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Economics 2nd Edition Daron Acemoglu - Solutions
Prior to the liberalization of the telecommunication market in Singapore, there was only one company, Singapore Telecoms, which provided phone services in Singapore.Did this mean that Singapore Telecoms could charge any price it desired for its services? Explain your answer.
There is no difference between a monopoly arising due to legal market power and a monopoly resulting from natural market power. Do you agree? Explain.
Examine the following items and state whether each is a legal or natural monopoly:a. Railway infrastructure in the United States.b. A sea water desalinization company in the United States.c. A bicycle pedal manufacturing company in Denmark.d. A mining company in South Africa.e. An art restoration
What does it mean to say that a good generates network externalities?
Use a graph to explain the difference between a competitive firm’s average total cost curve and the average total cost curve of a natural monopoly.
What is meant by market power? What are the ways in which a monopoly gains market power?
For Acme Manufacturing, the marginal product of labor is MPL = 10 − 2L. Acme sells output for $10 per unit.a. Sketch the value of the marginal product of labor(VMPL). How many workers will Acme hire given a wage of $40?b. Repeat, but after the output price increases to $20 per unit. Does this
You run a factory that uses pottery wheels to make pots.You can hire anywhere between 1 and 3 skilled artisans (workers), and you can rent 1 or 2 pottery wheels(machines). Pots sell for $100 each. The total product of your factory per day is shown in the following table.Number of Workers(Labor, L)1
Joey, Mandy, and Jim have the following labor supply(hours per day, based on hourly pay).Wage Joey Mandy Jim$5 4 0 2$10 8 4 6$15 12 8 9a. Who values their leisure most, Joey, Mandy, or Jim(or is there not enough information to say)?b. What is total labor supply given a wage of $15?c. What if the
The Patient Protection and Affordable Care Act (ACA)requires all employers with at least 50 full-time-equivalent workers to offer health insurance to their full-time employees or pay a fine of up to $2,000 per employee (see http://www.hhs.gov/healthcare/rights/index.html for a description of the
Sketch a typical-looking labor market with a downward sloping aggregate VMPL (labor demand).a. Label the part of this VMPL curve that maximizes total productivity.b. Label the part of this VMPL curve that maximizes average productivity (i.e., output per worker).c. Add an upward sloping labor
A textiles manufacturer specializing in flower embroidery pays its workers a wage of $10 per hour, with each worker working 40 hours and embroidering 120 flowers per week. A wedding planner has just signed a contract with the manufacturer, ordering material embroidered with 200 flowers. The
The following table shows the average salary for firstteam football players in sport leagues around the world.As you can see, the average salary in Great Britain of$3,218,523 is nearly 16 times larger than the average salary in Scotland.Sport league Average Salary EPL, Great Britain $3,218,523 La
A friend tells you that he thinks that the salespeople who work at Apple stores are paid very low wages, given their productivity. Dividing Apple’s revenues by the total number of employees shows that each employee contributed an average of $473,000 in revenues in 2011.But most of Apple’s sales
You accept a new job for a wage of $30,000 at a newspaper. You join the sales team, which consists of 10 people who try to sell online subscriptions. Each subscription sells for $200. When you talk to your boss, she says that you are the eleventh worker, and that if you had not joined the team, she
Consider the following information for a textile manufacturer operating in a perfectly competitive market:MP = 100 − L, output selling price is $20 per unit, and wage is $100 per worker. Find the profit-maximizing number of workers for this textile manufacturer.
Suppose that, at your firm, the relationship between output produced and the number of workers you hire is as follows:Labor Total Product Produceda. Find the marginal product of labor for each worker.b. Is the relationship between output and labor consistent with the Law of Diminishing Returns?c.
Suppose an identical tax is levied on capital, labor, and land. Would the tax have the same effect in each of these markets? Explain your answer.
Use the concepts studied in this chapter to explain the main source(s) of wealth accumulation over time?
Around the world, the wage premium for a skilled worker over a low-skilled worker has been rising rapidly in the past two decades. Some commentators blame the widespread adoption of computerized machines that require more training before use. In your view, are they correct?Explain your answer.
What is the difference between statistical and taste-based discrimination? The owner of a company that manufactures automobile parts states that it will not hire gay or lesbian employees. Is this an example of statistical or taste-based discrimination?
