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Microeconomics 1st edition Dean Karlan, Jonathan Morduch - Solutions

Your friend Sam has been asked to prepare appetizers for the university reception. She has an unlimited amount of ingredients and 6 hours in which to prepare them. Sam can make 300 mini-sandwiches or 150 servings of melon slices topped with smoked salmon and a dab of sauce per hour. a. What is
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 could produce in a day?b. What is the maximum amount of fish it could produce in a day?c. Write an
The graph in Figure 2P-1 shows Tanya’s weekly production possibilities frontier for doing homework (writing papers and doing problem sets). a. What is the slope of the production possibilities frontier? b. What is the opportunity cost of doing one problem set? c. What is the opportunity cost
Use the production possibilities frontier in Figure 2P-2 to answer the following questions. a. What is the slope of the PPF between point A and point B? b. What is the slope of the PPF between point B and point C? c. Is the opportunity cost of producing hammers higher between points A and B or
For each point on the PPF in Figure 2P-3, note whether the point is attainable and efficient, attainable and inefficient, or unattainable.
For each point on the PPF in Figure 2P-4, note whether the point is attainable and efficient, attainable and inefficient, or unattainable.
The Red Cross and WIC (Women, Infants, and Children program) both provide emergency food packages and first-aid kits to New York City home-less shelters. Table 2P-1 shows their weekly production possibilities in providing emergency goods to NYC homeless shelters. NYC homeless shelters need a total
Suppose that three volunteers are preparing cookies and cupcakes for a bake sale. Diana can make 27 cookies or 18 cupcakes per hour; Andy can make 25 cookies or 17 cupcakes; and Sam can make 10 cookies or 12 cupcakes.a. Who has the absolute advantage at making cookies?b. At making cupcakes?
Think about a competitive market in which you participate regularly. For each of the characteristics of a competitive market, explain how your market meets these requirements.
What is the difference between a change in supply and a change in quantity supplied?
What is the relationship between supply and demand when a market is in equilibrium? Explain how the incentives facing cell phone companies and consumers cause the market for cell phones to reach equilibrium.
Explain why the equilibrium price is often called the market-clearing price.
Suppose an economic boom causes incomes to increase. Explain what will happen to the demand and supply of phones, and predict the direction of the change in the equilibrium price and quantity.
Suppose an economic boom drives up wages for the sales representatives who work for cell phone companies. Explain what will happen to the demand and supply of phones, and predict the direction of the change in the equilibrium price and quantity.
Suppose an economic boom causes incomes to increase and at the same time drives up wages for the sales representatives who work for cell phone companies. Explain what will happen to the demand for and supply of phones and predict the direction of the change in the equilibrium price and quantity.
Think about a noncompetitive market in which you participate regularly. Explain which characteristic(s) of competitive markets your market does not meet.
Explain why a demand curve slopes downward.
In each of the following examples, name the factor that affects demand and describe its impact on your demand for a new cell phone. a. You hear a rumor that a new and improved model of the phone you want is coming out next year. b. Your grandparents give you $500. c. A cellular network
Consider the following events: a. The price of cell phones goes down by 25 percent during a sale. b. You get a 25 percent raise at your job. Which event represents a shift in the demand curve? Which represents a movement along the curve? What is the difference?
What is the difference between a change in demand and a change in quantity demanded?
Explain why a supply curve slopes upward.
In each of the following examples, name the factor that affects supply and describe its impact on the supply of cell phones. a. Economic forecasts suggest that the demand for cell phones will increase in the future. b. The price of plastic goes up. c. A new screen technology reduces the cost of
Consider the following events: a. A maggot infestation ruins a large number of apple orchards in the state of Washington. b. Demand for apples goes down, causing the price to fall. Which event represents a shift in the supply curve? Which represents a movement along the curve? What is the
Consider shopping for cucumbers in a farmers’ market. For each statement below, note which characteristic of competitive markets the statement describes. Choose from: standardized good, full information, no transaction costs, and participants are price takers. a. All of the farmers have their
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 of sellers in the market.a. A steel tariff increases the price of steel. b. Improvements in
Consider the market for corn. Say whether each of the following events will cause a shift in the supply curve or a movement along the curve. If it will cause a shift, specify the direction. a. A drought hits corn-growing regions. b. The government announces a new subsidy for bio fuels made from
The supply curve in Figure 3P-2 shows the monthly market for sweaters at a local craft market. For each of the following events, draw the new out-come. a. The price of wool increases. b. Demand for sweaters decreases. c. A particularly cold winter is expected to begin next month. d.
