Questions and Answers of Foundations Macroeconomics

A deal between United Continental and Air Canada looks like an “effective merger” of all of their Canadian and U.S. operations. The deal would create a monopoly on 10 major high-demand,
Comcast offers faster home broadband in some U.S. cities Comcast, the largest U.S. internet-service provider, introduced a new home broadband package called Extreme 105, which can download files many
Condé Nast Publications launched its monthly business magazine Portfolio less than two years ago. In late 2008, Condé Nast cut its payroll and advertising budgets by an average of 5 percent.
Americans like to pour their own laundry detergent, but Dial plans to launch Purex Complete, a “3-in-1” laundry sheet embedded with detergent, fabric softener, and antistatic agents and in an
Apple developing new iPad Apple Inc. reported blowout earnings for the quarter ended June 25, due in part to the popularity of its iPad. The company sold 9. 3 million units in the quarter, nearly
Thailand, the world’s largest rice exporter, proposed that the Asian rice exporters (Thailand, Cambodia, Laos, and Myanmar) form a cartel. The Philippines said it was a bad idea.CNN, May 6, 2008
Promotions of the new Internet Explorer IE8 say it is faster, more reliable, and more secure than rival browsers. One reviewer noted that IE8 is slower than Firefox, but if you’re a light-duty user
Volkswagen opened the $1 billion plant in Chattanooga in May and hired its 2,000th employee there in July. Our hourly wage starts at $14.50 per hour, which is very competitive and we have great
Wealth gap widens between whites and minorities The median wealth of white U.S. households in 2009 was $113,149, compared with $6,325 for Hispanics and $5,677 for blacks. Those ratios, roughly 20 to
Tupperware’s CFO says rising oil prices would cause the company to pay $15 million more for resin, which is based on oil, than it did a year ago. Resin prices are closely tied to the price of oil,
Farmers want the dairy industry to guarantee a minimum (powdered) milk price of 300 euros a ton—against 210 euros a ton this month. Max Bottier, a dairy farmer in Normandy, said that he needs 300
Faced with a huge budget deficit, Illinois Governor Patrick Quinn has proposed a 50 percent increase in the personal income tax rate. The Wall Street Journal, March 20, 2009 Explain the effects of
GM’s restructuring plan will close 11 plants and reduce output at 3 others. boston.com, May 31, 2009 Explain the effects of the restructuring plan on GM’s total fixed cost, total variable cost,
Gap will focus on smaller scale stores Gap has too many 12,500 square feet stores. The target store size is 6,000 to 10,000 square feet, so Gap plans to combine previously separate stores. Some Gap
Corn prices have surged 80 percent in the past year, driven up by a global rush for grains to feed people and livestock and to make biofuel. USA Today, June 26, 2008 Explain why the price of corn
Is the number of copies printing the efficient quantity? Explain your answer. Township is a small, isolated community served by one newspaper that can meet the market demand at a lower cost than two
In the long run, how will the number of pizza producers change? What are the excess capacity and the deadweight loss created? Explain your answer.Use the following information to work Problems 5 and
What are the distinguishing features of oligopoly?
Business Week reported that Energizer is gaining market share against competitor Duracell and its profit is rising despite the sharp rise in the price of zinc, a key battery ingredient. In what type
What is the equilibrium of the game if Bud and Wise play it repeatedly?Bud and Wise are the only two producers of a New Age beer, which is designed to displace root beer. Bud and Wise are trying to
A labor union organizes fast-food workers and gets a law passed that raises the minimum age and lowers the maximum age at which a person can work in the fast-food industry.In Greenville, where
Draw a graph to show the change in the land market from 1969 to 2007.Explain how the moratorium will influence the land market in 2008.Use the following information to work Problems 8 and 9.Unwinding
Draw a graph to show the Bethel labor market in 2007. Explain how the moratorium will influence the Bethel labor market in 2008.Use the following information to work Problems 8 and 9.Unwinding in the
Explain why, despite the higher weekly wage, more people are employed as managers and professionals than as salespeople.In the United States in 2010, 30 million people had full-time managerial and
Calculate the income shares of each quintile after tax and redistribution.Table 1 shows the distribution of market income in an economy and Table 2 shows how the government taxes and redistributes
Education, household size, household type (marital status), age of householder, race, and region of residence all influence the degree of income inequality. Rank these influences in order of
Draw the demand and supply curves for these two types of labor. What feature of your graph accounts for the differences in the two wage rates and what feature accounts for the differences in the
Suppose that a government law required both groups of workers to be paid$22.50 an hour. Draw a graph to illustrate what would happen to the quantities employed of the two types of labor.Use the
How many copies of the Township Gazette are printed each day and what is the price of the Township Gazette? Township is a small, isolated community served by one newspaper that can meet the market
Calculate Lee’s explicit costs, implicit costs, and economic profit. Lee, a programmer, earned $35,000 in 2010, but in 2011, he began to manufacture body boards. After one year, he submitted the
