Questions and Answers of Essentials of Economics

The Congressional Research Service estimates that at least $45 million of counterfeit U.S. $100 notes produced by the North Korean government are in circulation.a. Why do U.S. taxpayers lose because
The accompanying figure shows new U.S. housing starts, in thousands of units per month, between January 1980 and December 2016. The graph shows a large drop in new housing starts from 1984–1991 and
Which of the following will increase the opportunity cost of holding cash? Which will reduce it? Explain.a. In order to attract new customers, the new internet payment firm, PayBuddy, announces it
a. Go to www.treasurydirect.gov. Under “Individuals,” go to “Treasury Securities& Programs.” Click on “Treasury bills.” Under “at a glance,” click on “rates in recent auctions.”
Access the Discovering Data exercise for Chapter 19 Problem 1 online to answer the following questions.a. What is the target federal funds rate?b. Is the target federal funds rate different from the
How will the following events affect the demand for money? In each case, specify whether there is a shift of the demand curve or a movement along the demand curve and its direction.a. There is a fall
Access the Discovering Data exercise for Chapter 19 Problem 10 online to answer the following questions.a. How does the relationship between the effective federal funds rate and the Taylor rule
Because of the economic slowdown associated with the 2007–2009 recession, the Federal Open Market Committee of the Federal Reserve, between September 18, 2007, and December 16, 2008, lowered the
The Solana power plant covers three square miles of the Arizona desert in Gila Bend, about 70 miles from Phoenix. Whereas most solar installations rely on photovoltaic panels that convert light
It’s always nice when someone shows his or her appreciation by giving you a gift. Over the past few years, more people have been showing their appreciation by giving gift cards, prepaid plastic
Officially, PayPal, the electronic funds–transfer firm—which is also the owner of Venmo, a mobile-phone payment service that has become extremely popular—isn’t considered a bank. Instead,
Both Canada and the United States produce lumber and footballs with constant opportunity costs. The United States can produce either 10 tons of lumber and no footballs, or 1,000 footballs and no
Based on the exchange rates for the trading days of 2016 and 2017 shown in the accompanying table, did the U.S. dollar appreciate or depreciate over the year?Did the movement in the value of the U.S.
Assume Saudi Arabia and the United States face the production possibilities for oil and cars shown in the accompanying table.a. What is the opportunity cost of producing a car in Saudi Arabia? In the
It’s a very good bet that as you read this, you’re wearing something manufactured in Asia.And if you are, it’s also a good bet that the Hong Kong company Li & Fung was involved in getting your
At the present level of consumption, 4,000 movie tickets, and at the current price, $5 per ticket, the price elasticity of demand for movie tickets is 1. Using the midpoint method, calculate the
A recent study determined the following elasticities for Volkswagen Jettas:The supply of Jettas is elastic. Based on this information, are the following statements true or false? Explain your
Created in 2009 by two young entrepreneurs, Garrett Camp and Travis Kalanick, Uber was designed to alleviate a common frustration: how to find a taxi when there aren’t any available. In a densely
The reigning couple of music, Jay-Z and Beyoncé, had a very profitable year in 2014. Until then, these long-standing individual artists had never headlined a tour together. When they combined their
The airline industry made $36 billion in profits in 2015, up from nearly $12 billion in 2013.But in 2008, during the recession, the industry was teetering on the edge of disaster.According to the
Bernie’s ice-making company produces ice cubes using a 10-ton machine and electricity. The quantity of output, measured in terms of pounds of ice, is given in the accompanying table.a. What is the
Alicia’s Apple Pies is a roadside business. Alicia must pay $9.00 in rent each day. In addition, it costs her $1.00 to produce the first pie of the day, and each subsequent pie costs 50% more to
The accompanying table shows three possible combinations of fixed cost and average variable cost. Average variable cost is constant in this example (it does not vary with the quantity of output
In each of the following cases, explain what kind of scale effects you think the firm will experience and why.a. A telemarketing firm in which employees make sales calls using computers and
Draw a graph like Figure 6-12 and insert a short-run average total cost curve corresponding to a long-run output choice of 5 cases of salsa per day. Use the graph to show why Selena should change her
Changes in the prices of key commodities have a significant impact on a company’s bottom line. For virtually all companies, the price of energy is a substantial portion of their costs. In addition,
In each of the following situations, do you think the industry described will be perfectly competitive or not? Explain your answer.a. There are two producers of aluminum in the world, a good sold in
Draw a short-run diagram showing a U-shaped average total cost curve, a U-shaped average variable cost curve, and a“swoosh”-shaped marginal cost curve. On it, indicate the range of output and the
Maine has a very active lobster industry, which harvests lobsters during the summer months. The rest of the year lobsters can be obtained from other parts of the world, but at a much higher price.
