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Economics
Answer the Challenge for the short run rather than for the long run. (The answer depends on where the demand curve intersects the original short-run supply curve.)
In a perfectly competitive market, all firms are identical, there is free entry and exit, and an unlimited number of potential entrants. Now, the government starts collecting a specific tax, how do
The finding that the average real price of abortions has remained relatively constant over the last 25 years suggests that the supply curve is horizontal. Med-off (1997) estimated that the price
Answer the Challenge problem using calculus. (This comparative statics problem is difficult because you will need to solve two or three equations simultaneously, and hence you may need to use matrix
Only a limited amount of high-quality wine-growing land is available. The firms that farm the land are identical. Because the demand curve hits the market supply curve in its upward sloping section,
The reputations of some of the world's most prestigious museums have been damaged by accusations that they obtained antiquities that were looted or stolen in violation of international laws and
Explain the reasoning in the Application "Tiger Woods' Rents" as to why Tiger Woods was able to capture essentially all the rents from some companies but not from others?
For a firm, how does the concept of producer surplus differ from that of profit?
If the supply curve is q = 2 + 2p, what is the producer surplus if the price is 10?
If the supply function is q = ap(, what is the producer surplus if price is p*?
If society cared only about the well-being of consumers so that it wanted to maximize consumer surplus, would a competitive market achieve that goal given that the government cannot force or bribe
Suppose that the market demand for 32-oz. wide mouth Nalgene bottles is Q = 50,000p-1.076, where Q is the quantity of bottles per week and p is the price per bottle. The market supply is Q =
Suppose that the inverse market demand for silicone replacement tips for Sony EX71 earbud headphones is p = pN - 0.1Q, where p is the price per pair of replacement tips, pN is the price of a new pair
The U.S. Department of Agriculture's (USDA) minimum general recommendation is five servings of fruits and vegetables a day. Jetter et al. (2004) estimated that if consumers followed that guideline,
Use an indifference curve diagram (gift goods on one axis and all other goods on the other) to illustrate that one is better off receiving cash than a gift. (See the discussion of gifts in this
The government imposes a restriction on firms that shifts the supply curve in Figure 9.3 so that it intersects the demand curve at e2. Discuss the effects on CS, PS, welfare, and DWL.Figure 9.3 Why
The park service wants to restrict the number of visitors to Yellowstone National Park to Q*, which is fewer than the current volume. It considers two policies: (a) Raising the price of admissions
If the inverse demand function for books is p = 60 - q and the supply function is q = p, what is the initial equilibrium? What is the welfare effect of a specific tax of ( = $2 per unit on the
Suppose that the demand curve for wheat is q = 100 - 10p and the supply curve is q = 10p. The government imposes a price support at p = 6 using a deficiency payment program. a. What is the quantity
Suppose that the demand curve for wheat is Q = 100 - 10p and the supply curve is Q = 10p. The government imposes a price ceiling of p = 3. a. Describe how the equilibrium changes. b. What effect does
The government wants to drive the price of soybeans above the equilibrium price, p1, to p2. It offers growers a payment of x to reduce their output from Q1 (the equilibrium level) to Q2, which is the
What were the welfare effects (who gained, who lost, what was the deadweight loss) of the gasoline price controls described in Chapter 2? Add the relevant areas to a drawing like Figure 2.14.Figure
What are the welfare effects of a binding minimum wage? Use a graphical approach to show what happens if all workers are identical. Then describe in writing what is likely to happen to workers who
A mayor wants to help renters in her city. She considers two policies that will benefit renters equally. One policy is a rent control, which places a price ceiling, p, on rents. The other is a
Suppose that the demand curve for wheat is Q = 100 - 10p and that the supply curve is Q = 10p. What are the effects of a specific tax of ( = 1 per unit on the equilibrium, government tax revenue, CS,
The initial equilibrium is e, where the linear supply curve intersects the linear demand curve. Show the welfare effects of imposing a specific tax (. Now suppose the demand curve becomes flatter,
Suppose that the demand curve for wheat is Q = 100 - 10p and that the supply curve is Q = 10p. What are the effects of a subsidy (negative tax) of s = 1 per unit on the equilibrium, government
Suppose that the government gives rose producers a specific subsidy of s = 11¢ per stem. (Figure 9.5 shows the original demand and supply curves.) What is the effect of the subsidy on the
What is the welfare effect of an ad valorem sales tax, α, assessed on each competitive firm in a market?
