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Principles Of Economics 6th Edition Robert H. Frank, Ben Bernanke Professor, Kate Antonovics, Ori Heffetz - Solutions

Refer to Problem 8. Suppose each of the 1 million Islandian households has the same demand curve for heating oil. ( LO5 )a. What is the household demand curve?b. How much consumer surplus would each household lose if it had to pay $2 per gallon instead of $1 per gallon for heating oil, assuming
The government of Islandia, a small island nation, imports heating oil at a price of $2 per gallon and makes it available to citizens at a price of $1 per gallon.If Islandians’ demand curve for heating oil is given by P 5 6 2 Q , where P is the price per gallon in dollars and Q is the quantity in
Refer to Problem 6. Suppose a coalition of students from Lincoln High School succeeds in persuading the local government to impose a price ceiling of $7.50 on used DVDs, on the grounds that local suppliers are taking advantage of teenagers by charging exorbitant prices. ( LO5 )a. Calculate the
Suppose the weekly demand and supply curves for used DVDs in Lincoln, Nebraska, are as shown in the diagram. Calculate the following: ( LO5 )a. The weekly consumer surplus.b. The weekly producer surplus.c. The maximum weekly amount that producers and consumers in Lincoln would be willing to pay to
Unskilled workers in a poor cotton-growing region must choose between working in a factory for $6,000 a year and being a tenant cotton farmer. One farmer can work a 120-acre farm, which rents for $10,000 a year. Such farms yield $20,000 worth of cotton each year. The total nonlabor cost of
The city of New Orleans has 200 advertising companies, 199 of which employ designers of normal ability at a salary of $100,000 a year. Paying this salary, each of the 199 firms makes a normal profit on $500,000 in revenue. However, the 200th company employs Janus Jacobs, an unusually talented
Refer to Problem 2. ( LO2 , LO3 )a. Suppose the café’s revenues and expenses remain the same, but recyclers’earnings rise to $1,100 per year. Is the café still making an economic profit?Explain.b. Suppose John had not had to get a $10,000 loan at an annual interest rate of 10 percent to buy
John Jones owns and manages a café in Collegetown whose annual revenue is$5,000. Annual expenses are as follows: ( LO1 , LO2a. Calculate John’s annual accounting profit.b. John could earn $1,000 per year as a recycler of aluminum cans. However, he prefers to run the café. In fact, he would be
True or false: Explain why the following statements are true or false: ( LO1 , LO4 )a. The economic maxim “There’s no cash on the table” means that there are never any unexploited economic opportunities.b. Firms in competitive environments make no accounting profit when the market is in
You are a senator considering how to vote on a policy that would increase the economic surplus of workers by $100 million per year but reduce the economic surplus of retirees by $1 million per year. What additional measure might you combine with the policy to ensure that the overall result is a
Why do economists emphasize efficiency as an important goal of public policy? ( LO5 )
In Example 7.6, by how much would total economic surplus have been reduced if the price ceiling had been set not at $1 but at $1.20 per gallon?
In Figure 7.11 , suppose that milk initially sells for 50 cents per gallon. Describe a transaction that will create additional economic surplus for both buyer and seller without causing harm to anyone else.
Use the No-Cash-on-the-Table Principle to explain why all lanes on a crowded, multilane freeway move at about the same speed.
In Example 7.1, how will Pudge’s economic profit change if his annual revenue from corn production is not $22,000, but $20,000? Should he continue to farm?
Identify whether the market equilibrium is socially efficient, and why no opportunities for gain remain open to individuals when a market is in equilibrium.
Explain the Invisible Hand Theory and show how economic profit and economic loss affect the allocation of resources across industries.
