Essentials Of Economics 4th Edition R. Glenn Hubbard, Anthony P. O'Brien - Solutions

Suppose that the government sets a price floor for milk that is above the competitive equilibrium price.a Draw a graph showing this situation. Make sure that your graph shows the competitive equilibrium price, the price floor, the quantity that would be sold in competitive equilibrium and the
Use the information on the market for oranges in the following table to answer the following questions.a Determine the equilibrium price and quantity. How much revenue do orange producers receive when the market is in equilibrium? Draw a graph showing the market equilibrium and the area
The following figure illustrates the market for apples in which the government has imposed a price floor of $10 per crate.a How many crates of apples will be sold after the price floor has been imposed?b Will there be a shortage or a surplus? If there is a shortage or a surplus, how large will it
What does economic analysis suggest regarding the impact on economic efficiency of government-imposed price ceilings and price floors?
Using the following graph, explain why economic surplus would be smaller if Q1 or Q3 were the quantity produced rather than if Q2 were the quantity produced. Price Supply Demand 0 Quantity
Does an increase in economic surplus in a market always mean that economic efficiency in the market has increased? Explain.
Briefly explain whether you agree with the following statement: ‘If consumer surplus in a market increases, producer surplus must decrease.’
Briefly explain whether you agree with the following statement: ‘A lower price in the market always increases economic efficiency in the market.’
A study estimates that the total consumer surplus gained by people participating in auctions on eBay in a recent year was $7 billion. (Bapna, Jank & Shmueli, 2008)1 Is it likely that the total consumer surplus for the items bought in these auctions was higher or lower than it would have been if
The following diagram illustrates the market for seats at a concert that will be held in a stadium that seats 15 000 people. What is the producer surplus in this market?How does it differ from the producer surplus in the markets you have studied up to this point? Price P 0 Supply 15 000 Demand
Suppose a friend tells you that he recently purchased a particular product for $1000 but that the product was‘priceless’. Although your friend is probably exaggerating, what would the consumer surplus equal for his ‘priceless’ product?
The following figure illustrates the market for a drug that fights breast cancer, without which breast cancer patients cannot survive. What is the consumer surplus in this market? How does it differ from the consumer surplus in the markets you have studied up to this point? Price Demand P 0 0
How does consumer surplus differ from the total benefit consumers receive from purchasing products? Similarly, how does producer surplus differ from the total revenue that firms receive from selling products? Under what special circumstance will consumer surplus equal the total benefit consumers
A student makes the following argument:When a market is in equilibrium there is no consumer surplus.We know this because in equilibrium the market price is equal to the price consumers are willing to pay for the good.Briefly explain whether you agree with the student’s argument.
Suppose that the government restricts the number of dairy farmers, which results in the supply curve for milk shifting to the left. Briefly explain whether each of the following will increase or decrease:a Consumer surplus b Producer surplus c Economic surplus.Using a demand and supply graph,
What is producer surplus? How does producer surplus change as the equilibrium price of a good rises or falls?
What is consumer surplus? How does consumer surplus change as the equilibrium price of a good rises or falls?
What is marginal cost? Why is the supply curve referred to as a marginal cost curve?
On most days the price of a rose is $1 and 8000 roses are purchased. On Valentine’s Day, however, the price of a rose jumps to $2 and 30 000 roses are purchased.a Draw a demand and supply diagram that shows why the price jumps.b Based on this information, what do we know about the price
In the following graph the demand for hot dog rolls has shifted outwards because the price of hot dog sausages has fallen from $2.20 to $1.80 per package. Calculate the price elasticity of supply for hot dog rolls. Price (dollars per package of rolls) $1.40 1.20 S 0 10 000 11.000 12 000 D D2
If severe weather conditions significantly reduced grain crops produced in Russia and in the United States, what do you think would happen to the supply of grain provided by Australian farmers on the international market for grain? What do you think would happen to the international price of grain?
Use the midpoint formula to calculate the price elasticity of supply between point A and point B for each panel of Figure 4.4 on page 116.