In developing countries, working as a miner is riskier than working as a security guard. You are the manager of a mining company, and you wish to hire one miner and one security guard. Given the candidates with the same level of education and other attributes, which type of worker would you offer a
Last year, chief executive officers (CEOs) of large companies earned 354 times the salary of the average worker.Why do companies pay so much to hire a CEO? Why do CEOs get paid so much more than junior managers?
How do labor-saving technologies differ from laborcomplementary technologies? Give an example of each.
Suppose wages in the market for plumbers increase.Some plumbers start taking on extra plumbing jobs while others cut back on the number of hours they work. What could explain these two responses?
Consider an industry employing skilled technicians and low-skilled workers together with machines to produce a good. A new technology comes along that performs the low-skill tasks, but needs more maintenance.How would the adoption of this technology affect the following?a. The wage for skilled
We showed in this chapter that a profit-maximizing firm will hire the number of workers such that the wage is equal to the value of the marginal product of labor. But, as we saw in Chapter 6, a profit-maximizing firm will produce the quantity of output such that price equals marginal cost. Are
Use the concepts discussed in this chapter to explain how a company like The Wisconsin Cheeseman can maximize its profits.
How does the labor-leisure trade-off determine the supply of labor?
How do firms estimate their demand for labor?
The Sensible Estate Tax Act of 2016 slashes the estate tax exemption to $3.5 million and raises the estate tax rate to 45 percent. Small and family businesses can be particularly hard hit. Family Business Defense Council calculated an effective death tax rate of 57 percent, and with state
New York raises the price of a pack of cigarettes from$10.50 to $13, adding additional pressure on what is already the costliest cigarette market in the country.However, the sales of bootleg cigarettes from other states allow smokers in New York to bypass taxes and buy cigarettes for a price of $7
Create a sketch that shows the trade-off between equity and efficiency. Highlight the portion of the curve where there is a fundamental trade-off between equity and efficiency. In this region, what is the cost of moving up the curve? What is the cost of moving down the curve?
Some government agricultural policies involve price controls. Other agricultural policies, however, involve quantity controls.a. The equilibrium price of wheat is $5 and the equilibrium quantity is 100. Draw a supply and demand diagram that shows the equilibrium in the wheat market.b. Suppose the
Suppose the supply and demand schedules for cell phones are as follows:a. Make a sketch of supply and demand.b. Find the equilibrium price and quantity in the cell phone market.c. Suppose the government sets a maximum price (a price ceiling) of $6. How many cell phones are traded?Add the price
This chapter has focused on the effect of taxes. Let’s consider the effect of subsidies, which also generate deadweight loss. A subsidy creates a gap between the price received by sellers and the price paid by buyers.a. Complete the table using the letters from the above diagram. The government
The following diagram shows the effect of a $4 tax.a. Complete the table using the letters from the diagram on the preceding page.b. Based on this calculation, what is the deadweight loss of the tax? This is the difference in social surplus between the two columns.c. Redraw a similar diagram,
Consider the following demand and supply schedules in the market for basketballs in country A.a. Find the initial equilibrium price and quantity and draw the graph.b. Suppose the government imposes a $0.5 per unit tax on the producers of basket balls. Find the new equilibrium price and quantity.
Consider the following graph, which shows the equilibrium price and quantity in the plastic boxes market in country X. Suppose the government imposes a tax of 5 percent on the production of plastic boxes.a. Find the new equilibrium price and quantity.b. What is the amount of tax revenue earned by
Suppose there are three families with different annual incomes. The Smiths have an income of $20,000, the Johnsons have an income of $70,000, and the Kleins have an income of $210,000. Based on the following table, answer the questions:a. What is the amount of tax paid by each family under each of
Britain taxed windows from 1696 until 1851. Under the 1747–1757 tax rates, you would pay no tax if your home had 0–9 windows, but if your home had 10–14 windows you would pay a tax of 6 pence per window for every window in your home.a. In what way is the window tax similar to the U.S. income
The following table gives the 2017 federal income tax rates for a head of the household.Taxable income bracket Rate$0 to $13,350 10%$13,350 to $50,800 15%$50,800 to $131,200 25%$131,200 to $212,500 28%$212,500 to $416,700 33%$416,700 to $444,550 35%$444,550 + 39.60%a. Calculate the total tax owed
If your goal is to minimize the deadweight loss from a tax, would you tax goods for which demand is elastic or goods for which demand is inelastic, everything else being equal? Explain using a diagram.
