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behavioral economics
Principles Of Economics 6th Edition Robert H. Frank, Ben Bernanke Professor, Kate Antonovics, Ori Heffetz - Solutions
Do we get the same GDP using two different methods?An economy produces 1,000,000 automobiles valued at $15,000 each. Of these, 700,000 are sold to consumers, 200,000 are sold to businesses, 50,000 are sold to the government, and 25,000 are sold abroad. No automobiles are imported. The automobiles
Lotta Doe sells 100 shares of stock in Benson Buggywhip for $50 per share.She pays her broker a 2 percent commission for executing the sale. How does Lotta’s transaction affect the current-year GDP?
Does the sale of an existing home count in GDP?A 20-year-old house is sold to a young family for $200,000. The family pays the real estate agent a 6 percent commission, or $12,000. What is the contribution of this transaction to GDP?
Amy’s card shop receives a shipment of Valentine’s Day cards in December 2014. Amy pays the wholesale distributor of the cards a total of $500. In February 2013 she sells the cards for a total of $700. What are the contributions of these transactions to GDP in the years 2012 and 2013?
What is an intermediate good?Farmer Brown produces $100 worth of milk. He sells $40 worth of milk to his neighbors and uses the rest to feed his pigs, which he sells to his neighbors for $120. What is Farmer Brown’s contribution to the GDP?
How do we count a haircut in GDP?Your barber charges $10 for a haircut. In turn, the barber pays his assistant $2 per haircut in return for sharpening the scissors, sweeping the floor, and other chores. For each haircut given, what is the total contribution of the barber and his assistant, taken
Suppose Orchardia produces the original quantities of the three goods at the same prices as in Example 15.1. In addition, it produces 5 oranges at$0.30 each. What is the GDP of Orchardia now?
What is Orchardia’s GDP?In the imaginary economy of Orchardia, total production is 4 apples and 6 bananas. To find the total output of Orchardia, we could add the number of apples to the number of banana and conclude that total output is 10 pieces of fruit. But what if this economy also produced
Apply the expenditure method for measuring GDP to analyze economic activity.
The following table shows all the marginal benefits for each voter in a small town whose town council is considering a new swimming pool with capacity for at least three citizens. The cost of the pool would be $18 per week and would not depend on the number of people who actually used it. ( LO2 ,
Refer to Problem 6. Suppose Jack earns $1,000 per month and Jill earns $11,000 per month. ( LO2 , LO4 )a. Suggest a proportional tax on income that would be accepted by majority vote and would pay for the security guard.b. Suppose instead that Jack proposes a tax scheme under which Jack and Jill
Jack and Jill are the only two residents in a neighborhood, and they would like to hire a security guard. The value of a security guard is $50 per month to Jack and$150 per month to Jill. Irrespective of who pays the guard, the guard will protect the entire neighborhood. ( LO2 , LO4 )a. What is the
The town of Smallsville is considering building a museum. The interest on the money Smallsville will have to borrow to build the museum will be $1,000 per year.Each citizen’s marginal benefit from the museum is shown in the following table, and this marginal benefit schedule is public
When a group of people must decide whether to buy a shared public good or service, the free-rider problem frequently occurs because: ( LO3 )a. People have an incentive to understate how much the facility is really worth to them if they have to pay taxes to finance it.b. Each individual’s needed
When a TV company chooses a pay-per-view scheme to pay for programming, which of the following statements is true? Explain. ( LO2 )a. The outcome is socially efficient.b. The programs selected will maximize advertising revenue.c. The marginal cost to an additional viewer of watching the programs is
Suppose the demand curves for hour-long episodes of the Kardashians and Masterpiece Theatre are as shown in the following diagram. A television network is considering whether to add one or both programs to its upcoming fall lineup. The only two time slots remaining are sponsored by Colgate, which
Two consumers, Smith and Jones, have the following demand curves for Podunk Public Radio broadcasts of recorded opera on Saturdays:Smith: PS 5 12 2 Q Jones: PJ 5 12 2 2Q, where P S and P J represent marginal willingness-to-pay values for Smith and Jones, respectively, and Q represents the number of
Consider a good that would be provided efficiently by private market forces. Why is the direct loss in surplus that would result from a tax on this good an overstatement of the loss in surplus caused by the tax? ( LO2 , LO4 )
True or false: A tax on an activity that generates negative externalities will improve resource allocation in the private sector and also generate revenue that could be used to pay for useful public goods.Explain. ( LO2 , LO4 )
Give examples of goods that are, for the most part: ( LO1 )a. Rival but nonexcludableb. Nonrival but excludablec. Both nonrival and nonexcludable
Answer the following questions related to these goods:apples, Stephen King novels, street lighting on campus, and NPR radio broadcasts. ( LO1 )a. Which of these goods are nonrival?b. Which of these goods are nonexcludable?
