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business
micro economics

Economics 6th edition R. Glenn Hubbard - Solutions

Through the 2014 season, Nick Saban's record as the head football coach at the University of Alabama was 86 wins and 17 losses. His $7 million salary is the highest received by any college football coach. One sports writer described Saban as the most underpaid college football coach. In what sense
What are the two ways that the productivity of a firm's employees may increase when a firm moves from straight-time pay to commission or piece-rate pay?
If piece-rate or commission systems of compensating workers have important advantages for firms, why don't more firms use them?
According to a study, the number of jobs in which firms used bonuses, commissions, or piece rates to tie workers' pay to their performance increased from an estimated 30 percent of all jobs in the 1970s to 40 percent in the 1990s. Why would systems that tie workers' pay to how much they produce
Many companies that pay workers an hourly wage require some minimum level of acceptable output. Suppose a company that has been using this system decides to switch to a piece-rate system under which workers are compensated on the basis of how much output they produce. Is it likely that workers
For years, the Goodyear Tire & Rubber Company compensated its sales force by paying a salesperson a salary plus a bonus, based on the number of tires he or she sold. Eventually, Goodyear made two changes to this policy: (1) The basis for the bonus was changed from the quantity of tires
When the contact lens firm discussed in the Making the Connection implemented a new compensation plan, who benefited from the change? Is it likely that there were any losers from the change? Briefly explain.
In equilibrium, what determines the price of capital? What determines the price of natural resources? What is an economic rent?
Adam operates a pin factory. Suppose Adam faces the situation shown in the following table and the cost of renting a machine is $550 per week.a. Fill in the blank cells in the table and determine the profit-maximizing number of machines for Adam to rent. Briefly explain why renting this number of
Many people have predicted, using a model like the one in panel (b) of Figure 17.12 below, that the price of natural resources should rise consistently over time in comparison with the prices of other goods because the demand curve for natural resources is continually shifting to the right, while
In 1879, economist Henry George published Progress and Poverty, which became one of the best-selling books of the nineteenth century. In this book, George argued that all existing taxes should be replaced with a single tax on land. Tax incidence refers to the actual division of the burden of a tax
The total amount of oil in the earth is not increasing. Does this mean that in the market for oil, the supply curve is perfectly inelastic? Briefly explain.
In a competitive labor market, imposing a minimum wage should reduce the equilibrium level of employment. Will this result still hold if the labor market is a monopsony? Briefly explain.
An article in the Wall Street Journal about attempts by Congress to rewrite the tax code to make it more efficient noted that there were many provisions in the code intended to reduce the taxes paid by industries in districts of the members of Congress supporting the provisions. In total, these
In Chapter 4, we discussed the federal government's agricultural programs. In arguing that the costs of these programs exceed their benefits, economist Vincent H. Smith stated, "The 10% to 15% of farm families that receive more than 85% of all farm subsidies-amounting to millions of dollars a year
The late Nobel Laureate James Buchanan, who was one of the key figures in developing the public choice model, wrote, "The relevant difference between markets and politics does not lie in the kinds of values/interests that persons pursue, but in the conditions under which they pursue their various
What is the difference between the voting paradox and the Arrow impossibility theorem?
What is rent seeking, and how is it related to regulatory capture?
What is the relationship between market failure and government failure?
Will the preferences shown in the following table lead to a voting paradox? Briefly explain.
Many political observers have noted that Republican presidential candidates tend to emphasize their conservative positions on policy issues while running for their party's nomination, and Democratic presidential candidates tend to emphasize their liberal positions on policy issues while running for
Briefly explain whether you agree with the following argument: The median voter theorem will be an accurate predictor of the outcomes of elections when a majority of voters have preferences very similar to those of the median voter. When the majority of voters have preferences very different from
An article in the Economist on the work of the late Nobel Laureate James Buchanan made the following observation: "It was important ... to understand the ways that government could fail systematically." a. What does government failure mean in this context? How does public choice theory help us to
An article in the New York Times on President Obama's unsuccessful attempt to eliminate tax benefits for college savings accounts notes, "In theory, tax reform is supposed to be built around cutting back preferences like these, in order to pay for some combination of lower tax rates and tax
Which type of tax raises the most revenue for the federal government? What is the largest source of revenue for state and local governments?
Currently, the Social Security and Medicare programs are funded by payroll taxes rather than by the federal personal income tax. In 2015, the payroll tax for Social Security was 12.4 percent on wage, salary, and self-employment income up to $118,500. (Half of the tax is collected from employers and
Almost all states levy sales taxes on retail products, but about half of them exempt purchases of food. In addition, virtually all services are exempt from state sales taxes. Evaluate these tax rate differences, using the goals and principles of taxation discussed on pages 605-607.
