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Exploring Economics 5th Edition Robert L Sexton - Solutions
True or False:1. By far the largest fraction of national income goes to wages and salaries for labor services.2. The “price” of a productive factor is directly related to consumer demand for the final good or service.3. In a competitive labor market, a firm’s marginal resource cost is the
True or False:1. An increase in the demand for a good will increase the demand for labor.2. A decrease in the nonwage income of workers would shift the labor supply curve to the right.3. The wage premium paid to union workers shows that all workers benefit from the activity of unions.4. If unions
True or False:1. The Wagner Act protected the rights of workers to organize and bargain collectively.2. Economic rent arises when a factor of production has a perfectly inelastic supply curve.3. Because the supply of land is perfectly inelastic, the demand curve for land determines its price.4. An
Multiple Choice Questions:1. The proportion of income received by the richest 5 percent of Americans hasa. Edged upward since the 1980s.b. Held steady since the 1980s.c. Decreased slightly since the 1980s.d. Decreased significantly since the 1980s.2. The measured distribution of income may appear
Multiple Choice Questions:1. Which of the following is true?a. There is substantial income inequality in the United States, and there has been little change in the distribution of measured income in the past few decades.b. There is substantial income inequality in the United States, but there have
Multiple Choice Questions:1. Women earn less on average than men. Which of the following can we conclude as a result?a. Women must be less productive.b. Men must be highly motivated and productive.c. Women must be the victim of discrimination by employers.d. Without considering preferences and
Multiple Choice Questions:1. Which of the following is not a means-tested income transfer program?a. Medicareb. Food stampsc. Temporary Assistance for Needy Familiesd. All of the above are considered means-tested income transfer programs.2. Which of the following is true?a. Job-entry discrimination
How might each of the following affect the distribution of income in the near term?a. There is a massive influx of low-skilled immigrants.b. A new baby boom occurs.c. The new baby boomers enter their 20s.d. The new baby boomers reach age 65 or older.e. There is an increase in cash transfer
Using the axes from a Lorenz curve, drawa. The Lorenz curve for perfect equality.b. The Lorenz curve for perfect inequality.c. A Lorenz curve for some inequality.d. For the curve used in c, show which ratio of areas equals the Gini coefficient.
a. If every individual earned the same total income over his or her lifetime, why would we still see inequality at a given point in time?b. Why could means-tested income redistribution be described, at least in part, as redistributing from you to yourself?
If the permanent income hypothesis is true, why would inequality measured by current consumption tend to be smaller than inequality measured by current income?
If the marginal utility of income falls with added income, why can’t we be sure that redistribution from higher to lower income individuals would increase total utility?
What factors might explain the differential in average income between males and females?
How might a significant reduction in the divorce rate affect the distribution of income?
a. How could in-kind transfers, such as food stamps, not reduce measured poverty or inequality?b. How could food stamp benefit reductions as income rises cause the program to actually decrease measured incomes of the poor and raise official poverty rates?
Consider two economies: one in which there is no redistribution of income by government and one in which the government enforces equality of income among everyone. Evaluate the advantages and disadvantages of each system. Which of these two alternatives would you prefer? Given the choice, would you
Why would large-scale government redistribution tend to reduce hours worked, savings and investment, and human capital (education)?
Why might a regulated utility, which is restricted to keeping profits for less than they could have earned, be more likely to discriminate than if its profits were not limited?
If a negative income tax was Tax = (30 percent x income) – $15,000:a. What would be the tax/refund for a family earning $100,000 a year?b. What would be the tax/refund for a family earning $50,000 a year?c. What would be the tax/refund for a family earning $40,000 a year?d. What would be the
True or False:1. The proportion of income received by the top 5 percent of Americans declined after 1935, but it has been increasing since the 1980s.2. Differences in age among a population can lead to differences in the distribution of income.3. Since 1950, the proportion of the population that is
True or False:1. It is impossible to prove that a given income distribution is better than another.2. According to the principle of diminishing marginal utility, increases in income generate greater additional happiness or utility at higher levels of income.3. Economists assume that interpersonal
True or False:1. Only a weak statistical correlation exists between lifetime earnings and years of schooling.2. Discovering that wages are lower for blacks and females does not prove wage discrimination.3. The environmental explanation of productivity differences assumes that there has been no
True or False:1. There is virtually no positive correlation between the earnings of grandparents and grandchildren.2. Other things being equal, workers who prefer more amenities at work or more time for leisure earn less.3. Income inequality is less in the United States and the United Kingdom than
True or False:1. Transfer payments include in-kind transfers but not cash transfers.2. One argument for a negative income tax is that it would not require any added bureaucracy, unlike other forms of public assistance.3. The fact that average wages are lower for blacks and females proves wage
Multiple Choice Questions:1. If the production of a good generates a negative externality, then in equilibrium in a perfectly competitive market,a. Marginal private cost > price.b. Price > marginal private cost.c. Marginal private cost > marginal social cost.d. Marginal social cost >
Multiple Choice Questions:1. The true extent of a negative externality may be difficult to measure becausea. Firms often keep poor records of their cash outlays.b. Of the intricacies of accounting rules.c. Certain costs may be nonpecuniary.d. None of the above.2. If the government were able to
Multiple Choice Questions:1. There has been a downward trend in the United States since 1980 in the air pollution concentrations ofa. Sulfur dioxide.b. Carbon monoxide.c. Lead.d. All of the above.2. Which of the following makes it difficult to achieve the efficient level of pollution reduction?a.