How much will cellular phone companies bid for an exclusive license?The State of Wyoming has announced its intention to grant an exclusive license to provide cellular phone services within its borders. Two firms have met the deadline for applying for this license. The franchise lasts for exactly
Why would anyone pay $50 for a $20 bill?Suppose a $20 bill is to be auctioned off to the highest bidder. The rules of this particular auction require an initial bid of at least 50 cents, and succeeding bids must exceed the previous high bid by at least 50 cents. When the bidding ceases, both the
In The Economic Naturalist 14.3, would Sven have ordered dessert if there had been only 5 people splitting the check instead of 10?
Why does check-splitting make the total restaurant bill higher?Sven Torvaldsen and nine friends are having dinner at La Maison de La Casa House, a four-star restaurant in Minneapolis. To simplify the task of paying for their meal, they have agreed in advance to split the cost of their meal equally,
How would your answer to the previous example have been different if the demand curve had instead been as shown below Cost ($/episode) 15 10 5 0 10 20 30 Viewing households (millions)
Why do television networks favor the Kardashians over Masterpiece Theatre?In a given time slot, a television network faces the alternative of broadcasting either Keeping Up with the Kardashians or Masterpiece Theatre. If it chooses the Kardashians, it will win 20 percent of the viewing audience,
By how much is economic surplus reduced by a pay-per-view charge?If Mystery Theater is shown on pay-per-view television at 10 p.m. on Thursdays, the demand curve for each episode is as given in Figure 14.4 . If the regulated pay-per-view charge is $10 per household, by how much would economic
What is the optimal quantity of urban parkland?The city government of a new planned community must decide how much parkland to provide. The marginal cost curve and the public demand curve for urban parkland are as shown in Figure 14.3 . Why is the marginal cost curve upward-sloping and the demand
Why don’t most married couples contribute equally to joint purchases?Suppose Hillary earns $2,000,000 per year while her husband Bill earns only $20,000. Given her income, Hillary as an individual would want to spend much more than Bill would on housing, travel, entertainment, education for their
Will the government buy the filter if there is a proportional tax on income?Suppose that Prentice proposes that the government raise revenue by imposing a proportional tax on income to finance the provision of the water filter. Will Wilson, who earns twice as much as Prentice, support this proposal?
Will government buy the water filter if there is an “equal tax” rule?Suppose Prentice and Wilson could ask the government to help broker the water filter purchase. And suppose that the government’s tax policy must follow a “nondiscrimination”rule that prohibits charging any citizen more
Will Prentice and Wilson buy a water filter?Prentice and Wilson own adjacent summer cottages along an isolated stretch of shoreline on Cayuga Lake. Because of a recent invasion of zebra mussels, each must add chlorine to his water intake valve each week to prevent it from becoming clogged by the
Which of the following, if any, is nonrival?a. The website of the Bureau of Labor Statistics at 3 a.m.b. The World Cup soccer championship game watched in person.c. The World Cup soccer championship game watched on television.
Discuss the criteria that should be applied to taxation in order t
Show how economic concepts can be used to find the optimal quantity of a public good and describe the ways in which private firms can supply public goods.
