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economics
Exploring Economics 5th Edition Robert L Sexton - Solutions
What kind of problems does the government face when trying to perform a cost-benefit analysis of whether or how much of a public project to produce?
How does a TV broad cast have characteristics of a public good? What about cable services such as HBO?
In order to get a license to practice in the United States, foreign-trained veterinarians must take an exam given by the American Veterinary Association. Only 48 people per year are allowed to take the exam, which is administered at only two universities. The fee for the exam, which must be booked
How would the adverse selection problem arise in the insurance market? How is it like the “lemon” used-car problem?
In terms of signaling behavior:a. Why is wearing a suit a weaker signal of ability than higher educational achievement?b. Why do some majors in college provide more powerful signals to future employers than others? c. Why could double-majoring provide a more powerful labor market signal than having
In terms of winner’s curse:a. Why is the winner’s curse unlikely for frequently purchased goods?b. Why would the winner’s curse be more likely as the number of bidders increases?c. Why would we except there to be no winner’s curse for goods desired for their own private value, unlike the
In terms of moral hazard:a. Why does someone’s willingness to pay a large deductible on an insurance policy tell an insurer something valuable about the seriousness of the moral hazard problem they might expect from the policyholder?b. Why does car insurance which explicitly excludes insuring the
True or False:1. A negative externality is when the action of one party imposes a cost on another party.2. A positive externality is when the action of one party benefits another party.3. In the case of external costs, firms tend to produce too little from society’s standpoint, causing an
True or False:1. In the case of goods where all those affected benefit simultaneously and it is prohibitively costly to exclude anyone from consuming them, market failures tend to arise.2. In the case of public goods, when people act as free riders, some goods having benefits greater than costs
Multiple Choice Questions1. Which of the following are important roles of the government?a. Protecting property rightsb. Providing a legal systemc. Intervention when insufficient competition occurs in the marketplaced. Promoting stability and economic growthe. All of the above2. Social Security and
Multiple Choice Questions1. The ability to pay principle states:a. Those with the greatest ability to pay taxes should pay more.b. Those with the least ability to pay taxes should pay more.c. Individuals receiving the benefits should pay for them.d. All of the above are true.2. The amount of
Why does favoring market mechanisms over command and control mechanisms not mean that a person wants no government whatsoever?
Why would means-tested transfer payments (such as food stamps, in which benefits are reduced as income rises) act like an income tax facing recipients?
Why are income taxes more progressive than excise taxes such as those on alcohol, tobacco, and gasoline?
Why is the Social Security payroll tax considered regressive?
Could the burdens of a regulation be either progressive or regressive, like the effects of a tax?
Is a gas tax better described as reflecting the ability to pay principle or the benefits received principle? What about the federal income tax?
Why would the benefits received principle be difficult to apply to national defense and the provision of the justice system?
Illustrate the median voter model graphically and explain it.
Why would a candidate offering “a choice, not an echo,” run a risk of losing in a landslide?
Why might the party favorites at a political convention sometimes be harder to elect than more moderate candidates?
How can you be forced to pay for something you do not want to “buy” in the political sector? Is this sometimes good?
Why does the creation of a government program create a special interest group, which makes it difficult to reduce or eliminate it in the future?
Why are college students better informed about their own teachers’ and schools’ policies than about national education issues?
Why do you think news reporters are more informed than average citizens about public policy issues?
True or False:1. Government spending as a percentage of GDP has changed little since 1970, but the composition of government spending has changed considerably.2. The composition of state and local spending is different from that of federal spending.3. A large majority of government activity is
True or False:1. If a higher-income person pays more in total taxes than a lower-income person, those taxes would be considered progressive.2. Excise taxes, such as those on alcohol, tobacco, and gasoline, tend to be the most regressive taxes.3. Excise taxes can lead to economic inefficiency.4. A
True or False:1. In public choice analysis, bureaucrats, politicians, and voters are assumed to make choices that they believe will yield to the public expected marginal benefits greater than their expected marginal costs.2. Scarcity and competition are present in the public sector as well as in
Multiple Choice:1. The increase in total utility that one receives from eating an additional piece of sushi is calleda. Marginal utility.b. Interpersonal utility.c. Marginal cost.d. Average utility.e. Average cost.2. Marginal utility isa. The total satisfaction derived from consuming all goods.b.
Multiple Choice Questions1. The law of diminishing marginal utility implies that the more of a commodity you consume, thea. More you value additional units of output.b. Less you value additional units of output.c. Happier you are.d. Higher the price that is paid for the commodity.2. When a consumer
Why can we not say that two people who chose to buy the same quantity of a good at the same price have the same marginal utility?
