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foundations macroeconomics

Macroeconomics 5th Canadian edition Stephen d. Williamson - Solutions

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 following data to his accountant.• He stopped renting out his cottage for $3,500 a year and used it
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 its price below that of Pepsi-Cola to increase profit.b A single firm, protected by a barrier to
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 small, isolated community served by one newspaper that can meet the market demand at a lower cost than
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 prized mineral water. The firm’s total fixed cost is $5,000 a day, and its marginal cost is zero.
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 infrastructure repairs, states are considering dropping the gas tax and introducing a mileage tax,
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 boats is unit elastic, and with no tax on luxury boats, the price is $1 million and 240 luxury boats
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 quota.Before 1995, the United States imposed tariffs on goods imported from Mexico and Mexico
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 pesticide. When factories produce pesticide, they also create waste, which they dump into a lake on the
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 private benefit from college education. The marginal cost of a college education is a constant
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 pay-per-view movie on television• The Mississippi River
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 marginal private cost of producing milk is zero.Table 1 TABLE 1 Quantity of milk (gallons per day) 0
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 and 2.• New Year’s Eve celebrations in Times Square, New York• A city’s sewer system• New
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 that the area should not be drilled because there is wildlife in the area. Are the oil and gas
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 as Annapolis Rock had more highly priced access? Why do you think we don’t see more market
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 from being shipped or piped to arid regions. The compact also requires each state to regulate their
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 United States today? How would it compare to that in Canada?
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 movies, what is the change in the relative price of a movie ticket? How do the marginal utility per
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. What does marginal utility theory tell you about the ratio of the marginal utility from singles on
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, he began to manufacture body boards. After one year, he submitted the following data to his
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 were canceled, how did marginal product and average product of a worker change in the short run?
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 that thousands of acres have already been plowed back, and that it could cost $20 an acre to fend off
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 Lin’s Fortune Cookies operate?Table 1 TABLE 1 Price (dollars per batch) 50 50 50 50 50 50 50
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 town with one cable company
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 apartments in Corsicana, Texas.Figure 1 FIGURE 1 Rent (dollars per month) 1,200 + 1,000 800 600 0 D Quantity
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 FIGURE 1 Wage rate (dollars per hour) 10+ 8 6 2 3,000 4,000 S D 5.000 Quantity (pickers)
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 being fair?Figure 1 shows the market for tomatoes.Figure 1 FIGURE 1 Price (dollars per pound) 12+ 10 8
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. Australian unions lobbying for $21 wage rise for lowest paid Australia’s Fair-Trade Commission (FTC) sets
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 consumption by 4 percent. With this new tax, at least 1 million of the 45 million smokers are expected to
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 expenses. On the basis of what principle would this tax be fair?
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 excess burden of the tax. Does the buyer or seller pay more of the tax? Why?Use the following
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 travelers go deeper Travelers complain about delayed flights, but they don’t seem to be bothered by
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 deeper Travelers complain about delayed flights, but they don’t seem to be bothered by increased
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 educating a college student online is $3,000 a year. Table 1 shows the marginal private benefit
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 to 7. The marginal cost of educating a college student online is $3,000 a year. Table 1 shows the
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 unemployed?Figure 1 shows the market for tomato pickers in southern California.Figure 1 FIGURE 1 Wage rate
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 Quantity (billions of pounds per year)
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 for tomatoes.Figure 1 FIGURE 1 Price (dollars per pound) 12+ 10 8 6 2 0 Quantity (billions of pounds
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, Kate considered playing for another hour. She decided to play for another hour and cut her study time
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 line up for 5 p.m. Eminem ticket giveaway Hundreds of Eminem fans lined up to get a free ticket to
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 ticket giveaway Hundreds of Eminem fans lined up to get a free ticket to the rapper’s secret concert.
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. Explain your answers.List 1 LIST 1 Apple Opens Locker for Songs. U.S. Household Debt Falls. Indian
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 the data show a trend, describe it.The spreadsheet in Table 1 provides data on the U.S. economy:
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 temperature is 70°F.• The number of rides and the temperature, when the price is $15 a ride.Table 2
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 and 2.Table 1 TABLE 1 A 2000 1 2 2002 3 2004 4 2006 5 2008 6 2010 B 943 803 767 620 385 226 C 18 15 33
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 to work Problems 3 and 4. x y 0 0 1 1 24 2 39 4 9 4 5 16 25
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, when the temperature is constant.• The temperature and the number of cups of hot chocolate, when
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 accounted for in 2011.
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?
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 these flows pass?
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 works at FedEx Kinko’s.• Donald Trump rents a Manhattan building to a hotel.• You pay your
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 with no camera?• In view of the cost of producing an iPhone (in the table on p. 41), why do you