Refer to Problem 5. If Tom and Al could negotiate binding agreements with one another at no cost, which job would each choose? Suppose negotiation is impractical, and that the only way Tom and Al can achieve greater workplace safety is for the government to adopt safety regulations. If enforcement
Tom and Al are the only two members of a household. Each gets satisfaction from three things: his income, his safety at work, and his income relative to his roommate’s income. Suppose Tom and Al must each choose between two jobs: a safe job that pays $100 per week and a risky job that pays $130
Refer to Problem 3. Instead of taxing pollution, the City Council decides to auction off four permits, each of which entitles the bearer to emit 1 ton of smoke per day. No smoke may be emitted without a permit. Suppose the government conducts the auction by starting at $1 and asking how many
Two firms, Sludge Oil and Northwest Lumber, have access to five production processes, each one of which has a different cost and gives off a different amount of pollution. The daily costs of the processes and the corresponding number of tons of smoke emitted are as shown in the following table: (
In Los Angeles, the demand for Botox injections (a procedure that removes wrinkles and smoothes the skin) is as shown in the following diagram. The marginal cost of a Botox injection is $1,000 and the procedure is not currently covered by health insurance. ( LO1 )a. By how much will total economic
In the event he requires an appendectomy, David’s demand for hospital accommodations is as shown in the diagram. David’s current insurance policy fully covers the cost of hospital stays. The marginal cost of providing a hospital room is$150 per day. (LO1)a. If David’s only illness this year
Does it make sense for the Federal Aviation Administration to require more sophisticated and expensive safety equipment in large commercial passenger jets than in small private planes? ( LO4 )
How would you explain to a skeptical bank manager why the socially optimal number of bank robberies is not zero? ( LO4 )
Why do economists believe that pollution taxes and effluent permits are a more efficient way to curb pollution than laws mandating across-the-board cutbacks? ( LO2 )
Why do more Secret Service agents guard the president than the vice president, and why do no Secret Service agents guard college professors?When the president of the United States flies to Cleveland to give a speech, hundreds of federal agents are assigned to protect him against attack by an
Why do many states have laws requiring students to be vaccinated against childhood illnesses?Proof of immunization against diphtheria, measles, poliomyelitis, and rubella is now universally required for entry into American public schools. Most states also require immunization against tetanus (49
Why does the government require safety seats for infants who travel in cars but not for infants who travel in airplanes?A mother cannot legally drive her six-month-old son to a nearby grocery store without first strapping him into a governmentapproved safety seat. Yet she can fly with him from
Will Don and Michael choose the optimal amount of safety?Suppose Don and Michael are the only two members of a hypothetical community.They get satisfaction from three things: their income, safety on the job, and their position on the economic ladder. Suppose Don and Michael must both choose between
How much will pollution permits sell for?Two firms, Sludge Oil and Northwest Lumber, again have access to the production processes described earlier (which are reproduced in Table 13.2 ). The government’s goal is to cut the current level of pollution, 8 tons per day, by half. To do so, the
In Example 13.3 , if the tax were $61 per ton of pollution emitted each day, which production processes would the two firms adopt?
What is the least costly way to cut pollution by half?Two firms, Sludge Oil and Northwest Lumber, each have access to five production processes, each of which has a different cost and produces a different amount of pollution.The daily costs of the processes and the number of tons of smoke emitted
Why is a patient with a sore knee more likely to receive an MRI exam if he has conventional health insurance than if he belongs to a health maintenance organization?
In Example 13.2 , how much waste would be caused by an insurance policy that reimbursed hospital room expenses at the rate of $150 per day?
How much waste does full insurance coverage cause?Using the demand and cost information from the hospital stay example, how much waste results from full insurance coverage of David’s hospital roo
In Example 13.1 , how long would David choose to stay in the hospital if his health insurance covered 50 percent of the cost of his hospital room?
How long should David stay in the hospital?To eliminate recurrent sore throats, David plans to have his tonsils removed. His surgeon tells him that the average hospital stay after this procedure is two days (some people stay only one day, while others stay three, four, or even five days). Hospital
Compare and contrast the ways in which taxes and tradable permits can be used to reduce pollution.