If someone said, “You would have to pay me to eat one more bite,” what do we know about her marginal utility? What do we know about her total utility?
Why would you not continue to consume a good in the range where there was diminishing total utility?
The following table shows Rene€™s total utility from eating escargot. Fill in the blanks that show the marginal utility that Rene derives from eatingescargot.
Plot both Rene€™s total and marginal utility curves ongraphs.
Suppose it is “All You Can Eat” Night at your favorite restaurant. Once you’ve paid $9.95 for your meal, how do you determine how many helpings to consume? Should you continue eating until your food consumption has yielded $9.95 word of satisfaction? What happens to the marginal utility from
Suppose you currently spend your weekly income on movies and video games such that the marginal utility per dollar spent on each activity is equal. If the price of a movie ticket rises, how will you reallocate your fixed income between the two activities? Why?
Brandy spends her entire weekly budget of $20 on soda and pizza. A can of soda and a slice of pizza are priced at $1 and $2, respectively. Brandy’s marginal utility from soda and pizza consumption is 6 utils and 4 utils, respectively. What advice could you give Brandy to help her increase her
Suppose you were studying late one night and you were craving a Papa John’s pizza. How much marginal utility would you receive? How much marginal utility would you receive from a pizza that was delivered immediately after you finished a five-course Thanksgiving dinner? Where would you be more
The Consumer Price Index (CPI) measures changes in the cost of living by comparing the cost of buying a certain bundle of goods and services over time. The quantities of each commodity remain the same from year to year but their prices change, so changes in the index reflect the weighted average of
A restaurant offers a free dinner with a six-pound steak, potatoes, and all the trimmings, but only if the patron can eat it all. Otherwise, he must pay $80 for the steak dinner. What does this say about the likely marginal utility most people expect to get from the sixth pound of steak during that
How does the water-diamond paradox explain why there is such a poor correlation between the price of a good and the total utility a person receives from it?
Explain the income and substitution effects of a price reduction of a good.
Explain the book’s distinction between newspaper racks, where the price allows you access to multiple papers, and food vending machines, where you can only get one of the items purchased. Would you expect the policy used by newspaper racks to change if each newspaper routinely included hundreds
True or False:1. Utility is the satisfaction or enjoyment derived from consumption.2. Economists do not think it is possible to compare the relative satisfaction derived from consumption across individuals.3. Marginal utility is the satisfaction received from all units of a good that are
Multiple Choice Questions:1. An explicit costa. Is an opportunity cost.b. Is an out-of-pocket expense.c. Does not require an outlay of money.d. Is characterized by both a and b.e. Is characterized by both a and c.2. Which of the following is false?a. Explicit costs are input costs that require a
Multiple Choice Questions:1. The long runa. Is a period in which a firm can adjust all its inputs.b. Can vary in length from industry to industry.c. Is a period in which all costs are variable costs.d. Is characterized by all of the above.2. The long-run production perioda. Is a time when all
Multiple Choice Questions:1. Total fixed costsa. Do not vary with the level of output.b. Cannot be avoided in the short run without going out of business.c. do not exist in the long run.d. Are characterized by all of the above.2. Which of the following is most likely a variable cost for a
Multiple Choice Questions:1. Which of the following is always true?a. When marginal cost is less than average total cost, average total cost is increasing.b. When average fixed cost is falling, marginal cost must be less than average fixed cost.c. When average variable cost is falling, marginal
As a farmer, you work for yourself using your own tractor, equipment, and farm structures, and you cultivate your own land. Why might it be difficult to calculate your profits from farming?
The salmon fishery in Alaska’s Bristol Bay has historically been one of the world’s richest. Over the past few years, poor returns of salmon to the bay and competition from farm-raised salmon have reduced the economic returns to the fishermen.One response to lower revenues has been for
Use the table below for a–c.Willie's Water Park Short-Run Production Functiona. Fill in the Total Product column.b. Willie's Water Park experiences diminishing marginal product beginning with which worker?c. Willie's Water Park experiences diminishing total product beginning with which
Harry€™s Hat Company makes hats using the technology described in the following data:a. Fill in the Marginal Product columns of these tables.b. At what point does diminishing marginal product set in with three machines? With four?c. Why is the point of diminishing marginal product
Fill in the rest of the production function for Candy€™s Candies from the information provided.a. Candy€™s Candies begins to experience diminishing marginal product with which worker?b. Does Candy€™s Candies ever experience negative marginal product? If so, with the
Draw a typically shaped total product curve and the marginal product curve derived from it, and indicate the ranges of increasing, diminishing, and negative marginal product.