What is the effect of increasing taxes by the U.S. government on high-income innovators? What will happen if all advanced countries increase their top tax brackets?
Explain the terms “paternalism” and “consumer sovereignty.”
Look at Exhibit 10.17 in the chapter that shows the tradeoff between equity and efficiency. Is it possible for the government to improve equity and efficiency at the same time? Explain.
How can you define corruption? Explain your answers with examples of corrupt activities.
If a price ceiling is set above the equilibrium price in the oil market, how does it affect the oil price and quantity?
How does a binding price floor affect the consumer surplus, produce surplus, and social surplus?
If the demand for a good is more elastic than its supply, how will the tax burden be distributed between buyers and sellers?
How does a higher unit tax affect the size of the deadweight loss? Explain your answer.
What are the different types of tax systems? Give one example of each type of tax system.
How do governments use spending and taxation to reduce inequality and poverty in an economy?
What are the tools commonly used by the government to intervene in the market?
How does the federal government raise revenue? What is the largest source of revenue for the federal government? Do state governments raise revenue from the same sources as the federal government?
Consider Exhibit 10.1. What can you say about the reach of government in the United States in the stated period?What about the budget deficit?
When does a government run a budget surplus?
Suppose demand is QD = 16 - P and supply is QS = P.There is a constant positive externality of $4 per unit 1Marginal external benefit = $42. Find the maximum possible social surplus.
Three roommates—Tinker, Evers, and Chance—share an apartment. It is really cold outside, and they are considering turning up the thermostat in the apartment by 1, 2, 3, or 4 degrees. They know that each time they raise the temperature in the apartment by 1 degree, their heating bill will rise
Each year, a university organizes a students’ laser show at the beginning of the summer. Ana and Jenna are willing to pay $40 to participate, Tom and Gerard are willing to pay $50, and Laura and Sam are willing to pay $70. The cost of this laser show is $300.a. In terms of efficiency, should the
There is a road between the suburbs and downtown. The road is congested at rush hour. If 100 people use the road at rush hour, the trip takes 30 minutes. If the 101st person enters the road, everyone has to slow down, and the trip now takes 31 minutes. People value their time at $6 per hour (that
China’s economic growth has been powered by an increasing, coal-dominated fossil fuel consumption. The coal production required to match such demand generates both carbon dioxide and all particulate matters, along with arsenic, mercury, chromium and cadmium. This has resulted in extremely high
Certain diseases, such as chicken pox, are highly contagious. When a person is affected by chicken pox, their family members, work colleagues, and people whom they regularly interact with stand a high risk of catching the disease. The disease can be prevented by taking an injection of vaccine in
Malaria is spread by mosquitoes. That is, a mosquito spreads malaria by biting an infected person and later infusing malaria into a different person. A study by Jeffrey Sachs and others shows a strong correlation between the incidence of malaria in a country and poverty. Malaria is known to exist
The government of Country Alpha imposes an entry charge of $3 on each vehicle using the expressway to control the traffic volume but still there are congestions. Explain why the government did not raise the charge to further reduce the number of vehicles on the expressway.
Serene is a dance instructor who tends to play music very loudly at home while practicing. Her neighbor, Jennifer, is a teacher who needs a quiet environment to mark her students’ assignments. Dancing gives benefits to Serene worth $120 daily. But Jennifer’s marking progress is affected and it
To improve the public transportation in Singapore, the government has decided to construct the Circle Line(CCL), a mass rapid transit (MRT) project that comprises many stations in the central region of the country. This is a huge infrastructural project and involves digging and pounding in the
A company decides to expand its business and plans to build a new factory close to the existing one. It buys the land next to its current factory and builds a link roadway.Based on the ideas from this chapter, can this be a positive externality? Explain.
The European Union banned certain pesticides for 2 years after studies found links between the use of these insecticides and a decline in the bee population. In particular, research has shown that the use of imidacloprid, clothianidin, and thiamethoxam on flowering crops has adversely affected the
What is meant by the tragedy of the commons? Use an example to explain your answer.
How does the market demand curve for a private good differ from that of a public good?
When does the free-rider problem arise?
Why is it difficult for the market to deliver socially efficient quantities of goods like clean air or street lighting?
Compare a private good with a club good.