What is the long-run welfare effect of a profit tax (the government collects a specified percentage of a firm's profit) assessed on each competitive firm in a market?
What is the welfare effect of a lump-sum tax, ℒ, assessed on each competitive firm in a market?
The United States not only subsidizes producers of cotton (in several ways, including a water subsidy and a price support) but also pays $1.7 billion to U.S. agribusiness and manufacturers to buy
Although 23 states barred the sale of self-service gasoline in 1968, most removed the bans by the mid-1970s. By 1992, self-service outlets sold nearly 80% of all U.S. gas, and only New Jersey and
The U.S. Supreme Court ruled in May 2005 that people can buy wine directly from out-of-state vineyards. The Court held that state laws requiring people to buy directly from wine retailers within the
In Solved Problem 9.4, if the domestic demand curve is Q = 20p-0.5, the domestic supply curve is Q = 5p0.5, and the world price is 5, use calculus to determine the changes in producer surplus,
Based on the estimates of the U.S. daily oil demand function in Equation 9.3 and supply function in Equation 9.4, use calculus to determine the change in deadweight loss from a marginal increase in a
The U.S. government claimed that China and Vietnam were dumping shrimp in the United States at a price below cost, and proposed duties as high as 112%. Suppose that China and Vietnam were subsidizing
Show that if the importing country faces an upward-sloping foreign supply curve (excess supply curve), a tariff may raise welfare in the importing country?
In 2002, Los Angeles imposed a ban on new billboards. Owners of existing billboards did not oppose the ban. Why? What are the implications of the ban for producer surplus, consumer surplus, and
There are many possible ways to limit the number of cabs in a city. The most common method is an explicit quota using a fixed number of medallions that are good forever and can be resold. One
The demand functions for the only two goods in the economy are Q1 = 10 - 2p1 + p2 and Q2 = 10 - 2p2 + p1. There are five units of each good. Solve for the equilibrium: p1, p2, Q1, and Q2?
The demand functions for each of two goods depend on the prices of the goods, p1 and p2: Q1 = 15 - 3p1 + p2 and Q2 = 6 - 2p2 + p1. However, each supply curve depends only on its own price: Q1 = 2 +
The market demand for medical checkups per day is QF = 25(198 + nC /20,000 - pF), where nC is the number of patients per day who are at least 40 years old, and pF is the price of a checkup. The
The demand curve in Sector 1 of the labor market is L1 = a - bw. The demand curve in Sector 2 is L2 = c - dw. The supply curve of labor for the entire market is L = e + fw. In equilibrium, L1 + L2 =
Initially, all workers are paid a wage of w1 per hour. The government taxes the cost of labor by t per hour only in the "covered" sector of the economy. That is, if the wage workers receive in the
Philadelphia collects an ad valorem tax of 3.928% on its residents' earnings (see the Application "Urban Flight"), unlike the surrounding areas. Show the effect of this tax on the equilibrium wage,
Suppose that the government gives a fixed subsidy of T per firm in one sector of the economy to encourage firms to hire more workers. What is the effect on the equilibrium wage, total employment, and
Competitive firms in Africa sell their output only in Europe and the United States (which do not produce the good themselves). The industry's supply curve is upward sloping. Europe puts a tariff of t
Initially, Michael has 10 candy bars and 5 cookies, and Tony has 5 candy bars and 10 cookies. After trading, Michael has 12 candy bars and 3 cookies. In an Edge-worth box, label the initial
Explain why point e in Figure 10.3 is not on the contract curve?Figure 10.3 Contract Curve
The two people in a pure exchange economy have identical utility functions. Will they ever want to trade? Why or why not?