Say that your firm’s total product curve includes the following data: one worker can produce 8 units of output; two workers, 20 units; three workers, 34 units; four workers, 50 units; five workers, 60 units; six workers, 70 units; seven workers, 76 units; eight workers, 78 units; and nine
Why does the law of diminishing marginal product imply the law of increasing costs?
Complete the following table describing the short-run daily costs of the Attractive Magnet Co. for2009.
As a movie exhibitor, you can choose between paying a flat fee of $5,000 to show a movie for a week or paying a fee of $2 per customer. Will your choice affect your fixed and variable costs? How?
What is likely to happen to your marginal costs when adding output required working beyond an eight-hour day, if workers must be paid time-and-a-half wages beyond an eight-hour day?
If your university pays lecture note takers $20 per hour to take notes in your economics class and t hen sells subscriptions for $15 per student, is the cost of the lecture note taker a fixed or variable cost of selling and additional subscription?
The Lighthouse Safety Vest Co. makes flotation vests for recreational boaters. They currently employ 50 people and produce 12,000 vests per month. Lighthouse managers know that when they hire one more person, monthly vest production will increase by 200 vests. They pay workers $1,600 per month.a.
Illustrate how the shape of the marginal product curve relates to the shape of the marginal cost curve.
Use the graph to answer the following questions.a. Curve A represents which cost curve?b. Curve B represents which cost curve?c. Curve C represents which cost curve?d. Curve D represents which cost curve?e. Why must curve D pass through the minimum points of both curve B and curve C?f. What
Fill in the rest of the cost function for Bob’s BowlingBalls.
Buffalo Bill has a potato chip company, Buffalo’s chips. He is currently losing money on every bag of chips he sells. Mrs. Bill, who has just completed an economics class, tells Buffalo Bill he could make a profit if the adds more machines and produces more chips. How could this be possible? What
You have the following information about long-run total cost for the following firms:a. Do any of these firms experience constant returns to scale? How do you know?b. Do any of these firms experience diseconomics of scale? How do you know?c. Do any of these firms experience economics of scale? How
Refer to the cost curve in the following exhibit:a. What is the lowest level of output at which the efficient scale of production is reached in the long run?b. In the short run described by SRATC, what is the efficient output level?c. When the firm is producing at the level of output described by
True or False:1. Explicit costs include both wages paid to workers and the opportunity cost of using one’s own land, labor, or capital.2. Because implicit costs do not represent an explicit outlay of money, they are not real costs.3. When economists say firms try to maximize profits, they mean
True or False:1. In the long run, the inputs that do not change with output are called fixed inputs or fixed factors of production.2. The long run can vary considerably in length from industry to industry.3. Total product will typically start at a low level and increase slowly at first and then
True or False:1. Variable costs vary with the level of output, while fixed costs do not.2. Marginal cost shows the change in total costs associated with a change in output by one unit, or the cost of producing one more unit of output.3. Marginal costs are really just a useful way to view changes in
True or False:1. The average total cost curve is usually U-shaped.2. The declining average variable cost curve is primarily responsible for the falling segment of the average total cost curve.3. Diminishing marginal product first sets in at the minimum point of the average total cost curve.4.
Multiple Choice Questions1. Which of the following is false about perfect competition?a. Perfectly competitive firms sell homogeneous products.b. A perfectly competitive industry allows easy entry and exit.c. A perfectly competitive firm must take the market price as given.d. A perfectly
Multiple Choice Questions1. In perfect competition, at a firm€™s short-run profit-maximizing output,a. Its marginal revenue equals zero.b. Its average revenue could be greater or less than average cost.c. Its marginal revenue will be falling.d. Both b and c will be true.2. In perfect
Multiple Choice Questions1. The short-run supply curve of a perfectly competitive firm isa. Its MC curve.b. Its MC curve above the minimum point of AVC.c. Its MC curve above the minimum point of ATC.d. None of the above.2. Darlene runs a fruit-and-vegetable stand in a medium-sized community where
Which of the following are most likely to be perfectly competitive?a. Chicago Board of Tradeb. Fast-food industryc. Computer software industryd. New York Stock Exchangee. Clothing industry
Using the following information, which of the industries described are perfectly competitive? Check the perfectly competitive market characteristics each industry possessed and determine whether it is a perfectly competitiveindustry.
Given these data, determine AR, MR, P, and the short-run profit-maximizing (loss-minimizing) level ofoutput.
