Questions and Answers of Foundations Of Economics

Bernie Sanders wants free tuition at public colleges and universities, free healthcare, and a transportation infrastructure program that creates 1 million jobs for disadvantaged youth. Without
Table 1 shows the distribution of market income in an economy and Table 2 shows how the government taxes and redistributes income.1. Calculate the income shares of each quintile after taxes and
Paul Minton, a 26-year-old math major, made $20,000 a year as a waiter. After completing a three-month course at Galvanize, a coding school in San Francisco, his starting salary at a web start-up was
In the United States in 2010, 30 million people had full-time managerial jobs that paid an average of $1,200 a week and 10 million people had full-time sales jobs that paid an average of $600 a
Home prices in 20 U.S. cities increased 5.8 percent from a year earlier, the biggest advance since July 2014. Rising property values are increasing household wealth for homeowners and offsetting some
Look at the list to the left. In what type of market is each good or service in the list sold? Explain your answers. LIST Wheat Jeans Printer cartridges . Toothpaste Gym membership in a town with one
Table 1 shows Jerry’s total utility from burgers and magazines. The price of a burger is $2, the price of a magazine is $4, and Jerry has $12 a week to spend.1. Calculate Jerry’s marginal utility
Minnie’s Mineral Springs is a single-price monopoly. Table 1 shows the demand schedule for Minnie’s spring water (columns 1 and 2) and the firm’s total cost schedule (columns 2 and 3).1.
a. Coca-Cola cuts its price below that of Pepsi-Cola to increase profit.b. A single firm, protected by a barrier to entry, produces a personal service that has no close substitutes.c. A barrier to
On the graph, show the long-run effects of the pollution crackdown. 3- 2- for Price and cost (dollars per box) 6 -00 8 MCO 10 ATGO MRO 12 14
Tulip growing is perfectly competitive and all growers have the same costs. The market price is $25 a bunch, and each grower maximizes profit by producing 2,000 bunches a week. Average total cost is
The price elasticity of demand for Pete’s chocolate chip cookies is 1.5. Pete wants to increase his total revenue. Would you recommend that Pete raise or lower his price of cookies? Explain your
Enrollment increased from 15,539,000 in 2000 to 20,618,000 in 2013. The net cost of college (average for all types) increased from $12,357 to $14,860.Calculate the price elasticity of supply of
1. Economics studies choices that arise from one fact. What is that fact?2. Provide three examples of wants in the United States today that are especially pressing but not satisfied.3. In the
The spreadsheet in Table 1 provides data on the U.S. economy: Column A is the year; the other columns are quantities sold in millions per year of compact discs (column B), music videos (column C),
1. The Bureau of Labor Statistics (BLS) reports that highpaying jobs in healthcare and jobs in leisure, hospitality, and education will expand quickly over the next five years. How does the BLS
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
The New York Times reports that cruise lines have been slashing prices and cruise sales are up. It says this surge of interest tells us that despite the uncertain economic climate, people clearly
Distinguish between positive and normative statements and provide an example of each.
The New York Times reports that China will end its onechild policy. How would an economist study the effect of this policy change?
1. Table 1 sets out the production possibilities of a small Pacific island economy. Draw the economy’s PPF.2. Which points are attainable? Explain why.3. Which points are efficient and which points
1. What are the types of goods and services produced? Give an example of each (different from those in the chapter) and distinguish between them.2. Name the four factors of production and the incomes
A study by researchers at Stanford and the University of Chicago discovered that most of the people who quit their jobs and start their own business do so not because they have a billion-dollar idea
1. Describe what, how, and for whom goods and services are produced in developing economies.2. A Clinton Foundation success story is that it loaned $23,000 to Rwandan coffee growers to support
1. Describe the flows in the circular flow model in which expenditure on consumption goods and services, purchases of new national defense equipment, and payments for labor services appear. Through
Table 1 shows Robinson Crusoe’s production possibilities.1. What is his opportunity cost of a pound of berries when Crusoe increases the quantity of berries from 21 pounds to 26 pounds and
In 2007, the killer virus arrived in Hawaii, where almost all the queen bees used in the United States are bred. Bees are used to pollinate crops that are used in a third of the food we eat.Explain
1. Table 1 shows an economy that produces education services and consumption goods. If the economy currently produces 500 graduates a year and 2,000 units of consumption goods, what is the
Carbon dioxide emissions from cars must be cut from 130 grams to 95 grams per kilometer. To meet this new standard, the price of a car will rise by $1,350.Calculate the opportunity cost of reducing
Airplanes are more crowded than ever and fares are at a five-year high.Does this news clip imply that the law of demand doesn’t work in the real world? Explain why or why not.