The demand and supply curves for the pizza market are shown in the graph below.Calculate daily producer surplus. (LO5) Price ($/slice) 3 12 Quantity (1,000s of slices/day) D 24 S
In Problem 7, how would Paducah’s profit-maximizing level of output be affected if the government imposed a tax of $10 per day on the company? ( Hint: Think of this tax as equivalent to a $10 increase in fixed cost.) (LO3, LO4)a. What would Paducah’s profit-maximizing level of output be if the
Paducah Slugger Company makes baseball bats out of lumber supplied to it by Acme Sporting Goods, which pays Paducah $10 for each finished bat. Paducah’s only factors of production are lathe operators and a small building with a lathe. The number of bats it produces per day depends on the number
For the pizza seller whose marginal, average variable, and average total cost curves are shown in the accompanying diagram (who is the same seller as in Problem 5), what is the profit-maximizing level of output and how much profit will this producer earn if the price of pizza is $1.18 per slice?
For the pizza seller whose marginal, average variable, and average total cost curves are shown in the accompanying diagram, what is the profit- maximizing level of output and how much profit will this producer earn if the price of pizza is $0.50 per slice? (LO3) Price ($/slice) 1.18 0.68 0.50 0 260
For the pizza seller whose marginal, average variable, and average total cost curves are shown in the accompanying diagram, what is the profit-maximizing level of output and how much profit will this producer earn if the price of pizza is$2.50 per slice? (LO3) Price ($/slice) 2.50 1.40 0 570 MC ATC
A price-taking firm makes air conditioners. The market price of one of its new air conditioners is $120. The firm’s total cost information is given in the table below:How many air conditioners should the firm produce per day if its goal is to maximize its profit? (LO3) Air conditioners per day 1
The supply curves for the only two firms in a competitive industry are given by, respectively, P 5 2 Q 1 and P 5 2 1 Q 2 , where Q 1 is the output of firm 1 and Q 2 is the output of firm 2. What is the market supply curve for this industry?( Hint: Graph the two curves side by side; then add their
Zoe is trying to decide how to divide her time between her job as a wedding photographer, which pays $27 per hour for as many hours as she chooses to work, and as a fossil collector, in which her pay depends on both the price of fossils and the number of fossils she finds. Earnings aside, Zoe is
Why do we use the vertical interpretation of the supply curve when we measure producer surplus?
Which do you think is more likely to be a fixed factor of production for an ice cream producer during the next two months: its factory building or its workers who operate the machines? Explain. (LO4)
Economists often stress that congestion helps account for the law of diminishing returns. With this in mind, explain why it would be impossible to feed all the people on Earth with food grown in a single flowerpot, even if unlimited water, labor, seed, fertilizer, sunlight, and other inputs were
True or false: The perfectly competitive firm should always produce the output level for which price equals marginal cost. (LO3)
Explain why you would expect supply curves to slope upward on the basis of the Principle of Increasing Opportunity Cost. (LO1)
If the supply curve of glass container recycling services is as shown in the diagram, and each of the city’s 60,000 citizens would be willing to pay 0.00005 cent for each glass container removed from the landscape, at what level should the city government set the redemption price for glass
Using the bottle company example, suppose bottles sold not for $0.35 but only$0.10. Calculate the profit corresponding to each level of output, as in Table 6.3, and verify that the firm’s best option is to cease operations in the short run.
How would the profit-maximizing level of bottle production change in Example 6.2 if bottles sell for 35 cents each, but wages fall to $6 per day?
How would the profit-maximizing level of bottle production change in Example 6.2 if bottles sell for 62 cents each?
In the example above, calculate the lowest container redemption prices that will lead Harry to search a third, fourth, and fifth hour.
Connect the determinants of supply with the factors that affect individual firms’ costs and apply the theory of supply.
Determine a perfectly competitive firm’s profit-maximizing output level and profit in the short run.
Discuss the relationship between the supply curve for an individual firm and the market supply curve for an industry.
Explain how opportunity cost is related to the supply curve.