Multiple Choice Questions:1. An advantage that emission taxes and tradable emissions permits have over compliance standards is that the formera. Work well even if pollution output cannot be accurately measured.b. Result in equal levels of pollution abatement across all firms.c. Make it in the
Multiple Choice Questions:1. The Coase theorem suggests that private solutions to externality problemsa. Can lead to an optimal allocation of resources if private parties can bargain at relatively low cost.b. Result in the efficient outcome under all conditions.c. Will result in the same
Say that the last ton of steel produced by a steel company imposes three types of costs: labor costs of $25; additional equipment costs of $10; and the cost of additional “crud” dumped into the air of $15. What costs will the steel company consider in deciding whether to produce another ton of
Why can a homeowner make a better argument for compensation for noise pollution if a local airport was built after he moved in than if it was already there when he moved in? Would it matter whether or not he knew it was going to be built?
A newly released study demonstrates that populated areas with significant air pollution caused by diesel engines experience a much higher incidence of cancer. If diesel engines were then banned, what sorts of results would you expect?
Discuss the incentive effects of each of these policies to reduce air pollution:a. A higher tax on gasoline.b. An annual tax on automobiles based on average emissions.c. An annual tax on total emissions from a particular model of car.
Draw a standard supply and demand diagram for widgets, and indicate the equilibrium price and output.a. Assuming that the production of widgets generates external costs, illustrate the effect of the producer being forced to pay a tax equal to the external costs generated, and indicate the
a. Why does internalizing externalities with taxes or subsidies sometimes increase the prices of goods and sometimes decrease them?b. When would workers in an industry benefit from internalizing its externalities?
Many communities have launched programs to collect recyclable materials but have been unable to find buyers for the salvaged materials. If the government were to offer a subsidy to firms using recycled materials, how might this affect the market for recycled materials? Illustrate using a demand and
What would be the result of taxing an industry that produces external benefits? Subsidizing an industry that produces external cost?
If a firm can reduce its sulfur dioxide emissions for $30 per ton, but it owns tradable emissions permits that are selling for $40 per ton, what will the firm want to do if it is trying to maximize profits?
A chemical factory dumps pollutants into a nearby river (permissible under the existing laws). In lieu of dumping into the river, the factory could pay for the pollution to be hauled to a toxic waste dump site at a cost of $125,000 per year. A vacation resort located downstream from the factory
A factory releases air pollutants that have a negative impact on the adjacent neighborhood (populated by 2,000 households). If the government could assign property rights to the air to either the factory or to the residents of the neighborhood, would this make a difference in the quantity of
Compare a pollution reduction program that permits a certain level of pollution using emissions standards with one that permits the same level of pollution using tradable emissions permits.
Evaluate the following toll charges for a stretch of highway frequented by commuters: a $2 toll between 7 a.m. and 10 a.m. and between 3 p.m. and 6 p.m., and a $4 toll at all other times of the day. Do you think these toll charges will help reduce traffic congestion?
Evaluate the following statement: “Public health is at stake when drinking water is contaminated by pollution. Local governments should take all measures necessary to ensure that zero pollutants contaminate the water supply.”
Evaluate the following statement: “If people do not use paper or if they recycle paper, there is less incentive for lumber companies to plant trees on private land.”
Why does the text argue that lower air pollution taxes should be charged to drivers in less-populated areas? What if air pollution quickly spread throughout the world?
If an industry created both external benefits and external cost, would a tax or subsidy be appropriate? Why would someone be hurt by either one?