The following events occur one at a time in the market for smartphones:• The price of a smartphone falls.• Producers announce that the price of a smartphone will fall next month.• The price of
Lumber companies make timber beams from logs. In the process of making beams, the mill produces sawdust, which is made into pressed wood. In the market for timber beams, the following events occur
Table 1 sets out the demand and supply schedules for milk.1. What is the equilibrium price and equilibrium quantity of milk?2. Describe the situation in the milk market if the price were $1.75 a
The average price for regular gasoline at U.S. pumps fell almost 4¢ in March to $2.50 a gallon. The price of crude oil dropped to $43.46 per barrel on March 17, the lowest since March 2009.Explain
Oil prices exceeded the $100abarrel mark Wednesday after OPEC said it could not reach an agreement about raising crude production.Suppose that OPEC members had agreed to increase production. Use a
Dry weather has delayed rice planting and harvests will be low. But wheat is enjoying a bumper crop.Using the demand and supply model, explain how the prices of rice and wheat will change and how the
When the price of a good increased by 10 percent, the quantity demanded of it decreased by 2 percent.1. Is the demand for this good elastic, unit elastic, or inelastic?2. Does this good have close
Apple’s new iPhone 6 sold out quickly in the United States and to avoid the same outcome in other national markets, Samsung and LG cut the prices of their Galaxy and V10 smartphones by over 10
Figure 1 shows the demand for movie tickets. Is the demand for movie tickets elastic or inelastic over the price range $7 to $9 a ticket? If the price falls from $9 to $7 a ticket, explain how the
A 10 percent increase in the price of a good increased the quantity supplied of the good by 1 percent after one month and by 25 percent after one year.1. Is the supply of this good elastic, unit
Calculate the percentage changes in the quantity demanded of plane rides and train rides.The price of a plane ride rises by 10 percent. The price elasticity of demand for plane rides is 0.5 and the
Read Eye on Elasticity at the Coffee Shop on p. 123 and then explain why the demand for latte is inelastic while the demand for a Starbucks latte is elastic.Which demand is likely to be more
1. The quantity demanded of good A increases by 5 percent when the price of good B rises by 10 percent and other things remain the same. Calculate the cross elasticity of demand. Are goods A and B
Given the rise in the price of a plane ride, what percentage change in the price of a train ride will leave the quantity demanded of train rides unchanged?The price of a plane ride rises by 10
1. Which method is used to allocate the following scarce resources?• Campus parking space between student areas and faculty areas• A spot in a restricted student parking area• Textbooks• Host
The cross elasticity of demand for good A with respect to good B is 0.2. A 10 percent change in the price of good B will lead to a _______ percent change in the quantity of good A demanded. Goods A
China’s market for the consumption of goods aimed at enhancing one’s appearance or status grew an average of 15.6 percent a year for the past five years.Given the information that incomes grew at
Ever since Starbucks introduced its famed pumpkin spice latte about a decade ago, pumpkin sales have skyrocketed.The price of pumpkin increased from $286 per ton in 2000 to $732 per ton in 2014 (both
What is the quantity of haircuts bought, the value of a haircut, and the total surplus from haircuts? TABLE 1 Price (dollars per haircut) 0 10 20 30 40 50 Quantity demanded (haircuts per
Now that the New York Mets are in baseball’s World Series for the first time in 15 years, fans who don’t have a ticket will pay a hefty $1,667.82 to get one. That’s the average asking price for
Fresh off his scorching performance at Coachella Saturday night, rocker Jack White announced he’ll do shows unannounced until day-of-show, with tickets priced at $3 and limited to one ticket per
Suppose that all salons agree to charge $40 a haircut. How do consumer surplus and producer surplus change? What is the deadweight loss created? TABLE 1 Price (dollars
Figure 1 shows the demand curve for DVDs and the market price of a DVD.1. What is the willingness to pay for the 20th DVD? Calculate the value of the 10th DVD and the consumer surplus on the 10th
Why do you think restaurants have different reservation policies, and why might each restaurant be using an efficient allocation method?
