Questions and Answers of Foundations Of Economics

Students at colleges and universities from Los Angeles to New York are demonstrating in support of free education. The website studentmarch.org says:“Education should be free. The united States is
If Tom’s marginal benefit from a cigar a day is $20 and Larry’s marginal benefit from a smoke-free environment is $25 a day, what is the outcome if they meet at Tom’s home? What is the outcome
With no government involvement in college education, how many students enroll and what is the tuition? Calculate the deadweight loss created.The marginal cost of educating a college student online is
Explain why a Tocoma ban on plastic bags would be inefficient.
With no government involvement in college education, how many students enroll, what is the tuition, and what is the deadweight loss created?The marginal cost of educating a college student is $5,000
If Tom’s marginal benefit from a cigar a day is $25 and Larry’s marginal benefit from a smoke-free environment is $20 a day, what is the outcome if they meet at Tom’s home? What is the outcome
If the government subsidizes colleges and sets the subsidy so that the efficient number of students enroll, what is the subsidy per student, how many students enroll, and what is the cost to
If the government offers vouchers to students, what is the value of the voucher that will encourage the efficient number of students to enroll?The marginal cost of educating a college student is
Read Eye on Climate Change on pp. 254–255 and then describe the government actions that could decrease carbon emissions. Explain why the government is not taking these actions more aggressively.
Europe’s Emissions Trading Scheme (ETS) has too many carbon emission permits trading at too low a price.Explain the conditions under which the ETS, a cap-and-trade system, would reduce the amount
Vermonters are debating the pros and cons of a state carbon tax—a new tax on gasoline, heating oil, and other fossil fuels sold in the state. Backers say the tax revenue would be used to cut other
A study of highway use says that on two short stretches of expressway in Philadelphia, delays of 1 million hours a year cost $22 million in lost time and waste 375,700 gallons of fuel.What is the
1. Classify the following services for computer owners with an Internet connection as rival or nonrival and as excludable or nonexcludable:• eBay• A mouse• A Twitter page• MyEconLab Web
1. For each of the following goods, explain whether there is a free-rider problem. If there is no such problem, how is it avoided?• Fire protection• A July 4th fireworks display• Interstate 80
Take a moment to thank the voluntary PBS fundraisers. The British Broadcasting Corporation (BBC) is funded by something called the “license fee,” a tax of £145.50 ($245) per year on every
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.1. What is the quantity of milk produced if use of the common
Draw a graph to illustrate the market equilibrium. On your graph, show the efficient quantity of water taken.A natural spring runs under land owned by ten people. Each person has the right to sink a
Well-practiced ecotourism is helping to conserve the orangutan, humpback whale, African lion, snow leopard, and many other species and drawing dollars to the cause.Explain how ecotourism changes
If the government sets a production quota on the total amount of water such that the spring is used efficiently, what would that quota be?A natural spring runs under land owned by ten people. Each
If the government issues ITQs to land owners that limit the total amount of water taken to the efficient quantity, what is the market price of an ITQ?
The city of Waukesha, Wis., has applied to borrow water from Lake Michigan under the Great Lakes Compact, an agreement between the states and Canadian provinces that border the Great Lakes designed
1. Pam is a low-risk careful driver and Fran is a high-risk aggressive driver. What might an auto-insurance company do to get Pam and Fran to reveal their driver type?2. Using Figure 12.6, show the
The U.S. government has given Royal Dutch Shell permission to drill for oil and natural gas in the Arctic Ocean. Environmentalists say it is the wrong decision.Are the oil and gas reserves public
Eight small Pacific islands with control of 5.5 million square miles of prime tuna fishing waters, have tripled the access fee for U.S. tuna fishers from $21 million to $63 million and increased
An earthquake damaged car factories and decreased the production of popular Japanese cars. The demand for good late-model used cars soared and car dealers scrambled to get their hands on used
Connie Pollack, a college admissions consultant, says that the challenge for the student is to find the college that pushes the right academic, financial, and social buttons to deliver four happy
Auto-insurance companies are testing smartphone apps that monitor their customers’ driving habits.1. How could auto-insurance companies use information on driving habits? Is that information
1. Describe the asymmetric information problem in the market for healthcare services and explain how the problem is dealt with.2. What are the sources of inefficiency in the U.S. healthinsurance
Health-insurance premiums have increased and been accompanied by higher deductibles, which means that out-of-pocket costs have increased. Some say higher out-of-pocket costs lower prices and send
What are the three alternative approaches for supplementing or replacing the market in healthcare services and how does each address the sources of healthcare market failure?