Illustrate the SRATC, AVC, MC, and MR curves for a perfectly competitive firm that is operating at a loss. What is the output level that minimizes losses? Why is it more profitable to continue producing in the short run rather than shut down?
Industry councils promote the consumption of particular types of farm products. These groups urge us to “Drink Milk” or “Eat Apples.” Very little advertising is done by individual farmers. Using your understanding of the perfectly competitive market, explain this advertising strategy.
Complete the following table and identify the profit-maximizing output.a.b. What is true about marginal revenue and marginal costs when profit is maximized?c. What would be the profit-maximizing level of output if price fell to$9?
Explain why the following conditions are typical under perfect competition in the long run.a. P = MCb. P = minimum ATC
Discuss the following questions.a. Why must price cover AVC if firms are to continue to operate?b. If the firm is covering its AVC but not all its fixed costs, will it continue to operate in the short run? Why or why not?c. Why is it possible for price to remain above the average total cost in the
At a price of $5 the profit-maximizing output for a perfectly competitive firm is 1,000 units per year. If the average total cost is $3 per unit, what will be the firm’s profit? If the average total cost is $6 per unit, what will be the firm’s profit?What is the relationship between profit,
Use the following diagram to answer a, b, and c.a. Illustrate the relationship between a perfectly competitive firm€™s demand curve and the market supply and demand curve.b. Illustrate the effects of an increase in market demand on a perfectly competitive firm€™s demand curve.c.
Complete the following table for a perfectly competitive firm, and indicate its profit-maximizingoutput.
Use the following diagram to answer a€“d.a. How much would a perfectly competitive firm produce at each of the indicated prices?b. At which prices is the firm earning economic profits? Zero economic profits? Negative economic profits?c. At which prices would the firm shut down?d. Indicate
Use the following diagrams to answer a and b.a. Show the effect of an increase in demand on the perfectly competitive firm€™s price, marginal revenue, output, and profits in the short run.b. Show the long-run effects of an increase in demand for the industry, and the effects on a
In The Wealth of Nations, Adam Smith wrote, “Every individual endeavors to employ his capital so that its produce may be of greatest value. He generally neither intends to promote the public interest, nor knows how much he is promoting it. He intends only his own security, only his own gain. And
Graph and explain the adjustments to long-run equilibrium when market demand decreases in a constant-cost industry.
Evaluate the following statements. Determine whether each is true or false and explain your answer.a. If economic profits are zero, firms will exit the industry in the long run.b. A firm cannot maximize profits without minimizing costs.c. If a firm is minimizing costs, it must be maximizing profits.
Describe what would happen to the industry supply curve and the economic profits of the firms in a competitive industry if those firms were currently earning economic profits. What if they were currently earning economic losses?
Given the industry description, identify each of the following as an increasing- or constant-cost industry.a. Major League Baseball: Uses the majority of pitchers. As the number of pitchers used increased, the quality declines.b. Fast-food restaurants: Uses a relatively small share of land and
True or False:1. In perfect competition, no single firm produces more than an extremely small proportion of output, so no firm can influence the market price.2. Perfectly competitive firms are price takers because their influence on price is insignificant.3. It is difficult for entrepreneurs to
True or False:1. The perfectly competitive model does not assume any knowledge on the part of individual buyers and sellers about market demand and supply—they only have to know the price of the good they sell.2. In a perfectly competitive market, marginal revenue is constant and equal to the
True or False:1. Because the short run is too brief for new firms to enter the market, the market supply curve is the vertical summation of the supply curves of existing firms.2. As new firms enter an industry where sellers are earning economic profits, the result will include a reduction in the
Multiple Choice Questions:1. Pure monopoly is defined asa. An industry consisting of a single seller.b. A market structure that involves many substitute products.c. A market in which many rival firms compete for sales.d. A market structure consisting of a single buyer.2. For a true, or pure,
Multiple Choice Questions:1. If a profit-maximizing monopolist is currently charging a price on the inelastic portion of its demand curve, it shoulda. Raise price and decrease output.b. Lower price and increase output.c. Reduce both output and price.d. Hold output constant and raise price.e. Do
Multiple Choice Questions:1. Monopoly is unlike perfect competition in thata. A monopolist’s price is greater than marginal cost.b. There are no barriers to entry into a monopoly industry.c. A monopolist earns an economic profit only if its price is greater than ATC.d. All of the preceding are
Multiple Choice Questions:1. Under average cost pricing by a natural monopoly,a. Price is greater than marginal cost.b. A welfare cost will be incurred.c. The producer will earn a normal rate of return.d. A producer experiences little or no incentive to hold down costs.e. All of the preceding are
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