Two people trade two goods that they cannot produce. Suppose that one consumer's indifference curves are bowed away from the origin-the usual type of curves-but the other's are concave to the origin.
Adrienne and Stephen consume pizza, Z, and cola, C. Adrienne's utility function is UA = ZACA, and Stephen's is UA = Zs0.5 Cs0.5. Their endowments are ZA = 10, CA = 20, ZS = 20, and CS = 10. a. What
Continuing with Exercise 2.5, what are the competitive equilibrium prices, where one price is normalized to equal one?
In a pure exchange economy with two goods, G and H, the two traders have Cobb-Douglas utility functions. Suppose that Tony's utility function is Ut = GtHt and Margaret's utility function is Um =
Continuing with Exercise 2.7, determine p, the competitive price of G, where the price of H is normalized to equal one?
In an Edge-worth box, illustrate that a Pareto-efficient equilibrium, point a, can be obtained by competition, given an appropriate endowment. Do so by identifying an initial endowment point, b,
In panel c of Figure 10.5, the joint production possibility frontier is concave to the origin. When the two individual production possibility frontiers are combined, however, the resulting PPF could
Pat and Chris can spend their non-leisure time working either in the marketplace or at home (preparing dinner, taking care of children, doing repairs). In the marketplace, Pat earns a higher wage, w(
Suppose that Britain can produce 10 units of cloth or 5 units of food per day (or any linear combination) with available resources and that Greece can produce 2 units of food per day or 1 unit of
Modify Solved Problem 10.5 to show that the PPF more closely approximates a quarter of a circle if there are six people. One of these new people, Bill, can produce five cords of wood, or four candy
Mexico and the United States can both produce food and toys. Mexico has 100 workers and the United States has 300 workers. If they do not trade, the United States consumes 10 units of food and 10
A society consists of two people with utilities U1 and U2, and the social welfare function is W = α1U1 + α2U2. Draw a utility possibilities frontier similar to the ones in
Give an example of a social welfare function that leads to the egalitarian allocation that everyone should be given exactly the same bundle of goods?
Suppose that society used the "opposite" of a Rawlsian welfare function: It tried to maximize the wellbeing of the best-off member of society. Write this welfare function. What allocation maximizes
Peaches are sold in a competitive market. There are two types of demanders: consumers who eat fresh peaches and canners. If the government places a binding price ceiling only on peaches sold directly
A central city imposes a rent control law that places a binding ceiling on the rent that can be charged for an apartment. The suburbs of this city do not have rent control. What happens to the rental
Initially, electricity is sold in New York and in other states at a competitive single price. Now suppose that New York restricts the quantity of electricity that its citizens can buy. Show what
A competitive industry with an upward-sloping supply curve sells Qh of its product in its home country and Qf in a foreign country, so the total quantity it sells is Q = Qh + Qf. No one else produces
Suppose that the inverse demand for San Francisco cable car rides is p = 10 - Q/1,000, where p is the price per ride and Q is the number of rides per day. Suppose the objective of San Francisco's
AT&T Inc., the large U.S. phone company and the one-time monopoly, left the payphone business because people were switching to wireless phones (Crayton Harrison, "AT&T to Disconnect Pay- Phone
Show why a monopoly may operate in the upward or downward-sloping section of its long-run average cost curve but a competitive firm operates only in the upward-sloping section?
Given that the inverse demand function is p(Q) = a - bQ + (c/2)Q2, derive the marginal revenue function. Compare the corresponding marginal revenue curve to the linear one (where c = 0) and show how
Show that the elasticity of demand is unitary at the midpoint of a linear inverse demand function and hence that a monopoly will not operate to the right of this midpoint?
The inverse demand curve that a monopoly faces is p = 10Q-0.5. The firm's cost curve is C(Q) = 5Q. What is the profit-maximizing quantity and price?