Refer to the demand and supply schedule shown in Table 3P-3. a. If pizza parlors charge $3.50 per slice, will there be excess supply or excess demand? What is the amount of excess supply or excess demand at that price? b. If pizza parlors charge $1.00 per slice, will there be excess supply or
The graph in Figure 3P-4 shows supply and demand in the market for automobiles. For each of the following events, draw the new market outcome, and say whether the equilibrium price and quantity will increase or decrease. a. Environmentalists launch a successful One Family, One Car campaign. b.
Say whether each of the following changes will increase or decrease the equilibrium price and quantity, or whether the effect cannot be predicted. a. Demand increases; supply remains constant. b. Supply increases; demand remains constant. c. Demand decreases; supply remains constant.
Suppose two artists are selling paintings for the same price in adjacent booths at an art fair. By the end of the day, one artist has nearly sold out of her paintings while the other artist has sold nothing. Which characteristic of competitive markets has not been met and best explains this
Using the demand schedule in Table 3P-1, draw the daily demand curve for slices of pizza in a college town.
Consider the market for cars. Which determinant of demand is affected by each of the following events? Choose from: consumer preferences, prices of related goods, incomes, expectations, and the number of buyers. a. Environmentalists launch a successful One Family, One Car campaign. b. A baby boom
If a decrease in the price of laptops causes the demand for cell phones to increase, are laptops and cell phones substitutes or complements?
If rising incomes cause the demand for beer to decrease, is beer a normal or inferior good?
Consider the market for corn. Say whether each of the following events will cause a shift in the demand curve or a movement along the curve. If it will cause a shift, specify the direction. a. A drought hits corn-growing regions, cutting the supply of corn. b. The government announces a new
The demand curve in Figure 3P-1 shows the monthly market for sweaters at a local clothing store. For each of the following events, draw the new outcome. a. Sweaters fall out of fashion. b. There is a shortage of wool. c. The winter is particularly long and cold this year. d. Sweater
Using the supply schedule found in Table 3P-2, draw the daily supply curve for slices of pizza in a college town.
You are advising a coffee shop manager who wants to estimate how much sales will change if the price of a latte rises. Explain why he should measure elasticity in percentage terms rather than in terms of dollars and cups.
Name two related goods you consume which would have a negative cross-price elasticity. What happens to your consumption of the second good if the price of the first good increases?
In France, where cheese is an important and traditional part of people’s meals, people eat about six times as much cheese per person as in the United States. In which country do you think the demand for cheese will be more income-elastic? Why?
Name a good you consume for which your income elasticity of demand is positive. What happens when your income increases?
Name a good you consume for which your income elasticity of demand is negative. What happens when your income increases?
Explain why the coffee shop manager should measure elasticity using the mid-point method in his calculations.
You are working as a private math tutor to raise money for a trip during spring break. First explain why the price elasticity of demand for math tutoring might be elastic. Then explain why the price elasticity of demand for math tutoring might be inelastic.
You are working as a private math tutor to raise money for a trip during spring break. You want to raise as much money as possible. Should you should increase or decrease the price you charge? Explain.
You have been hired by the government of Kenya, which produces a lot of coffee, to examine the supply of gourmet coffee beans. Suppose you discover that the price elasticity of supply is 0.85. Explain this figure to the Kenyan government.
You have noticed that the price of tickets to your university’s basketball games keeps increasing but the supply of tickets remains the same. Why might supply be unresponsive to changes in price?
Which will have a more price-elastic supply over six months: real estate in downtown Manhattan or real estate in rural Oklahoma? Explain your reasoning.
Certain skilled labor, such as hair cutting, requires licensing or certification, which is costly and takes a long time to acquire. Explain what would happen to the price elasticity of supply for haircuts if this licensing requirement were removed.