Which are legal monopolies and which are natural monopolies? Can any of them price discriminate? If so, why? Use the information about the firms listed below to work Problems 1 and 2.a Coca-Cola cuts
On the graph, show the consumer surplus that is redistributed from consumers to the Township Gazette and the deadweight loss that arises because the Township Gazette is a monopoly. Township is a
Under what conditions does monopoly arise? Under what conditions can a monopoly price discriminate? Use the following information to work Problems 2 to 4. Elixir Spring produces a unique and highly
The federal gas tax is 18. 4¢ a gallon and state gas taxes range from 20¢ to 40¢ a gallon. As motorists switch to more efficient cars, government gas tax revenue will fall. To raise revenue for
On a graph, show the excess burden of this tax. Is this tax efficient? Use the following information to work Problems 3 and 4. The supply of luxury boats is perfectly elastic, the demand for luxury
Suppose that this year, tomato growers in Florida lobby the U.S. government to impose an import quota on Mexican tomatoes. Explain who, in the United States, would gain and who would lose from such a
What is the quantity of pesticide produced if no one owns the lake and what is the efficient quantity of pesticide? What is the deadweight loss?Figure 1 illustrates the unregulated market for a
What is the efficient number of students? If colleges are private (no government involvement), how many people enroll, what is the tuition, and what is the deadweight loss?Figure 1 shows the marginal
Classify each of the following items as a public good, a private good, a natural monopoly good, or a common resource:• Fire protection• A seat at the final match of the U.S. Open (tennis)• A
If the common pasture were converted to private land and fenced off, what quantity of milk would be produced? Cows graze on common pasture and can produce milk in the amounts shown in Table 1. The
Classify each of the items in the list as a private good, a public good, a common resource, or a natural monopoly good. Explain each classification. Use the following list of items to work Problems 1
Lawmakers set to allow speedier Arctic drilling The U.S. government will allow Arctic drilling that would speed the development of oil and gas reserves off the Alaskan coast. Environmentalists say
If hikers and others were required to pay a fee to use the Appalachian Trail, would the use of this common resource be more efficient? Would it be even more efficient if the most popular spots such
Ohio governor vetoes Ohio bill on Lake Erie water use In 2008, the eight U.S. states and two Canadian provinces adjoining the lakes negotiated the Great Lakes Compact to prevent the region’s water
Explain the effect of the eathquake on the price of a good used car and the price of a lemon.
How might City Safe create adverse selection and moral hazard?
What are the sources of inefficiency in the U.S. health-insurance market?
Describe the situation if health care is delivered using the same methods that deliver basic education to all Americans. How would the health-care system you’ve described compare with that in the
List the combinations of burgers and magazines that Jerry can afford. Jerry’s burger and magazine budget is $12 a week. The price of a burger is $2, and the price of a magazine is $4.
What is the relative price of a magazine? Explain your answer. Jerry’s burger and magazine budget is $12 a week. The price of a burger is $2, and the price of a magazine is $4.
In a week, Erin buys 1 six-pack of soda and sees 2 movies when a movie ticket is $10, soda is $5 a six-pack, and she has $25 to spend. If her budget increases and she has $50 to spend on soda and
In 2007, Americans downloaded 800 million singles at 99¢ each and 40 million albums at $10 each. They also bought 3 million singles on a disc at $4.75 each and 500 million albums on discs at $15.
Lee’s accountant recorded the depreciation on Lee’s cottage during 2011 as $7,000. What did the accountant say Lee’s profit or loss was? Lee, a programmer, earned $35,000 in 2010, but in 2011,
The Detroit Institute of Arts cut its staff by 56 full-time and 7 part-time employees and canceled some of this year’s planned exhibitions. As the number of workers decreased and some exhibitions
The growing season has just begun and pigweed is spreading quickly, towering above the plants, and crowding out sunlight. This new breed of pigweed is resistant to herbicides. Scientists estimate
Table 1 shows the demand schedule for Lin’s Fortune Cookies. Calculate Lin’s marginal revenue for each quantity demanded. Compare Lin’s marginal revenue and price. In what type of market does
Why did old GM file for bankruptcy?
How will the new GM overcome the problems of the old GM?
In what type of market is each of the following goods and services sold? Explain your answers.• Breakfast cereals• Cell phones• The only restaurant in a small town• Oranges• Cable TV in a
With a strictly enforced rent ceiling of $600 a month, is the housing market efficient? What is the deadweight loss? Is the housing market fair? Explain.Figure 1 shows the rental market for
Is the minimum wage of $8 an hour efficient? Who gains and who loses from the minimum wage of $8 an hour? Is it fair? Figure 1 shows the market for tomato pickers in southern California.Figure 1
With a price support set at $8 per pound, is the market for tomatoes efficient? Who gains and who loses from the price support? What is the deadweight loss? Could the price support be regarded as
If the FTC raises the minimum wage by $21 a week, what wage per week will low-skilled workers be paid? Will the outcome be efficient? Use the following information to work Problems 6 and 7.