Jerry’s burger and magazine budget is $12 a week. The price of a burger is $2, and the price of a magazine is $4.1. List the combinations of burgers and magazines that Jerry can afford.2. What is
In 2015, Americans downloaded 1,200 million singles at $1.20 each and 100 million albums at $10 each. They also bought 1 million singles on vinyl at $11 each and 100 million albums on CDs at $12.50
The price of gasoline keeps falling. It was close to $3.50 a gallon a year ago, is $2.59 a gallon now, and is expected to fall below $2 a gallon by year’s end.Donna buys only two goods: gasoline
Tim buys 2 smoothies and sees 1 movie a week when he has $16 to spend, the price of a movie ticket is $8, and the price of a smoothie is $4. What is the relative price of a movie ticket? If the price
Egg prices have tripled at some supermarkets as buyers scramble for solutions.How does the event described in the news clip change the budget line and the quantity of eggs that Americans buy?
What is the relative price of a latte in terms of e-books and what is the opportunity cost of a latte? Draw a graph of Marc’s budget line with e-books on the x-axis.Marc has a budget of $20 a month
Read Eye on Song Downloads and Streaming on pp. 334–335, then draw a student’s budget lines for single songs versus other goods and services in 2000 and 2015. Explain why the budget line changed
1. In a year, Tony streams 50 movies at $3 each and pays $50 for 10,000 gallons of tap water. Tony is maximizing total utility. If Tony’s marginal utility from water is 0.5 unit per gallon, what is
In 2008, when gasoline hit $4 a gallon, motorists complained, but they didn’t complain about $18 for 16 ml of HP ink ($4,294.58 per gallon).Explain why the prices of printer ink and gasoline might
Apple Music could match Spotify subscribers by 2016. Apple Music is expected to have 16 million paid subscribers by the end of 2016. Spotify has 20 million paid subscribers.Compare the budget line
Apple Music could match Spotify subscribers by 2016. Apple Music is expected to have 16 million paid subscribers by the end of 2016. Spotify has 20 million paid subscribers.Compare the marginal
Lee, a programmer, earned $35,000 in 2015, but in 2016, he began to manufacture body boards. After one year, he submitted the following data to his accountant.• He stopped renting out his cottage
Construct Len’s total variable cost and total cost schedules. What does the difference between total cost and total variable cost at each output equal?Len’s body board factory pays $60 a day for
Tom leases a farmer’s field and grows pineapples. Tom hires students to pick and pack the pineapples. Table 1 sets out Tom’s total product schedule.1. Calculate the marginal product of the third
An Asian manufacturer of running shoes pays its workers $275 to make 100 pairs an hour. Workers use company-owned equipment that costs $300 an hour in forgone interest and economic depreciation.
Construct the average fixed cost, average variable cost, and average total cost schedules and the marginal cost schedule.Len’s body board factory pays $60 a day for equipment and $200 a day to each
Deere & Co. plans to lay off 220 workers and decrease its output of farm equipment.If Deere & Co. is operating at maximum total product before it cuts its workforce, how will the marginal product of
Tom leases a farmer’s field for $120 a day and grows pineapples. He pays students $100 a day each to pick pineapples and he leases capital at $80 a day. Table 1 shows Tom’s daily output.1. What
At what output is Len’s average total cost at a minimum? At what output is Len’s average variable cost at a minimum?Len’s body board factory pays $60 a day for equipment and $200 a day to each
To grow pineapples, Tom leases 1 field for $120 a day and capital for $80 a day and hires students at $100 a day each. Suppose that Tom now leases 2 fields for $240 a day and twice as much capital
Nearly a quarter of Denver-area technology executives plan to increase production and add new positions in 2016.Explain how increasing production by adding new positions changes a Denverarea firm’s
Gap announced that it will close 175 (nearly 26 percent) of its North American stores. It will terminate an unknown number of workers and cut 250 headquarters jobs.Thinking of a Gap store as a unit
Bay Area-based electric car maker Tesla is looking to hire 1,648 workers to expand its model lineup, build a battery factory, and develop self-driving cars.Explain the effects of the expansion plan
1. Sarah’s Salmon Farm produced 1,000 fish last week. The marginal cost was $30 a fish, average variable cost was $20 a fish, and the market price was $25 a fish. Did Sarah maximize profit? If
Why did Amazon enter the market for recorded music and why did independent record stores exit?