[Related to Making the connection 4.3] Refer to the first graph in Making the connection 4.3. Suppose that demand had stayed at the level indicated in the graph, with the equilibrium price of oil remaining at $140 per barrel. Over long periods of time, high oil prices lead to greater increases in
Write the formula for the price elasticity of supply. If an increase of 10 per cent in the price of frozen pizzas results in a 9 per cent increase in the quantity of frozen pizzas supplied, what is the price elasticity of supply for frozen pizzas? Is the supply of frozen pizzas elastic or inelastic?
Suppose the price elasticity of demand for cigarettes is–0.25 and that Australians purchase about 22 billion cigarettes each year.a If the tax on cigarettes were increased enough to raise the price of cigarettes by 50 per cent, what would be the effect on the quantity of cigarettes demanded?b Is
[Related to Making the connection 4.2] The price elasticity of demand for most agricultural products is quite low. What impact is this likely to have on how much the prices of these products change from year to year?Illustrate your answer with a supply and demand diagram.
Consider three firms selling 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 one, and one firm sells a good with an income elasticity of demand greater than one. During a
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 cars d Personal computers
a Is the cross-price elasticity of demand between petrol and fuel-efficient small cars positive or negative? Is the cross-price elasticity of demand between petrol and large not-very-fuel-efficient SUVs positive or negative? Briefly explain.b How can we best describe the relationships between
Are the cross-price elasticities of demand between the following pairs of products likely to be positive or negative? Briefly explain.a Pepsi and Coca-Cola b Fries and tomato sauce c Steak and chicken d Blu-ray players and Blu-ray discs
In the following graph, the demand for hot dog rolls has shifted outward because the price of hot dog sausages has fallen from $2.20 to $1.80 per pack. Calculate the cross-price elasticity of demand between hot dog sausages and hot dog rolls. Price (dollars per package of rolls) $1.40 1.20 S D D
Following the devastating effects of the floods in Queensland in 2011 which, among other things, damaged many banana plantations, the price of bananas increased significantly, from about $2.50 per kilogram to about $12 per kilogram. A typical consumer reaction was:I will not buy bananas when they
Define income elasticity of demand. Use income elasticity to distinguish a normal good from an inferior good. Is it possible to tell from the income elasticity of demand whether a product is a luxury good or a necessity good?
[Related to Solved problem 4.3] This question relates to the following statements by two managers. Briefly explain whether you agree or disagree with manager 2’s reasoning:Manager 1: ‘The only way we can increase the revenue we receive from selling our frozen pizzas is by reducing the
[Related to Solved problem 4.3] If a firm increases the price of its product and its total revenue increases, will further increases in its price necessarily lead to further increases in its total revenue? Briefly explain.
Assume that the Australian Football League (AFL) reduces the prices of tickets by 50 per cent for tickets to games on Monday nights. The number of Monday night game tickets sold increased by 80 per cent. Is this enough information to allow us to calculate the price elasticity of demand for tickets
Despite declining circulation, many newspapers have raised their prices. Such increases, while boosting revenue per copy, almost always trigger a readership decline.a What is a newspaper’s ‘circulation’?b To what is ‘revenue per copy’ equal?c Why would a newspaper’s management increase
Use the following graph for Yolanda’s Frozen Yoghurt Stand to answer the questions that follow.a Use the midpoint formula to calculate the price elasticity of demand for D1 between point A and point C, and the price elasticity of demand for D2 between point A and point B. Which demand curve is
The price elasticity of demand for crude oil in the United States has been estimated to be –0.06 in the short run and –0.45 in the long run. (Cooper, 2003)2 Why would the demand for crude oil be more price elastic in the long run than in the short run?
[Related to Solved problem 4.2] Suppose the price elasticity of demand for cocaine has been estimated to be 0.28.Suppose, too, that a successful war on illegal drugs reduces the supply of cocaine in Australia enough to result in a 20 per cent increase in its price. What will be the percentage
[Related to Making the connection 4.1] Research has estimated that the price elasticity of demand for soft drinks is –0.78, while the price elasticity of demand for Coca-Cola is –1.22. Coca-Cola is a type of soft drink, so why isn’t its price elasticity of demand the same as the price
Briefly explain whether the demand for each of the following products is likely to be price elastic or price inelastic:a Milk b Frozen pizza c Cola drinks d Prescription medicine.