Which of the following events will induce firms to enter an industry? Which will induce firms to exit? When will entry or exit cease? Explain your answer.a. A technological advance lowers the fixed
Bob produces Blu-ray movies for sale, which requires a building and a machine that copies the original movie onto a Blu-ray. Bob rents a building for $30,000 per month and rents a machine for $20,000
Consider Bob’s Blu-ray company described in Problem 3. Assume that Blu-ray production is a perfectly competitive industry. For each of the following questions, explain your answers.a. What is
Consider again Bob’s Blu-ray company described in Problem 3.a. Draw Bob’s marginal cost curve.b. Over what range of prices will Bob produce no Blu-rays in the short run?c. Draw Bob’s individual
If you like instant taste-bud gratification and live in one of the growing list of cities that enjoy Amazon’s same-day one-hour restaurant delivery, life has become so much more gratifying. And if
Brick-and-mortar retailers like Target, Best Buy, and Walmart have an exasperating problem that is threatening their very survival: shoppers who visit their stores, but not to buy the merchandise.
Currently, Texas Tea Oil Co. is the only local supplier of home heating oil in Frigid, Alaska. This winter, residents were shocked that the price of a gallon of heating oil had doubled and believed
Suppose the government is considering extending the length of a patent from 20 years to 30 years. How would this change each of the following?a. The incentive to invent new productsb. The length of
Explain the nature of the network externality in each of the following cases.a. A new type of credit card, called Passportb. A new type of car engine, which runs on solar cellsc. A website for
Use the accompanying total revenue schedule of Emerald, Inc., a monopoly producer of 10-carat emeralds, to calculate the answers to parts a–d. Then answer part e.a. The demand scheduleb. The
What policy should the government adopt in the following cases? Explain.a. Internet service in Anytown, Ohio, is provided by cable.Customers feel they are being overcharged, but the cable company
Suppose a monopolist mistakenly believes that its marginal revenue is always equal to the market price. Assuming constant marginal cost and no fixed cost, draw a diagram comparing the level of
True or false? Explain your answer.a. A single-price monopolist sells to some customers that a price-discriminating monopolist refuses to.b. A price-discriminating monopolist creates more
Which of these are cases of price discrimination and which are not? In the cases of price discrimination, identify the consumers with high and those with low price elasticity of demand.a. Damaged
Explain the following situations.a. In Europe, when a service contract is purchased, many cell phone service providers give away for free what would otherwise be very expensive cell phones. Why might
Explain why each of the following industries is an oligopoly,not a perfectly competitive industry.a. The world oil industry, where a few countries near thePersian Gulf control much of the world’s
Which of the following factors increase the likelihood that anoligopolist will collude with other firms in the industry? Whichincrease the likelihood that an oligopolist will actnoncooperatively and
Which of the following factors are likely to support theconclusion that there is tacit collusion in this industry? Whichare not? Explain.a. There has been considerable variation in the market
Find the Nash (noncooperative) equilibrium actions for thefollowing payoff matrix. Which actions maximize the totalpayoff of Nikita and Margaret? Why is it unlikely that they willchoose those actions
Which of the following factors make it more likely thatoligopolists will play noncooperatively? Which make it morelikely that they will engage in tacit collusion? Explain.a. Each oligopolist expects
Each of these goods and services is a differentiated product.Which are differentiated as a result of monopolistic competitionand which are not? Explain your answers.a. Laddersb. Soft drinksc.