With a drop in the demand for steel pipe and tube, U.S. Steel Corporation will idle plants in Ohio and Texas and lay off 756 workers.As U.S. Steel responded to the fall in demand, how did its
Look at the list to the right. In what type of market is each of the goods and services in the list sold? Explain your answers.
With a fall in the price of jet fuel, the price of an average round-trip airline ticket will slip to $244 next month, about 5% lower than the same time last year.Explain how a fall in the price of
Tulip growing is a perfectly competitive industry, and all tulip growers have the same cost curves. The market price of tulips is $15 a bunch, and each grower maximizes profit by producing 1,500
Customers are finding ever more creative ways to use drones, and 3D Robotics Inc., America’s largest producer of consumer drones, expects sales to soar.Explain what is happening in the market for
Why did grain prices fall in 2015? Draw graphs to show the grain market and the cost and revenue curves of an individual grain farmer at the start and end of 2015. Show the change in the grain
From May 19 to August 16, Allegiant Air will enable Tulsa-area travelers to fly nonstop to Washington, D.C./Baltimore. The airline says the seasonal destination could become year-round if demand is
Macy’s and Luxottica will add 500 LensCrafters locations to their current 670 locations of Sunglass Hut. Together, Macy’s and Sunglass Hut have more than tripled the size of the sunglass business
If Hawaii Cable is unregulated and maximizes profit, show in your graph the price, quantity, economic profit, consumer surplus, and deadweight loss.
In the 1990s, to see Michael Jordan or Garth Brooks live you had to buy the ticket through Ticketmaster, or from a scalper. Today, Ticketmaster has merged with concert promoter Live Nation and now
If Hawaii Cable is unregulated and it gives householders a 50 percent discount for second and third connections, describe how its economic profit, consumer surplus, and deadweight loss would change.
Village, a small isolated town, has one doctor. For a 30-minute consultation, the doctor charges a rich person twice as much as a poor person.1. Does the doctor practice price discrimination? Is the
If Hawaii Cable is regulated in the social interest, show in your graph the price, quantity, economic profit, consumer surplus, and deadweight loss.
Travel discounts as high as 50 percent are available if you know where to look for them. Examples are companion and two-for-one sales on airlines and Amtrak, and second-, third-, fourth-, or
An unregulated natural monopoly bottles Elixir, a unique health product that has no substitutes. The monopoly’s total fixed cost is $150,000, and its marginal cost is 10¢ a bottle. Figure 1
Michigan’s cable TV subscribers have had to live with soaring monopoly fees, and on January 1, 2016, they became even more vulnerable as funds that regulators had used for cable TV oversight were
Table 1 shows the total revenue of the 50 firms in the tattoo industry.1. Calculate the four-firm concentration ratio and the HHI. What is the market structure of the tattoo industry?2. What would
In the short run, what quantity does Lite and Kool produce, what price does it charge, and does it make an economic profit? FIGURE 1 Price and cost (dollars per
Selling its own-roast light to dark varieties and its signature chillers, mochas, lattes, and hot cocoas, Gloria Jean’s Coffees is offering “Free Coffee for a Year” to one sweepstakes winner at
Natti is a dot-com entrepreneur who has established a Web site at which people can design and buy incredible sunglasses. Natti pays $4,000 a month for her Web server and Internet connection. The
What is the quantity that La Bella Pizza produces, the price it charges, its markup, and its excess capacity? Is the market in short-run or long-run equilibrium? Explain your answer.Figure 1 shows
In 2000, Blockbuster was at the top of the video rental market with solid profits, thousands of retail locations, and millions of customers eager to rent their movies and videogames. Unable to
In the short run, does Lite and Kool have excess capacity and what is its markup? FIGURE 1 Price and cost (dollars per pair) 150 125 100 75 50 25 0 100 MC ATC D MR 200 300 400 Quantity (pairs per