Figure 1 shows the supply curve of DVDs and the market price of a DVD.1. What is the minimum supply price of the 20th DVD? Calculate the marginal cost of the 10th DVD and the producer surplus on the
The airlines change prices from day to day. For example, the fare on one Delta flight from New York to Los Angeles jumped from $755 to $1,143 from a Friday to Saturday in April, then fell to $718 on
Figure 1 shows the market for paper.1. At the market equilibrium, what are consumer surplus, producer surplus, and total surplus? Is the market for paper efficient? Why or why not?2. Lobbyists for a
BlackBerry, the pioneer of smartphones, has almost vanished as Android and Apple phones have dominated the market. BlackBerry is now betting its future on using the Android operating system.As people
If Sandwiches To Go, Inc., buys all the sandwich producers and cuts production to 100 sandwiches an hour, what is the deadweight loss that is created?If Sandwiches To Go, Inc., rations sandwiches to
American corn and soybean farmers receive subsidies of about $20 billion a year.Because they receive subsidies, the price they receive for their crops exceeds the market price. Describe the
U.S. forestland has been a constant 755 million acres for the past century, but the number of trees has increased by 20 percent since 1970, the volume of wood has doubled since 1953, and the United
A winter storm cuts the power supply and isolates a small town in the mountains.The people rush to buy candles from the town store, which is the only source of candles. The store owner decides to
Would the outcome be more efficient than if the government took no action? Explain.
Water use is growing at a faster pace than the rate of population growth. Earth has lots of water, but 97.5 percent of it is in the oceans and is salty. The problem is that a growing number of people
On eBay, the bidder who places the highest bid wins the auction and pays only what the second highest bidder offered. Researchers Wolfgang Jank and Galit Shmueli reported that purchasers on eBay in
China has cut the price of natural gas and may install a price ceiling that prohibits a price rise of more than 20 percent above a benchmark.Explain how a cut in the price and a price ceiling will
Table 2 shows the demand and supply schedules for sandbags before and during a major flood. During the flood, suppose that the government gave all families an equal quantity of sandbags. Resale of
Figure 1 shows the market for tomato pickers in southern California.1. If California introduces a minimum wage of $4 an hour, how many tomato pickers are employed and how many are unemployed?2. If
Figure 1 shows the market for cranberries.1. What are the equilibrium price and quantity of cranberries? Is the market for cranberries efficient?2. If the government sets a production quota of 20
The labor movement is urging a minimum wage of $15 an hour. Currently, more than 40 percent of employees and 96 percent of fast-food workers earn less than $15 an hour. The U.S. Chamber of Commerce
If the college introduces a strictly enforced minimum wage of $11.50 an hour, how many students are employed, how many are unemployed, and what is the lowest wage at which some students would be
If the college introduces a strictly enforced minimum wage of $11.50 an hour, who gains and who loses from the minimum wage, and is the campus labor market efficient or fair? TABLE 2 Quantity
California dairy farmers are being hit by falling prices, drought, and rising feed costs.How would the events in the news clip affect a competitive market in milk? How would a production quota change
Explain the effects of the higher minimum wage on the workers’ surplus and the firms’ surplus. Will the $15 wage bring fairness, dignity, and respect?“Raising the minimum wage to $15 an hour
Figure 1 shows the market for basketballs, when basketballs are not taxed.1. If buyers of basketballs are taxed $6 a ball, what price does the buyer pay and how many basketballs do they buy? What is
In the Canadian market for milk with a production quota, explain what happens if a drought decreases supply.