Although we could describe both the cross-price elasticity of demand between paper coffee cups and plastic coffee lids and the cross-price elasticity of demand between sugar and artificial sweeteners as highly elastic, the first cross-price elasticity is negative and the second is positive. What is
When the price of a bar of chocolate is $1, demand is 100,000 bars. When the price rises to $1.50, demand falls to 60,000 bars. Calculate the price elasticity of demand according to the instructions below and express your answer in absolute value. [LO 4.1]a. Suppose price increases from $1 to
Draw the price effect and the quantity effect for a price change from $30 to $20. Which effect is larger? Does total revenue increase or decrease? No calculation is necessary.
Draw the price effect and the quantity effect for a price change from $60 to $70. Which effect is larger? Does total revenue increase or decrease? No calculation is necessary.
Draw the price effect and the quantity effect for a price change from $10 to $20. Which effect is larger? Does total revenue increase or decrease? No calculation is necessary.
Which of the following has a more elastic supply in the short run? a. Hospitals or mobile clinics? b. Purebred dogs or pet rabbits? c. On-campus courses or online courses?
Suppose that the price of peanut butter rises from $2 to $3 per jar. a. The quantity of jelly purchased falls from 20 million jars to 15 million jars. What is the cross‐price elasticity of demand between peanut butter and jelly? Are they complements or substitutes? b. The quantity of jelly
For each of the following pairs, predict whether the cross-price elasticity of demand will be positive or negative: a. Soap and hand sanitizer. b. CDs and MP3s. c. Sheets and pillowcases.
If the price elasticity of demand for used cars priced between $3,000 and $5,000 is −1.2 (using the mid-point method), what will be the percent change in quantity demanded when the price of a used car falls from $5,000 to $3,000?
Suppose that when the average family income rises from $30,000 per year to $40,000 per year, the average family’s purchases of toilet paper rise from 100 rolls to 105 rolls per year. a. Calculate the income-elasticity of demand for toilet paper. b. Is toilet paper a normal or an inferior
In each of the following instances, determine whether the good is normal or inferior, and whether it is income‐elastic or income‐inelastic. a. If income increases by 10 percent and the quantity demanded of a good increases by 5 percent, the good is ______ and ______. b. If income increases by
Three points are identified on the graph in Figure 4P-1. a. At point A, demand is ____. b. At point B, demand is ____. c. At point C, demand is ____.
Which of the following has a more elastic demand in the short run?a. Pomegranate juice or drinking water?b. Cereal or Rice Krispies®?c. Speedboats or gourmet chocolate?
Price increases from $10 to $20. Demand is ______ and total revenue ______.
Price decreases from $70 to $60. Demand is ______ and total revenue ______.
Draw the price effect and the quantity effect for a price change from $60 to $50. Which effect is larger? Does total revenue increase or decrease? No calculation is necessary.
Bill is a professional photographer. His camera is broken, and he needs a new one within the next hour, or he will miss an important deadline. Lisa is a high-school student who doesn’t have a camera but wants to get one to take pictures at her prom next month. Who do you think would have a higher
Total surplus is maximized at the equilibrium price and quantity. When demand increases, price increases. Explain how total surplus is still maximized if price increases due to an increase in demand.
When the price of gasoline was very high in the summer of 2008, several U.S. presidential candidates proposed implementing a national price ceiling to keep fuel affordable. How would this policy have affected producer and consumer surplus? How would it have affected total surplus?
Consider a policy to help struggling farmers by setting a minimum trade price for wheat. Will this be an effective way to increase their surplus? Explain.
If rent control creates deadweight loss for both consumers and suppliers of housing, why are consumers often in favor of this policy?
Suppose price is 5 percent above equilibrium in two markets: a market for a necessity and a market for a luxury good. All else equal (including supply conditions), in which market do you expect deadweight loss to be greater? Explain.
Your grandmother likes old-fashioned yard sales and doesn’t understand why everyone is so excited about eBay. Explain to her why the creation of a market that enables people who don’t live in the same town to buy and sell used goods increases total surplus over the yard-sale market.
At Zooey’s elementary school, children are not allowed to trade lunches or components of their lunches with other students. Lunchroom monitors watch closely and strictly enforce this policy. Help Zooey make an argument about the inefficiency of this policy to her principal.