You must determine which of two types of market structurebetter describes an industry, but you are allowed to ask only onequestion about the industry. What question should you ask todetermine if an
In May 2014, all-out war broke out between Amazon, the third-largest U.S. book retailer, and Hachette, the fourth-largest book publisher. Suddenly Amazon took weeks to deliver Hachette publications
The United Kingdom is home to two long-haul airline carriers (carriers that fly between continents): British Airways and its rival, Virgin Atlantic. Although British Airways is the dominant company,
Wastewater runoff from large poultry farms adversely affects their neighbors. Explain the following:a. The nature of the external cost imposedb. The outcome in the absence of government intervention
According to Yasmin, any student who borrows a book from the university library and fails to return it on time imposes a negative externality on other students. She claims that rather than charging a
Some opponents of tradable emissions permits object to them on the grounds that polluters that sell their permits benefit monetarily from their contribution to polluting the environment. Assess this
Explain the following:a. Why an emissions tax smaller than or greater than the marginal social cost at QOPT leads to a smaller total surplus compared to the total surplus generated if the emissions
In 2016, the U.S. Department of Education spent almost $29 billion on college student aid. Explain why this can be an optimal policy to encourage the creation of knowledge.
In each of the following cases, determine whether a negative externality or positive externality is imposed and what an appropriate policy response would be.a. Trees planted in urban areas improve
Classify each of the following goods according to whether they are excludable and whether they are rival in consumption.What kind of good is each?a. Use of a public space such as a parkb. A cheese
The town of Centreville, population 16, has two types of residents, Homebodies and Revelers. Using the accompanying table, the town must decide how much to spend on its New Year’s Eve party. No
Indicate whether each of the following programs is a poverty program or a social insurance program.a. A pension guarantee program, which provides pensions for retirees if they have lost their
Recall that the poverty threshold is not adjusted to reflect changes in the standard of living. As a result, is the poverty threshold a relative or an absolute measure of poverty? That is, does it
The accompanying table gives the distribution of income for a very small economy.a. What is the mean income? What is the median income?Which measure is more representative of the income of the
Which of the following statements more accurately reflects the principal source of rising inequality in the United States today?a. The salary of the manager of the local branch of Sunrise Bank has
Explain how the negative income tax avoids the disincentive to work that characterizes poverty programs that simply give benefits based on low income.
If you are enrolled in a four-year degree program, it is likely that you are required to enroll in a health insurance program run by your school unless you can show proof of existing insurance
Explain how each of the following policies creates a disincentive to work or undertake a risky investment.a. A high sales tax on consumer itemsb. The complete loss of a housing subsidy when yearly
Over the past 40 years, has the polarization in Congress increased, decreased, or stayed the same?
The accompanying table contains data on the U.S. economy for the years 1983 and 2015. The second column shows the poverty threshold. The third column shows the consumer price index (CPI), a measure
The federal Energy Information Administration estimates that nearly 95% of all new power capacity installed in the United States in 2017 came from renewables. These are natural resources that are not
In 2016, Stinson Dean faced a critical decision. A savvy trader employed by a firm that traded lumber as a commodity, Dean could see that the lumber market was ripe for a dramatic upswing as the home
In the 1990s there were some dramatic economic events that came to be known as the Asian financial crisis. A decade later similar events came to be known as the global financial crisis. The
Which of the following questions are relevant for the study of macroeconomics and which for microeconomics?a. How will Ms. Martin’s tips change when a large manufacturing plant near the restaurant
Access the Discovering Data exercise for Chapter 12 online to answer the following questions.a. What is the percentage decline in industrial production for Greece from 2007 to 2009? What is it from
Each year, The Economist publishes data on the price of the Big Mac in different countries and exchange rates. The accompanying table shows some data from 2007 and 2016. Use this information to
Assume there are only two goods in the economy, french fries and onion rings. In 2015, 1,000,000 servings of french fries were sold at $0.40 each and 800,000 servings of onion rings at $0.60 each.