What are the key determinants of the price elasticity of demand for a product?
You own a hot dog stand that you set up outside the library 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 considering reducing the price to $2 each.The graph to the right shows two possible increases in the quantity sold
Suppose that increases in the price of milk lead to increases in the retail prices for ice cream by 4 per cent from last year while ice cream consumption is down 3 per cent. Given this information, calculate the price elasticity of demand for ice cream. Will the revenue received by ice cream
[Related to Solved problem 4.1] Suppose the following table gives data on the price of wheat and the number of tonnes of wheat sold in 2017 and 2018.a Calculate the percentage change in the quantity of wheat demanded divided by the percentage change in the price of wheat. Measure the quantity of
[Related to Don’t let this happen to you] 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.
If a 10 per cent increase in the price of Kellogg’s cereal causes a 25 per cent reduction in the number of boxes of cereal demanded, what is the price elasticity of demand for Kellogg’s cereal? Is demand for Kellogg’s cereal elastic or inelastic?
Discuss how the size of the price elasticity of demand for cocaine is relevant to the debate over its legalisation.
If the price elasticity is –0.02, what will be the percentage increase in the quantity demanded?
Suppose the price elasticity of demand for cocaine is –2. If legalisation causes the price of cocaine to fall by 95 per cent, what will be the percentage increase in the quantity of cocaine demanded?
The Economist magazine offered the following two options for subscribing:1 US$56 per year for an online-only subscription, or 2 US$125 per year for print plus online access subscription.A large majority of subscribers chose option 1. However, the magazine would have preferred to sell more US$125
[Related to Solved problem 3A.1] Data from health clubs show that members who choose a contract with a flat monthly fee over $70 attend, on average, 4.8 times per month. They pay a price per expected visit of more than$14, even though a $10 per visit fee is also available.Why would these consumers
[Related to Solved problem 3A.1] Briefly explain whether you agree or disagree with the following statement: ‘If people were more realistic about their future behaviour, the demand curve for potato chips would shift to the left.’
After owning a used car for two years, you start having problems with it. You take it to a mechanic and are told that it will cost $4000 to repair. What factors will you take into account in deciding whether to have the repairs done or to get rid of the car and buy another one? Will the price you
You have tickets to see Madonna in concert at a stadium 50 kilometres away. A severe thunderstorm on the night of the concert makes driving hazardous. Will your decision to attend the concert be different if you paid$200 for the tickets than if you received the tickets for free? Explain your answer.
A radio station has a promotion in which it announces that a local petrol station will sell petrol at $1.10 cents per litre beginning in 30 minutes. Jack hops in his car and drives to the station to fill up his half-empty tank. He pays only $22 for 20 litres instead of the going price of$26. Did
Suppose your little sister tells you on Tuesday that one of her friends offered her $50 for her autographed photo of Olympic runner Sally Pearson but that your sister decided not to sell the photo. On Wednesday, your sister loses the photo. Your parents feel sorry for her and give her $50 to make
On the right are the supply and demand graphs for two markets. One of the markets is for Porsche cars, and the other is for a potentially life-saving cancer-fighting drug.Briefly explain which diagram is most likely to represent which market. Price D S 0 Quantity Price 0 S D Quantity
Government regulations in Australia on the educational qualifications of those working in child care centres require higher levels of formal training than a few years ago. Suppose that these regulations increase the quality of child care and cause the demand for child care services to increase. At
[Related to Don’t let this happen to you] A student was asked to draw a demand and supply graph to illustrate the effect on the tablet computer market of a fall in the price of displays, ceteris paribus. She drew the following graph and explained it as follows:Displays are an input into tablet
Briefly explain whether each of the following statements is true or false.a If the demand for and supply of a product both increase, the equilibrium quantity of the product must also increase.b If the demand for and supply of a product both increase, the equilibrium price of the product must also
The telecommunications industry in Australia was fully deregulated in July 1997, allowing new competitors into the market. In addition, there were dramatic changes in the types of technology available to customers, with the rapid development of mobile networks and Internet technology.Explain and
[Related to Solved problem 3.2] Chocolate lovers have been horrified by reports of a pending chocolate shortage. A recent report has predicted a worldwide chocolate shortage within the next five years which could cause the price of chocolate to double. The reasons for this prediction include an
[Related to Solved problem 3.2] World production of wheat sometimes falls significantly due to extreme weather conditions, such as droughts. Draw a demand and supply graph to show the effect of a drought on the price of bread in Australia.