Suppose the government eliminates the income tax and replaces it with a consumption tax. With a consumption tax, individuals pay a tax on only the part of their income they spend rather than save. Think about the effect of this change on the market for automobiles. Can you necessarily tell what
Use the following table to answer the questions. Annual Income Tax
In 2012, Congress and President Barack Obama passed legislation raising tax rates on families earning $450,000 or more. Did this change in the law make the U.S. tax system more progressive or less progressive? Be sure to provide definitions of progressive tax and regressive tax in your answer.
What is the difference between a marginal tax rate and an average tax rate? Which is more important in determining the effect of a change in taxes on economic behavior?
Briefly discuss each of the five goals and principles governments consider when deciding which taxes to use.
The federal government imposes a tax on sales of cigarettes. The following data are from a Gallup poll: Percentage Who Smoke, by Annual Household Income Income Percentage Who Smoke Less than
Many state governments use lotteries to raise revenue. If we think of a lottery as a type of tax, is a lottery likely to be progressive or regressive? What data would you need to determine whether the effect of a lottery is progressive or regressive?
Use the information in Table 18.2 on page 602 to calculate the total federal income tax paid, the marginal tax rate, and the average tax rate for people with the following incomes. (For simplicity, assume that these people have no exemptions or deductions from their incomes.) a. $25,000 b.
President Barack Obama proposed legislation that Congress failed to enact that would have included the so-called "Buffett Rule," named after billionaire Warren Buffett, who noted that he was paying a lower tax rate than his secretary. The Buffett Rule would set a new tax rate for those earning
Suppose the government decides to tax sales of pizzas. Use the following graph to answer the questions.a. How much of a per unit tax did the government impose on pizzas? b. Before the tax, what price do consumers pay for pizza? How does the price consumers pay change after the tax? c. Before the
Briefly discuss the effect of price elasticity of supply and demand on tax incidence.
According to the 2004 Economic Report of the President, "The actual incidence of a tax may have little to do with the legal specification of its incidence." Briefly explain what this statement means and discuss whether you agree with it.
According to the 2004 Economic Report of the President, "Another crucial principle [of tax incidence] is that only people can pay taxes. Businesses and other artificial entities cannot pay taxes." Do you agree that businesses cannot pay taxes? Don't businesses pay the federal corporate income tax?
Business historian John Steele Gordon noted in a Wall Street Journal column that the first federal corporate income tax was enacted in 1909, before passage of the Sixteenth Amendment made a federal income tax constitutional. According to Gordon, Congress enacted the corporate income tax because of
Governments often have multiple objectives in imposing a tax. In each part of this question, use a demand and supply graph to illustrate your answer.a. If the government wants to minimize the excess burden from excise taxes, should these taxes be imposed on goods that have price-elastic demand or
Use the following graph of the market for cigarettes to answer the questions.a. If the government imposes a 10-cent-per-pack tax on cigarettes, will the price consumers pay rise more if the demand curve is D1 or if the demand curve is D2? Briefly explain.b. If the government imposes a
Discuss the extent of income inequality in the United States. Has inequality in the distribution of income in the United States increased or decreased over time? Briefly explain.
An article in the New York Times about former Secretary of State Hillary Clinton's campaign for president noted that she proposed to "increase taxes on the wealthiest Americans to combat a widening gap between rich and poor." a. Currently, does the effect of federal taxes make the distribution of
An article in the Wall Street Journal explained that the 10 wealthiest four-year colleges in the United States accounted for one-third of the total cash and investments held by all four-year colleges. The 40 wealthiest colleges accounted for two-thirds of all the cash and investments. A blog entry
Evaluate the following statement: "Policies to redistribute income are desperately needed in the United States. Without such policies, the roughly 15 percent of the population that is currently poor has no hope of ever climbing above the poverty line."
Why do economists often use a lower poverty threshold for low-income countries than for high-income countries such as the United States? Is there a difference between relative poverty and absolute poverty? Briefly explain.
Suppose that a country has 20 million households. Ten million are poor households that each have labor market earnings of $20,000 per year, and 10 million are rich households that each have labor market earnings of $80,000 per year. If the government enacted a marginal tax of 10 percent on all
In an article in the Wall Street Journal, Edward Lazear of Stanford University was quoted as saying, "There is some good news.... Most of the inequality reflects an increase in returns to 'investing in skills.'" Why would it be good news if it were true that most of the income inequality in the
Define poverty line and poverty rate. How has the poverty rate changed in the United States since 1960?