From 2010 to 2015, the price of electronic equipment fell dramatically and the price of housing rose dramatically. What are the implications of this in deciding whether to use 2010 or 2015 as the
The consumer price index in the United States (base period 1982–1984) was 237.846 in 2015 and 242.821 in 2016. Calculate the inflation rate from 2015 to 2016.
The cost of a college education in the United States is rising at a rate faster than inflation. The following table shows the average cost of a college education in the United States during the
Which of the following transactions will be included in GDP for the United States?a. Coca-Cola builds a new bottling plant in the United States.b. Delta sells one of its existing airplanes to Korean
Access the Discovering Data exercise for Chapter 13 online to answer the following questions.a. What was GDP for the United States last year?b. Calculate the absolute change in U.S. GDP between last
The accompanying table shows data on nominal GDP (in billions of dollars), real GDP (in billions of 2009 dollars), and population (in thousands) of the United States in 1965, 1975, 1985, 1995, 2005,
The consumer price index, or CPI, measures the cost of living for a typical urban household by multiplying the price for each category of expenditure (housing, food, and so on) times a measure of the
The accompanying table contains two price indexes for the years 2013, 2014, and 2015: the GDP deflator and the CPI. For each price index, calculate the inflation rate from 2013 to 2014 and from 2014
Explain whether each of the following statements describes features of a market economy.a. The invisible hand harnesses the power of self-interest for the good of society.b. A central authority makes
Explain how each of the following illustrates one of our principles of economy-wide interactions.a. The White House urged Congress to pass a package of temporary spending increases and tax cuts in
Tim Geithner, a former U.S. Treasury Secretary, has said, “The recession that began in late 2007 was extraordinarily severe. But the actions we took at its height to stimulate the economy helped
In August 2017, Hurricane Harvey caused massive destruction to Texas, Louisiana, and many Caribbean Islands. Catastrophic flooding occurred, with hundreds of people requiring rescue, 68 killed, and
Boeing is back at the drawing board. In 2015, after releasing the Boeing 777X, an update to the widely popular 777, they announced plans to redevelop their production process.Boeing hoped to extend
In the following three situations, the market is initially in equilibrium. Explain the changes in either supply or demand that result from each event. After each event described below, does a surplus
Aaron Hank is a star hitter for the Bay City baseball team. He is close to breaking the major league record for home runs hit during one season, and it is widely anticipated that in the next game he
In each of the following, what is the mistake that underlies the statement?Explain the mistake in terms of supply and demand and the factors that influence them.a. Consumers are illogical because
Show in a diagram the effect on the demand curve, the supply curve, the equilibrium price, and the equilibrium quantity of each of the following events.a. The market for newspapers in your town Case
Demand twisters: Sketch and explain the demand relationship in each of the following statements.a. I would never buy a Taylor Swift album! You couldn’t even give me one for nothing.b. I generally
Two consumers, Casey and Josey, want cheese-stuffed jalapeño peppers for lunch. Two producers, Cara and Jamie, can provide them. The accompanying table shows the consumers’willingness to pay and
Assume that in short-run equilibrium, a particular monopolistically competitive firm charges $12 for each unit of its output and sells 52 units of output per day. How much revenue will it take in
Suppose that an oligopolist is charging $21 per unit of output and selling 31 units each day. What is its daily total revenue? Also suppose that previously it had lowered its price from $21 to$19,
What annual growth rate is needed for a country to double its output in seven years? In 35 years? In 70 years? In 140 years?
What are the two primary phases of the business cycle? What tends to happen to real GDP, unemployment, and inflation during these phases?

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