For the demand curve shown, find the total amount of consumer surplus that results in the gasoline market if gasoline sells for $2 per gallon. (LO5) Price ($/gallon) 0 2 10 80 100 1,000s of gallons/yr
The buyers’ side of the market for amusement park tickets consists of two consumers whose demands are as shown in the diagram below. (LO4, LO5)a. Graph the market demand curve for this market.b. Calculate the total consumer surplus in the amusement park market if tickets sell for $12 each. Price
Tom has a weekly allowance of $24, all of which he spends on pizza and movie rentals, whose prices are $6 per slice and $3 per rental, respectively. We can assume that pizza slices and movie rentals are available only in whole-number amounts. (LO3)a. List all possible combinations of the two goods
Sue gets a total of 20 utils per week from her consumption of pizza and a total of 40 utils per week from her consumption of yogurt. The price of pizza is $1 per slice, the price of yogurt is $1 per cup, and she consumes 10 slices of pizza and 20 cups of yogurt each week. True or false: Sue is
Toby’s current marginal utility from consuming peanuts is 100 utils per ounce and his marginal utility from consuming cashews is 200 utils per ounce. If peanuts cost 10 cents per ounce and cashews cost 25 cents per ounce, is Toby maximizing his total utility from the kinds of nuts? If so, explain
Martha’s current marginal utility from consuming orange juice is 75 utils per ounce and her marginal utility from consuming coffee is 50 utils per ounce. If orange juice costs 25 cents per ounce and coffee costs 20 cents per ounce, is Martha maximizing her total utility from the two beverages? If
You are having lunch at an all-you-can-eat buffet. If you are rational, what should be your marginal utility from the last morsel of food you swallow? (LO2)
Which of the following factors would affect a buyer’s reservation price for a given good or service: social influence, the price of the good, or the cost of producing the item? (LO1)
Any consumer trying to decide whether to buy a given good or service will base the decision on his or her reservation price and the existing market price. When making this decision, what does the buyer’s reservation price measure? What does the market price measure? (LO1)
Give an example of a good that you have consumed for which your marginal utility increased with the amount of it you consumed. (LO3)
Explain why a good or service that is offered at a monetary price of zero is unlikely to be a truly “free”good from an economic perspective. (LO3)
Why does the law of diminishing marginal utility encourage people to spread their spending across many different types of goods? (LO3)
Explain why economists consider the concept of utility useful, even if psychologists cannot measure it precisely. (LO2)
Why do economists prefer to speak of demands arising out of “wants” rather than “needs”? (LO2)
The buyers’ side of the market for movie tickets consists of two consumers whose demands are as shown in the diagram below. Graph the market demand curve for this market. Price ($/ticket) 0 24 Tickets/yr 18 122 Price ($/ticket) 48 Tickets/yr
John spends all of his income on two goods: food and shelter. The price of food is $5 per pound and the price of shelter is $10 per square yard. At his current consumption levels, his marginal utilities for the two goods are 20 utils per pound and 30 utils per square yard, respectively. Is John
In the preceding examples, verify that the stated combination of flavors costs exactly the amount that Sarah has budgeted for ice cream.
Discuss the relationship between the individual demand curve and the market demand curve.
Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.
Discuss how individual wants are translated into demand.
Relate the law of demand to the Cost-Benefit Principle(Core Principle 2).
