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business
micro economics

Questions and Answers of Micro Economics

Former Massachusetts Governor Deval Patrick once proposed that criminals would have to pay a "safety fee" to the government. The size of the fee would be based on the seriousness of the crime (that
The graph on the next page illustrates the situation in the dry cleaning market, assuming that the marginal social cost of the pollution increases as the quantity of items cleaned per week increases.
An economist discussing the Obama administration's Clean Power Plan argued, "The best solutions would involve replacing EPA-centered regulation with better-suited tools, including a carbon tax." a.
What does it mean for a producer or consumer to internalize an externality? What would cause a producer or consumer to internalize an externality?
Why do most economists prefer tradable emission allowances to the command-and-control approach to pollution?
Some coal is mined by private companies on land owned by the federal government. Two economists writing in an opinion column argue, "The federal government should also take into account the economic
A column in the New York Times notes that many economists "support Pigovian taxes because, in some sense, we are already paying them." In what sense might consumers in a market be "paying" a Pigovian
Many antibiotics are no longer effective in eliminating infections because bacteria have evolved to become resistant to them. Some bacteria are now resistant to all but one or two existing
A column in the New York Times has the headline, "Should We Tax People for Being Annoying?" a. Do annoying people cause a negative externality? Should they be taxed? Do crying babies on a bus or
Writing in the New York Times, Michael Lewis argued, "Good new technologies are a bit like good new roads: Their social benefits its far exceed what any one person or company can get paid for
Eric Finklestein, an economist at Duke University, has argued that the external costs from being obese are larger than the external costs from smoking because "the mortality effect for obesity is
Define rivalry and excludability and use these terms to discuss the four categories of goods?
Barney subscribes to the NFL Sunday Ticket, a program package offered by DirecTV that allows Barney to watch every regular season NFL game played on Sundays. The subscription price for the Sunday
Jeff and James have different opinions regarding the amount the U.S. government should spend on national defense. Jeff believes that more should be spent in order to ensure that the country's enemies
What is free riding? How is free riding related to the need for public goods?
The merry-go-round in Ross Park, a public park in Binghamton, New York, was first installed in 1920 and has been periodically refurbished by the city in the years since. There is no entry fee to
Suppose that Jill and Joe are the only two people in the small town of Andover. Andover has land available to build a park of no more than 9 acres. Jill and Joe's demand schedules for the park are as
As readers of Herman Melville's 1851 novel Moby Dick know, at one time oil made from whale blubber was an important source of energy that was widely used by households and firms in oil lamps. Other
Nancy Folbre, an economist at the University of Massachusetts, Amherst, argued, "We must take responsibility for governing the commons-not just the quaint old-fashioned village green, but things that
Vaccines don't provide immunity from disease for some people. But if most people get vaccinated against a disease, such as measles, then the population achieves "herd immunity," which means that
Put each of the following goods or services into one of the categories shown in Figure 5.7 on page 166. That is, categorize them as private goods, public goods, quasi-public goods, or common
Write the formula for the price elasticity of demand. Why isn't elasticity just measured by the slope of the demand curve?
The publisher of a magazine gives his staff the following information: Current price ........................ $2.00 per issue Current sales ........... 150,000 copies per month Current total costs
If a 10 percent increase in the price of Cheerios causes a 25 percent reduction in the number of boxes of Cheerios demanded, what is the price elasticity of demand for Cheerios? Is the demand for
What is the midpoint formula for calculating price elasticity of demand? How else can you calculate the price elasticity of demand? What is the advantage of using the midpoint formula?
Draw a graph of a perfectly inelastic demand curve. Think of a product that would have a perfectly inelastic demand curve. Explain why demand for this product would be perfectly inelastic.
According to a news story, during the summer of 2015, gasoline prices were expected to decline by 32 percent, while "U.S. drivers are expected to consume slightly more gasoline, a 1.6 percent
Suppose that the following table gives data on the price of rye and the number of bushels of rye sold in 2015 and 2016:Year ___________ Price (dollars per bushel) __________ Quantity (bushels)2015
You own a hot dog stand that you set up outside the student union every day at lunchtime. Currently, you are selling hot dogs for a price of $3 each, and you sell 30 hot dogs a day. You are
In the fall of 2006, Pace University in New York raised its annual tuition from $24,751 to $29,454. Freshman enrollment declined from 1,469 in the fall of 2005 to 1,131 in the fall of 2006. Assuming
In 1916, the Ford Motor Company sold 500,000 Model T Fords at a price of $440 each. Henry Ford believed that he could increase sales of the Model T by 1,000 cars for every dollar he cut the price.
Briefly explain whether the demand for each of the following products is likely to be elastic or inelastic: a. Milk b. Frozen cheese pizza c. Cola d. Prescription medicine?