On a graph of the circular flow model, indicate in which real or money flow each entry in List 2 belongs.List 2 LIST 2 General Motors pays its workers wages. IBM pays a dividend to its stockholders. You buy your groceries. Chrysler buys robots. Southwest rents some air- craft. Nike pays Roger
Which of the following statements about U.S. production is correct?A. Government goods and services and export goods and services each account for the same percentage of total production.B. Capital goods account for a larger percentage of total production than do consumption goods and services.C.
Which points are attainable? Explain why.Figure 1 shows an economy’s PPF and identifies some production points. Use this figure to work Problems 2 to 4.Figure 1 FIGURE 1 Cars (thousands per week) 60 50 40 30 20 10 0 + 2 A D 4 F B E 6 G 8 PPF 10
Which points are efficient and which points are inefficient? Explain why.Figure 1 shows an economy’s PPF and identifies some production points. Use this figure to work Problems 2 to 4.Figure 1 FIGURE 1 Cars (thousands per week) 60 50 40 30 20 10 0 + 2 A D F B E 6 G 8 PPF 10
Which points illustrate a tradeoff? Explain why. Figure 1 shows an economy’s PPF and identifies some production points. Use this figure to work Problems 2 to 4.Figure 1 FIGURE 1 Cars (thousands per week) 60 50 40 30 20 10 0 + 2 A D F B E 6 G 8 PPF 10
How does an economy grow? Explain why economic growth is not free.
Who has a comparative advantage in producing snowboards? Who has a comparative advantage in producing skis?Tony and Patty produce skis and snowboards. Tables 1 and 2 show their production possibilities. Each week, Tony produces 5 snowboards and 40 skis and Patty produces 10 snowboards and 5
If Tony and Patty specialize and trade, what are the gains from trade?Tony and Patty produce skis and snowboards. Tables 1 and 2 show their production possibilities. Each week, Tony produces 5 snowboards and 40 skis and Patty produces 10 snowboards and 5 skis.Table 1Table 2 TABLE 1 TONY'S
The people of Foodland have 40 hours of labor a day to bake pizza and bread. Table 1 shows the maximum quantity of either pizza or bread that Foodland can bake with different quantities of labor. Can Foodland produce 30 pizzas and 30 loaves of bread a day? If it can, is this output efficient, do
GM and the UAW agree on restructuring workers’ jobs. This restructuring, with no change in the wage rate, will save GM billions in labor costs. How will this cost-cutting agreement change GM’s supply of vehicles? Explain.
Oil prices breached the $100-a-barrel mark Wednesday after OPEC said it could not reach an agreement about raising crude production. Draw a graph to show the oil market in equilibrium. Suppose that OPEC members had agreed to increase production. Show on your graph, the effect of this decision on
Explain why the dry weather will lead to a rise in the price of bread.Use the following information to work Problems 7 and 8.Pricier bread and cereal. Coming soon?Wheat and corn prices surged about 10 percent last week and could hit the items in your grocery basket by mid-summer. It’s a case of
Use graphs to show why the price of corn has risen and show its effect on the price of cereals.Use the following information to work Problems 7 and 8.Pricier bread and cereal. Coming soon?Wheat and corn prices surged about 10 percent last week and could hit the items in your grocery basket by
If after heavy rain and low production, the weather improves and coffee growers enjoy bumper crops, how does• The demand for coffee change?• The supply of coffee change?• The price of coffee change?Illustrate your answer with a graphical analysis.
Is the demand for this good elastic, unit elastic, or inelastic? When the price of a good increased by 10 percent, the quantity demanded of it decreased by 2 percent.
China is estimated to become the world’s largest luxury goods market over the next decade, boosted by rising incomes and a transition from saving to spending culture. Are luxury goods normal goods or just not necessities? Explain your answer.
If the price of a wool sweater did not change, calculate the cross elasticity of demand for wool sweaters with respect to the price of home heating oil. Are home heating oil and wool sweaters substitutes or complements? Why?When the price of home heating oil increased by 20 percent, the quantity
Calculate the U.S. price elasticity of supply of corn. Is this supply elastic?Use the following information to work Problems 8 and 9.Record U.S. corn crop, up 24%, is forecast The USDA reported that world corn production will be 9. 9 percent greater than last year’s, while U.S. corn production
Calculate the world price elasticity of supply of corn.Use the following information to work Problems 8 and 9.Record U.S. corn crop, up 24%, is forecast The USDA reported that world corn production will be 9. 9 percent greater than last year’s, while U.S. corn production will be 24 percent
In May 2011, higher food prices forced consumers to cut spending.Source: CNN Money, June 4, 2011 Is the demand for food elastic or inelastic? Explain your answer.
“In a market in which demand is price inelastic, producers can gouge consumers and the government must set high standards of conduct for producers to ensure that consumers gets a fair deal.” Do you agree or disagree with each part of this statement? Explain how you might go about testing the
On Figure 1, mark two points: Point A at which production is efficient but too much coffee is produced for allocative efficiency; and point B, the point of allocative efficiency.Use Figure 1, which shows a nation’s PPF, and Table 1, which shows its marginal benefit and marginal cost schedules, to
If the price of a DVD rises to $20, what is the change in consumer surplus? Figure 1 shows the demand curve for DVDs and the market price of a DVD.Figure 1 FIGURE 1 Price (dollars per DVD) 25+ 20 15 10 0 10 Market price D 20 30 40 Quantity (DVDs per day)
If the price of a DVD falls to $10, what is the change in producer surplus?Figure 1 shows the supply curve of DVDs and the market price of a DVD.Figure 1 FIGURE 1 Price (dollars per DVD) 20 15 10 5 10 S Market price 20 30 40 Quantity (DVDs per day)
At the market equilibrium, what are consumer surplus, producer surplus, and total surplus? Is the market for paper efficient? Why or why not?Figure 1 shows the market for paper.Figure 1 FIGURE 1 Price (dollars per ton) 9 7 5 3 0 10 20 30 D S 40 50 60 70 Quantity (tons per day)
Lobbyists for a group of news magazines persuade the government to pass a law that requires producers to sell 50 tons of paper a day. Is the market for paper efficient? Why or why not? Shade the deadweight loss on the figure.Figure 1 shows the market for paper.Figure 1 FIGURE 1 Price (dollars per
Interior Secretary Ken Salazar said he hoped American families would take the opportunity during these hard times to enjoy an affordable weekend vacation in our national parks. Most Americans live within an hour’s drive of a national park.Source: Los Angeles Times, June 3, 2009, which families
Explain what moral hazard is and why and how deposit insurance induces a moral hazard problem.
Give two examples of fixed exchange rates within Canada.
Describe the role of the IMF.

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