What is a Lorenz curve? What is a Gini coefficient? If a country had a Gini coefficient of 0.48 in 1960 and 0.44 in 2016, would income inequality in the country have increased or decreased?
Describe the main factors economists believe cause inequality of income.
Describe the trend in global poverty rates.
In a column in the Washington Post, Robert J. Samuelson wrote: "As for what's caused greater inequality, we're also in the dark. The Reagan and Bush tax cuts are weak explanations, because gains have occurred in pretax incomes.... Up to a point, inequality is inevitable and desirable." a. What are
A column in the New York Times observes that the "growing trend of 'assortative mating' is a major cause of income inequality." a. What is assortative mating? b. How can assortative mating contribute to income inequality? c. If assortative mating is a major cause of income inequality, what are the
Use the following Lorenz curve graph to answer the questions.a. Did the distribution of income become more equal in 2016 than it was in 2015, or did it become less equal? Briefly explain. b. If area A = 2,150, area B = 250, and area C = 2,600, calculate the Gini coefficient for 2015 and the Gini
Draw a Lorenz curve showing the distribution of income for the five people in the following table.Name Annual
Why in microeconomics do we measure production in terms of quantity, but in macroeconomics we measure production in terms of market value?
Is the value of a house built in 2006 and resold in 2017 included in the GDP of 2017? Briefly explain. Would the services of the real estate agent who helped sell (or buy) the house in 2017 be counted in GDP for 2017? Briefly explain.
Suppose that a simple economy produces only four goods: shoes, hamburgers, shirts, and cotton. Assume that all the cotton is used in the production of shirts. Use the information in the following table to calculate nominal GDP for 2017.
According to Dan Sichel, an economist at Wellesley College, the amount of time a singer spends working on a record album in a recording studio is "quite analogous to a factory investing in a new machine." Do you agree? Briefly explain.
An artist buys scrap metal from a local steel mill as a raw material for her metal sculptures. Last year, she bought $5,000 worth of the scrap metal. During the year, she produced 10 metal sculptures that she sold for $800 each to a local art store. The local art store sold all of the sculptures to
If the U.S. Bureau of Economic Analysis added up the values of every good and service sold during the year, would the total be larger, smaller, or equal to GDP? Briefly explain.
Describe the four major components of expenditures in GDP and write the equation that represents the relationship between GDP and the four expenditure components.
A student remarks, "It doesn't make sense that intermediate goods are not counted in GDP. A computer chip is an intermediate good, and without it, a laptop won't work. So, why don't we count the computer chip in GDP?" Provide an answer to the student's question.
Briefly explain whether each of the following transactions represents the purchase of a final good. a. The purchase of flour by a bakery b. The purchase of an aircraft carrier by the federal government c. The purchase of French wine by a U.S. consumer d. The purchase of a new airliner by American
An article in the Wall Street Journal states that a "change in ... inventories subtracted 0.57 percentage point from" what would have been the increase in GDP. For this result to occur, must there have been an increase or a decrease in inventories? Briefly explain.
Which component of GDP will be affected by each of the following transactions involving Ford Motor Company? If you believe that none of the components of GDP will be affected by a transaction, briefly explain why. a. You purchase a new Ford Escape hybrid from a Ford dealer. b. You purchase a 2011
Why does the size of a country's GDP matter? How does it affect the quality of life of the country's people?
The following table shows data from the Organization for Economic Co-operation and Development (OECD) on the average number of hours employed people worked per week and on real GDP per capita for seven countries.The average German worker worked 8 fewer hours but earned $9,000 less per year than did
Why is GDP an imperfect measure of economic wellbeing? What types of production does GDP not measure? If GDP included these types of production, would it still be an imperfect measure of economic well-being?
Which of the following are likely to increase measured GDP, and which are likely to reduce it? a. The fraction of women working outside the home increases. b. There is a sharp increase in the crime rate. c. Higher tax rates cause some people to hide more of the income they earn.
Michael Burda of Humboldt University in Germany and Daniel Hamermesh of the University of Texas examined how workers in the United States who lost their jobs spent their time. They discovered that during the period when the workers were unemployed, the decline in the number of hours of paid work
A typical U.S. worker today works fewer than 40 hours per week, while in 1890, he or she worked 60 hours per week. Does this difference in the length of work weeks matter in comparing the economic well-being of U.S. workers today with that of 1890? Or can we use the difference between real GDP per
Economic historians Roger Ransom and Richard Sutch have estimated that African-American farmers in the U.S. South worked about 30 percent fewer hours per year after the Civil War than they had as slaves before the Civil War. If after the Civil War, African-American farmers had continued to work
An article in the New York Times describes the much greater use of cash, as opposed to checks and credit cards, in buying and selling in China. The article describes someone bringing several bags of cash containing the equivalent of $130,000 into a car dealership to buy a new BMW. Another article
An article in the Wall Street Journal notes that many economists believe that GDP data for India are unreliable because "the average firm employs just a handful of people and the overwhelming majority of the adult population works off the books and far from major cities." a. What does the article
Why does inflation make nominal GDP a poor measure of the increase in total production from one year to the next? How does the U.S. Bureau of Economic Analysis deal with this drawback?