Suppose that the ingredients required to bring a slice of pizza to market and their respective costs are as listed in the table:If these proportions remain the same no matter how many slices are made, and the inputs can be purchased in any quantities at the stated prices, draw the supply curve of
What are the respective price elasticities of supply at A and B on the supply curve shown in the accompanying figure? (LO5) Price 6 4 A B S 0 9 12 Quantity AQ
A 2 percent increase in the price of milk causes a 4 percent reduction in the quantity demanded of chocolate syrup. What is the cross-price elasticity of demand for chocolate syrup with respect to the price of milk? Are the two goods complements or substitutes? (LO4)
Suppose that, in an attempt to induce citizens to conserve energy, the government enacted regulations requiring that all air conditioners be more efficient in their use of electricity. After this regulation was implemented, government officials were then surprised to discover that people used even
At point A on the demand curve shown, by what percentage will a 1 percent in crease in the price of the product affect total expenditure on the product? (LO3) P ($/unit) 6 A 4 0 6 Q (units/week) 18
The schedule below shows the number of packs of bagels bought in Davis, California, each day at a variety of prices. (LO2, LO3)a. Graph the daily demand curve for packs of bagels in Davis.b. Calculate the price elasticity of demand at the point on the demand curve at which the price of bagels is $3
Suppose, while rummaging through your uncle’s closet, you found the original painting of Dogs Playing Poker , a valuable piece of art. You decide to set up a display in your uncle’s garage. The demand curve to see this valuable piece of art is as shown in the diagram. What price should you
Calculate the price elasticity of demand (in absolute value) at points A , B , C , D , and E on the demand curve below. (LO2) Price 100 75 50 25 A B 0 25 50 Quantity E 75 100
Among the following groups—senior executives, junior executives, and students—which is likely to have the most and which is likely to have the least price-elastic demand for membership in the Association of Business Professionals? (LO1)
Is the demand for a particular brand of car, like a Chevrolet, likely to be more or less price-elastic than the demand for all cars? Explain. (LO1)
Why do economists pay little attention to the algebraic sign of the elasticity of demand for a good with respect to its own price, yet pay careful attention to the algebraic sign of the elasticity of demand for a good with respect to another good’s price? (LO4)
Under what conditions will an increase in the price of a product lead to a reduction in total spending for that product? (LO3)
Why does the price elasticity of demand for a good decline as we move down along a straight-line demand curve? (LO2)
Why does a consumer’s price elasticity of demand for a good depend on the fraction of the consumer’s income spent on that good? (LO1)
For the supply curve shown in Figure 4.14, calculate the elasticity of supply when P = 6. 10 8 Price FIGURE 4.14 A Supply Curve for Which Price Elasticity Declines as Quantity Rises. For the supply curve shown, (1/slope) is the same at every point, but the ratio P/Q declines as Q increases. So
What is the price elasticity of demand when P 5 4 on the demand curve in Figure 4.4? FIGURE 4.4 Calculating Price Elasticity of Demand. 20 The price elasticity of 16 D (8/3)x (1/4) demand at A is given by (P/Q) x (1/slope) = 2/3. Price 12 12 8 4 A 0 1 2 3 4 5 Quantity
Find the equilibrium price and quantity in a market whose supply and demand curves are given by P 5 2 Q s and P 5 8 − 2 Q d , respectively.
Predict what will happen to the equilibrium price and quantity of oranges if the following events take place. (LO3)a. A study finds that a daily glass of orange juice reduces the risk of heart disease.b. The price of grapefruit falls drastically.c. The wage paid to orange pickers rises.d.
In Figure 3.2 , what is the marginal cost of a slice of pizza when the quantity of pizza sold is 10,000 slices per day? For the same supply curve, what will be the quantity of pizza supplied at a price of $3.50 per slice?
In Figure 3.1 , what is the marginal buyer’s reservation price when the quantity of pizza sold is 10,000 slices per day? For the same demand curve, what will be the quantity of pizza demanded at a price of $2.50 per slice?