The tax on cigarettes has risen from 39¢ to $1.01 a pack—an increase of 62¢ a pack. Before the tax hike, cigarettes were $5 a pack. In the past, a price increase of 10 percent cut cigarette
Explain why Phil Mickelson pays his own Social Security tax and the PGA (the Professional Golf Association) pays none of it.
Is a tax on land rent or a tax on capital income more inefficient? Explain.
In 2010, California legislators pledged to pass a soda tax in light of a new study linking soft drink consumption to obesity and related problems that cost California $41 billion a year in medical
Draw a graph to show the effects of the $3 tax on the buyer’s price, the seller’s price, the quantity of cigarettes bought, the tax revenue, the consumer surplus, the producer surplus, and the
Describe the effect of these municipal taxes on car rentals at airports. Who pays more of the tax: the renter or the car company?Use the following news clip to work Problems 9 and 10. Tax bites on
Why do you think municipalities tax things that travelers buy as a way of raising the revenue to build local venues? Use the following news clip to work Problems 9 and 10. Tax bites on travelers go
If the government subsidizes colleges so that the efficient number of students will enroll, what is the cost to taxpayers? Use the following information to work Problems 5 to 7. The marginal cost of
If the government offers vouchers to students and values them so that the efficient number of students will enroll, what is the value of the voucher? Use the following information to work Problems 5
What is the equilibrium wage rate and how many tomato pickers are employed? If California introduces a minimum wage of $4 an hour, how many tomato pickers are employed and how many are
What are the equilibrium price and quantity of tomatoes? Is the market for tomatoes efficient?Figure 1 shows the market for tomatoes.Figure 1 FIGURE 1 Price (dollars per pound) 12+ 10 8 6 2 0
If the government introduces a price support at $8 per pound, what is the quantity of tomatoes produced, the quantity demanded, and the subsidy received by tomato farmers?Figure 1 shows the market
Economics studies choices that arise from one fact. What is that fact?
How does a new Starbucks in Beijing, China, influence self-interest and the social interest?
How does Facebook influence self-interest and the social interest?
Was Kate’s decision to play the third hour of tennis rational?Every week, Kate plays tennis for two hours, and her grade on each math test is 70 percent. Last week, after playing for two hours,
In deciding whether to take a cruise would you face a tradeoff?
How would you make a rational choice about taking a cruise?
What would be the marginal benefit from a cruise? What would be the marginal cost of a cruise?
Why would you expect a lower price to increase the number of people who decide to take a cruise?
Eminem is giving away tickets to his show in a 1,500-seat theater in Detroit. What is free and what is scarce? Explain your answer. Use the following information to work Problems 10 to 12. Hundreds
Because all the tickets were free, was the marginal benefit from the concert zero? Explain your answer. Use the following information to work Problems 10 to 12. Hundreds line up for 5 p.m. Eminem
On Friday June 16, 2011, the headlines in List 1 appeared inThe Wall Street Journal. Classify each headline as a signal that the news article is about a microeconomic topic or a macroeconomic topic.
Draw a time-series graph of the quantity of compact discs sold. Say in which year or years the quantity sold (a) was highest, (b) was lowest, (c) increased the most, and (d) decreased the most. If
Table 2 provides data on the price of a balloon ride, the temperature, and the number of rides a day. Draw graphs to show the relationship between• The price and the number of rides, when the
Draw a scatter diagram to show the relationship between quantities sold of music videos and singles downloads. Describe the relationship.Use the following information in Table 1 to work Problems 1
Calculate the slope of the relationship when x equals 2 and x equals 4. How does the slope change as the value of x increases?Use the following data on the relationship between two variables x and y
Table 3 provides data on the price of hot chocolate, the temperature, and the number of cups a week. Draw graphs to show the relationship between• The price and the number of cups of hot chocolate,
Name the four broad categories of goods and services that we use in economics.Provide an example of each (different from those in the chapter) and say what percentage of total production each
Name the four factors of production and the incomes they earn.
Distinguish between the functional distribution of income and the personal distribution of income.
In the United States, which factor of production earned the largest share of income in 2010 and what percentage did it earn?
What microloans miss The 2006 Nobel Peace Prize winner Muhammad Yunus has said that “all people are entrepreneurs” and that microloans will pull poor people out of poverty.Only 14 percent of
Describe what, how, and for whom goods and services are produced in developing economies.
Describe the flows in the circular flow model in which consumption expenditure, purchases of new national defense equipment, and payments for labor services appear. Through which market does each of
Indicate on a graph of the circular flow model, the real or money flow in which the following items belong:• You pay your tuition.• The University of Texas buys some Dell computers.• A student
Buzz surrounds Apple’s iPhone. Can you explain:• Why doesn’t Apple manufacture the iPhone at its own factory in the United States?• Why doesn’t Apple offer a cheaper version of the iPhone

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