Explain how Venezuela’s price controls have changed consumer surplus, producer surplus, total surplus, and the deadweight loss in the markets for milk and cheese. Draw a graph to illustrate your
Washington State gas taxes will rise by 7¢ a gallon now and by a further 4.9¢ a gallon next summer.If the demand for gasoline is inelastic and the supply of gasoline is elastic, who will pay more
Suppose that the government imposes a $2-a-cup tax on coffee. What determines by how much Starbucks will raise its price? How will the quantity of coffee bought in coffee shops change? Will this tax
1. Which income tax is the most efficient and which is the most inefficient, and why: a tax on labor income, a tax on capital income, or a tax on land income?2. Comparing a tax on labor income, a tax
Arizona’s state income taxes rank in the middle among U.S. states. The state can promote job creation by abolishing its income taxes.Is the news clip correct? Explain the effects of abolishing the
1. “Retired seniors should pay higher taxes than college students because government-funded healthcare for seniors costs more than government-funded tuition.” Is this statement consistent with a
California voters overwhelmingly back $2-a-pack increase in the cigarette tax with the revenue being used to fund healthcare for the poor.Which principle of fairness would California use to justify
Larry earns $25,000 and pays $2,500 in tax, while Suzy earns $50,000 and pays $15,000 in tax. If Larry’s income increases by $100, his tax increases by $12, but if Suzy’s income increases by
A big tax on sugary drinks in Mexico has cut consumption. Sellers passed on the entire tax in higher prices. The largest consumers of sugary drinks are the poor who suffer from diabetes and
In the past five years, U.S. oil output has doubled. In 2014, the United States and a few smaller countries added 2.4 million barrels a day to total world supply. Thanks to incredible advances in
Draw a graph of the U.S. market for textiles and show how removing a tariff would change producer surplus, consumer surplus, and the deadweight loss from the tariff.
Before the 1980s, China did not trade internationally: It was self-sufficient. Then China began to trade internationally in, among other items, coal and shoes. The world price of coal was less than
The world price of a pair of shoes is $20. Explain how consumer surplus and producer surplus in Brazil change as a result of international trade. Show the change in Brazil’s consumer surplus (label
Commodity prices have been decimated in 2015: natural gas down 38.5% and nickel down nearly 43%.The United States imports nickel from Canada and exports natural gas to Mexico. How do these price
Before 1995, the United States imposed tariffs on goods imported from Mexico and Mexico imposed tariffs on goods imported from the United States. In 1995, Mexico joined NAFTA. U.S. tariffs on imports
If the TPP comes into effect, Canada will remove import quotas on American milk, Japan will free imports of American beef, and the United States will remove import tariffs on items such as steel,
1. Japan sets an import quota on rice. California rice growers would like to export more rice to Japan. What are Japan’s arguments for restricting imports of Californian rice? Are these arguments
India’s steel imports are 58 percent higher than a year ago and the country’s steel producers have complained that cheap imports have driven market prices below their production costs.What is the
What is dumping? Who in the United States loses from foreign firms’ dumping of steel?
Beijing officials issued a “red alert” for air quality, closed schools, limited automobile traffic, and kept people indoors to avoid toxic smog. Most of Beijing’s energy comes from
Figure 1 shows the marginal private benefit from college education. The marginal cost of a college education is a constant $6,000 a year. The marginal external benefit from a college education is a
If the government levies a pollution tax such that the utility generates the efficient quantity of electricity, calculate the quantity of electricity generated, the price of electricity, the size of
Arctic temperatures are rising twice as fast as the global average and receding sea ice threatens polar bears, walruses, and seals that exist nowhere else on earth and face an increased risk of
Explain how a Tacoma charge will change the use of plastic bags and how the deadweight loss created by plastic bags will change.Most plastic shopping bags end up in the landfill or as litter. Tacoma

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