If La Bella advertises its pizza online and demand increases, how will the number of pizzas sold change? How will the price of a pizza and La Bella’s excess capacity change? Explain your
Do you expect firms to enter the running shoes market or exit from that market in the long run? Explain your answer. FIGURE 1 Price and cost (dollars per
Bianca bakes delicious cookies. Her total fixed cost is $40 a day, and her average variable cost is $1 a bag. Few people know about Bianca’s Cookies, and she maximizes her profit by selling 10 bags
In the short run, what is the quantity that Stiff Shirt produces, the price it charges, its economic profit, markup, and excess capacity? FIGURE 2 Price and cost (dollars per
Snapchat is turning into a mobilevideo juggernaut that delivers more than 7 billion video clips each day to rival the amount watched on Facebook, which has 15 times as many users. A stronghold in
In the long run, will new firms enter the shirt market or will firms exit from that market and will the price of a shirt rise or fall? Explain your answer. FIGURE 2 Price and cost (dollars per
Netflix has hit a bump in the road on its quest to reach 60 million to 90 million subscribers in the United States and, by the end of 2016, become fully global. Netflix faces fierce competition from
AT&T and Verizon have two pricing strategies: Set a high (monopoly) price or set a low (competitive) price. Suppose that if they both set a competitive price, economic profit for both is zero. If
Isolated Island has two natural gas wells, one owned by Tom and the other owned by Jerry. Each well has a valve that controls the flow of gas. The marginal cost of producing gas is zero. Table 1
1. What are the distinguishing features of oligopoly?2. Why are breakfast cereals made by firms in oligopoly? Why isn’t there monopolistic competition in that industry?3. Duracell’s share of
OPEC has asked the world’s largest oil producers to help stop a price collapse. But OPEC member Saudi Arabia, the world’s biggest oil exporter, wants to keep output high.For information about
If Ann and Zack produce the same quantity of rides as would be produced in perfect competition, what are the quantity of rides, the price of a ride, and the economic profit of Ann and Zack? Would Ann
If Ann and Zack form a cartel and produce the same quantity of rides as would be produced in monopoly, what are the quantity of rides, the price of a ride, and the economic profit of Ann and Zack?
join him to defeat “the dark force” of AT&T and Verizon. He says they already control too much of the frequency bands used for wireless and that if they get more at the upcoming auction, wireless
Suppose that Ann and Zack have two strategies: collude, fix the monopoly price, and limit the number of rides or break the collusion, cut the price, and produce more rides. Create a payoff matrix for
1. Explain each of the following terms:• Attempt to monopolize• Price fixing• Predatory pricing• Tying arrangements2. Since 1987, hundreds of hospital mergers have taken place and rarely has
Kaiser’s produces smoothies. The market for smoothies is perfectly competitive, and the price of a smoothie is $4. The labor market is competitive, and the wage rate is $40 a day. Table 1 shows
Mega-brand beers have lost market share to wine and craft beer. In response, Anheuser-Busch InBev and SABMiller, the two biggest brewers in the world, are discussing a merger that would be
The Labor Department reported a slowdown in hiring but not all the news about jobs is gloomy. McDonald’s plans to raise wages in a strengthening labor market. And Walmart plans to raise wages to a
In Greenville, where fastfood outlets hire teenagers and seniors, the following events occur one at a time and other things remain the same. Explain the influence of each event on the market for
1. Which of the items in List 1 are nonrenewable natural resources, which are renewable natural resources, and which are not natural resources? Explain your answers.2. In the market for a
Oxford researchers say that half of the jobs in America will be computerized over the next 20 years. Robert Cohen, a senior fellow at the Economic Strategy Institute, says “cloud computing, Big

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