Suppose employers and workers are risk-neutral, and Congress is about to enact the$12-per-hour minimum wage described in Problem 8. Congressional staff economists have urged legislators to consider adopting an earned-income tax credit instead.Suppose neither workers nor employers would support that
Suppose the demand and supply curves for unskilled labor in the Corvallis labor market are as shown in the accompanying figure. (LO5)a. By how much will the imposition of a minimum wage at $12 per hour reduce total economic surplus? Calculate the amounts by which employer surplus and worker surplus
Suppose the equilibrium wage for unskilled workers in New Jersey is $7 per hour. How will the wages and employment of unskilled workers in New Jersey change if the state legislature raises the minimum wage from $5.15 per hour to$6 per hour? (LO5)
Jones, who is currently unemployed, is a participant in three means-tested welfare programs: food stamps, rent stamps, and day care stamps. Each program grants him$150 per month in stamps, which can be used like cash to purchase the good or service they cover. (LO5)a. If benefits in each program
Sue is offered a job reshelving books in the University of Montana library from noon until 1 p.m. each Friday. Her reservation wage for this task is $10 per hour. (LO4)a. If the library director offers Sue $100 per hour, how much economic surplus will she enjoy as a result of accepting the job?b.
Carolyn owns a soda factory and hires workers in a competitive labor market to bottle the soda. Her company’s weekly output of bottled soda varies with the number of workers hired, as shown in the following table: (LO2, LO3, LO5)a. If each case sells for $10 more than the cost of the materials
Stone, Inc., owns a clothing factory and hires workers in a competitive labor market to stitch cut denim fabric into jeans. The fabric required to make each pair of jeans costs $5. The company’s weekly output of finished jeans varies with the number of workers hired, as shown in the following
Acme, Inc., supplies rocket ships to the retail market and hires workers to assemble the components. A rocket ship sells for $30,000, and Acme can buy the components for each rocket ship for $25,000. Wiley and Sam are two workers for Acme. Sam can assemble 1y5 of a rocket ship per month and Wiley
Mountain Breeze supplies air filters to the retail market and hires workers to assemble the components. An air filter sells for $26, and Mountain Breeze can buy the components for each filter for $1. Sandra and Bobby are two workers for Mountain Breeze. Sandra can assemble 60 air filters per month
Why is exclusive reliance on the negative income tax unlikely to constitute a long-term solution to the poverty problem? (LO5)
How might recent changes in income inequality be related to the proliferation of technologies that enable the most productive individuals to serve broader markets? (LO3, LO4)
True or false: If the human capital possessed by two workers is nearly the same, their wage rates will be nearly the same. Explain. (LO3)
Why is the supply curve of labor for any specific occupation likely to be upward-sloping, even if, for the economy as a whole, people work fewer hours when wage rates increase? (LO2)
In the minimum wage example above, by how much would total economic surplus have been reduced by the $7 minimum wage if labor demand in Tallahassee had been perfectly inelastic at 5,000 person-hours per day?
By how much will a minimum wage reduce total economic surplus?Suppose the demand and supply curves for unskilled labor in the Tallahassee labor market are as shown in Figure 12.6. By how much will the imposition of a minimum wage at$7 per hour reduce total economic surplus? By how much do worker
What is the largest dorm population for which Sue would accept the job on a pay-sharing basis?
Does income sharing affect labor supply?Sue is offered a job reshelving books in the University of Montana library from noon until 1 p.m. each Friday. Her reservation wage for this task is $10 per hour. If the library director offers Sue $100 per hour, how much economic surplus will she enjoy as a
Why does Renée Fleming earn millions more than sopranos of only slightly lesser ability?Although the best sopranos have always earned more than others with slightly lesser talents, the earnings gap is sharply larger now than it was in the nineteenth century. Today, top singers like Renée Fleming
If unionized firms have to pay more, how do they manage to survive in the face of competition from their nonunionized counterparts?In fact, nonunionized firms sometimes do drive unionized firms out of business, as when the American textile industry moved to the South in the late nineteenth and
Why do some ad copy writers earn more than others?You plan to pursue a career in advertising and have two job offers:one to write ad copy for the American Cancer Society, the other to write copy for Camel cigarette ads aimed at the youth market.Except for the subject matter of the ads, working
In Figure 12.4, by how much would the value of total output be increased if the wage rate were $9 per hour in each market?