You are in the market for a new couch and have found two advertisements for the kind of couch you want to buy. One seller notes in her ad that she is selling because she is moving to a smaller apartment, and the couch won’t fit in the new space. The other seller says he is selling because the
Suppose you are at a flea market and are considering buying a box of vintage records. You are trying to bargain down the price, but the seller overhears you telling a friend that you are willing to pay up to $50. Why is your consumer surplus now likely to be lower than it would have been if the
You currently have a television that you want to sell. You can either pick a price and try to sell it at a yard sale or auction it off on eBay. Which method do you think will yield a higher producer surplus? Why?
Consider the market for plane tickets to Hawaii. A bad winter in the mainland United States increases demand for tropical vacations, shifting the demand curve to the right. The supply curve stays constant. Does total surplus increase or decrease?
You need to paint your fence but you really hate this task. You decide to hire the kid next door to do it for you. You would be willing to pay him up to $100, but you start by offering $50, expecting to negotiate. To your great surprise, he accepts your $50 offer. When you tell your friend about
New York City has a long-standing policy of con-trolling rents in certain parts of the city—in essence, a price ceiling on rent. Is the market for apartments likely to be efficient or inefficient? What does this imply for the size of total surplus?
Answer the following questions based on Tables 5P-1 and 5P-2.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 quantity supplied at $25?
Use the market represented in Figure 5P-1 to draw the producer surplus when the market price is $5. What is the value of producer surplus at this price?
What is the value of the existence of the market represented in Figure 5P-2?
Consider the market represented in Figure 5P-3.a. Calculate total surplus when demand is D1. b. Calculate total surplus when demand decreases to D2.
Consider the market represented in Figure 5P-4.a. Calculate total surplus when supply is S1. b. Calculate total surplus when supply increases to S2.
Consider the market represented in Figure 5P-5. a. Draw the consumer surplus and producer surplus if the market is functioning at the equilibrium price and quantity. Compute the total surplus if the market is functioning at the equilibrium price and quantity. b. Compute the consumer surplus and
Assume the market for wine is functioning at its equilibrium. For each of the following situations, say whether the new market outcome will be efficient or inefficient. a. A new report shows that wine is good for heart health. b. The government sets a minimum price for wine, which increases
In which of the following situations can you say, without further information, that consumer surplus decreases relative to the market equilibrium level? a. Your state passes a law that pushes the interest rate (i.e., the price) for payday loans below the equilibrium rate. b. The federal
Use the areas labeled in the market represented in Figure 5P-7 to answer the following questions. a. What area(s) are consumer surplus at the market equilibrium price? b. What area(s) are producer surplus at the market equilibrium price? c. Compared to the equilibrium, what area(s) do
Use the information below to construct a step-graph of the six consumers’ willingness to pay. Willingness to pay for one unit ($) Fred …………………………………. 8 Ann …………………………………. 2 Morgan ……………………………… 16 Andre
Consider the market represented in Figure 5P-9. a. Suppose the government sets a minimum price of $25 in the market. Calculate the deadweight loss. b. Suppose the government sets a maximum price of $25 in the market. Calculate the deadweight loss.
Consider the market for travelling to Mars represented in Figure 5P-10. Assuming consumers knew they would each eventually pay $190,000 for the trip itself, how much would they collectively be willing to invest to support the space program that would make this trip possible?
Use the information below to construct a step-graph of the six sellers’ willingness to sell. Willingness to sell one unit ($) Joseph ………………………………… 25 Juan …………………………………… 20 Kristin ………………………………… 60 Peter
Based on Table 5P-1, calculate consumer surplus for each consumer when the price is $17. What is the total consumer surplus at this price?
Use the market represented in Figure 5P-1 to draw the consumer surplus when the market is in equilibrium. What is the value of consumer surplus at the equilibrium price?
Use the market represented in Figure 5P-1 to draw the consumer surplus when the market price is $8. What is the value of consumer surplus at this price?
Based on Table 5P-2, calculate producer surplus for each producer when the price is $12. What is total producer surplus at this price?
Use the market represented in Figure 5P-1 to draw the producer surplus when the market is in equilibrium. What is the value of producer surplus at the equilibrium price?
You are an advisor to the Egyptian government, which has placed a price ceiling on bread. Unfortunately, many families still cannot buy the bread they need. Explain to government officials why the price ceiling has not increased consumption of bread.
A state facing a budget shortfall decides to tax soft drinks. You are a budget analyst for the state. Do you expect to collect more revenue in the first year of the tax or in the second year? Why?

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