True or False:1. Activities that impose costs on people other than the suppliers or demanders of a good or service are negative externalities.2. In markets where negative externalities are created, the marginal social cost of production exceeds the marginal private cost of production.3. In markets
True or False:1. Eliminating nearly all pollution would lead to economic efficiency and healthier lifestyles for all.2. Economists believe that pollution reduction is likely subject to diminishing returns.3. In practice, it is very difficult to determine the appropriate pollution tax to levy to
Multiple Choice Questions:1. Investing in health care cana. Improve worker productivity.b. Reduce the number of missed workdays.c. Extend people’s working lives.d. Shift a society’s production possibilities curve outward over time.e. Do all of the above.2. The largest proportion of health care
Multiple Choice Questions:1. Which of the following is not true of health care expenditures over the past few decades?a. The share paid for by private insurance companies has fallen.b. The share paid for by health care consumers out of pocket has fallen.c. The share of health care expenditures
Multiple Choice Questions:1. ____________ spends more money on health care per person than any other industrialized nation.a. Canadab. The United Statesc. Swedend. Francee. Germany2. Spending on health care in the United States over the last several decades hasa. Increased significantly.b.
Multiple Choice Questions:1. Insurancea. Increases the price of health care to patients and decreases the quantity of services demanded.b. Decreases the price of health care to patients and decreases the quantity of services demanded.c. Increases the price of health care to patients and increases
Multiple Choice Questions:1. Physicians are least likely to limit the utilization of health care services ifa. They are paid an annual salary for their services.b. They are paid on a fee-for-service basis.c. They are restricted to choosing treatment options on an approved list.d. They are required
Why would calling health care a basic “human right” make it difficult to effectively analyze health care?
Why would the percentage that health care consumers pay out of pocket be an important determinant of how much care they receive?
Why would the welfare cost of insurance be smaller, the more inelastic the demand for that type of health care?
How does an insurance company inviting voluntary participation in a plan face an adverse selection problem?
How can better care for potentially fatal diseases sharply increase the cost of health care?
Are the chronically ill more likely to demand health insurance because of moral hazard or adverse selection?
Do health care innovations raise or lower the overall cost of health care?
If the selling of kidneys were legalized, predict the impact on the market for organ transplants using supply and demand analysis. Why might the quantity supplied increase?
Who is most likely to purchase a kidney? Who is most likely to sell a kidney? Would either party be harmed?
Is it inefficient that the United States spends a larger fraction of income on health care than the fraction spent by other countries?
How do higher deductibles act to reduce moral hazard problems, especially for small medical expenses?
Why do both adverse selection and moral hazard mean that “lunch insurance,” which would pay for lunch if you choose to eat it, is never likely to be a commercial success?
How does insuring all the workers at a given firm tend to reduce adverse selection problems? How does requiring physical exams have a similar effect?
Why does health insurance increase demand for the highest quality of care?
If genetic testing becomes widely practiced, is there an economic reason to fear the discovery of a genetic predisposition toward a serious illness?
True or False:1. The United States spends a larger fraction of national income on health care than any other country.2. Investment in health care, like investment in human and physical capital, can shift a country’s production possibilities curve outward over time.3. If the CPI does not
True or False:1. The chronically ill are more likely to demand insurance than healthy people, because of moral hazard.2. Physical exams are one way insurers try to reduce their adverse selection risks from health insurance.3. An increasing share of older people in the population would tend to
True or False:1. Technological advances in providing health care have generally decreased total health care spending in those areas.2. Insurance lowers the cost to patients of getting “the best possible” care.3. Economies of scale in health care can limit the number of health care providers in
Multiple Choice Questions:1. Assume that the opportunity cost of producing a pair of pants in the United States is 2 pounds of rice, while in China, it is 5 pounds of rice. As a result,a. The United States has a comparative advantage over China in the production of pants.b. China has a comparative
Multiple Choice Questions:1. Protectionist legislation is often passed because?a. Employers in the affected industry lobby more effectively than the workers in that industry.b. Both employers and workers in the affected industry lobby for protectionist policies.c. Trade restrictions often benefit
Bud and Larry have been shipwrecked on a deserted island. Their economic activity consists of either gathering berries or fishing. We know that Bud can catch four fish in one hour or harvest two buckets of berries. In the same time Larry can catch two fish or harvest two buckets of berries.a. Fill
The following table represents the production possibilities in two countries:Which country has a comparative advantage at producing Good X? How can you tell?Which country has a comparative advantage at producing GoodY?
Suppose the United States can produce cars at an opportunity cost of two computers for each car it produces. Suppose Mexico can produce cars at an opportunity cost of eight computers for each car it produces. Indicate how both countries can gain from free trade.
Evaluate the following statement: “Small developing economies must first become self-sufficient before benefiting from international trade.”
Evaluate the following statement: “The United States has an absolute advantage in growing wheat. Therefore, it must have a comparative advantage in growing wheat.”