According to a news story about the bus system in the Lehigh Valley in Pennsylvania, Ridership fell 14 percent in 2012 after a 33 percent increase in bus fares. Based on this information, is the
The price elasticity of demand for crude oil in the United States has been estimated to be 20.06 in the short run and 20.45 in the long run. Why would the demand for crude oil be more price elastic
The entrance fee into Yellowstone National Park in northwestern Wyoming is "$50 for a private, noncommercial vehicle; $40 for a motorcycle; or $20 for each visitor 16 and older entering by foot,
Amazon allows authors who self-publish their e-books to set the prices they charge. One author was quoted as saying: "I am able to drop prices and, by sheer volume of sales, increase my income." Was
The Delaware River Joint Toll Bridge Commission increased the toll from $0.50 to $1.00 on the bridges on Route 22 and Interstate 78 from New Jersey to Pennsylvania. Use the information in the
A sportswriter writing about the Cleveland Indians baseball team made the following observation: "If the Indians suddenly slashed all tickets to $10, would their attendance actually increase? Not all
An article in the Wall Street Journal about the financial problems of the New York Metropolitan Opera contained the observation that "a ticket-price increase in 2012 backfired." a. What does the
Economists' estimates of price elasticities can differ somewhat, depending on the time period and on the markets in which the price and quantity data used in the estimates were gathered. An article
Coca-Cola has been focusing on selling more 7.5-ounce cans in displays near supermarket checkout lines. Previously, Coke had relied more heavily on 20-ounce bottles displayed in the beverage sections
Use the following graph for Yolanda's Frozen Yogurt Stand to answer the questions on the next page.a. Use the midpoint formula to calculate the price elasticity of demand for D1 between point A and
Briefly explain whether you agree with Manager 2's reasoning: Manager 1: "The only way we can increase the revenue we receive from selling our frozen pizzas is by cutting the price." Manager 2:
According to a company news release, during the third quarter of 2014, the Coca-Cola Company sold 1 percent less soda in North America while earning more revenue. a. Did Coke increase or decrease its
Define the cross-price elasticity of demand. What does it mean if the cross-price elasticity of demand is negative? What does it mean if the cross-price elasticity of demand is positive?
When lettuce prices doubled, from about $1.50 per head to about $3.00, the reaction of one consumer was quoted in a newspaper article: "I will not buy [lettuce] when it's $3 a head," she said, adding
In the following graph, the demand for hot dog buns has shifted to the right because the price of hot dogs has fallen from $2.20 to $1.80 per package. Calculate the cross-price elasticity of demand
According to an article on the Boston Globe's Web site, during the last three months of 2014, gasoline prices dropped 33 percent at the same time as ridership on mass transit, such as subways and
Rank the following four goods from lowest income elasticity of demand to highest income elasticity of demand. Briefly explain your ranking. a. Bread b. Pepsi c. Mercedes-Benz automobiles d. Laptop
The elasticities reported in this Making the Connection were calculated using price data for many brands of beer. Why might price elasticity estimates be less reliable if they use data for only one
Consider firms selling three goods: One firm sells a good with an income elasticity of demand less than zero, one firm sells a good with an income elasticity of demand greater than zero but less than
The demand for agricultural products is inelastic, and the income elasticity of demand for agricultural products is low. How do these facts help explain the decline of the family farm in the United
According to a study by the U.S. Centers for Disease Control and Prevention, the price elasticity of demand for cigarettes is 20.25. Americans purchase about 360 billion cigarettes each year. a. If
Suppose that the long-run price elasticity of demand for gasoline is 20.55. Assume that the price of gasoline is currently $3.00 per gallon, the equilibrium quantity of gasoline is 140 billion
Corruption has been a significant problem in Iraq. Opening and running a business in Iraq usually requires paying multiple bribes to government officials. We can think of there being a demand and
The head of the United Kumquat Growers Association makes the following statement: The federal government is considering implementing a price floor in the market for kumquats. The government will not
Review the concept of economic efficiency from Chapter 4, before answering the following question: Will there be a greater loss of economic efficiency from a price ceiling when demand is elastic or
Write the formula for the price elasticity of supply. If an increase of 10 percent in the price of frozen pizzas results in a 9 percent increase in the quantity of frozen pizzas supplied, what is the
Use the following graph of the market for basketball tickets at State University to answer the questions.a. What is the price elasticity of supply?b. Suppose the basketball team at State University
What is the main determinant of the price elasticity of supply?