To provide national defense to a country, the supplier needs to hire soldiers and acquire weapons and other military equipment. Do you think it is possible that a private firm is able to supply national defense efficiently?
What are Pigouvian taxes and subsidies? How do governments decide when to levy a tax or provide a subsidy?
How does a command-and-control policy differ from a market-based policy?
What is the Coase Theorem? Under what conditions will the Coase Theorem break down?
What does it mean to say that an individual or firm has internalized an externality?
Education is considered as a consumer good with positive externality, in which other non-consuming parties in the society also tend to benefit from it. Why does the invisible hand fail to generate socially efficient outcome in the education market?
Explain whether the following are examples of positive or negative externalities:a. Thomas drives an old car and his neighbors complaint of air pollution.b. Sonya is a good student and she works as a volunteer at a local childcare center.c. Diana uses pesticides to improve the yield of her apple
Why are externalities called market failures? Are pecuniary externalities also an example of market failure?
Suppose domestic demand is QD = 16 - P and domestic supply is Qs = P. The world price is $2 and the import tariff is $3 per unit. First make a sketch, and then find the following values. Each value will be represented by an area in your sketch.a. Consumer surplusb. Producer surplusc. Government
Suppose a decrease in the world demand for desktop computers causes the price of desktop computers to fall from $600 to $500. Before the fall in demand, Juna, a local computer dealer in Japan, used to produce 9,000 desktop computers and exported 50 percent of it to other countries every week.
Suppose your country imports wheat. The price of wheat rises from P1 to P2 and your country continues to import wheat. Present and discuss a diagram to answer the following questions. Did imports rise or fall? Did consumer surplus rise or fall? Did producer surplus rise or fall? Did social surplus
Suppose the Indonesian government decides to open its market for rice and rubber. The world price for rice is higher than its domestic price and the world price for rubber is lower than its domestic price. The supply and demand curves for rice and rubber are shown as follows.a. For each good, will
The remote island nations of Nearway and Farway produce fish and coconuts and have recently decided to engage in trade with one another. Use the table to answer the following questionsa. Calculate the opportunity costs of producing fish and coconuts in Nearway and Farway, and then determine who has
Consider two individuals, Teresa and Justin, who produce vegetables. Each uses the same number of workers to produce tomatoes or peppers. Production per lot (in kilograms) is shown in the table below
Julia is a dressmaker and runs her own business. She has 10 employees working 8 hours a day. Now assume that Julia is enters into an agreement to make 25 shirts and 25 skirts for a company in 2 weeks. The following table shows the number of dresses her employees can sew in a given number of hours:
There are 10 workers in Thailand, and each can produce either 2 computers or 30 tons of rice. There are 20 workers in the United States, and each can produce either 5 computers or 40 tons of rice.a. Draw the PPC for each country. In each case, identify the intercepts and the slopes of the PPC.b.
Suppose a school has 150 first-year and 100 secondyear students to work in its greenhouse for practical training. A first-year student can clean either 2 pots or 2 planters; a second-year student can clean either 3 pots or 1 planter.
Suppose you and your classmate, Janet, are only studying two subjects, economics and mathematics, this semester.The opportunity cost of solving questions for both subjects are as follows.Economics Opportunity Cost Mathematics Opportunity Cost You 1/3 mathematics question 3 economics questions Janet
John and Aria run a bookbinding business together. They each work in shifts of 6 hours a day. John binds 10 books or 12 scripts a day and Aria binds 8 books or 10 scripts a day.a. Sketch the production possibilities curves (PPC) for John and Aria.b. Who has an absolute advantage in binding books?
Consider the following diagram. The discussion in the text implies that if this country imposes a tariff, social surplus will fall by the sum of area A and area B. Intuitively, why is A part of the deadweight loss from this tariff? Intuitively, why is B part of the deadweight loss from this tariff?
Since the “winners” from free trade can more than compensate the “losers,” why does it matter if wages and employment fall when a country engages in free trade?
The infant industry argument relies on the idea that in industries with economies of scale, it is important for the government to protect newborn companies in their development. What are the implications of such an economic policy in the short run and long run?
As tariff is imposed on imported goods, who will be better off? Explain your answer.
Explain the concept of protectionism. Define one method of protectionism.
What are some of the common arguments against free trade?
Do both producers and consumers of an exported good gain from international trade? Explain.
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