NAFTA (North American Free Trade Agreement) is an agreement among the United States, Canada, and Mexico to reduce trade barriers and promote the free flow of goods and services across borders. Many U.S. labor groups were opposed to NAFTA.Can you explain why? Can you predict how NAFTA might alter
If country A is the lowest opportunity cost producer of X and country B is the lowest opportunity cost producer of Y, what happens to their absolute and comparative advantages if country A suddenly becomes three times more productive at producing both X and Y than it was before?
Assume that Freeland could produce 8 units of X and no Y, 16 units of Y and no X, or any linear combination in between, and Braveburg could produce 32 units of X and no Y, 48 units of Y and no X, or any linear combination in between.a. What is the opportunity cost of producing X in Freeland? In
To protect its domestic apple industry, Botswana has for many years prevented international trade in apples. The following graph represents the Botswana domestic market for apples. PBT is the current price, and PAT is the world price.a. If the government allows world trade in apples, what will
Use the accompanying graphs to illustrate the effects of imposing a tariff on imports on the domestic price, the domestic quantity purchased, the domestic quantity produced, the level of imports, consumer surplus, producer surplus, the tariff revenue generated, and the total welfare effect from
Using the accompanying graphs, illustrate the effects of opening up the domestic market to international trade on the domestic price, the domestic quantity purchased, the domestic quantity produced, imports or exports, consumer surplus, producer surplus, and the total welfare gain fromtrade.
Explain why imposing a tariff causes a net welfare loss to the domestic economy.
If imposing tariffs and quotas harms consumers, why don’t consumers vigorously oppose the implementation of these protectionist policies?
Why does rent seeking imply that the traditional measure of deadweight loss from tariffs and quotas will likely understate the true deadweight loss to society?
Would you be in favor of freer trade or against it in the following circumstances?a. The move to freer trade is in another country and you are an exporter to that country.b. The move to freer trade is in your country and you compete with imports from other countries.c. The move to freer trade is in
True or False:1. Although the importance of the international sector varies enormously from place to place, the volume of international trade increased substantially.2. U.S. imports are considered a credit item in the balance of payment because the dollars sold to buy the necessary foreign currency
True or False:1. The principle of comparative advantage can be applied to regional markets.2. A trading area may be a locality, a region, or a nation.3. If two nations with different opportunity costs of production specialize, total output of both products may be higher as a result.4. By
True or False:1. When the domestic economy has a comparative advantage in a good, exporting that good increases domestic wealth because, while domestic consumers lose from the free trade, these negative effects are more than offset by the positive gains captured by producers.2. When a country does
True or False:1. If the imposition of a tariff leads to retaliatory tariffs by other countries, domestic employment outside the industry gaining the tariff protection will likely suffer.2. Exporters in a country would generally be supportive of their country’s imposing import tariffs.3. From a
Multiple Choice Questions:1. Which of the following would be recorded as a credit in the U.S. balance-of-payments accounts?a. The purchase of a German business by a U.S. investorb. The import of Honda trucks by a U.S. automobile distributorc. European travel expenditures of an American college
Multiple Choice Questions:1. If high-yield investment opportunities attract capital from abroad and lead to a capital account surplus, then thea. Nation’s currency must appreciate.b. Nation’s currency must depreciate.c. Nation must run a current account deficit under a flexible exchange rate
Multiple Choice Questions:1. Suppose that the dollar rises from 100 to 125 yen. As a result?a. Exports to Japan will likely increase.b. Japanese tourists will be more likely to visit the United States.c. U.S. businesses will be less likely to use Japanese shipping lines to transport their
Multiple Choice Questions:1. If the rate of inflation in the United States falls relative to the rate of inflation in foreign nations, U.S. net exports will tend to ___________, causing the exchange value of the U.S. dollar to ___________?a. Rise; riseb. Rise; fallc. Fall; rised. Fall; fall2. If
Indicate whether each of the following represents a credit or debit on the U.S. current account.a. An American imports a BMW from Germany.b. A Japanese company purchases software from an American company.c. The United States gives $100 million in financial aid to Israel.d. A U.S. company in Florida
Indicate whether each of the following represents a credit or debit on the U.S. capital account.a. A French bank purchases $100,000 worth of U.S. Treasury notes.b. The central bank in the United States purchases 1 million euros in the currency market.c. A U.S. resident buys stock on the Japanese
How are each of the following events likely to affect the U.S. trade balance?a. The European price level increases relative to the U.S. price levelb. The dollar appreciates in value relative to the currencies of its trading partnersc. The U.S. government offers subsidies to firms that export
How are each of the following events likely to affect the value of the dollar relative to the euro?a. Interest rates in the European Union increase relative to the United Statesb. The European Union price level rises relative to the U.S. price levelc. The European central bank intervenes by selling
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