[Related to Solved problem 3.2] Recently the demand for LCD televisions appeared to be falling. At the same time, some industry observers expected that several smaller television manufacturers might exit the market. Use a demand and supply graph to analyse the effects of these factors on the
[Related to Solved problem 3.1] The demand for watermelons is highest during summer and lowest during winter, yet watermelon prices are normally lower in summer than in winter. Use a demand and supply graph to demonstrate how this is possible. Carefully label the curves in your graph and clearly
A study indicated that ‘stricter university alcohol policies, such as raising the price of alcohol or banning alcohol on campus, decrease the number of students who use marijuana’.a On the basis of this information, are alcohol and marijuana substitutes or complements?b Suppose that campus
[Related to Don’t let this happen to you] A student writes the following: ‘Increased production leads to a lower price, which in turn increases demand.’ Do you agree with his reasoning? Briefly explain.
Look at the following four graphs and four market scenarios, each of which would cause either a movement along the supply curve for Pepsi or a shift of the supply curve. Match each scenario with the appropriate diagram.a A decrease in the supply of Coca-Cola b Average household income rises c An
If, over time, the demand curve for a product shifts to the right by more than the supply curve does, what will happen to the equilibrium price? What will happen to the equilibrium price if the supply curve shifts to the right by more than the demand curve? For each case, draw a demand and supply
Draw a demand curve and a supply curve to show the effect on the equilibrium price in a market in the following situations:a The demand curve shifts to the right.b The supply curve shifts to the left.
In the Wealth of Nations, Adam Smith discussed what has become known as the ‘diamond and water’ paradox.Nothing is more useful than water: but it will purchase scarce anything; scarce anything can be had in exchange for it.A diamond, on the contrary, has scarce any value in use; but a very
Briefly explain whether you agree with the following statement: ‘When there is a shortage of a good, consumers eventually give up trying to buy it, so the demand for the good declines, and the price falls until the market is finally in equilibrium.’
Suppose that the following table shows the quantity supplied of UGG boots at five different prices in 2017 and 2018.Name two different variables that could cause the quantity supplied of UGG boots to change as indicated from 2017 to 2018. QUANTITY SUPPLIED PRICE, $ 2017 2018 160 3000 2000 170 3500
What would cause a movement from point A to point B on S1 in the following graph for rib-eye steak? Provide two variables that would cause a movement from point A to point C. Price (dollars per steak) B C S S2 0 Quantity of rib eye steaks
Briefly describe whether each of the following statements describes a change in supply or a change in the quantity supplied.a To take advantage of higher prices for umbrellas in winter, Shelter Umbrellas Company decides to increase output.b The success of the Apple iPad-mini leads more firms to
What is the law of supply? What are the main variables that will cause a supply curve to shift? Give an example of each.
A financial journalist made the following observation about forecasts of the future demand for tablet computers:. . . the market is too young to sustain a reliable short-,mid- or long-term forecast. If you trust any number at this time, good luck with that. Only a fool would bet the farm and a
Some analysts have suggested that the reduced number of bookshops will not lead to fewer book sales because the rise in the number of online bookshops and e-books will reduce the cost of books and therefore increase the demand for them. Do you agree with this analysis?Briefly explain.
Suppose that the data in the following table show the price and quantity of base model Holden Commodore vehicles. Do these data indicate that the demand curve for Commodores is upward sloping? Explain. YEAR PRICE 2015 $35.000 QUANTITY 50 000 2016 $35 700 51 000 2017 $36 600 52 500
[Related to Making the connection 3.1] From 1979 to 2016, China had a policy that allowed most couples to have only one child. This policy caused a significant change in the demographics of China. Between 2000 and 2015, the share of population under the age of 15 decreased from 25 per cent to 17
[Related to Making the connection 3.1] Name three goods or services whose demand is likely to increase rapidly if the following demographic groups increase at a faster rate than the population as a whole:a Teenagers b Children under the age of five years c People over the age of 65 years.