In the woodworking example, how many workers should Adirondack hire if the wage rate falls to $275 per week?
In the woodworking example, how many workers should Adirondack hire if the price of cutting boards rises to $26?
How many workers should Adirondack hire?Adirondack Woodworking Company hires workers in a competitive labor market at a wage of $350 per week to make kitchen cutting boards from scrap wood that is available free of charge. If the boards sell for $20 each and the company’s weekly output varies
How much will the potters earn?Mackintosh Pottery Works is one of numerous identical companies that hire potters who mold clay into pots. These companies sell the pots for $1.10 each to a finishing company that glazes and fires them and then sells them in the retail marketplace. Clay, which is
Describe and analyze some of the methods used to reduce poverty in the United States.
Compare and contrast the various hypotheses economists have proposed to explain earnings differences.
Female heads of state (e.g., Israel’s Golda Meir, India’s Indira Gandhi, Britain’s Margaret Thatcher) have often been described as more bellicose in foreign policy matters than the average male head of state. Using Loury’s theory of disappearing discourse, suggest an explanation for this
For each pair of occupations listed, identify the one for which the kind of car a person drives is more likely to be a good indication of how good she is at her job. ( LO4 )a. Elementary school teacher, real estate agentb. Dentist, municipal government administratorc. Engineer in the private
State whether the following are true or false, and briefly explain why: ( LO4 )a. Companies spend billions of dollars advertising their products on network TV primarily because the texts of their advertisements persuade consumers that the advertised products are of high quality.b. You may not get
Consumers know that some fraction x of all new cars produced and sold in the market are defective. The defective ones cannot be identified except by those who own them. Cars do not depreciate with use. Consumers are risk-neutral and value nondefective cars at $10,000 each. New cars sell for $5,000
How will growing Internet access affect the number of film actors and musicians who have active fan clubs? ( LO2 )
Fred, a retired accountant, and Jim, a government manager, are 63-year-old identical twins who collect antique pottery. Each has an annual income of $100,000 (Fred’s from a pension, Jim’s from salary). One buys most of his pottery at local auctions, and the other buys most of his from a local
Whose income do you predict will be more affected by the expansion of Internet access: ( LO1 )a. Stockbrokers or lawyers?b. Doctors or pharmacists?c. Bookstore owners or the owners of galleries that sell original oil paintings?
Brokers who sell stocks over the Internet can serve many more customers than those who transact business by mail or over the phone. How will the expansion of Internet access affect the average incomes of stockbrokers who continue to do business in the traditional way? ( LO1 )
Ann and Barbara are computer programmers in Nashville who are planning to move to Seattle. Each owns a house that has just been appraised for $100,000. But whereas Ann’s house is one of hundreds of highly similar houses in a large, well-known suburban development, Barbara’s is the only one that
Carlos is risk-neutral and has an ancient farmhouse with great character for sale in Slaterville Springs. His reservation price for the house is $130,000. The only possible local buyer is Whitney, whose reservation price for the house is$150,000. The only other houses on the market are modern ranch
Why might leasing a new Porsche be a good investment for an aspiring Hollywood film producer, even though he can’t easily afford the monthly payments? ( LO4 )
Explain why the used car market would be likely to function more efficiently in a community in which moral norms of honesty are strong than in a community in which such norms are weak. ( LO4 )
Explain why used cars offered for sale are different, on average, from used cars not offered for sale. ( LO3 )
Can it be rational for a consumer to buy a Chevrolet without having first taken test drives in competing models built by Ford, Chrysler, Honda, Toyota, and others? ( LO2 )
Explain why a gallery owner who sells a painting might actually create more economic surplus than the artist who painted it. ( LO1 )
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