An article in the Economist on the revisions to Nigeria's GDP commented, "The GDP revision is not mere trickery. It provides a truer picture of Nigeria's size by giving due weight to the bits of the economy, such as telecoms, banking and the Nollywood film industry, that have been growing fast in
What is the GDP deflator, and how is it calculated?
Assuming that inflation has occurred over time, what is the relationship between nominal GDP and real GDP in each of the following situations? a. In the years after the base year b. In the base year c. In the years before the base year
Suppose the information in the following table is for a simple economy that produces only four goods and services: shoes, hamburgers, shirts, and cotton. Assume that all the cotton is used in the production of shirts.a. Use the information in the table to calculate real GDP for 2016 and 2017,
Briefly explain whether you agree with the following statements. a. "If nominal GDP is less than real GDP, then the price level must have fallen during the year." b. "Whenever real GDP declines, nominal GDP must also decline." c. "If a recession is so severe that the price level declines, then we
An article in the Wall Street Journal discussed the views of Canadian Minister of Finance Joe Oliver on the effect of falling oil prices on the Canadian economy. According to the article, Oliver argued that "lower oil prices would have a broadly neutral impact on real ... gross domestic product,
The following table lists hypothetical values.a. Fill in column (4) by calculating real GDP using the GDP deflator with a base year of 2014 from column (3). Fill in column (7) by calculating real GDP using the GDP deflator with a base year of 2016 from column (6). b. Fill in column (5) by
According to an article in the Economist, "China's GDP grew by 7% in the second quarter, which was higher than had been expected." Is it likely that the article is referring to the change in nominal GDP or the change in real GDP? Briefly explain.
Use the data in the following table to calculate the GDP deflator for each year (values are in billions of dollars):Year Nominal GDP Real
What are the differences between national income, personal income, and disposable personal income?
What is gross domestic income? Which component of gross domestic income is the largest?
Suppose Turkey has many of its citizens temporarily working in other countries, and many of its firms have facilities in other countries. Furthermore, relatively few citizens of foreign countries are working in Turkey, and relatively few foreign firms have facilities in Turkey. In these
An article in the Economist on the Irish economy argues, "Irish progress, both economic and fiscal, is typically measured using GDP.... But for an economy where foreign firms are so dominant, GNP ... is more relevant." Briefly explain the writer's reasoning.
Suppose the amount the federal government collects in personal income taxes increases, while the level of GDP remains the same. What will happen to the values of national income, personal income, and disposable personal income?
If you were attempting to forecast the level of consumption spending by households, which measure of total production or total income might be most helpful to you in making your forecast? Briefly explain.
Briefly discuss the accuracy of the following statement: "Corporate profits are much too high: Most corporations make profits equal to 50 percent of the price of the products they sell."
a. Find the values for the most recent quarter for these four variables: (1) Personal Consumption Expenditures (PCEC); (2) Personal Consumption Expenditures: Durable Goods (PCDG): (3) Personal Consumption Expenditures: Nondurable Goods (PCND); and (4) Personal Consumption Expenditures: Services
a. Find the values for the most recent quarter for these three variables: (1) Gross Private Domestic Investment (GPDI); (2) Private Nonresidential Fixed Investment (PNFI); and (3) Private Residential Fixed Investment (PRFI). b. Use these values to calculate the difference between private domestic
Go to the Web site of the Federal Reserve Bank of St. Louis (FRED) (research.stlouisfed.org/ fred2/). a. Find the values for the most recent two years for Real Exports of Goods and Services (EXPGSCA) and Real Imports of Goods and Services (IMPGSCA). b. Compute the value of net exports for each of
a. Find the values for the most recent quarter for Gross Domestic Product (GDP) and Gross National Product (GNP). b. Given these values, explain whether foreign production by U.S. firms exceeded U.S. production by foreign firms. Go to the Web site of the Federal Reserve Bank of St. Louis (FRED)
a. Find the values for the most recent quarter for these three variables: (1) Personal Income (PINCOME); (2) Disposable Personal Income (DPI); and (3) Personal Consumption Expenditures (PCEC). b. Use these values to calculate the difference between personal income and disposable personal income.

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