Is it possible for a good to be an inferior good for one person and a normal good for another person? If it is possible, can you give some examples?
During times of economic downturns and recessions, when unemployment rates are rising, it has been observed that sales of cheap chocolates and other sweets increase. If this is true, are chocolates and sweets normal goods or inferior goods? Briefly explain what characteristics of chocolates and
Suppose that the following table shows the quantity demanded of UGG boots at five different prices in 2017 and 2018.Name two different variables that could cause the quantity demanded of UGG boots to change as indicated from 2017 to 2018. QUANTITY DEMANDED PRICE, $ 2017 2018 160 5000 4000 170 4500
State whether each of the following events will result in a movement along the demand curve for McDonald’s Big Mac burgers or whether it will cause the curve to shift. If the demand curve shifts, indicate whether it will shift to the left or to the right and draw a graph to illustrate the shift.a
[Related to the opening case] When tablet computers based on the Android operating system were first introduced, there were relatively few applications, or‘apps’, available for them. Now there are many more apps available for Android-based tablets. Are these apps substitutes or complements for
For each of the following pairs of products, state which are complements, which are substitutes and which are unrelated:a Pepsi and Coke b Hot dog sausages and soft bread rolls c Vegemite and strawberry jam d MP3 players and graphics calculators.
What is the law of demand? Use the substitution effect and income effect to explain why an increase in the price of a product causes a decrease in the quantity demanded.
[Related to Solved problem 2.1] Suppose that France and Germany both produce schnitzel and wine. The following table shows combinations of the goods that each country can produce in a day.a Who has a comparative advantage in producing wine?Who has a comparative advantage in producing schnitzel?b
[Related to Solved problem 2.1] Suppose Iran and Iraq both produce oil and olive oil. The table shows combinations of both goods that each country can produce in a day, measured in thousands of barrels.a Who has the comparative advantage in producing oil?Explain.b Can these two countries gain from
[Related to Don’t let this happen to you] Using the same amount of resources, Australia and New Zealand can both produce apples and oranges as shown in the following table, measured in thousands of tonnes.a Who has a comparative advantage in producing apples? Who has a comparative advantage in
In The Wonderful Wizard of Oz and his other books about the Land of Oz, L. Frank Baum observed that if people’s wants were modest enough, most goods would not be scarce. According to Baum, this was the case in Oz:There were no poor people in the Land of Oz, because there was no such thing as
During his 2007 election campaign, the soon-to-be prime minister of Australia, Kevin Rudd (now former prime minister), stated that climate change was:. . . the greatest moral, economic and environmental challenge of our generation. (van Onselen, 2010)1 In 2009, Rudd stated that only ‘political
You have exams in economics and statistics coming up and five hours available for studying. The table shows the trade-offs you face in allocating the time you will spend in studying each subject.a Use the data in the table to draw a production possibility frontier graph. Label your vertical axis
Use the following production possibility frontier for a country to answer the questions.a Which point(s) are unattainable? Briefly explain why.b Which point(s) are efficient? Briefly explain why.c Which point(s) are inefficient? Briefly explain why.d At which point is the country’s future growth
[Related to Solved problem 1.1] Two students are discussing Solved problem 1.1.Joe: ‘I think the key additional information you need to know in deciding whether to produce one million more iPhones is the amount of profit you are currently making while producing 10 million. Then you can compare
[Related to Solved problem 1.1] From 2009 onwards, movie studios began to release a number of films in 3D format. To show films in this format, cinemas have to purchase 3D equipment that costs around $75 000 for each projector. Usually, cinema owners charge about $4 more for a ticket to a 3D movie
[Related to Solved problem 1.1] Suppose Dell Technologies is currently selling 250 000 Inspiron laptops per month. A manager at Dell argues: ‘The last 10 000 laptops we produced increased our revenue by$8.5 million and our costs by $8.9 million. However, because we are making a substantial total

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Essentials Of Economics 4th Edition R. Glenn Hubbard, Anthony P. O'Brien - Solutions

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