Suppose that the inverse demand function for a monopolist's product is p = 9 - Q/20. Its cost function is C = 10 + 10Q - 4Q2 + 2/3 Q3. Draw marginal revenue and marginal cost curves. At what outputs
If a monopoly's inverse demand curve is p = 13 - Q and its cost function is C = 25 + Q + 0.5Q2, what Q* maximizes the monopoly's profit (or minimizes its loss)? At Q*, what is the price and the
Given that a monopoly's marginal revenue curve is strictly downward sloping, use math and a graph (such as Figure 11.3) to show why a monopoly's revenue curve reaches its maximum at a larger quantity
Under what circumstances does a monopoly set its price equal to its marginal cost?
In 2009, the price of Amazon's Kindle 2 was $359, while iSuppli estimated that its marginal cost was $159. What was Amazon's Lerner Index? What elasticity of demand did it face if it was engaging in
When the iPod was introduced, Apple's constant marginal cost of producing its top-of-the-line iPod was $200 (iSuppli), its fixed cost was approximately $736 million, and I estimate that its inverse
In addition to the hard-drive-based iPod, Apple produces a flash-based audio player. Its 512MB iPod Shuffle (which does not have a hard drive) sold for $99 in 2005. According to iSuppli, Apple's
Suppose that all iPod owners consider only two options for downloading music to their MP3 players: purchasing songs from iTunes or copying songs from friends. With these two options, suppose the
Draw an example of a monopoly with a linear demand curve and a constant marginal cost curve. a. Show the profit-maximizing price and output, p* and Q*, and identify the areas of consumer surplus,
Suppose that many similar price-taking consumers (such as Denise in Chapter 10) have a single good (candy bars). Jane has a monopoly in wood, so she can set prices. Assume that no production is
If the inverse demand function facing a monopoly is p(Q) and its cost function is C(Q), show the effect of a specific tax, (, on the monopoly's profit maximizing output. How does imposing ( affect
A monopoly with a constant marginal cost m has a profit-maximizing price of p1. It faces a constant elasticity demand curve with elasticity (1. After the government applies a specific tax of $1, its
In 1996, Florida voted on (and rejected) a 1¢-per-pound excise tax on refined cane sugar in the Florida Everglades Agricultural Area. Swinton and Thomas (2001) used linear supply and demand curves
Only Indian tribes can run casinos in California. These casinos are spread around the state so that each is a monopoly in its local community. California Governor Arnold Schwarzenegger negotiated
What is the effect of a franchise (lump-sum) tax on a monopoly? (Consider the possibility that the firm may shut down.)
Can a firm be a natural monopoly if it has a U-shaped average cost curve? Why or why not?
Based on the information in the Botox Patent Monopoly application, what would happen to the equilibrium price and quantity if the government had collected a specific tax of $75 per vial of Botox?
A monopoly produces a good with a network externality at a constant marginal and average cost of $2. In the first period, its inverse demand curve is ( = 10 - Q. In the second period, its demand is (
Suppose that the original labor supply curve, S1, for a monopsony shifts to the right to S2 if the firm spends $1,000 in advertising. Under what condition should the monopsony engage in this
What happens to the monopsony equilibrium if the minimum wage is set slightly above or below the competitive wage?
Can a monopsony exercise monopsony power- that is, profitably set its price below the competitive level-if the supply curve it faces is horizontal? Why or why not?
What effect does a price support have on a monopsony? In particular, describe the equilibrium if the price support is set at the price where the supply curve intersects the demand curve.
A monopsony faces a supply curve of ( = 10 + Q. What is its marginal expenditure curve? If the monopsony has a demand curve of ( = 50 - Q, what are the equilibrium quantity and price? How does this
For general functions, solve for the monopsony's first-order condition if it is also a monopoly in the product market?
A country has a monopoly that is protected by a specific tariff, (, on imported goods. The monopoly's profit-maximizing price is p*. The world price of the good is pw, which is less than p*. Because
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