Globe Life Park in Arlington is the home ball park of the Texas Rangers, a Major League Baseball team. The seating capacity of Globe Life Park is 49,170. Among the home games played by the Rangers in
To legally operate a taxi in New York City, a driver must have a medallion issued by the New York City Taxi and Limousine Commission, an agency of the city's government. In 2015 the number of
Suppose that instead of being highly inelastic, the demand for oil is highly elastic. a. Given the situation illustrated by the first graph in the Making the Connection on page 203, would the
Like many other cities, Denver experienced a sharp decline in construction of new homes in the years following 2006. Many carpenters, roofers, and other skilled workers left the area or found jobs in
On most days, the price of a rose is $1, and 8,000 roses are purchased. On Valentine's Day, the price of a rose jumps to $2, and 30,000 roses are purchased.a. Draw a demand and supply graph that
Briefly discuss the most important differences between the market for health care and the markets for other goods and services.
Briefly describe changes over time in the health of the average person in the United States.
How can improvements in health increase a country's total income? How can increases in a country's total income improve health?
In what sense have improvements in the health of the average American caused the U.S. production possibilities frontier to shift out? Panel (a) in Figure 7.1 on page 220 indicates that life
The widespread realization in the late nineteenth century that bacteria causes diseases helped lead to a public health movement. This movement eventually brought sewers, clean drinking water, and
Between 1830 and 1890, the height of the average adult male in the United States declined by about 2 inches at the same time that average incomes more than tripled. Did the standard of living in the
Define the following terms: a. Health insurance b. Fee-for-service c. Single-payer health care system d. Socialized medicine
What are the main sources of health insurance in the United States?
Briefly compare the health care systems in Canada, Japan, and the United Kingdom with the health care system in the United States.
What is meant by the phrase "health outcome"? How do health outcomes in the United States compare with those of other high-income countries? What problems arise in attempting to compare health
According to an article in the Economist about the health care system in the United Kingdom: A defining principle of the National Health Service is that it is free at the point of delivery. What
In an opinion column about improving the performance of doctors in the United States, a health economist observed that "it's very hard to measure the things we really care about, like quality of life
An article in the Economist on evaluating health outcomes is subtitled "To Improve Health Care, Governments Need to Use the Right Data." Among the data not currently being collected in most
Two health care analysts argue that in the United States, "we have arrived at a moment where we are making little headway in defeating various kinds of diseases. Instead, our main achievements today
An article in the Economist notes that about 10 percent of people in the United States work in health care and that "these workers have the crucial job of making American health care more efficient,
Define the following terms: a. Asymmetric information b. Adverse selection c. Moral hazard d. Principal-agent problem
While teaching the concepts of asymmetric information, a professor asked his students for examples of adverse selection or moral hazard in marriage. One of the students, who happened to be married,
A news story notes that some features of the U.S. health care system contribute "to the high cost of medical care by encouraging hospitals and doctors to perform tests and procedures regardless of
An opinion column in the Wall Street Journal observes about "defensive medicine" that "many physicians maintain that fear of lawsuits significantly affects the practice of medicine, and that reform
An article in the Economist argues that the real problem with health insurance is: The healthy people who decide not to buy insurance out of rational self-interest, and who turn out to be right. By
An article in the Los Angeles Times describes a healthy 23-year-old woman who has decided not to buy health insurance as "exactly the type of person insurance plans, states and the federal government
Explain whether you agree with the following statement: Providing health care is obviously a public good. If one person becomes ill and doesn't receive treatment, that person may infect many other
What are the asymmetric information problems in the market for health insurance?
How do health insurance companies deal with asymmetric information problems?
What is an externality? Are there externalities in the market for health care? Briefly explain.
Suppose you see a 2013 Volkswagen Jetta GLS Turbo Sedan advertised in the campus newspaper for $9,000. If you knew the car was reliable, you would be willing to pay $10,000 for it. If you knew the
What is the lemons problem? Is there a lemons problem in the market for health insurance? Briefly explain.
Michael Kinsley, a political columnist, observes: "The idea of insurance is to share the risks of bad outcomes." In what sense does insurance involve sharing risks? How does the problem of adverse
Under the Social Security retirement system, the federal government collects a tax on most people's wage income and makes payments to retired workers above a certain age who are covered by the
Briefly explain whether you agree with the following statement: "The reluctance of healthy young adults to buy health insurance creates a moral hazard problem for insurance companies."
What is the Patient Protection and Affordable Care Act (ACA)? Briefly list its major provisions.
The late Nobel Laureate Robert Fogel of the University of Chicago argued, "Expenditures on health care are driven by demand, which is spurred by income and by advances in biotechnology that make
Employees in most circumstances do not pay taxes on the value of the health insurance provided by their employers. If employees were taxed on the value of the employer-provided health insurance, what
Suppose consumers pay less than the true cost of medical services because a third party, such as an insurance company or the government, pays most of the bill. In the following graph, D1 represents
A column in the Wall Street Journal observes, "Independent websites like Edmunds.com, AutoTrader.com and Kelley Blue Book publish detailed pricing information [on automobiles] for consumers and do so

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