Refer to the two-person economy described in Problem 5. (LO4)a. Suppose that Susan and Tom could buy or sell coffee and nuts in the world market at a price of $2 per pound for coffee and $2 per pound for nuts. If each person specialized completely in the good for which he or she had a comparative
Susan can pick 4 pounds of coffee in an hour or gather 2 pounds of nuts. Tom can pick 2 pounds of coffee in an hour or gather 4 pounds of nuts. Each works 6 hours per day. (LO2, LO3)a. What is the maximum number of pounds of coffee the two can pick in a day?b. What is the maximum number of pounds
Suppose that in Problem 3 a sewing machine is introduced that enables Helen to sew 8 dresses per hour rather than only 4. (LO3)a. Show how this development shifts her production possibilities curve.b. Indicate if the following points are attainable and/or efficient before and after the introduction
Why does saying that people are poor because they do not specialize make more sense than saying that people perform their own services because they are poor?(LO2)5. What factors have helped the United States to become the world’s leading exporter of movies, books, and popular music? (LO3)
How will a reduction in the number of hours worked each day affect an economy’s production possibilities curve? (LO3)
How do differences in opportunity cost affect the gains from specialization?Susan can pick 5 pounds of coffee or gather 1 pound of nuts in an hour. Tom can pick 1 pound of coffee or gather 5 pounds of nuts in an hour. Assuming they again work 6-hour days and want to consume coffee and nuts in equal
Suppose Susan can pick 2 pounds of coffee per hour or gather 4 pounds of nuts per hour; Tom can pick 1 pound of coffee per hour and gather 1 pound of nuts per hour. What is Susan’s opportunity cost of gathering a pound of nuts? What is Tom’s opportunity cost of gathering a pound of nuts? Where
For the PPC shown in Figure 2.2 , state whether the following points are attainable and/or efficient:a. 20 pounds per day of coffee, 4 pounds per day of nuts.b. 12 pounds per day of coffee, 6 pounds per day of nuts.c. 4 pounds per day of coffee, 8 pounds per day of nuts.
Should Meg update her own web page?Consider a small community in which Meg is the only professional bicycle mechanic and Pat is the only professional HTML programmer. If their productivity rates at the two tasks are as shown in the table, and if each regards the two tasks as equally pleasant (or
Subtracting the Plan 2 equation from the Plan 1 equation yields the equation 0 5 290 1 0.09T (Plan 1 2 Plan 2), which solves for T 5 1,000. So if you average more than 1,000 minutes of longdistance calls each month, you’ll do better on Plan 2.
Let the billing equation be B 5 f 1 sT , where f is the fixed monthly fee and s is the slope. From the first two points in the table, calculate the slope s 5 rise/run 5 10/10 5 1.0. To calculatef, we can use the information in row 1 of the table to write the billing equation as 20 5 f 1 1.0(10) and
With an unchanged monthly fixed fee, the vertical intercept of the new billing plan continues to be 4. The slope of the new plan is 0.10, half the slope of the original plan. 12 B ($/month) 4 6 0 10 20 Rise 2 A' Run = 20 30 40 T (minutes/month) Original monthly bill New monthly bill 50 50 60 50
A $2 reduction in the monthly fixed fee would produce a downward parallel shift in the billing plan by $2. 64 16 14 12 20 10 B ($/month) CO +2 A 0 10 20 30 Original monthly bill New monthly bill 40 50 60 T (minutes/month)
Calculating the slope using points A and C , we have rise 5 30 2 24 5 6 and run 5 30 2 15 5 15, so rise/run 5 6y15 5 2y5 5 0.40. And since the horizontal intercept of the line is 18, its equation is B 5 18 1 0.40T. Under this plan, the fixed monthly fee is $18 and the charge per minute is the slope
To calculate your monthly bill for 45 minutes of calls, substitute 45 minutes for T in equation 1A.1 to get B 5 5 1 0.10(45) 5 $9.50.
The following table shows four points from a monthly long-distance telephone billing plan.If all points on this billing plan lie on a straight line, find the vertical intercept of the corresponding equation without graphing it. What is the monthly fixed fee? What is the charge per minute? How much
Show how the billing plan whose graph is in Figure 1A.2 would change if the monthly fixed fee were reduced from $4 to $2.
Write the equation for the billing plan shown in the accompanying graph. How much is its fixed monthly fee? Its charge per minute? B ($/month) 30 A 24 18 0 5 10 15 20 25 30 T (minutes/month) Monthly bill
Under the monthly billing plan described in Example 1A.1, how much would you owe for a month during which you made 45 minutes of long-distance calls?

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