same drug in the United States than in other countries. Congress often considers passing laws to make it easier to import
There are people who absolutely must have the latest fashions. Can you classify them as probably having elastic or inelastic demand?
Where are you more likely to see businesses “bundling” a lot of goods into one package: in industries with high fixed costs and low marginal costs (like computer games or moviemaking), or in
When will a monopoly create more output: when it is allowed to and can perfectly price-discriminate or when the government bans price discrimination?
When is a pharmaceutical company more likely to spend $100 million to research a new drug: when it knows it will be able to charge different prices in different countries or when it knows that it
Fill in the blanks with “=,” “<,” or “>” as appropriate to describe the long-run outcome in a monopolistically competitive market.a. MC ____ ACb. P ____ ACc. MR ____ MCd. P _____ MC
According to the theory of compensating differentials, which low-skilled jobs in the United States will tend to pay the most:a. The safe jobs or the dangerous jobs?b. The fun jobs or the boring
As mentioned, OSHA fines companies for unsafe workplaces. At the same time, the labor market also “fines” companies that give their workers dangerous jobs. The fines of the marketplace are larger
True or false? Morticians are paid lower wages than other workers because very few people want to work with dead bodies.
Which of the following is the smallest fraction of the U.S. federal budget? Which are the two largest categories of federal spending?WelfareInterest on the federal debtDefenseForeign aidSocial
Perhaps it was in elementary school that you first realized that if everyone in the world gave you a penny, you’d become fantastically rich. This insight is at the core of modern politics. Sort the
Should responsible adults be allowed to sell a kidney? Why or why not? If so, what restrictions would you place on such sales, if any?
One of Nozick’s arguments against utilitarianism was the “utility monster”: a person who always gets enormous happiness from every extra dollar, more happiness than anyone else in society. If
The line between “having a meddlesome preference” and “recognizing an externality” is not always clear. Both are ways of saying, “What you’re doing bothers me.” As we used it in this
Let’s do something boring just to drive home a point: Count up the number of years in Figure 23.1 in which more than half of the mutual funds managed to beat the S&P 500 index. (Recall that the
Philosopher Alastair Norcross poses the following question. Suppose that 1 billion people are suffering from a moderately severe headache that will last a few hours. The only way to alleviate their
If the rich countries were able to send individual cash payments to people in poor countries, bypassing possibly corrupt governments, would you let rich countries pay people in poor countries to take
You would probably sacrifice yourself to save all of humanity, but you probably wouldn’t sacrifice yourself to save the life of one random stranger. What number is your cutoff: How many lives would
Would a “global utilitarian” (someone who values the utility of everyone in the world equally, without giving more weight to people in their own country) who lives in America want more immigrants
What do you think best describes the reason that trade in recreational drugs is illegal: fear of exploitation, meddlesome preferences, notions of fairness, paternalism, concerns about equality, or
Some people feel inequality is justified if the people with unequal outcomes accepted risks voluntarily; it was simply the case that some won and some lost. Imagine two people, each spending $10,000
Mr. Wolf calls you with what he says is a tremendous opportunity in the stock market. He has inside knowledge about a pharmaceutical company and he says that the price will go up tomorrow. Of course,
How is “stock market diversification” like putting money in a bank account?
In the United States, high-level corporate officials have to publicly state when they buy or sell a large number of shares in their own company. They have to make these statements a few days after
Let’s see how fees can hurt your investment strategy. Let’s assume that your mutual fund grows at an average rate of 7% per year—before subtracting the fees. Using the rule of 70:a. How many
a. If you talk to a broker selling the high-fee mutual fund, what will he or she probably tell you when you ask them, “Am I getting my money’s worth when I pay your high fees?”b. According to